In my fraud deterrence practice I am constantly borrowing Ronald Reagan’s famous quote, “Trust but Verify.” Criminologists who have studied famous white collar criminals such as Sam Anatar, who stole hundreds of millions from investors in the Crazy Eddie’s scam and Jeffrey Skilling of Enron fame, concluded that there is a common pattern of behavioral elements at work.

Most of the employers I work with who have experienced employee fraud first hand commented that they trusted the perpetrator and were shocked that they would steal from them.  Deception is a common thread among rank and file fraudsters and senior executives such as Madoff and Skilling.

Bernie Madoff fed people’s desire for an unrealistic financial future with spin and lies. People so wanted to believe him that they accepted his unrealistic projections and deceptive answers as factual. Skilling was able to use his arrogance and sense of entitlement to place people in positions of authority who were easily manipulated, including his auditors.

Some of the behavioral red flags I look for during fraud investigations include:

• Control procedures routinely circumvented by executives
• Personal expenditures paid by the company
• Indications of questionable moral behavior by executives or staff
• Examples of extravagant lifestyle choices
• Attitude of superiority or entitlement by executives
• Weak, easily manipulated employees

These behavior patterns have been linked to many so called white collar criminals that used deception to commit their crimes.  In the war on fraud we must be cognizant of the moral tone demonstrated in the organization. Fraud risk management based on a “checklist” mentality is doomed to failure, in my opinion. 

I would enjoy hearing other’s opinions and experiences in this area.