Post on 01-Apr-2020
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Psychology of Fraud
Rand Gambrell, CPA/ABV, CFE, CFF, CVADirectorForensics & Valuation Servicesrgambrell@bkd.com
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To Receive CPE Credit
Association of Certified Fraud Examiners – Report to the Nations – 2016 Global Fraud Study
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Association of Certified Fraud Examiners – Report to the Nations – 2016 Global Fraud Study
Association of Certified Fraud Examiners – Report to the Nations – 2016 Global Fraud Study
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The Usual (?) Suspects
Bernie Madoff• $65 billion Ponzi scheme
• Lasted over 15 years –Madoff was investigated at least eight times by SEC
• More than 51,700 claims filed by alleged victims
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Tommy Elrod & “WakeyLeaks”• Player & long-time assistant
at Wake Forest University
• Accused of providing Demon Deacon game plans to opposing coaches
• Financial gain? $0
Toby Groves• Founder of Groves Funding
Corporation
• Misrepresented income, falsified loan documents, reported fictitious homes
• $7 million bank fraud
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Why Do Good (?) People Do Bad Things?
Classic Theories of Fraud Motivation• Edwin H. Sutherland &
“Differential association” Criminal behavior is learned
through interaction with others, not through institutions Fails to address WHY people
adopt criminal behavior
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Fraud Diamond• Person with Capability
• Position & authority in the organization• High-level understanding of system• Egoistic nature• Persuasive & deceptive nature• Resilience to stress
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Breaking Bad – Case Study in Fraud• Walter White Terminally ill with minimal
financial resources – perceived need Former student is involved in
drug underworld – perceived opportunity Walter is not a “bad guy,” he’s
just doing this for his family –rationalization
Current Fraud Theory – Reversal Theory• Motivation is divided into four
polarities (each with a choice) Rules – conform or rebel? Task – get the job done or
enjoy the journey? Who benefits – me or others? Who grows – do I gain mastery
or do I help others?
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Values of the Eight Motivational States
Impact on Fraud Motivation 1. Serious – need for money
due to dire financial circumstances
2. Playful – thrill of the chase
3. Conforming – everyone is doing it
4. Rebellious – pleasure of being bad
5. Mastery – beating the system
6. Sympathy – form of self-indulgence
7. Self – personal gain
8. Other – using gains for one’s family
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Practical Impact of Reversal Theory?
What About Co-Conspirators?• Often, co-conspirators aren’t
bad people, they can’t see the impact (fraud is unintentional)
• People commit fraud because of relationships (we like each other)
• Cognitive association limitations
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Toby Groves Revisited• Founder of Groves Funding
Corporation• Misrepresented income,
falsified loan documents, reported fictitious homes
• $7 million bank fraud• Why did employees, title
company personnel, etc. contribute to the fraud?
Future of Fraud Controls
Association of Certified Fraud Examiners – Report to the Nations – 2016 Global Fraud Study
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QUESTIONS?
The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered
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CPE Credit
THANK YOUFor more information
Rand Gambrell, CPA/ABV, CFE, CFF, CVA | rgambrell@bkd.com
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