White Collar Crime: Lying, Cheating, and Stealing
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What is White-Collar Crime?
White-collar crime is a broad term that encompasses many types of nonviolent criminal offenses involving fraud and illegal financial transactions. White-collar crimes include bank fraud, bribery, blackmail, counterfeiting, embezzlement, forgery, insider trading, money laundering, tax evasion, and antitrust violations. Though white-collar crime is a major problem, it is difficult to document the extent of these crimes because the Federal Bureau of Investigation's (FBI) crime statistics collect information on only three categories: fraud, counterfeiting and forgery, and embezzlement. All other white-collar crimes are listed in an "other" category. Law enforcement officials agree that white-collar crime is a major problem.
Sociologist Edwin H. Sutherland coined the term in a speech to the American Sociological Association in 1939. Sutherland argued that there were significant differences between crimes such as robbery, burglary, and murder, which he classed as "blue-collar" crime. Perpetrators of blue-collar crimes were typically street criminals. Their crimes had no link to their occupations and they were typically poor. In contrast, individuals of higher economic and social status committed "white-collar" crimes and their crimes were linked to their socially respected professions. Sutherland noted that very few white-collar criminals occupied prison cells. Sutherland argued that white-collar criminals inflicted more harm on U.S. society than blue-collar criminals.
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Occupational Fraud - "The use of one's occupation for personal enrichment through
the deliberate misuse or misapplication of the employing organization’s
resources or assets.”
Counterfeiting and Forgery - "The creation of a false written document or alteration of a genuine one, with the intent to defraud. Forgery refers to falsifying documents, while counterfeiting refers to producing fraudulent money." Embezzlement - The fraudulent conversion of another's property by a person who is in a position of trust, such as an agent or employee. Embezzlement is distinguished from swindling in that swindling involves wrongfully obtaining property by a false pretense, such as a lie or trick, at the time the property is transferred, which induces the victim to transfer to the wrongdoer title to the property. "The typical organization loses an estimated 5% of its annual revenues to occupational fraud."
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Fraud: The Basics
The Fraud Triangle was developed in the 1950’s by criminologist Donald
Cressey. He interviewed 200 people who
were incarcerated for embezzling. As a
result the fraud triangle was developed. For fraud to occur these three
elements need to be present: Attitude or Rationalization, Incentive or Pressure, and Opportunity.
Incentive/Pressure- This is what Dr. Cressey called a perceived non-sharable financial need. This is the motivation for the crime in the first place. The fraudster has a financial problem that he or she is unable to solve through legitimate means; perhaps he/she is unable to pay personal bills, he/she is experiencing an unusual circumstance (divorce/severe illness), or he/she has a drug, alcohol, or gambling addiction. Opportunity- The person must see some way he or she can abuse his or her position of trust to solve his or her financial problem with a low perceived risk of getting caught. Perhaps this person can 'cut checks' to a fake entity in which they can cash themselves, or maybe they have access to unmonitored liquid assets - such as petty cash. This is one part of the Fraud Triangle that employers can try to control. Restricting and eliminating these opportunities is the most effective element in attempting to detour fraud. Rationalization- Embezzlers do not view themselves as criminals. They see themselves as ordinary, honest people who are caught in a bad set of circumstances. They may believe their employer has wronged them by making them work longer hours, take on additional tasks, or they may feel undervalued by their employer and believe they deserve additional compensation. Fraudsters will justify their theft in any way possible. Historical data further shows, in times of increased economic pressure we find certain 'fraudulent' combinations can create increased incentives and pressures to commit white collar crimes.
