For as long as white-collar crime fraudsters have been a common occurrence throughout multiple industries, specialists have wondered aloud whether or not it is possible to properly develop a profile that allows organisations to accurately identify fraudsters while the fraud is happening, or in some cases beforehand. This would allow companies to not only identify these individuals and areas of possible breach but to minimise the risk they are exposed to throughout. Of course, predicting crime before it actually happens is a concept best left to science fiction novels and movies at the moment – but what if there were some easily identifiable warning signs of potential fraudsters? Would companies be able to make themselves aware of fraud at an earlier date, and entirely prevent them from happening?

Creating Profiles for Fraudsters

While any individual could potentially conduct fraudulent actions, there does seem to be some basic elements that make an individual more likely to take part in fraud. According to a 2013 study by KPMG, the typical fraudster displays the following attributes;

  • Between the ages of 36 and 45. More than 70% of fraudsters fall into this age group.

  • Acts with little regard for the organisation in which they work for

  • Employed in a position that gives them power over important organisational processes including executives, finance, operations and marketing. According to KPMG, 56% of fraud cases involved misappropriation of assets, 40% involved embezzlement, and procurement fraud makes up 27% of all white-collar fraud cases.

  • Frauders are typically employed in management positions that have very little oversight over their day to day operations.

  • Has been with the organisation for six years, or long enough to know the internal processes of the company. 41% of fraudsters had been with the organisation for more than 6 years, according to KPMG’s study.

  • Acts with others in committing fraud. According to KPMG’s study, more than 61% of individuals that committed fraud did so with the help of at least one other individual.

A consistency in these findings is that individuals in positions of power (with little oversight) are the most likely to commit fraud. Additionally, individuals that have been with the company long enough to understand the processes, checks and balances, and workflows in depth are more likely to commit fraud, most likely because they believe that they have a good chance of getting away with it.

However, the study also states that the identity and makeup of your typical fraudster is always changing, and there is no reason why individuals outside of management positions with access to the proper resources should be disregarded when evaluating fraud. As technology becomes more advanced, more individuals in a wider range of positions have access to important information that could potentially open an organisation up to the risk of fraud.

Profiling the fraudster

We are always caught up in a stage of quandary to identify how we can identify a fraudster in our long list of employees. Studies have proven that these are people who are either malignant narcissist, or suffer from  NPD (Narcissistic personality disorder).  

According to the Diagnostic and Statistical Manual (DSM-IV), a personality disorder is an “enduring pattern of inner experience and behavior that deviates markedly from the expectation of the individual’s culture, is pervasive and inflexible, has an onset in adolescence or early adulthood, is stable over time, and leads to distress or impairment.” Because these disorders are chronic and pervasive, they can lead to serious impairments in daily life and functioning.

Actually, half of the profiling lies in understanding the traits of a person suffering from NPD. A person suffering from NPD would :

  • Have an inflated sense of their own importance ; Believes that he or she is “special” and can only be understood by high status people;

  • Have a deep need for admiration for themselves

  • Believe that they’re superior to others

  • Constantly bending the rules for himself although outwardly criticising others for similar behaviour;

  • Have little regard for other people’s feelings

  • Be intolerant of anything perceived as less than a perfect performance;

  • Exaggerate their own achievements or talents

  • Expecting others to go along with your ideas and plans

  • Taking advantage of others

  • Trouble keeping healthy relationships

  • Be envious of others and / or believes that others are envious of him or her

But a good investigator / interviewer would be able to identify that behind this mask of ultra-confidence lies a person with fragile self-esteem and vulnerability to the slightest criticism / comment made against them in a negative manner.

Try and imagine people like Jeffrey Skilling, Enron Corp.’s former chief executive, who carried a tremendous pride that he could do anything under the sun such as build idealistic concept of energy trading and explored Mark to Market accounting which could show people that they can bill for future profits right now and everyone, even the authorities bought into that concept. The whole office used to look up to him.

Think of people like in the Wolf of Wall Street, Jordan Belfort who could sell penny stocks better than apple, intel etc. The whole office admired him. They all had an attractive, role model personality, etc.

The list can go on and on Scott Rothstein, Bernard Madoff, Ramalinga Raju and so forth.

There are other disorders which today’s fraud investigators should be aware of as this would help them to gain an upper hand in the interview and help them to detect any deception from the interviewee. I believe a interview is nothing but a “willing” interaction between two individuals and as long as the interviewee is “unwilling” there would be no definitive conclusion and / or identification of the root cause. The problem will remain unsolved.

I believe some of the disorders that should be common knowledge are:

  • Paranoid Personality Disorder: Investigators should be aware of such people because they can easily take the investigation into a needless direction. Since this disorder causes people to be Chronic and pervasive distrust and suspicion of others. They would feel that they are being lied to, deceived, or exploited by other people in their work place. For people suffering from such a disorder, everyone around them is a fraudster.

  • Schizoid personality disorders: People suffering from such a disorders remain detached from other people. They have little or no desire to form close relationships with others. These people are misunderstood by people around and often take the blame. A fraudster could be playing a game with the investigator and might want to shift the blame to such a person.

  • Antisocial Personality Disorder: Investigator should carefully examine people with this disorder, since they share a couple of traits similar to NPD such as Have difficulty feeling empathy for others and Display a lack of remorse for damaging behavior. They would be able to rationalise their actions towards the situation but they generally would be act out impulsively and sometimes display aggressiveness and irritability that often lead to physical assaults.

  • Borderline Personality Disorder: These disorders can cause instability in moods, interpersonal relationships, self-image, and behavior. These people might get irritated during an interview but doesn’t mean they are / are not ‘the one’

  • Histrionic Personality Disorder: This causes an individual to display excessive but shallow emotions and attention-seeking behaviors. These individuals are constantly “performing” in order to gain attention. Generally need others to witness their emotional displays in order to gain validation or attention. They might commit an act such as a fraud and be proud of themselves because they could beat the system.

  • Obsessive-Compulsive Personality Disorder:  Under this a significant preoccupation with perfection, control, resistance to change, and inflexibility, Often described as dependable, rigid, stern, and stubborn, Feelings of helplessness in uncontrollable situations. They might commit and act ad might rationalise it to be normal.

Often it is said and it is proven by the above statistics that individuals that committed fraud did so with the help of at least one other individual. What do you think the other person would be like? Generally the other partner is a submissive one, who would generally take instructions from the dominant partner. Since the dominant partner might want to remain in control, they should avoid choosing the person of equal stature because they would have to share their ‘loot’ equally with other partners. If an investigator a crack the weaker link, the whole case would unravel like a sunflower.

Individuals exhibiting the aforementioned behaviours must be critically examined. Quantitative tools must be especially keen, and third-party verification like a psychometric test can be a good component of this analysis.

Drawbacks of Profiling

Even though a large portion of fraudsters meet the previously mentioned guidelines of your typical fraudster, it can be very difficult to implement fair policies that target individuals that fit that profile without causing some unrest within the company.

Naturally, management positions should be afforded some type of oversight in order to limit the chances of fraud. However, placing increased oversight on a specific group of individuals can seem like unfair targeting to employees and can cause issues. In some cases the improper implementation of fraud mitigation strategies can open a company up to potential lawsuits. Lawyers and industry professionals should be consulted before implementing strategies based on profiles of fraudsters.

Conclusion

While it is definitely possible to create a basic profile for fraudsters, it is important to remember that this profile constantly changes as technology adapts and new avenues of fraud become available. Mitigating the risk of fraud is an important consideration for any business, and utilising data has become a large part of the equation for many.