Category Archives: Deception & Lying

Getting Out of Your Own Way

Posted by on July 8, 2019 Comments Off on Getting Out of Your Own Way

One of the most frequently requested topics for ACFE lead instruction concerns the art of fraud interviewing, one of the most complex and crucial disciplines of the many comprising the fraud examination process. And at the heart of the interviewing process lies communication. As we all know, communication is the process of effectively sending and receiving information, thoughts, and feelings. First and foremost, an effective interviewer is an effective communicator and being an effective communicator depends on building rapport. According to the ACFE, if you don’t establish rapport with a subject at the outset of the fraud interview, the possibilities of your spotting anything are very low. Rapport is the establishment of a connection between two individuals that is based on some level of trust and a belief in a relationship that is mutually beneficial to both parties.

The interviewer who thinks s/he will find a cooperative subject without making a connection with that individual is in for a disappointment. Rapport is determined by our attitude toward the subject. Just as we as interviewers use our powers of perception to “read” the subject, the subject reads us as well. If s/he senses condemnation, superiority, hostility, or deceit, you can expect little but superficial cooperation from any interaction. Besides, above all else, as the experts tell us, we are professionals. As professionals, personal judgments have no place in an interview setting. Our job is to gather information empirically, objectively, and without prejudice towards our subjects. Why do we identify with and speak more freely to some people? We are naturally drawn to those with whom we share similar characteristics and identities. Techniques and tools are important, but only to the extent that they complement our attitude toward the interview process. So, effective communication is not what we do – it’s who we are.

And along with rapport, the analysis of the quality of the interaction between both interview participants is critical to the communication process. An interview is a structured session, ideally between one interviewer and one subject, during which the interviewer seeks to obtain information from a subject about a particular matter. And just as we signal each other with voice pitch and body language patterns when we’re sad, angry, delighted, or bored, we also display distinct patterns when trying to deceive each other. Fortunately for those of us who interview others as part of our profession, if we learn to recognize these patterns, our jobs are made much simpler. Of course there is no single behavior pattern one can point to and say “Aha! This person is being deceptive!” What the professional can point to is change in behavior. Should a subject begin showing signs of stress as our questions angle in a certain direction, for example, we know we have hit an area of sensitivity that probably requires further exploration. If you interview people regularly, you probably already know that it is more likely for a subject to omit part of the story than actually lie to you. Omission is a much more innocuous form of deceit and causes less anxiety than fabricating a falsehood. So even more importantly than recognizing behavior associated with lying, the interviewer must fine tune her skills to also spot concealment patterns.

ACFE experts tell us that each party to a fraud interview may assume that they understand what the other person is conveying. However, the way we communicate and gather information is based in part on which of our senses is dominant. The three dominant senses, sight, hearing, and touch influence our perceptions and expressions more than most realize. A sight dominant subject may “see” what you are saying and tell you he wants to “clear” things up. An auditory dominant person may “hear” what your point is and respond that it “sounds” good to him. A touch dominant person may have a “grasp” of what you are trying to convey, but “feel uncomfortable” about discussing it further.

By analyzing a subject’s use of words, an interviewer can identify his or her dominant sense and choose her words to match. This helps strengthen the rapport between interviewer and subject, increasing the chances of a good flow of information. Essential, of course, to analyzing and identifying a subject’s dominant senses are good listening skills. Effective communication requires empathetic listening by the interviewer. Empathetic listening and analysis of the subject’s verbal and nonverbal communication allows us to both hear and see what the other person is attempting to communicate. It is the information that is not provided and that is concealed, that is most critical to our professional efforts.

By developing your listening abilities, practicing them with others with whom you communicate every day, the vast array and inexhaustible variations of the human vocabulary are bound to strike you. The most effective way to communicate is with clear, concise sentences that create no questions. However, the words we choose to use, and the way that we say them, are limited only by what is important to us. A subject, reluctant or cooperative, will speak volumes with what they say, and even more significantly, what they don’t say. Analysis of the latter often reveals more than the information the subject actually relates. For instance, the omission of personal pronouns could mean unwillingness on the part of the subject to identify himself with the action.

