About the Book
Get practical insights on the psychology of white-collar criminals—and how to outsmart them Understand how the psychologies of fraudsters and their victims interact as well as what makes auditors/investigators/regulators let down their guard. Learn about the psychology of fraud victims, including boards of directors and senior management, and what makes them want to believe fraudsters, and therefore making them particularly vulnerable to deception. Just as IT experts gave us computer forensics, we now have a uniquely qualified team immersed in psychology, sociology, psychiatry as well as accounting and auditing, introducing the emerging field of behavioral forensics to address the phenomenon of fraud.
Ever wonder what makes a white-collar criminal tick? Why does she or he do what they do? For the first time ever, see the mind of the fraudster laid bare, including their sometimes twisted rationalizations; think like a crook to catch a crook! The A.B.C.'s of Behavioral Forensics takes you there, with expert advice from a diverse but highly specialized authoring team of professionals (three out of the four are Certified Fraud Examiners): a former accounting firm partner who has a PhD in psychology, a former FBI special agent who has been with investigative practices of two of the Big Four firms, an industrial psychiatrist who has worked closely with the C-level suite of large and small companies, and an accounting professor who has interviewed numerous convicted felons. Along with a fascinating exploration of what makes people fall for the common and not-so-common swindles, the book provides a sweeping characterization of the ecology of fraud using The A.B.C.'s of Behavioral Forensics paradigm: the bad Apple (rogue executive), the bad Bushel (groups that collude and behave like gangs), and the bad Crop (representing organization-wide or even societally-sanctioned cultures that are toxic and corrosive). The book will make you take a longer look when hiring new employees and offers a deeper more complex understanding of what happens in organizations and in their people. The A.B.C. model will also help those inside and outside organizations inoculate against fraud and make you reflect on instilling the core values of your organization among your people and create a culture of excellence and integrity that acts as a prophylactic against fraud. Ultimately, you will discover that, used wisely, behavioral methods trump solely economic incentives. With business fraud on the rise globally, The A.B.C.'s of Behavioral Forensics is the must-have book for investigators, auditors, the C-suite and risk management professionals, the boards of directors, regulators, and HR professionals.
Examines the psychology of fraud in a practical way, relating it to aspects of fraud prevention, deterrence, detection, and remediation
Helps you understand that trust violation—the essence of fraud—is a betrayal of behavioral assumptions about "trusted" people
Explains how good people go bad and how otherwise honest people cross the line
Underscores the importance of creating a culture of excellence and integrity that inoculates an organization from fraud risk (i.e., honest behavior pays, while dishonesty is frowned upon)
Provides key takeaways on what to look for when hiring new employees and in your current employees, as well as creating and maintaining a culture of control consciousness
Includes narrative accounts of interviews with convicted white-collar criminals, as well as interpretive insights and analysis of their rationalizations
Furnishes ideas about how to enhance professional skepticism, how to resist fraudsters, how to see through their schemes, how to infuse internal controls with the people/behavioral element, and make them more effective in addressing behavioral/integrity risks
Provides a solid foundation for training programs across the fraud risk management life cycle all the way from the discovery of fraud to its investigation as well as remediation (so the same fraud doesn't happen again)
Enables auditors/investigators to engage in self-reflection and avoid cognitive and emotional biases and traps that lead to professional judgment errors (e.g., overconfidence, confirmation, self-deception, groupthink, halo effect, availability, speed-accuracy trade-off, etc.)
Ever since the accounting scandals surrounding Enron and WorldCom surfaced, leading to the passage of the Sarbanes Oxley Act of 2002, as well as the continuing fall out from the Wall Street financial crisis precipitating the Dodd-Frank Act of 2010, fraud has been a leading concern for executives globally. If you thought you knew everything there was to know about financial fraud, think again. Get the real scoop with The A.B.C.'s of Behavioral Forensics.
