PSYCHOLOGY OF THE

FRAUDSTER
Forensic Accounting and Fraud Investigation
Frandy Karundeng, SE., MSA
Agenda
01 Introduction
02 White Collar Crime
03 Calculating Criminals
04 Situation Dependant Criminals
05 Power Brokers
06 Fraudsters Do Not Intend to
Harm
07 Auditor Has to Understand The
Mind of Fraudsters
08 Conclusion
INTRODUCTION
Assumption
that most
people are
H O N E S T
Human history and human nature While most societies explicitly abhor violent
tell a different story. crime and bodily harm, many societies hold
Statistics data examines it. financial fraud, whatever its scale,
as a less reprehensible wrongdoing.

Assumption
that most
people are
H O N E S T
White-Collar Crime
During much of the past century,
psychologists and sociologists struggled
to understand the inner workings of
people who commit white-collar crime.
Economic crimes originate
from the situations and social bonds within an
organization, not from the biological
and psychological characteristics of the
individual.
Observation that criminality is not confined to
the lower classes and to social misfits but
extends, especially where financial
fraud is concerned, to upper-class, socially
well-adjusted people.
White-Collar Crime
Two factors should be considered in
analyzing
the psychology and personality of the
fraudster:

1. The biological qualities of an individual,

which vary widely and influence behavior,
including social behavior

2. The social qualities that are derived from

and in turn shape how the individual deals
with other people
Fianancial Fraudster
From these studies of psychology, two
general types of financial fraudster
have been observed:

1. Calculating criminals who want to

compete and to assert themselves

2. Situation-dependent criminals who are

desperate to save themselves, their
families, or their companies from a
catastrophe
CALCULATING
CRIMINALS
Calculating They had an “external locus of control”—
that is, they
Criminals lacked inner direction,
self-confidence,
You can simply impress your audience and
Calculating criminals are predators. and self-esteem
add a unique zing and appeal to your
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and were motivated byGettheir
photos and Text. a moderndesire to fit in
They tend to be repeat offenders, PowerPoint Presentation that is beautifully
and be accepted.
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they have higher-than-average intelligence, Furthermore,audience and add a unique zing and
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appeal to your Presentations. Easy to
they’re relatively well educated. define success bycolors,
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photos and Text. Get a
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These predators are generally:
inclined to risk taking—no surprise there—
and they lack feelings of anxiety and
empathy
Calculating Criminals “IT CAN’T BE BOB”
Bob Davies (not his real name) seemed to be a terrific employee as
vice president of operations at a billion-dollar company that he had
joined six years before. His résumé listed academic and business
successes. He was well liked and a hard worker, always willing to pitch
in and help break a logjam. When needed, he worked nights or
weekends—whatever it took to get the job done. He remembered
employees’ names, used them when giving out praise, and, even
remembering their children’s names, would often ask about their
children.
Then, one day, Davies wired $10 million of his company’s money to
a bank in Germany and took off after it, bringing along his secretary
and abandoning his wife of 12 years and their three children.
Calculating Criminals “IT CAN’T BE BOB”
“There must be some mistake. It can’t be Bob,” echoed through the
office. To Davies’s friends and colleagues, this episode was a
nightmare. To the forensic accounting investigators called in to
investigate, the incident was in its main features unsurprising.
Appearances notwithstanding, Davies was a predator—a con man
whose life’s work was to steal for personal gain. Predators develop
considerable skills and make a career of deceiving people, as though it
were just another career track to follow. Predators are dangerous and
cause great harm. And once in place, they’re hard to detect. The
chances are good that a predator who wants access to company assets
will accomplish that goal regardless of the controls established to
prevent intrusion.
Calculating Criminals “IT CAN’T BE BOB”
Fraud deterrence and detection controls are often robust enough to
stop other types of white-collar criminals, but they may not stop the
predator. The best defense against predators—somewhat sadly and
disturbingly—is a thorough background check before hiring. This is a
key element of an antifraud program. The company that employed
Davies could have discovered his four prior felony convictions during
the hiring process. If it had, he wouldn’t have been hired.
MATIUS 5:13-16