One final note of caution. If you ask the experts about the biggest impediment to an effective interview, they will probably give you a surprising answer. Most experienced interviewers will tell you that often the greatest impediment to a successful interview is the interviewer. Most interviewers use all of their energies observing and evaluating the subject’s responses without realizing how their own actions and attitudes can contaminate an interview. In fact, it is virtually impossible to conduct an interview without contaminating it to some extent. Every word used, the phrasing of a question, tone, body language, attire, the setting – all send signals to the subject. The effective interviewer, however, has learned to contaminate as little as possible. By retaining an objective demeanor, by asking questions which reveal little about what s/he already knows, by choosing a private setting and interviewing one subject at a time, s/he keeps the integrity of the interview intact to the best of her ability.

#We Too

Posted by on July 30, 2018 Comments Off on #We Too

The #Me Too phenomenon is just one of the latest instances of a type of fraud featuring a betrayal of trust by a fellow community member which is as old as humanity itself. The ACFE calls it affinity fraud, and it is one of the most common instances of fraud with which any CFE or forensic account is ever called upon to deal. The poster boy for affinity frauds in our time is, of course, Bernard L. Madoff, whose affinity fraud and Ponzi scheme ended with his arrest in 2008. The Madoff scandal is considered an affinity fraud because the vast majority of his clientele shared Madoff’s religion, Judaism. Over the years, Madoff’s clientele grew to include prominent persons in the entertainment industry, including Steven Spielberg and Larry King. This particular affinity fraud was unprecedented because it was perpetrated by Madoff over several decades, and his investment customers were defrauded of approximately twenty billion dollars.

But not all targets of affinity fraud are wealthy investors; such scams touch all genders, religions, age groups, races, statuses, and educational levels. One of the saddest are affinity frauds targeting children and the elderly.

Con artists prey on vulnerable underage targets by luring them to especially designed websites and phone Aps and then collecting their personal information. TRUSTe, an Internet privacy seal program, is a safe harbor program under the terms of the Children’s Online Privacy Protection Act (COPPA) administered by the U.S. Federal Trade Commission. This was the third safe harbor application approved by the Commission. Safe harbor Aps and programs are submitted by the Children’s Advertising Review Unit (CARL) of the Council of Better Business Bureaus, an arm of the advertising industry’s self-regulatory program, and the Entertainment Software Rating Board (ESRB), which were both previously approved as COPPA safe harbors. Sadly, in spite of all this effort, data collection abuses by websites and Aps targeting children continue to increase apace to this day.

Then there’s the elderly. It’s an unfortunate fact that elderly individuals are the most frequent targets of con artists implementing all types of affinity frauds. Con artists target the elderly, since they may be lonely, are usually willing to listen, and are thought to be more trusting that younger individuals. Many of these schemes are performed over the telephone, door-to-door, or through advertisements. The elderly are especially vulnerable targets for schemes related to credit cards, sweepstakes or contests, charities, health products, magazines, home improvements, equity skimming, investments, banking or wire transfers, and insurance.

Fraudsters will use different tactics to get the elderly to cooperate in their schemes. They can be friendly, sympathetic, and willing to help in some cases, and use fear tactics in others. The precise tactics used are generally tailored to the type of individual situation the con artist finds herself in in relation to the mark.

Ethically challenged fraud practitioners frequently focus on home ownership related schemes to take advantage of the vulnerable elderly. The scammer will recommend a “friend” that can perform necessary home repairs at a reasonable price. This friend may require the mark to sign a document upon completion confirming that the repairs have been completed. In some cases, the elderly victim later learns that s/he signed the title of his house over to the repairman. In other cases, not only is the person overcharged for the work, but the work is not performed properly or at all.

Another frequent scheme targeting the elderly involves sweepstakes or prizes. The fraudster continues to influence the elderly victim over a period of time with the hope that the victim will eventually win the “grand prize” if they will just send in another fee or buy a few more magazines.

