Profiling a fraudster: When actions speak louder than words

Once we get past the shock and anger, some common traits tend to emerge about rogue employees, as we conduct the forensic investigation post-mortem with our clients.

Greetings fellow bean counters! I feel it is appropriate that we take a moment to salute our many colleagues, who on May 1, 2013 (or April 16, 2013 for our southern brethren), celebrated the end of yet another undoubtedly hectic tax season! As you emerge from your cocoons (aka offices), we hope you enjoy the warm weather that we have been preparing for your metamorphosis.

With the Toronto Maple Leafs down 3 games to 1 in the opening series of the NHL playoffs, loyal Toronto fans turned on the heat and supported our team to force the Boston Bruins to Game 7.  Alas, my hopes—and those of all Toronto Maple Leaf fans--were dashed after last night’s stunning third period and subsequent overtime loss. Well Maple Leaf fans, there is always next year!

It would appear (at least from my vantage point) that there is a common sentiment expressed by some fans about the Toronto Maple Leafs letting a 4-1 lead slip away and employees who discover that one of their own colleagues has committed fraud: Shock.

Without getting into the psychology of fraud—which falls outside of my forensic accounting training—when it comes to fraud, this ‘shock’ factor appears to emanate from our tendency to open up to our colleagues like they are family. We let our colleagues into what Robert DeNiro described in the movie Meet the Fockers as our “Circle of Trust”. Eventually, the shock turns to anger as we come to terms with the fact that trust has been breached.

Once we get past the shock and anger, some common traits tend to emerge about the rogue employee(s), as we conduct the forensic investigation post-mortem with our clients. 

While fraudsters tend to be more seasoned, trusted employees within their organization, I recall one case where an Accounts Payable clerk created a fictitious invoice and requisitioned a payment to the tune of $300,000. It was her second day on the job; her first day was training! By the time the organization realized what had happened, the employee was apparently offshore, along with the ill-gotten proceeds of crime!

Notwithstanding job-related stress, fraudsters tend to avoid taking vacation, as doing so could uncover their scheme. In one case I investigated involving payroll fraud, the fraudster ‘deactivated’ the ghost employees that they set up, in order to avoid detection of a scheme that the individual was perpetrating single-handedly over a two-year period totalling $750,000 in misappropriated funds. Today, many organizations have implemented mandatory vacation policies and job rotations to help mitigate this risk.

Fraudsters often forget to conceive a seemingly legitimate source for their recently found wealth. Therefore, walking around the office with ‘wads’ of cash may not be the best idea, as one claims adjuster did; as it turns out, he was receiving kickbacks from several vendors used by his employer (an insurance company), including auto body shops and car rental agencies.

When we scratch the surface, beyond the ‘greed’ factor and personal financial difficulties experienced by many fraudsters, we tend to find individuals who are actually hostile when fellow employees seek information that falls within the fraudster’s role and responsibilities. They provide no reasonable explanation for their lack of cooperation, which organizations and managers should consider as an immediate ‘red flag’.

Such individuals also tend to give internal and external auditors a hard time. They question why certain information is required and provide alternative information in an effort to satisfy such requests. 

Based on witness interviews I have conducted, I hear time and time again that some fraudsters express discontent about their compensation or being overlooked for a promotion. But rather than expressing such discontent through words, their actions tend to say it all. For example, rarely if ever do such employees go out for lunch or coffee with colleagues and they never socialize after hours. There’s always an excuse or seemingly rational explanation for their passive-aggressive absence.

Those fraudsters tend to consider the actions of their employer to be an ‘oversight’ and decide it’s incumbent upon themselves to ‘self-promote’ through unauthorized salary increases and/or overtime (or other schemes), as they view this to be in the ‘best interest of the organization’.

Fraud is clearly only limited by the creativity of the fraudster. Therefore, regardless of how robust an organization’s internal controls are, fraudsters are always concocting ways to circumvent controls in a manner that can be carried out undetected. 

Recognizing that such actions and/or behaviours are possibly indicative of fraudulent activity, we should pay closer attention to such indicators, as this will increase the likelihood of detecting such schemes before they wreak havoc on our organizations!

Until next time, let me sign off by saying: Toronto Maple Leafs, I share your pain and maintain hope for next season!


About the Author

Edward Nagel, CPA, CA•IFA, CBV

Forensic accountant