From the President

Better understanding fraudsters' justifications



One of the greatest challenges in our field is to think like the fraudsters we’re trying to stop. It’s not easy for CFEs to live inside crooks’ minds, but it’s important to put on those “glasses” and try to see our organizations from the fraudster’s mindset.

Bret Hood, CFE, in his cover article, “Twisted rationalization,” which examines this third leg of the Fraud Triangle, encourages fraud examiners to address this component more thoroughly in their fraud risk management programs.

Hood examines several studies that shine a light on rationalization. What becomes clear is that human beings have a phenomenal ability to justify their actions. Company leaders justify ignoring consumer safety because it will save money. They can cheat on their financial numbers because “everyone is doing it.” Employees steal from large companies because the company “can afford it” or “will never miss it.” Studies also show that fraud increases if management isolates itself from the rest of the staff and fails to follow its company policies and rules.

We’re busy, but in a COVID-19 world, we’re more isolated. Our challenge is to breathe new life into our codes of conduct and our anti-fraud policies. An organization’s leaders must actively set the tone, and hold themselves and the employees accountable for following the rules and acting ethically and honestly.

This apathy or failure to manage by example often leads to “unwritten informal cultures” that can bring a company down, as Hood writes. The longer it exists, the easier leaders rationalize. “Rationalization becomes that much easier when people perceive they have no choice but to act in certain ways to save their jobs.”

The ACFE Report to the Nations has demonstrated for years how preventative controls can benefit an organization. The most recent study, published in April, illustrates once again that organizations with anti-fraud controls in place experienced smaller fraud losses and detected frauds more quickly than organizations lacking those controls. In some cases, the losses were cut by more than half.

As CFEs, we can sharpen our fraud risk management skills by better understanding the rationalizations people use to break the rules. By understanding the potential justifications, we can take better aim at designing controls and communication programs to make employees think twice before making a decision they’re sure to regret.

Bruce Dorris, J.D., CFE, CPA, is president and CEO of the ACFE. Contact him at President@ACFE.com.






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