Fraudsters also frequently solicit the elderly with “great” investment opportunities in precious metals, artwork, securities, prime bank guarantees, futures, exotics, micro-cap stocks, penny stocks, promissory notes, pyramid and Ponzi schemes, insurance, and real estate. Other common scams involve equity skimming programs, debt consolidation offers, or other debt relief services which only result in the loss of the home used as collateral if the victimized debtor misses a payment.

The societal effects of affinity fraud are not limited solely to the amount of funds lost by investors, churches, the elderly or by other types of victims. Once these frauds are uncovered, investor confidence can diminish the financial and other legitimate markets, and a general level of distrust can decrease the government’s ability to provide protection. Loss of confidence manifested itself after the Madoff fiasco with such negative effects evident throughout the economy. Unfortunately, affinity fraud erodes the trust needed for legitimate investments to occur and grow our economy. Essentially, affinity fraud victims of all types become less likely to trust any future monetary request and honest charitable organizations suffer from a loss of endowments. Subsequent to a large affinity fraud being discovered, time is spent by regulators and law enforcement not only prosecuting these cases but also in the expenditure of endless taxpayer dollars assessing what went wrong. Time consuming, expensive investigations generally also include implementation of regulatory changes in an attempt to assist in detection of these frauds in the future, another costly burden on taxpayers.

Once affinity fraud offenders have targeted a community or group, they seek out respected community leaders to vouch for them to potential victims. By having an esteemed figurehead who appears to be knowledgeable about the investment or other opportunity and endorses it, the offender creates legitimacy for the con. Additionally, others in the community are less likely to ask questions about a venture or investment if a community leader recommends or endorses the fraudster. In the Madoff case, Madoff himself was a highly esteemed member of the community he victimized.

Experts tells us that projection bias is one reason why affinity fraudsters are able to continually perpetrate these types of crimes. Psychological projection is a concept introduced by Freud to explain the unconscious transference of a person’s own characteristics onto another person. The victims in affinity fraud cases project their own morals onto the fraudsters, presuming that the criminals are honest and trustworthy. However, the similarities are almost certainly the reason why the fraudster targeted the victims in the first place. In some cases when victims are interviewed after the fact, they indicate to law enforcement that they trusted the fraudster as if they were a family member because they believed that they both shared the same value system.

Because victims in affinity frauds are less likely to question or go outside of their group for assistance, information or tips regarding the fraud may not ever reach regulators or law enforcement. In religion related cases, there is often an unwritten rule that what happens in church stays there, with disputes handled by the church elders or the minister. Once the victims place their trust in the fraudster, they are less likely to even believe they have been defrauded and also unlikely to investigate the con.

The ACFE tells us that in order to stop affinity frauds from occurring in the first place, one of the best fraud prevention tools is the implementation of increased educational efforts. Education is especially important in geographical areas where tight-knit cultural communities reside who are particularly vulnerable to these frauds. By reaching out to the same cultural or religious leaders that fraudsters often target in their schemes, law enforcement could launch collaborative relationships with these groups in their educational efforts.

In summary, frauds like Madoff’s occur daily on a much smaller scale in communities across the United States. The effects of these affinity frauds are widespread, and the emotional consequences experienced by the victims of these scams cannot be overstated. CFEs, assurance professionals, regulators and law enforcement and investigative personnel need to assess the harm caused by affinity fraud and continue to determine what steps need to be taken to effectively confront these types of scams. State and Federal laws should be reviewed and amended where necessary to ensure appropriate enhanced sentencing is enforced for all egregious crimes involving affinity fraud. Regulators and law enforcement should approach fraud cases from different angles in an attempt to determine if new methods may be more effective in their prosecution.

Additionally, anti-fraud education as provided by the ACFE is needed for both the general and investing publics and for regulators and law enforcement personnel to ensure that they all have the proper knowledge and tools to be able to understand, detect, stop, and prevent these types of scenarios. Affinity frauds are not easily anticipated by the victims because people are not naturally inclined to think that one of their own is going to cheat them. Affinity frauds can, therefore, only be most effectively curtailed by the very communities who are their victims.