Ayat 13: “Kamu adalah garam dunia. …

Ayat 14: Kamu adalah terang dunia. …
Ayat 16: Demikianlah hendaknya terangmu bercahaya di depan
orang, suapay mereka melihat perbuatanmu yang baik dan
memuliakan Bapamu yang di sorga.”
 SITUATION-
DEPENDENT
CRIMINALS
Situation-Dependent
Criminals
They are situation-dependent criminals:
seemingly ordinary people who commit
crimes without the intent to harm others.
This is a key to understanding
white-collar crime
Typical White-Collar Criminal
 Older (30+Youyears)
can simply impress your audience and
add a unique zing and appeal to your
 55% male,Presentations.
45% female
Easy to change colors,
photos and Text. Get a modern
 An appearance
PowerPointof a stable
Presentation family
that is beautifully
designed. You can simply impress your
situation audience and add a unique zing and
appeal to your Presentations. Easy to
 Above-average (postgraduate)
change colors, photos and Text. Get a
modern PowerPoint Presentation that is
education beautifully designed.
 Less likely to have criminal record
 Good psychological health
 Position of trust
 Detailed knowledge of accounting
systems and their weaknesses
 Prior accounting experience
Situation-Dependant “What About Anne?”

At the start of an investigation, the forensic accounting investigator

often sits down with the client and goes over the organizational chart.
The forensic accounting investigator and the client talk about each
employee one by one, about each employee’s work, and about what is
known of the lifestyle of each.
Situation-Dependant “What About Anne?”
“What about Anne?” the forensic accounting investigator might say,
pointing to an employee on the chart. “Oh, no, it couldn’t be Anne.
She’s been with us for 20 years,” the client responds. “She’s always
assisting others with their duties. She’s pleasant and rarely takes time
off. My wife and I have been to her home. Our daughters are on the
same soccer team.”
The client may believe that what he knows, or thinks he knows, about
Anne’s character eliminates her from the list of suspects of fraud. In
fact, an experienced forensic accounting investigator will understand
that Anne fits the profile of a white-collar criminal.
This is not to suggest that all nice people are criminals but, rather, that
most white-collar criminals give the appearance of being nice people,
thereby fitting the exact profile of Anne.
POWER
BROKERS
POWER BROKERS
Like many of us, you have read
about their excesses and asked
yourself how respected business
leaders could have been so
deluded as to believe that
They could usurp the financial
and human resources of their
companies to line their own pockets
and deceive a wide range of
stakeholders, including their own
employees.
FRAUDSTERS DO NOT
INTEND TO HARM
Fraudsters do not intend to harm It is critical to an understanding of
A high-ranking executive of the psychology of such people to
Westinghouse Electric Co. who was accept this key point: most of them
carry out their frauds with no intention
accused of price-fixing in 1961 was
of doing harm, and they believe—they
asked whether he thought his are able to convince themselves—that
behavior was illegal. what they’re doing is not wrong.
He responded: “Illegal? Yes, but
not criminal. Criminal action means
hurting someone, and we did not do
that”.
Do not intend to harm Personal Catasthorpes

White-collar criminals are difficult to spot. A 45-year-old middle

manager at a textile manufacturer, making $85,000 a year, gets laid off
after his company has become weakened by global competition. He
held no one responsible; his only concern was to find another suitable
job quickly, before his savings ran out. But he couldn’t find one for 14
months, and when he did, it wasn’t what he had hoped for. Still, he
didn’t have to relocate his family, and he did have a managerial position
with some prospects for promotion in the next several years. Then the
dreadful news began piling up.
Do not intend to harm Personal Catasthorpes

