Characteristics of Fraudsters16
Dittenhoffer (1995) classified fraud offender characteristics in terms of the following syndromes: (a) the speed/temptation syndrome (i.e., beware of a financial injustice need or greed), (b) the borrowing syndrome (i.e., borrowing with the intention to return the money, often a practice of compulsive gamblers), (c) the injustice syndrome (i.e., an employee feels he/she is underpaid and defrauds the employers because the money is “due” to him/her), (d) the ego syndrome (e.g., to preserve one’s status), (d) the Robin Hood syndrome (i.e., stealing from the privileged to give to those in need), (e) the “won’t be missed” syndrome (i.e., having the expectation that the loss will not be noticed by the victim), and finally (f) the challenges syndrome (i.e., perpetrating a fraud to prove that one can do it). Thus, Dittenhoffer’s classification is in terms of offenders’ motivations.27
In support of the ROP model, the available empirical evidence (17 studies) recently reviewed by Kapardis and Krambia-Kapardis (2015) leads to the conclusion that the risk of fraud is a product of both personality and environmental or situational variables. This means that individuals will vary in their propensity to commit fraud even when they experience similar pressures in their environment. It also means that the impact of situations on individuals will vary according to inherent risk factors at any given time. Just as there are likely to be high- to low-risk individuals, there are also likely to be high- to low-risk situations. As individuals move from one environment (including the Internet) to another, the probability of fraud behavior also changes. As Marks (2012) emphasized, in addition to identifying individuals with a proclivity to commit fraud, it is vital to also identify environments in which fraud is more likely to be committed. Such environments could promote fraud within a company by virtue of a passive weak tone at the top or because fraud remains hidden due to silence in the social environment, as happened in the Madoff case in the United States (van de Bunt 2010).
The literature review by Kapardis and Krambia-Kapardis (2015) showed that a significant proportion of the white-collar offenders examined by the 17 surveyed studies were heterogeneous in terms of their offending as well as their demographic and psychological characteristics. The great majority of the studies reviewed had methodological limitations, but two points were clear. First, after more than 30 years of research, as Ragatz and Fremouw (2010) found, the existing literature on white-collar crime allows only a few conclusions to be drawn. Second, a distinction needs to be made between white-collar only and versatile white-collar offenders (i.e., fraud offenders who also commit conventional crimes like assault, sexual assault, and drug dealing). The latter offenders are more likely to show serious psychopathology, but offenders in both categories are likely to possess a narcissistic personality. Bearing in mind that the two adequately controlled comparative studies (Blickle et al. 2006; Ragatz, Fremouw, and Baker 2012) involved prison inmates, the conclusions drawn about characteristics of white-collar offenders, including fraud offenders, need to be replicated by studies with robust methodology that also includes electronic fraud.
The reader should note in this context that, despite the weaknesses of the available literature, some authors of books on fraud list offender characteristics on the basis, for example, of a survey of employers’ perceptions of and beliefs about fraud offenders. The authors also list numerous unsubstantiated assumptions and wild assertions about criminal behavior in general and white-collar offending in particular. Many authors in the area would disagree with Singleton et al. (2006, 14) who, citing Nettler’s 1982 book Lying, Cheating, and Stealing, list the following “insight” on cheaters and deceivers: that ignorant people tend to be less honest than intelligent ones and lower- class persons tend to be less honest than middle- and upper-class individuals. A reader may find such dichotomies objectionable, and it should also be noted that a fraud profiler using such knowledge to detect or prevent fraud could not expect to be taken seriously by forensic auditors.
The usefulness of the available profiles of white-collar offenders, which have mainly focused on fraud offenders, is constrained by serious methodological limitations and by the fact that research into such offenders has only been at one of three different levels of analysis, namely, (1) the macro-social structure theory and strain theory (e.g., Durkheim 1965; Merton 1968), (2) the meso-level in terms of differential association (Sutherland 1940; Clinard 1990), and (3) the micro-level (e.g., Alalehto 2003; Australian Institute of Criminology and PricewaterhouseCoopers 2003; Poortinga, Lemmen, and Jibson 2006; Ragatz, Fremouw, and Baker 2012). A profile of fraud offenders drawing on only one level of analysis is bound to be limited, and unfortunately there does not appear to have been any study of fraudulent behavior at two or more levels of analysis. Thus, relevant additional fraud-risk characteristics that form part of the ROP model of fraud etiology proposed by Krambia-Kapardis (2001) can supplement the existing literature. Particular fraud-risk factors at the micro-, individual level are a source of pressure on someone. The anticipation of pressure release provides a motive to commit fraud because of what Cressey (1950, 1953, 1971) termed a “non-shareable problem.” Numerous examples of such pressures have been identified in the literature (see Albrecht et al. 2012; Australian Institute of Criminology and PricewaterhouseCoopers 2003), including financial pressures (e.g., to keep one’s business solvent, a catastrophic investment), vices (e.g., drugs, compulsive gambling, alcohol, and extramarital affairs), work-related pressures (e.g., disgruntlement arising from being unappreciated, desire for revenge on the company, and fear of job dismissal), and other pressures, such as a strong desire to live beyond one’s financial means in order to maintain a certain image or an excessive desire to exert power and control over others. To the list of egocentric factors that motivate people to commit fraud, whether within or from outside a company, we should add greed and excessive ambition. Of course, as Cressey (1950, 1953, 1971) rightly argued, a fraud offender needs to justify the fraud to him/herself. This argument emphasizes the crucial importance of rationalizations that allow white-collar offenders to perceive themselves as morally responsible individuals who are forced by circumstances to act unethically.