Rigging the Casino

Posted by on May 6, 2017 Comments Off on Rigging the Casino

I attended an evening lecture some weeks ago at the Marshall-Wythe law school of the College of William & Mary, my old alma mater, in Williamsburg, Virginia. One of the topics raised during the lecture was a detailed analysis of the LIBOR scandal of 2012, a fascinating tale of systematic manipulation of a benchmark interest rate, supported by a culture of fraud in the world’s biggest banks, and in an environment where little or no regulation prevailed.

After decades of abuse that enriched the big banks, their shareholders, executives and traders, at the expense of others, investigations and lawsuits were finally initiated, and the subsequent fines and penalties were huge. The London Interbank Offered Rate (LIBOR) rate is a rate of interest, first computed in 1985 by the British Banking Association (BBA), the Bank of England and others, to serve as a readily available reference or benchmark rate for many financial contracts and arrangements. Prior to its creation, contracts utilized many privately negotiated rates, which were difficult to verify, and not necessarily related to the market rate for the security in question. The LIBOR rate, which is the average interest rate estimated by leading banks that they would be charged if they were to borrow from other banks, provided a simple alternative that came to be widely used. For example, in the United States in 2008 when the subprime lending crisis began, around 60 percent of prime adjustable-rate mortgages (ARMs) and nearly all subprime mortgages were indexed to the US dollar LIBOR. In 2012, around 45 percent of prime adjustable rate mortgages and over 80 percent of subprime mortgages were indexed to the LIBOR. American municipalities also borrowed around 75 percent of their money through financial products that were linked to the LIBOR.

At the time of the LIBOR scandal, 18 of the largest banks in the world provided their estimates of the costs they would have had to pay for a variety of interbank loans (loans from other banks) just prior to 11:00 a.m. on the submission day. These estimates were submitted to Reuters news agency (who acted for the BBA) for calculation of the average and its publication and dissemination. Reuters set aside the four highest and four lowest estimates, and averaged the remaining ten.

So huge were the investments affected that a small manipulation in the LIBOR rate could have a very significant impact on the profit of the banks and of the traders involved in the manipulation. For example, in 2012 the total of derivatives priced relative to the LIBOR rate has been estimated at from $300-$600 trillion, so a manipulation of 0.1% in the LIBOR rate would generate an error of $300-600 million per annum. Consequently, it is not surprising that, once the manipulations came to light, the settlements and fines assessed were huge. By December 31, 2013, 7 of the 18 submitting banks charged with manipulation, had paid fines and settlements of upwards of $ 2 billion. In addition, the European Commission gave immunity for revealing wrongdoing to several the banks thereby allowing them to avoid fines including: Barclays €690 million, UBS €2.5 billion, and Citigroup €55 million.

Some examples of the types of losses caused by LIBOR manipulations are:

Manipulation of home mortgage rates: Many home owners borrow their mortgage loans on a variable- or adjustable-rate basis, rather than a fixed-rate basis. Consequently, many of these borrowers receive a new rate at the first of every month based on the LIBOR rate. A study prepared for a class action lawsuit has shown that on the first of each month for 2007-2009, the LIBOR rate rose more than 7.5 basis points on average. One observer estimated that each LIBOR submitting bank during this period might have been liable for as much as $2.3 billion in overcharges.

Municipalities lost on interest rate swaps: Municipalities raise funds through the issuance of bonds, and many were encouraged to issue variable-rate, rather than fixed-rate, bonds to take advantage of lower interest payments. For example, the saving could be as much as $1 million on a $100 million bond. After issue, the municipalities were encouraged to buy interest rate swaps from their investment banks to hedge their risk of volatility in the variable rates by converting or swapping into a fixed rate arrangement. The seller of the swap agrees to pay the municipality for any requirement to pay interest at more than the fixed rate agreed if interest rates rise, but if interest rates fall the swap seller buys the bonds at the lower variable interest rate. However, the variable rate was linked to the LIBOR rate, which was artificially depressed, thus costing U.S. municipalities as much as $10 billion. Class action suits were launched to recover these losses which cost municipalities, hospitals, and other non-profits as much as $600 million a year; the remaining liability assisted the municipalities in further settlement negotiations.