His little girl hadn’t seen the jagged sidewalk that her bicycle wheel
slammed into, throwing her over the handlebars. At the hospital, the
doctor assured him that his daughter was in no danger and that a good
plastic surgeon could restore her features. But the family’s HMO ruled
that the procedures were cosmetic and that a substantial portion of the
expense would not be covered. Then his motherin- law had a stroke
and needed full-time care. The family had no money for this, so she
would have to move in with them. But where? His wife was pregnant
with their second child. No extra bedroom was available for her mother;
they would have to build an addition.
Do not intend to harm Personal Catasthorpes
The pressure mounted daily. In these circumstances, this harried
middle manager was the perfect candidate to become a white-collar
criminal. He had a need and could probably find the opportunity to
convert some company assets for personal use. All he needed was a
way to rationalize his actions.
Such circumstances happen every day. Industries contract, high-
flying companies taper off, wages and benefits get cut. Surveys have
found that for the first time in decades, parents no longer expect their
children to have a better life than they do. Under this duress, many
people may find that their customary ethical behavior may seem beside
the point when criminal opportunities seemingly provide solutions to
complex personal problems.
KIND OF RASIONALIZATION
“It was a loan, and I had every
intention of paying it back.
See (pulling out a spreadsheet), I
kept track of all my loans so that I
could pay it all back one day.”
“That accounting rule is confusing
and subjective. Accounting for the
transactions in the manner I chose
is entirely acceptable.”
“My boss has been cheating on his
taxes for years. I’m just getting my
share.”
“I’m the hardest-working employee here, and I
know my boss would give me a substantial
raise if he could do it without other people
knowing. Instead, I take a little bit, but I’m
actually saving the company money because
only I get the ‘raise.’”
“What do you expect me to do? You give me no
health insurance coverage, and I need to
provide for my children and my parents. They
depend on me, and I can’t let them down.”
“There are a lot of good people here. If I didn’t
make up a few entries to give the appearance
to corporate that we were making budgeted
income, they would close our division and put
50 people out of work. I did it to save their
jobs.”
AUDITOR NEEDS
TO UNDERSTAND
THE MIND OF
FRAUDSTERS
Understand the Mind of Fraudsters
In the introduction to
Why Smart People Do Dumb Things,
Mortimer Feinberg and John J. Tarrant begin:
If you are of above average intelligence—
and if you have mastered the use of high
intelligence to solve problems and achieve
goals—it is the premise of this book that
you are at risk [of perpetrating a fraud]
because of the strength of your cognitive
equipment.
Auditors, within the time at their
disposal, cannot verify every transaction,
they must make assumptions based on
audit evidence gathered until the point of
the decision.
The more auditors understand about
why criminals do what they do, the better
prepared they may be to determine the
nature, timing, and extent of audit
procedures.
Fraud Occurs:

The first two parts of the triangle, incentive and opportunity, are usually
observable. The third condition, rationalization, is usually the toughest of the three
to identify. This is why auditors need to be ever vigilant to the possibility of fraud.
A more informed understanding of the psychology of the fraudster usually makes
for a better auditor.
CONCLUSION
Conclusion
In the
Fraud introduction
deterrence andto detection controls are designed, theoretically, to
Why Smart
stop everyone People
else, butDothey
Dumbwon’t,
Things, because it is unrealistic to expect
Mortimer Feinberg and John J. Tarrant begin:
controls that can be designed to stop everyone. Collusion, for example,
may well defeat a well-designed control and may not be detected in a
If you are of above average intelligence—
timely manner by individuals
and if you performing
have mastered the usedaily control activities.
of high
intelligence
Effective training toonsolve problems and achieve
The
of ethical conduct,
and education
best fraud
background
the importance
deterrence
checks on all
mechanism
employees,
isfraud
regular
simple:
audits
create the expectation
goals—it is the premise of this book that
in youraccounting
by forensic organization thatandwrongdoers
investigators, a strong internalwill besystem
control caught and that
are among punishment
thewill you are at risk [of perpetrating a fraud]
be swift and commensurate with the offense.
means.
because of the strength of your cognitive
equipment.
Effective training and education on the importance of ethical conduct,
background checks on all employees, regular fraud audits by forensic
accounting investigators, and a strong internal control system are among
the means.
Conclusion
In the introduction to
Why Smart People Do Dumb Things,
Mortimer Feinberg and John J. Tarrant begin:
Be that as it may, auditors—working as necessary with forensic
accounting investigators—realize that there could be a fraudster
If you are of above average intelligence—
somewhere and in the organization
if you have mastered they’re auditing.
the use of high T
The intelligence
fraudster
Effective training
may be aproblems
toonsolve
and education
predator—an
the importance
individual who works there to
and achieve
steal—or
of ethical conduct,may beisathe
background
goals—it seemingly
checks upstanding
on all employees,
premise of thisregular citizen
bookfraud
that with a secret incentive
audits
by such
forensicas a problem
accounting at home,
investigators, and a a “golden”
strong opportunity
internal control system aresuch as knowledge of a
among
the means. you are at risk [of perpetrating a fraud]
weakness in the of
because control system,ofand
the strength youra rationalization
cognitive such as, “It doesn’t
really harm anyone.” There is another possibility: outright greed.
equipment.
MATIUS 4:1-11
Pencobaan di Padang Gurun
 Ayat 2: Dan setelah berpuasa empat puluh hari dan empat puluh
malam, akhirnya laparlah Yesus.
 Ayat 3: ..” Jika Engkau Anak Allah, perintahkanlah supaya batu-batu ini
menjadi roti.”
 Ayat 4: Tetapi Yesus menjawab: “Ada tertulis: Manusia hidup bukan dari
roti saja, tetapi dari setiap firman yang keluar dari mulut Allah.”
 Ayat 11: Lalu Iblis meninggalkan Dia, dan lihatlah, malaikat-malaikat
datang melayani Yesus.
 Thank You
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