Identifying potential suspects based on the profile of a fraudster is not a straightforward task.
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. 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?
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 study by KPMG1, the typical fraudster displays the following attributes:
• Is between the ages of 36 and 45. More than 70% of fraudsters fall into this age group.
• Acts with little regard for the organisations which they work for.
• Is employed in a position that gives them power over important organisational processes including executives, finance, operations and marketing.
• Has been with the organisation for six years, or long enough to know the internal processes of the company.
• 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.
Another compelling fact which the KPMG study bought forward was that a large percentage of fraudsters were extroverted (33%), friendly (35%) and highly respected (39%). These personality traits do not seem to be indicators of someone who is prone to fraud but when combined with traits like greed and desire for personal gain1, one can then get a clearer picture of the personality of these individuals. Studies have proven that these are people who are either malignant narcissist, or suffer from Narcissistic Personality Disorder (NPD), which is defined as 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, to really go inside the mind of a fraudster, one needs to understand the traits of a person suffering from NPD:
• 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; a sense of superiority.
• Believe that they’re superior to others.
• Constantly bending the rules for himself although outwardly criticizing others for similar behavior.
• 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.
To add to the above, the Association of Certified Fraud Examiners (ACFE), mentions in its 2014 report that the financial losses resulting from fraud committed by Owners/Executives at companies were at least than 3 times larger than the losses resulting from fraud committed by managers or employees. Similarly, the ACFE study showed that the longer a fraudster had worked for a company, the more financial harm he or she caused. This supports the fact conclusion that big game players are the ones who are at the top of the corporate pyramid.
“There is a strong correlation between the fraudster’s level of authority and the losses resulting from the fraud”– ACFE 2014 Report to the Nations
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. Additionally, an investigator will need be good at profiling since the majority of fraudsters would have never been punish and would not have criminal records!
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 and includes Ponzi Scheme perpetrators such as Scott Rothstein and Bernard Madoff as well as accounting fraudsters such as Ramalinga Raju (formerly of Satyam Computer Services) and so forth.
There are certain behaviors which fraudsters exhibit. These behaviors can serve as tell-tale signs that an individual may be committing fraud. From my experience, the most common behavioral red flag displayed by fraudsters is living beyond his or her means. In the Middle East, the question asked is “Where did you get this from?” This alludes to the how an individual can afford to purchase something which is clearly above his financial abilities. ACFE’s 3 top 3 behavioral red flags displayed by fraudsters are shown in the table below:
On another note, experience also shows 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 cracks the weaker link, the whole case would unravel like a blossoming sunflower .
Individuals exhibiting the aforementioned behaviors 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.
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.
1. Global Profiles of a Fraudster, KPMG International, 2013.
2. Diagnostic and Statistical Manual of Mental Disorders (DSM-5), American Psychiatric Association, 2013.
3. ACFE’s 2014 Report to Nations on Occupational Fraud and Abuse.
ROBIN SINGH, MBA, MIT, CFE, CFAP is Senior Ethics / Fraud Control Officer at Abu Dhabi Health Services Company (SEHA).