Insights from the 2018 Association of Certified Fraud Examiners global fraud conference

Attending the recent 29th Annual ACFE Global Fraud Conference, Bruce Dorris, President and CEO of the Association of Fraud Examiners, spoke on the impact that new technology and artificial intelligence will have on how businesses, governments and specialists fight fraud. Dorris spoke about the fact that data are becoming the big target, where for example, more and more businesses are falling victims of schemes such as phishing and whaling. Stolen data and information are sold and used in darknet market places. Pro-active data monitoring is no longer a nice to have. The sharing of information through fusion centres will become a necessity for industry stakeholders, and the securing of the data and identifying entities a necessity to pro-actively prevent fraudulent activities and financial losses.

How does a fraudster think?

Understanding what motivates someone to commit white-collar and organisational fraud remains one of the key requirements in detecting and preventing financial losses. In his lecture at the conference, Michael Pocalyko, CEO of SI shared his insights on what motivates their bad character, the entitlement they display and the underlying psychopathology (mental disorder). He explained that two personality disorders overlap to describe the essential elements that form the foundation for an act of financial fraud: narcissistic personality disorder and antisocial personality disorder1.

Anti-fraud professionals are familiar with Cressey’s Fraud Triangle 2 theory on what process leads to a financial crime. Cressey proposed a three-step process “Trusted persons become trust violators when they conceive of themselves as having a financial problem…” Once that trusted person within a financial system becomes a violator, both an opportunity to solve the problem and a rationalisation that justify the crime.

Pocalyko argues the need for a new underlying theory to identify fraudsters predisposed to white-collar crime. The theory would be based on scientifically classified types of individuals as outlined by the American Psychiatric Association’s Diagnostic and Statistical Manual, Fifth edition (DSM-5)3. In contrast to the fraud triangle, he suggests that a certain kind of person can be psychologically predisposed to commit white-collar crime – even without pressure, and even if that person is already enjoying extraordinary and significant personal financial resources.

First let’s consider the narcissist. For these individuals their public image and sense of self is priority. They conquer the slightest appearance of fault or limitation by publicly “advertising” their success, talent or positive traits. They seek positive reinforcement always and at all levels of their lives. The activating pressure step of the fraud triangle is often preceded by narcissistic needs.

Secondly antisocials seek gain by any means. They constantly look for opportunities to meet what they perceive the needs through money, property, power or people. They will manipulate people involved in those situations to cooperate with their schemes. They act impulsively and generally lack insight except for their own needs. Their behaviour is often misunderstood which gives them an advantage over us. Their success in business or any other place stems from a series of rebellion, betrayals and nonstop rule breaking.

Ultimately, the white-collar criminal follows this simple logic: “I need, therefore I take”4. Pocalyko summarised the foundation of nonstop needs and the activating entitlement of guilt-free rule breaking in the graph below5:

Pocalyko positions the above dimension as an extension of the Cressey theory. However, whereas Cressey’s theory suggests external factors as triggers for financial fraud, he argues that internal pressure is equally motivating to the fraudster with the characteristics of narcissistic and antisocial personality disorder. This internal pressure drives and consumes the individual, no matter how successful, wealthy or self-assured they are. Any business or organisation should be aware of a person who demonstrates these characteristics as it places them at risk for white-collar crime.

1 Theodore E. Millon (with Roger Davis), Disorders of Personality: DSM IV and Beyond (Second ed.), (New York, NY: John Wiley & Sons, 1996).

2 Donald R. Cressey. Other People’s Money, (Montclair, NJ Patterson Smith, 1973).

3 American Psychiatric Association, Diagnostic and Statistical Manual of Mental Disorders (Fifth ed.), (Arlington, VA: American Psychiatric Publishing, 2013).

4 Michael Pocalyko, CFE, MPA, PI, CA: Michael Greelis, Ph.D., LPC, LMFT. Ethics for Fraud Examiners, Fraud and Character: The Psychology and Motivations of White-Collar Criminals, 2018.

5 Michael Pocalyko, CFE, MPA, PI, CA: Michael Greelis, Ph.D., LPC, LMFT. Ethics for Fraud Examiners, Fraud and Character: The Psychology and Motivations of White-Collar Criminals, 2018.