As already mentioned, the profile of white-collar offenders in general and fraud offenders in particular that is based on existing literature is incomplete because it ignores (a) the significant link between the perceived opportunity to commit the fraud and get away with it and (b) the importance of a person’s rationalizations. A great deal of fraud is now committed on the Internet by persons outside of companies who target large numbers of potential victims who are unknown to the fraudster. Thus, studies focused on the characteristics of convicted fraud offenders who victimized their own employers have reported interesting and useful findings for fraud forensic accountants and auditors interested in fraud prevention and detection, but these studies are lacking with regard to evidence-based offender profiling. The key to understanding and eventually being able to largely control fraud clearly requires considering both the individuals and the environments in which they operate. Consequently, contextualized specific fraud offender profiling research is needed to address and integrate both individual and organizational characteristics of fraud offenders within a company and by unknown outsiders who victimize government services, corporations, and individuals. In view of the heterogeneity of frauds and fraud offenders, it is naive to expect that a researcher could come up with a single profile that would be applicable to all fraud offenders. A less ambitious, but more feasible undertaking would be to attempt to construct profiles at different levels of analysis (e.g., individual and organizational) and for the types of offenders perpetrating specific frauds. Also, future research should aim to disaggregate white-collar offenders from versatile white-collar offenders and those committing common crime against the person and property.
Identification of fraud risk is still in its infancy as far as individual offenders are concerned. Few types of offenses demonstrate the same lack of psychological profiles for offenders as white-collar crime in general and fraud in particular. In the meantime, the best that can be done is to point to personality characteristics and motivating factors that may be associated with an increased risk of fraud. Unfortunately, these characteristics (e.g., narcissism) and motivations (e.g., a need to demonstrate superiority over others) also influence a great deal of legitimate, indeed desirable behavior in professional and corporate settings. Consequently, such knowledge is limited if applied in the context of fraud investigation and/or prevention. Meanwhile, one policy opportunity that clearly arises from the preceding discussion is that confronting people’s techniques of neutralization is worth considering at the present stage as far as fraud prevention approaches are concerned. To this end, the efforts of anticorruption and integrity authorities and nongovernmental organizations (e.g., Transparency International) in raising the standard and clearly defining what constitutes unacceptable behavior may in long run increase inhibitions against fraud. However, there is a limit to how far ethics will get us. There will always be individuals who decide to perpetrate fraud even though they know the difference between right and wrong. To end this section on a positive note, research findings about the importance of a few fraud offender characteristics can be used in the field when selecting or evaluating people for appointment or promotion, especially to positions of financial trust. One could utilize psychological tests to screen out persons with psychopathologies, such as excessive lack of self-control, and other personality characteristics, such as narcissism and antisocial personality disorder. In addition, individuals could be interviewed to ascertain whether they have certain vices (e.g., gambling and drugs) that carry a risk of living beyond their financial means and perhaps experiencing an unshareable financial problem. Fraud researchers should focus on specific types of fraud in order to produce profiles with adequate predictive utility. Access control through vetting of personnel is just one component in preventing fraud from a situational crime prevention approach. Clarke (2005, 46—47) also lists target hardening (through internal control and a robust audit), increasing the risk (e.g., by increasing surveillance, making a whistle-blowing line available for personnel, and using integrity tests and drug tests), reducing the rewards, deterring through punishment, improving relations at the workplace, and finally investing in employees’ ethics. Fraud prevention becomes a huge challenge when we consider transnational fraud,28 which sometimes involves organized crime and terrorism and has been made easier as a result of globalization (see Smith et al. 2011 for a detailed discussion).
