Profiling The Fraudster. Padgett Simon

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       Library of Congress Cataloging-in-Publication Data

      Padgett, Simon

      Profiling the fraudster: removing the mask to prevent and detect fraud / Simon Padgett.

      pages cm. – (Wiley corporate F&A series)

      Includes bibliographical references and index.

      ISBN 978-1-118-87104-1 (hardback)

      1. Corporations-Corrupt practices. 2. White collar crimes. 3. Fraud. 4. Fraud-Prevention. 5. Fraud investigation. I. Title.

      HV6768.P33 2014

      658.4'73-dc23

      2014034566

       This book is dedicated to all the honest people in the world who face the uphill daily survival challenge while watching others steal their way to a luxury lifestyle. People with integrity have shaped my life and this book.

      Preface

      THE TYPICAL ORGANIZATION LOSES 5 PERCENT of its annual revenue to fraud. Applied to the estimated 2011 gross world product, this figure translates to a potential total fraud loss of more than $3.5 trillion worldwide, according to the Association of Certified Fraud Examiners (ACFE) Report to the Nations, 2012. So, put in context, fraud is material.

      Profiling is a part of everyday life for all of us, using previous experiences to determine how we get through the day's activities. Indeed, when we approach winter months we know that we need warmer clothing. Why, because last winter told us so. When we drive through an intersection or the stoplight turns red, we know exactly what to do or how to react to the event because we have done it so many times before. More to the point, we can identify the cold of winter and the challenges we face while driving because we have seen the patterns on numerous occasions before, and our brains have analyzed the information at that time, stored the patterns of data, and drawn on the stored memory to deal with the current event. Then consider your favorite sport and trying to work out who will win. In the same way that we recall previous events, we also recall previous history of individual sports teams and individuals. Soccer players of a certain age may be in their peak, rugby players from a certain continent may win more games, and marathon runners from certain African countries are always likely to run the fastest times. This is everyday profiling of individuals based on previous experiences. If this process works in dealing with the characteristics of day-to-day activities and people we come into contact with, then why is this process of profiling not more prevalent in the fight against fraud? It can be seen that many forensic investigations do not have a formal process for either drawing from or contributing to fraud type and fraudster profiling.

      Fraud profiling has the potential to serve as an aid to fraud investigations. Valuable data and information on offenders and fraud situations and scenarios is not being used as much as it should or could be by investigators in the identification of fraud in the workplace.

      Occupational fraud or white-collar crime reflects a high rate of incidence and a relatively low rate of detection, making it one of the significant crime challenges of the twenty-first century. Fraud risk can be more effectively managed by integration and use of previous knowledge concerning the individual, the situational environment, and motivations driving fraud offenders. Examination of empirical research on fraud types and fraud offenders yields common characteristics such as the fact that the average fraudster, statistically, is male, is married with a degree, and has a professional relationship, usually by means of employment, with the victim organization. The fraudster is most likely to work in the accounting, finance, or procurement department – those being the gatekeeper elements of the business process – and not within the internal audit department. Currently, he or she is more likely to be working for a financial services organization, according to the Association of Certified Fraud Examiners and its 2012 Report to the Nations on Occupational Fraud and Abuse. Research has revealed many types of fraud offender and the circumstances in which fraud is committed. Much of this research 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?