Freddie Mac Losses: On March 27, 2013, Freddie Mac sued 15 banks for their losses of up to $3 billion due to LIBOR rate manipulations. Freddie Mac accused the banks of fraud, violations of antitrust law and breach of contract, and sought unspecified damages for financial harm, as well as punitive damages and treble damages for violations of the Sherman Act. To the extent that defendants used false and dishonest USD LIBOR submissions to bolster their respective reputations, they artificially increased their ability to charge higher underwriting fees and obtain higher offering prices for financial products to the detriment of Freddie Mac and other consumers.

Liability Claims/Antitrust cases (Commodities-manipulations claims): Other organizations also sued the LIBOR rate submitting banks for anti-competitive behavior, partly because of the possibility of treble damages, but they had to demonstrate related damages to be successful. Nonetheless, credible plaintiffs included the Regents of the University of California who filed a suit claiming fraud, deceit, and unjust enrichment.

All of this can be of little surprise to fraud examiners. The ACFE lists the following features of moral collapse in an organization or business sector:

  1. Pressure to meet goals, especially financial ones, at any cost;
  2. A culture that does not foster open and candid conversation and discussion;
  3. A CEO who is surrounded with people who will agree and flatter the CEO, as well as a CEO whose reputation is beyond criticism;
  4. Weak boards that do not exercise their fiduciary responsibilities with diligence;
  5. An organization that promotes people based on nepotism and favoritism;
  6. Hubris. The arrogant belief that rules are for other people, but not for us;
  7. A flawed cost/benefit attitude that suggests that poor ethical behavior in one area can be offset by good ethical behavior in another area.

Each of the financial institutions involved in the LIBOR scandal struggled, to a greater or lesser degree with one or more of these crippling characteristics and, a distressing few, manifested all of them.

The Flavor of the Month

Posted by on November 20, 2016 Comments Off on The Flavor of the Month

revolving-doorsUnsurprisingly, given issues raised by the press during the recent presidential election about cabinet candidates and the rapidly revolving door between the private sector and government, conflict of interest is again the fraud flavor of the month among the pundits.  To keep the matter in perspective, these same concerns about appointments are raised to a greater or lesser degree following every presidential election.

The ACFE tells us that a conflict of interest occurs when an employee, manager, or executive has an undisclosed economic or personal interest in a transaction that adversely affects the company, or, in the case of government, his or her office.  As with other corruption cases, conflict schemes involve the exertion of an employee’s influence to the detriment of his or her employing organization.

The clear majority of conflict cases occur because the fraudster has an undisclosed economic interest in a transaction. But the fraudster’s hidden interest is not necessarily economic. In some scenarios, an employee acts in a manner detrimental to his organization to provide a benefit to a friend or relative, even though the fraudster receives no financial benefit from the transaction herself.  A manager might split a large repair project into several smaller projects to avoid bidding requirements. This allows the manager to award the contracts to his brother-in-law. Though there was no indication that the manager received any financial gain from this scheme, his actions nevertheless amount to conflict of interest.

It’s important to emphasize that to be classified as a conflict of interest scheme, the employee’s interest in the transaction must be undisclosed. This is a crucial important point and one that’s often overlooked.  The crux of a conflict case is that the fraudster takes advantage of his employer; the victim company is unaware that its employee has divided loyalties. If an employer knows of the employee’s interest in a business deal or negotiation, there can be no a conflict of interest, no matter how favorable the arrangement is for the employee.

If an employee approves payment on a fraudulent invoice submitted by a vendor in return for a kickback, its bribery. If, on the other hand, an employee approves payment on invoices submitted by his own company (and if his ownership is undisclosed), this is a conflict of interest. The distinction between the two schemes is obvious. In the bribery case the fraudster approves the invoice in return for a kickback, while in a conflicts case he approves the invoice because of his own hidden interest in the vendor. Aside from the employee’s motive for committing the crime, the mechanics of the two transactions are practically identical. The same duality can be found in bid rigging cases, where an employee influences the selection of a company in which she has a hidden interest instead of influencing the selection of a vendor who has bribed her.

