Articles on Fraud Investigation

Profiling an Internal Fraudster
By Mark R. Simmons, CIA CFE

As internal auditors, we are obligated to be familiar with the characteristics and warning signs of fraud. The main purpose of this article is to examine some of the characteristics of those who commit fraud.

One of the by-products of writing is the broad range of pen-pals you develop. A correspondent from Louisianna sent the following inquiry: I am a private investigator in Slidell, LA, searching for a profile of a person most likely to commit fraud. Could you provide such a profile? What are some sources of information on profiling fraud?

Here are some of the general characteristics you might find in a profile of someone likely to commit fraud within an organization:

  • Male
  • Intelligent (challenged by “secure” systems, bored with the job routine)
  • Egotistical (scornful of "obvious" control flaws, "dumb" managers, etc.)
  • Inquisitive (tempted by the discovery of a computer vulnerability, for example)
  • A risk taker (willing to bend the rules, take chances)
  • A rule breaker (takes short cuts, self-justifies infractions of law, rules, etc.)
  • A hard worker (first to arrive in the morning, last to leave at night, takes few vacations)
  • Under stress (suffering from a personal crisis, such as a financial problem, bad marriage, etc.)
  • Greedy or has a genuine financial need (illness, drugs, gambling, etc.)
  • Disgruntled at work or a complainer (may try to "get even", or take what he/she "really deserves")
  • A big spender (expensive hobbies, living beyond means)

Pretty general, right? Could fit many different people. If the question is: "Who is most likely to commit fraud?", the answer is: about 80% of the population, given the right combination of opportunity, motive and ability to rationalize the act. An easy (though not direct) example of how a "law-abiding" citizen can get drawn into committing fraud is to look at the typical motorist who speeds above the legal limit: there's opportunity - relatively few patrols are out; motive or need - late for work, a fast car; and rationalization - everyone else is doing it, it doesn't really harm anyone, I'm not going to get caught.

People that commit fraud think in the same way. It can start by accident - an inattentive supervisor; or an internal control that doesn't work as it should - and something that shouldn't get through the system does, and goes undetected. Hmmmm - the potential fraudster tests the system to see what happens a second time. AHA - did it again!And another fraud is born. The fraudster can be the CEO, the mail room clerk, or anyone in between - all it takes is opportunity, need and rationalization. And the higher up in the organization, and the older the individual is, the greater the loss is likely to be.

The Association of Certified Fraud Examiners (ACFE) has published "A Report to the Nation - Occupational Fraud and Abuse". Between its covers you will find some interesting statistics and facts. For example, most frauds are committed by lower level white collar employees and average about $60,000; but the largest, most damaging frauds ($1,000,000 or more) are committed by senior executives and owners of businesses. The larger frauds ($100,00 or greater) are committed by people over 35 years of age. The "Report" provides an easy to read and interesting overview of occupational crime. To order a copy (about $10.00), contact the Association at 1-800-245-3321. The "Report" is also posted at the ACFE web site. You might also want to check the web site of the Albany Chapter of the ACFE , and go to the web resources section. There you can find links to many resources and information sources associated with fraud investigation.

This article is offered for informational purposes only so that we can better meet our responsibilities to understand the characteristics and warning signs of fraudulent activity. The content represents informed opinion - not legal advice. A qualified attorney should be sought out to identify and interpret any circumstances involving a potential breech of civil or criminal law. Comments, criticisms, and differing opinions are welcome in the spirit of furthering our knowledge and understanding.

Copyright © 1996 Mark R. Simmons, All rights reserved

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