What makes a fraudster?

At the recent launch in Auckland of the PwC Fraud Academy, PwC Forensic Services Partner Stephen Drain and Serious Fraud Office Principal Forensic Accountant Joanne Pettifer discussed the concept of the “Fraud Triangle”. Although the fraud triangle’s three sides - Incentive/Pressure, Attitude/Rationalisation and Opportunity are typically the three main drivers of economic crime – our panel discussed the impact of culture and personality in “What makes a Fraudster”.

A University of New South Wales study in 2014 found studies showed a positive correlation between certain personality attributes and the intention to engage in corporate offending. These personality traits include a “desire for control”, “competitiveness”, “negative emotions” including insensitivity to others and “disagreeable and neurotic personality types”.

The study also found there is an increasing acknowledgement of the influence of the would-be offender’s social or organisational environment. Exposure to unethical behaviour, especially if that behaviour becomes ‘the norm’, can encourage that individual to participate. This is particularly true when it is senior management setting the example.

As Joanne said, fraud is a “shade-loving plant” and it thrives in the lack of transparency created by an organisational culture that does not engage in open, honest communication about fraud risks and ethical behaviour.

Tone from the top is a key plank in any anti-fraud framework which, at a high level, should comprise of:

1. An anti-fraud framework

2. Internal controls

3. Third party and employee vetting.

A focus at the event was the significant increase in the volume of data and technology involved with economic crime, reflecting business generally. The panel identified the obvious: fraud will always involve some form of deception, and evidence will always be required to prove that deception. The challenge for organisations and fraud investigators now is to keep up with technological developments, to maintain a relevant anti-fraud framework relevant and, should the worst happen, to have the tools and knowledge so they can appropriately respond.