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Fraud Categories
All occupational frauds fall within three categories: asset misappropriation, fraudulent statements, and corruption. Asset Misappropriation is the most commonly abused category, 86% of fraud occurs here with a median loss of $150,000 (2008). Fraudulent statements is only abused 5% of the time, however the median loss is highest here, measured at $4,100,000 (2010). Just a few notes.. • Non cash asset misappropriation includes: Proprietary information, such as a customer list. Inventory is the most often abused non-cash asset. Recently we dealt with a client's (ex) employee selling obsolete inventory at a substantial profit, but the company never saw the money from those sales.. • Under financial statements, financial fraud includes: Asset/Revenue overstatements, timing differences, improper disclosures such as related parties, concealed liabilities and expenses, holding onto obsolete inventory. We have seen ex-employees "write-off" obsolete inventory and then personally sell it. We have also seen upper level managers include their personal expenses on the company's income statements.. • Under financial statements, the non-financial fraud includes: employee credentials, internal documents, external documents. Any financial statement from any company that is not audited (by a third party verified auditor) could potentially include anything - and these numbers can be completely false. Even when financial statements are audited, you still need to be aware of who audited them, their relation to that company, and their credentials. • As a part of corruption, bribery and extortion examples: approve an inflated invoice for 10% kick back, refusing to buy from vendor unless the vendor hires a close relative or friend, etc. Source: 2012 Report to the Nation on Occupational Fraud and Abuse. Copyright 2012 by the Association of Certified Fraud Examiners. |
Common traits of the 'Typical Fraudster', statistics don't lie:
• Typically a college-educated white male
• Usually between the age(s) of 36 to 55 years old
• Frequent fraud cases occur in Senior Management positions
• Usually in the Accounting/Finance, or Operations/Sales departments (or a closely related department)
• Common trend - long term employees tend to commit larger/more substantial fraud offenses (employees of 10+ years)
• On average the median loss from men fraudsters is twice as great compared to their women counterparts
• Typically the average amount of loss (measured in dollars) increases with seniority
• Typically a college-educated white male
• Usually between the age(s) of 36 to 55 years old
• Frequent fraud cases occur in Senior Management positions
• Usually in the Accounting/Finance, or Operations/Sales departments (or a closely related department)
• Common trend - long term employees tend to commit larger/more substantial fraud offenses (employees of 10+ years)
• On average the median loss from men fraudsters is twice as great compared to their women counterparts
• Typically the average amount of loss (measured in dollars) increases with seniority
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Where do the Fraudsters work?
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Popular Fraud Schemes 24.9% of crimes involved a Billing Scheme.
Definition of Billing Scheme: "Any scheme in which a person causes his or her employer to issue payment by submitting invoices for fictitious goods or services, inflated invoices, or invoices for personal use." Examples: • Employee creates a shell company and bills employers for services not actually rendered. • Employee purchases personal items and submits an invoice to employer for payment. 17.2% of crimes involved a Non-Cash Misappropriations. Definition of Non-Cash Misappropriations: "Any scheme in which an employee steals or misuses non-cash assets of the victim organization." Examples: • Employee steals inventory from a warehouse or storeroom. • Employee steals or misuses confidential customer financial information. 14.6% of crimes involved Skimming. Definition of Skimming: "Any scheme in which cash is stolen from an organization before it is recorded on the organization's books and records." Example: • Employee accepts payment from a customer, but does not record the sale and instead pockets the money. |
Source: 2012 Report to the Nation on Occupational Fraud and Abuse. Copyright 2012 by the Association of Certified Fraud Examiners.
Fraud: Traits & Personality Components
Fraud Diamond: A Fourth Element
New research is calling for a fourth element to be added to the Fraud Triangle; turning the old Fraud Triangle into the Fraud Diamond.
As we know, fraud is seemingly everywhere. Many businesses, investigators, and shareholders are more than willing to take precautionary measures to prevent cases of fraud. If you could pre-scan your employees for unethical behavior indicators, would you? Many say they would. New research is pointing towards personality tests, with morality measurements. Many believe we can test for certain personality traits that will make an individual more likely to be able to justify committing crimes, such as white collar crimes.
These different personality traits may indicate whether or not an individual is able to justify their own unethical behavior. When it comes to white collar criminals, many of the offenders know they are committing a crime, but they are able to justify their own behavior and actions within their mind. Criminals with these personality traits, call for a person to have the capability to commit fraud. Meaning, they have the necessary traits and abilities to be the right person to pull the crime off; for example one such criminal might think, "I have recognized this particular fraud opportunity, and can turn this into a reality by internally rationalizing my behavior ".
Does your boss exhibit psychopathic traits? What about the CEO of your company? Of course, when we think of the term psychopath, we think crazed horror movie maniac, but this is just not the case. Many psychopaths live seemingly normal lives. In fact some studies estimate every 1 in 100 Americans could technically be labeled as a psychopath. Psychopaths invest energy in creating and maintaining a facade that helps them to further their careers. In fact, many of you, would admit to doing the same. However, the difference is a true psychopath will stop at nothing to put themselves in a position of desire. They will lie on their resume, they will claim to have earned their CPA, and they will lie about their skills and experience. (This is why background & reference checks are crucial in terms of preventing fraudsters from gaining powerful positions. Sadly, all too often, something as simple as a background check or reference call is skipped, costing companies thousands or millions.)
However, you would be surprised to find some of the top executives, and CEOs in America exhibit many traits of a psychopath. See the article "Are CEOs and Entrepreneurs psychopaths? Multiple studies say Yes" from Patheos for more on psychopaths in executive positions. Below you can see the common personality traits a psychopath may exhibit, as well as a personal history many psychopaths have experienced. If you're curious as to your own personality, see the Bloomberg Businessweek test below to find out if you exhibit any psychopathic traits. Seemingly everyone exhibits some of the traits.