Table of Contents:
Foreword xv
Preface xvii
Acknowledgments xxiii
Introduction 1
The Human Factor 2
Trust Violation and Its Consequences 4
This Book’s Approach: The A.B.C.’s of Behavioral Forensics 4
An Interdisciplinary Approach 6
Part I When Fraud Is Committed 9
Chapter 1 Fraud Is Everywhere 13
The Pervasiveness of Fraud 14
On Making (Up) the Numbers 16
A Slippery Slope 19
From Slippery Slope to Broken Windows 21
Fraud Is a Human Act 23
Conclusion 24
Chapter 2 The Sins of Quantification and Other Mind-Set Impediments 27
The Danger of Numbers 29
Data Analysis Is Not Enough 31
Hard Numbers versus Reality 33
Conclusion 37
Chapter 3 Beyond the Fraud Triangle: Toward an Outline of A.B.C. Theory 41
The Relevance of Behavioral Approaches 41
Understanding White-Collar Crime 43
The Fraud Triangle and Other Theories of Causation 45
A.B.C. Theory: A New Fraud Taxonomy 49
Conclusion 53
Part II The Foundations of Behavioral Forensics: Why Good People Do Bad Things 55
Chapter 4 Beyond the Fraud Triangle and into the Mind: The Building Blocks of Behavioral Forensics— Understanding How the Basics of Human Behavior Tie into Fraud 59
Deception Is a Natural Phenomenon 59
The Mind and the Fraud Triangle 60
Emotions: The Power behind Psychological Defenses 67
Affect’s Two Ties to Fraud: Motivation and Communication 73
Conclusion 76
Chapter 5 “Said the Spider to the Fly . . .”: The Predator-Prey Dance— Putting Behavioral Science Fundamentals into Motion 81
Emotions, Unconscious, Defenses—Oh My! 82
Relationships: Where Fraud Is Set in Motion 82
The Relationship as an End in Itself: Bernie Madoff 87
Lance Armstrong and His Accomplices 91
Where Is the Humility? 93
The Power of Shame 94
Good to Evil: How a Hardwired Emotion Is Ignored and Manipulated 99
When Shame Is Maladaptive at Work 104
False Pride: With the Threat of Shame Comes Hubris 107
The Predator Bullies the Professionals 108
The Role of Mental Illness 111
Conclusion 116
Chapter 6 The Accidental Fraudster (Bad Apple): When the Apple Turns and Honesty Reverses Course 121
Committing the Crime 121
Beyond Greed 122
Exploiting a Weakness: A Motivational
Theory of the Accidental Fraudster (Bad Apple) 123
New Insights in Behavioral Forensics 127
Disregarding Risk: The Thrill of Being Close to, but Not in, Danger 133
Why Now? Understanding Life-Span Issues in Fraud Reversals 137
Lessons from Executives and Managers on the Couch 139
Conclusion 139
Chapter 7 The Bad Bushel and Beyond: Seeing the Larger Context of the C-Suite 143
Luck and Effort Distinguish Senior Executives 144
Life as an Executive: Excitement, Vigilance, and Caution 147
Trouble in the C-Suite: Overwhelmed, Overpaid, and Overconfident—Narcissism and Beyond 148
The Individual and the Group: Bad Bushels Arise 153
The Science of Persuasion 158
Conclusion 161
Part III A Call to Action 165
Chapter 8 Managing the Ecology of Fraud: What You Can Do on Monday Morning 171
The Financial Markets: The Moral Foundations of Capitalism 172
Helping Senior Executives to Stay on the Right Side of the Line 176
Piercing the Rationalizations 177
Emotional Manipulation 179
On Lies and Misrepresentation 181
The Operational Fraud Triangle 183
What You Can Do Monday Morning 185
Recognizing Tipping Points (of the Mind) 188
Conclusion 191
Chapter 9 The Future of Behavioral Forensics: Developing Psychological Awareness to Complement Financial Fraud Suspicions 195
Fraud: A Global Scourge 196
Fraud Is Not a Problem with an Easy Answer 197
A Psychological Autopsy of Fraud 207
The Future of Behavioral Forensics 209
Afterword 213
Appendix A The Psychology and Sociology of Fraud: Integrating the Behavioral Sciences Component into Fraud
and Forensic Accounting Curricula 217
Appendix B Chapter Supplements 231
Bibliography 247
About the Authors 255
Index 261
About the Author :
DR. SRIDHAR RAMAMOORTI, ACA, CPA/CITP/CFF/CGMA, CIA, CFE, MAFF, CFSA, CGAP, CGFM, CRMA, is currently an Associate Professor of Accounting and Director, Corporate Governance Center, at Kennesaw State University. A former University of Illinois accountancy faculty member, he has worked for Arthur Andersen and Ernst & Young, and is a former corporate governance partner with Grant Thornton. A board member of the Institute for Truth in Accounting and Ascend, he chairs the Financial Executives International's Committee for Governance, Risk, and Compliance.
DAVID E. MORRISON III is a Clinical Assistant Professor of Psychiatry and Behavioral Sciences at Chicago Medical School, Rosalind Franklin University of Medicine and Science. An advisor to the Institute of Fraud Prevention (IFP) of West Virginia University since 2008, he is also a past president of the Academy of Organizational and Occupational Psychiatry, Group for the Advancement of Psychiatry (GAP) member, and a Tomkins Institute board member. He works full time as a principal at Morrison Associates, Ltd., with a career focused on leadership and executive development.
JOSEPH W. KOLETAR, DPA, CFE, is an independent forensic investigator and consultant. He has held senior positions such as principal and director with Ernst & Young and Deloitte in the firms' forensic and investigative practices. Before joining the private sector, Dr. Koletar spent twenty-five years as a special agent in the FBI, the last seven in senior executive positions. He was formerly chairman of the Board of Regents of the Association of Certified Fraud Examiners.
KELLY RICHMOND POPE, PHD, CPA, is an Associate Professor in the School of Accountancy at DePaul University and founder of Helios Digital Learning. She is the creator of the award-winning white-collar crime documentary Crossing the Line: Ordinary People Committing Extraordinary Crimes. Her work has been published in numerous academic journals such as Behavioral Research in Accounting, Journal of Business Ethics, and Auditing: A Journal of Practice & Theory. She also writes for Forbes.com, Newsweek Daily Beast, and PBS's Need to Know. Prior to academia, she worked as a forensic accountant for KPMG LLP. In 2012, Dr. Pope was elected to the AICPA Governing Council for a three-year term.
