The social side of fraud

Research Findings: Fraud survey says ...

This new column provides an outlet for new research into fraud and related studies. The ACFE doesn't necessarily vouch for the methods and results of any research in these columns. This material is food for thought. — ed.

Organizational leaders, fraud examiners and auditors might not fully appreciate the social nature of many fraudulent acts. In fact, many of us think of a fraud perpetrator as a cold, calculating individual — a "bad seed" — who opportunistically takes advantage of internal control weaknesses. Research that we've conducted lends new insights into the social side of fraud. We specifically studied collusion and organizational culture in the perpetration of fraud. Results from both studies provide valuable insights for fraud prevention and detection.

In our first study, we interviewed convicted fraud perpetrators from three large U.S. federal prisons and found that 37 of 63 (58.7 percent) of interviewees stated that their fraudulent activity directly involved more than one person.1 As the CFO at the center of a major corporate collapse commented:

No one really acts in isolation on that big of a scale if you really think about it. There might be some desperate acts — and people no doubt have gambling and drug habits and relationship messes — but large-scale fraud is a group of people acting together.

Co-offending relationships vary significantly. We found that co-offending bonds could be categorized in three distinct groupings or archetypes, depending on the primary beneficiary of the fraud (individual versus organization) and nature of the relationship between co-offenders (functional ties in which the purpose is to perpetrate fraud, versus affective ties in which individuals have an emotional attachment).