tells us that the fraudster is the opportunistic offender with no criminal record who, out of greed, abuses a position of financial trust to commit a fraud alone or with few accomplices. An interesting finding is the fact that most fraud offenders find complex methodologies to carry out and also to hide their crimes. This has implications for prevention strategies insomuch as the traditional barriers to fraud of internal accounting controls and employment screening are no longer sufficient on their own.
So, if profiling techniques are to be added to the fraud investigator's toolbox, then we must first ask and, more important, answer some questions. How does profiling assist and add value to investigations? What key aspects of an offender profile should be included in the profiling, and are such details as marital status, age, and race really necessary, as well as fraudster background, skill, and professional qualifications? Would it be beneficial to include in such profiling the characteristics of the fraud scheme or scenario itself and the situation that lends itself to the fraud? Furthermore, should the type of victim organization be analyzed, and should this be further drilled down into as to which departments and divisions are more prone to fraud attack? Many surveys tell us that 80 to 85 percent of fraud is committed by insiders. Surely, if we knew from which departments the fraudsters emanate or, possibly more important, which vulnerable departments they try to be recruited in, then this could be a focal area for both proactive fraud risk management and reactive investigation.
We all too often focus on the control environment, and quite often human beings are fundamental to that control environment or at least key elements of it. Human beings are the weakest link. How strong is the control in a segregation of duties if the employees in the process exhibit characteristics that place their honesty and integrity in doubt? Surely, if the human element of the control environment is not considered then such controls are weak or even nonexistent. Profiling of these employees is fundamental to an effective control environment. There is no doubt, however, that a full understanding of what fraud is and which measures are best suited to combating the fraud disease is absolutely necessary before we can start to profile the fraudster or his actions.
We have to face the fact that fraud cannot be prevented. Internal controls and security systems reduce the risk, but there are no guarantees and the track record of prevention and detection is, actually, not great. Humans can be ingenious and their behavior unpredictable. Some are desperate; many are merely risk takers. Most are both. Some employees may have a lot more devious entrepreneurial spirit than we may have imagined. If fraud is committed by trusted employees who know the system, then it is quite likely that they also know how to bypass these controls, and therefore something more is required in the preventive and detective fight. Fraud profiling is the process of identifying the characteristics that the fraudster and his fraud would present or be visualized if that fraud were to happen in your organization. If you know what it looks like, you can identify or recognize it and catch it when it happens. If you catch it when it happens, it will make the next person think twice about committing fraud and will leave investigators with key indicators of the behavioral or situational patterns or footprints for the future.
Interestingly, as is the case at the time of writing, in periods of economic slowdown or recession the likelihood of employee fraud increases. Apart from the increase in financial need there is also increased psychological pressure on employees. Employees tend to not only be under greater personal financial stress currently but may also be under greater personal insecurity about their future in the organization. When close colleagues are laid off, fear and insecurity prevail psychologically. This brings about a further dimension to the profiling scenario, the fact that the economic environment should be included as a constituent part of profiling fraudsters. Put simply, human beings in a deprived part of a city in a country going through economic slowdown might be more apt to commit fraud than those earning good salaries in a country that is booming or bypassing recession. The economic environment, therefore, also needs to be included in any profiling methodology.
In summary, fraud happens. It happens in any organization that has money or assets, irrespective of profitability. Quite often it is a cause of an organization not being profitable. The fraudster is internal. Remember, 80 to 85 percent of fraud is committed by persons inside the organization, by our colleagues who are more often than not at a senior level and to whom we report and upon whom we rely to safeguard the assets of our business. We have to adopt the attitude that the fraudster is within our organization, and therefore it is only prudent that we alter the paradigm and expect that fraud will happen and adopt a preventive strategy. In order to be ahead of the curve, that strategy has to include the relatively new dimension of profiling.
In order to identify anything, you have to know what it looks like. If you don't know what it looks like, you may walk right past it without recognizing it. There are an infinite number of characteristics of fraud offenders and fraud types or scenarios, and there are an infinite variety of industries, business structures, departments, accounting systems, and so on. Like attempts to prevent fraud, there is no guarantee that a detection strategy will work all the time and identify every fraud, but research indicates that most occupational fraud is not sophisticated and, generally, not well concealed. All that is required is to identify what it would look like, and it will, more than likely, be found. Profiling is not intended to provide an absolute guarantee of fraud detection but an incremental improvement in the odds against your business becoming a victim of fraud.
So, if we can profile the following footprints attributable to the act of fraud, then we have a pretty good coverage of all likely characteristics, providing us with the greatest chance of recognizing the fraudster and the fraud act:
• The fraudster's behavioral indicators.
• The environment in which the fraud occurs, to include:
• Victim organization type and sector.
• Victim department.
• Fraudster's position in department.
• Geographical location.
• Economic situation.
• Fraud type characteristics.
• Fraud methodology or modus operandi.
• Fraud motivators.
• Characteristics of consequences or the impact of fraud.
The process of profiling has to be made simple and understandable, yet it should be rigorous and comprehensive. Its objective is the development of a set of detection controls that will identify the characteristics of a fraudster or patterns that fraud would present if it were to occur in your business.
This book examines how profiling occupational fraudsters and their actions and characteristics can help in the proactive fight to reduce fraud risk in the organizational workplace, and it explains how to prepare a fraud profiling methodology for your organization. This book is a must-have valuable resource in your antifraud library.
Profiling the Fraudster: Removing the Mask to Prevent and Detect Fraud features:
• Detailed analysis and breakdown of profiling and its relevance in occupational fraud fighting methodologies.
• Clear insights into the mind of the fraudulent employee.
• Observations, analysis, and conclusions to guide readers through prevention and detection strategies using profiling.
• Integrated extracts from professional surveys, including the ACFE's Report to the Nations on Occupational Fraud and Abuse revealing statistics on cost, prevalence, patterns of fraud and fraud prevention, and what it all means.
• A step-by-step approach to using profiling and investigative psychology to manage fraud risk.
• Designing