Examples of Psychopathic Behavior in Relation to Fraud:
• Fraudster will fabricate a resume, or a skill set to land desired position within a company (this is why you need to conduct background and reference checks).
• Fraudster will fool interviewer into believing his or her work experiences, projects, skills, etc (this is why group interviews are key, it is more difficult to fool a group of professionals).
•Psychopaths know that people are more likely to like a person who is similar to them. They will fake interests similar to others in order to gain trust, or preferential treatment.
• Psychopaths lack empathy, and have difficulty in understanding why another person would be upset, or hurt. This allows them to take advantage of individuals, groups, organizations, and even their own employers without ever understanding the consequences for others.
• You may notice, in some fraud cases, many offenders miraculously landed job titles such as "CFO" or "VP of Finance" with only a very limited history within their companies; this was by no mistake, psychopaths are excellent manipulators and understand the inner workings of other humans' behaviors using this to their advantage to gain powerful positions.
New research is calling for a fourth element to be added to the Fraud Triangle; turning the old Fraud Triangle into the Fraud Diamond.
As we know, fraud is seemingly everywhere. Many businesses, investigators, and shareholders are more than willing to take precautionary measures to prevent cases of fraud. If you could pre-scan your employees for unethical behavior indicators, would you? Many say they would. New research is pointing towards personality tests, with morality measurements. Many believe we can test for certain personality traits that will make an individual more likely to be able to justify committing crimes, such as white collar crimes.
These different personality traits may indicate whether or not an individual is able to justify their own unethical behavior. When it comes to white collar criminals, many of the offenders know they are committing a crime, but they are able to justify their own behavior and actions within their mind. Criminals with these personality traits, call for a person to have the capability to commit fraud. Meaning, they have the necessary traits and abilities to be the right person to pull the crime off; for example one such criminal might think, "I have recognized this particular fraud opportunity, and can turn this into a reality by internally rationalizing my behavior ".
Does your boss exhibit psychopathic traits? What about the CEO of your company? Of course, when we think of the term psychopath, we think crazed horror movie maniac, but this is just not the case. Many psychopaths live seemingly normal lives. In fact some studies estimate every 1 in 100 Americans could technically be labeled as a psychopath. Psychopaths invest energy in creating and maintaining a facade that helps them to further their careers. In fact, many of you, would admit to doing the same. However, the difference is a true psychopath will stop at nothing to put themselves in a position of desire. They will lie on their resume, they will claim to have earned their CPA, and they will lie about their skills and experience. (This is why background & reference checks are crucial in terms of preventing fraudsters from gaining powerful positions. Sadly, all too often, something as simple as a background check or reference call is skipped, costing companies thousands or millions.)
However, you would be surprised to find some of the top executives, and CEOs in America exhibit many traits of a psychopath. See the article "Are CEOs and Entrepreneurs psychopaths? Multiple studies say Yes" from Patheos for more on psychopaths in executive positions. Below you can see the common personality traits a psychopath may exhibit, as well as a personal history many psychopaths have experienced. If you're curious as to your own personality, see the Bloomberg Businessweek test below to find out if you exhibit any psychopathic traits. Seemingly everyone exhibits some of the traits.
Examples of Psychopathic Behavior in Relation to Fraud:
• Fraudster will fabricate a resume, or a skill set to land desired position within a company (this is why you need to conduct background and reference checks).
• Fraudster will fool interviewer into believing his or her work experiences, projects, skills, etc (this is why group interviews are key, it is more difficult to fool a group of professionals).
•Psychopaths know that people are more likely to like a person who is similar to them. They will fake interests similar to others in order to gain trust, or preferential treatment.
• Psychopaths lack empathy, and have difficulty in understanding why another person would be upset, or hurt. This allows them to take advantage of individuals, groups, organizations, and even their own employers without ever understanding the consequences for others.
• You may notice, in some fraud cases, many offenders miraculously landed job titles such as "CFO" or "VP of Finance" with only a very limited history within their companies; this was by no mistake, psychopaths are excellent manipulators and understand the inner workings of other humans' behaviors using this to their advantage to gain powerful positions.
The Psychopath:
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Professions with the most psychopathic traits:1) CEO
2) Lawyer 3) Media (Tv/Radio) 4) Sales Person 5) Surgeon 6) Journalist 7) Police Officer 8) ClergyPerson Professions with the least psychopathic traits:1) Care Aid
2) Nurse 3) Therapist 4) Craftsperson 5) Beautician/Stylist 6) Charity Worker 7) Teacher 8) Creative Artist Original post by Eric Baker found here.
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