The Human Nature of Fraud: Three Elements Creating Crime

Fraud is pervasive in today’s global economy.  Silent in nature, it often persists unnoticed for a median of 18 months, and the criminals who commit fraud enjoy a certain amount anonymity all while undermining businesses’ bottom lines.  Anonymity is only possible because the signs and symptoms of fraud often go unnoticed to the untrained eye, especially when dealing with large amounts of data, human factors, and the complexity of varying business systems. Fraud is a crime with psychological and opportunistic motivations that, when understood, will lead to better security measures for businesses and development within the security sector.

Under Pressure: The Motivation to Commit Fraud

Motivation.  A more complex term than one might think, taking into consideration the patterns and drives within the human psyche.   And, yet, businesses and security professionals don’t need a psychology degree to recognize pressure drives fraud. Pressures such as job loss, a bad economy, lifestyle changes, and just plain greed, all create a motivational basis for individuals to deceive and thieve.

The cause and effect of life pressures is supported by the Association of Certified Fraud Examiners (ACFE); in their 2014 study it was found that 44 percent of occupational fraudsters were living beyond their means, 33 percent were experiencing known financial difficulties, and 17% were having family problems or suffering from a recent divorce.  To create better security, identify patterns and provide prevention, security professionals and businesses alike need to recognize pressure as a driving factor in fraud and take action.

Opportunity Knocks: The Means to Commit Fraud

Pressure may be the hand that knocks at the door, but opportunity is certainly what opens it.  The opportunity to commit fraud is obvious by the very fact that it happens. In 2013, The FBI reported fraud in health care costs the United States 80 billion dollars every year, and that number didn’t even account for fraud within other sectors such as banking, business, government, etc.

Knowing that opportunity allows fraud to occur is just scraping the surface. Deeper than that is the lack of control, a double-sided issue. External pressures create this overwhelming feeling of loss in fraudsters. Businesses simply lose control by failing to implement the necessary security systems to protect their systems, data, and ultimately prevent potential financial ruin.  Additionally, by not implementing security, businesses create a perceived opportunity to commit fraud in the minds of would-be criminals.

It’s Complicated: The Rationalization to Commit Fraud

The last key factor in fraud is rationalization – the justification for the crime. And there are so many seemingly “good” reasons. With the wealth gap getting larger by the day, more people seeing pay cuts, layoffs, or just general hardships, it is not surprising that criminals rationalize fraud as a means to make up for their losses.  What is surprising is that we often associate fraud with the stereotype of a hardened criminal when, in fact, many are first-time perpetrators. In the ACFE study, only eight percent of occupational fraud perpetrators had a prior conviction and only five percent had ever been convicted of a fraud-related crime before. Businesses need to recognize fraud is a very real possibility within their walls and closely monitor their employees. 

Stop the Madness, Stop the Fraud

The question then becomes how do corporations solve all three factors of pressure, opportunity, and rationalization, especially when two out of the three factors are psychological.  The short answer is you don’t. The truth is pressure and rationalization will always exist.  They are not motivations that can be eliminated, only limited by changing the one thing that can be controlled – opportunity.

Salviol Global Analytics is working to stop fraud before it happens, but what can businesses do on their own? Businesses cannot view security as an optional expense – security in today’s world is a must. There must be support throughout a company – businesses can educate internally to raise awareness and establish a zero tolerance perspective on fraud. Corporations need to implement security that can sift through data, pinpoint irregularities, and secure information in order to prevent and limit fraud opportunity.

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