Profiling the Fraudster – Removing the Mask to Prevent and Detect Fraud

Simon Padgett is an ACCA-qualified forensic accountant with over 18 years of experience in fighting fraud and corruption. He has held senior-level auditing positions in the United Kingdom, South Africa, the Caribbean, the Middle East, and Canada. Simon is the past vice president of the United Arab Emirates Association of Certified Fraud Examiners chapter.

Preface xiii Acknowledgments xix PART I: OCCUPATIONAL FRAUD AND CORRUPTION Chapter 1: Introduction to Occupational Fraud and Corruption and Recent Trends 3 Deception through Breaching Trust 4 Global Trends in Occupational Fraud 4 The Cost of Occupational Fraud and Corruption 6 Types of Occupational Fraud 8 Early Fraud 10 The Fight against Fraud 12 Profiling as a Solution 13 Chapter 2: Types of Occupational Fraud and Corruption 15 A Myriad of Fraud Schemes 16 Cybercrime 17 Chapter 3: What Is Fraud and More Specifically Occupational Fraud? 21 The Association of Certified Fraud Examiners Definition 22 The American Institute of Certified Public Accountants Definition 23 Statement of Auditing Standard No. 99 Definition 23 The Institute of Internal Auditors Definition 24 Duration of Fraud Schemes 25 Chapter 4: Corruption 27 The Geography of Corruption 28 The Fight against Corruption 31 Corruption and the Public Purse 33 Cultural and Legal Influences on Corruption 34 Chapter 5: Normative Crime Analysis and Investigative Psychology 37 Fraud Is Not a Norm 37 Investigative Psychology 40 Chapter 6: The Fraud Triangle Becomes the Fraud Diamond: A Journey through the Theory 43 The Fraud Triangle 44 Fraud Risk 45 The Theory Shaping Early Fraud Profiling 45 PART II: PROFILING THE FRAUDSTER Chapter 7: Using Profiling in the Fight against Crime and Occupational Fraud 53 The Mind of Adolf Hitler 53 Development of the Psychology 55 Modeling 57 Modeling in Fraud Detection 59 Chapter 8: Criminal and Fraud Offender Profiling 61 The Criminal Mind-Set 61 Investigative Psychology 64 Fraud Offender Profiling 64 Profiling Challenges 67 Chapter 9: Behavioral Warning Signs or Red Flags 71 How Red Flags Help Us Discover Fraud 73 Management Red Flags 73 Changes in Employee Behavior Representing Red Flags 74 Fraudsters Living beyond Their Means Exhibit Key Red Flags 74 Red Flags in the Accounting System 76 Behavioral Characteristics as Red Flags to Fraud 78 Chapter 10: Motivation and Opportunity as Key Indicators 85 The Motivation 85 The Opportunity 92 Chapter 11: Profiling Individual Behavior and Characteristics of a Fraudster 95 Perpetrator s Gender 97 Perpetrator s Age 99 Perpetrator s Tenure 101 Perpetrator s Education Level 104 Behavioral Red Flags Based on Perpetrator s Position 109 Behavioral Red Flags Based on Scheme Type 109 Behavioral Red Flags Based on Department 110 Chapter 12: Profiling the Fraudster s Position and Department 113 Perpetrator s Position 114 Perpetrator s Department 117 Chapter 13: Profiling the Fraud Methodology or Modus Operandi 123 Collusion 124 Position of Employment Creates the Opportunity 126 Many Ways to Defraud an Organization 128 Chapter 14: Profiling the Victim Organization and Its Geography 133 Fraud Victim Organizations by Geographic Location 134 Corruption Cases by Region 136 Types of Fraud Victim Organizations 136 Size of Fraud Victim Organizations 136 Methods of Fraud in Small Businesses 138 Industry of Fraud Victim Organizations 140 Corruption Cases by Industry 142 Chapter 15: Profiling the Consequences 147 Legal Proceedings and Loss Recovery 148 Losses Recovered 149 An Often Unconsidered Consequence 151 Chapter 16: Using Case Studies for Profiling Fraudsters 153 Why Reinvent the Wheel? 154 Some High-Profile Fraud Cases 155 Chapter 17: The Use of Offender Profiling in Forensic Investigations 165 Collation of Information 165 Fraud Crime Intelligence 166 Intelligence-Led Investigating 168 The Value of Offender Profiling 168 Improved Internal Controls 170 PART III: BUILDING A FRAUD PROFILING METHODOLOGY FOR YOUR ORGANIZATION Chapter 18: Profiling as Part of Your Sound Antifraud Program 175 Antifraud Controls at Victim Organizations 176 Antifraud Controls in Small Businesses 178 Antifraud Controls by Region 179 Effectiveness of Controls 179 Control Weaknesses That Contributed to Fraud 181 Types of Offender Profiling 186 Chapter 19: Information Sources and the Role of Data Mining 189 Forensic Profiling and the Use of Data Mining 190 Supervised and Unsupervised Learning 192 Privacy and Ethical Concerns Surrounding Data Mining 193 Contributing to the Profiling Mechanism 193 Chapter 20: Fraud Profiling Your Organization 197 Personal Particulars of the Offender 198 Obtaining Modus Operandi Information 198 Determine the Motive of the Offender 199 Opportunity 201 Red Flags 203 Lifestyle Change 203 Chapter 21: The Process of Developing a Fraud Profile 205 Development of a Fraud Risk Assessment 206 Development of the Fraud Profile 213 Development of a Fraud Detection Net 216 Chapter 22: The Role of the HR Recruitment Process in Profiling 223 Perpetrator s Criminal History 224 Perpetrator s Employment History 224 Controlling Human Risk 225 Effective Human Performance 226 HR Departments Closing the Door on Fraud 226 The Curriculum Vitae: Fact or Fiction? 227 Bibliography 231 About the Author 237 About the Association of Certified Fraud Examiners and the Report to the Nations on Occupational Fraud and Abuse 239 Index 243.