The concern voiced in the press and other media is legitimate and justified because there are vast numbers of ways in which an employee (or high level government appointee) can use his or her influence to benefit an organization in which s/he has a hidden or even a disclosed interest.

Purchase schemes and sales schemes are the two most common categories involving conflict of interest. Most conflicts of interest arise when a victim company unwittingly buys something at a high price from a company in which one of its employees has a hidden interest, or unwittingly sells something at a low price to a company in which one of its employees has a hidden interest. Most other conflicts involve employees stealing clients or diverting funds from their employer.

The ACFE says its research indicates that most conflict schemes are over billing schemes.  While it is true that any time an employee assists in the overbilling of his company there is probably some conflict of interest (the employee causes harm to his employer because of a hidden financial interest in the transaction), this does not necessarily mean that every false billing will be categorized as a conflict scheme. For the scheme to be classified as a conflict of interest, the employee (or a friend or relative of the employee) must have an ownership or employment interest in the vendor that submits the invoice. This distinction is easy to understand if we look at the nature of the fraud. Why does the fraudster overbill his employer? If she engages in the scheme only for the cash, the scheme is a fraudulent disbursement billing scheme. If, on the other hand, she seeks to better the financial condition of her business at the expense of her employer, this is a conflict of interest. In other words, the fraudster’s interests lie with a company other than her employer. When an employee falsifies the invoices of a third-party vendor to whom he has no relation, this is not a conflict of interest scheme because the employee has no interest in that vendor. The sole purpose of the scheme is to generate a fraudulent disbursement.

A short rule of thumb can be used to distinguish between over-billing schemes that are classified as asset misappropriations and those that are conflicts of interest: if the bill originates from a real company in which the fraudster has an economic or personal interest, and if the fraudster’s interest in the company is undisclosed to the victim company, then the scheme is a conflict of interest.

Not all conflict schemes occur in the traditional vendor-buyer relationship. Some involve employees negotiating for the purchase of some unique, typically large asset such as land or a building in which the employee had an undisclosed interest. It is in the process of these negotiations that the fraudster violates his duty of loyalty to his employer. Because he stands to profit from the sale of the asset, the employee does not negotiate in good faith to his employer; he does not attempt to get the best price possible. The fraudster will reap a greater financial benefit if the purchase price is high. In a turnaround sale or flip an employee knows his employer is seeking to purchase a certain asset and takes advantage of the situation by purchasing the asset himself (usually in the name of an accomplice or shell company). The fraudster then turns around and resells the item to his employer at an inflated price. A write off of sales scheme involves tampering with the books of the victim company to decrease or write off the amount owed by an employee’s business. For instance, after an employee’s company purchases goods or services from the victim company, credit memos may be issued against the sale, causing it to be written off to contra accounts such as Discounts and Allowances. Many reversing entries to sales may thus be a sign that fraud is occurring in an organization. Finally, some employees divert the funds and other resources of their employers to the development of their own business. While these schemes are clearly corruption schemes, the funds are diverted using a fraudulent disbursement. The money could be drained from the victim company through a check tampering scheme, a billing scheme, a payroll scheme, or an expense reimbursement scheme.

The bottom line is that every management has an obligation to disclose to the shareholder’s significant fraud committed by officers, executives, and others in positions of trust. Management does not have the responsibility of disclosing uncharged criminal conduct of its officers and executives. However, when officers, executives, or other persons in trusted positions become subjects of a criminal indictment, disclosure is required. The inadequate disclosure of conflicts of interests is among the most serious of frauds. Inadequate disclosure of related-party transactions is not limited to any specific industry; it transcends all business types and relationships.

On the detection side, CFE’s continue to point out some of the more tried and true  methods that can be used including tips and complaints, comparisons of vendor addresses with employee addresses, review of vendor ownership files, review of exit interviews, comparisons of vendor addresses to addresses of subsequent employers, and interviews with purchasing personnel for favorable treatment of one or more vendors.

Liar’s Poker

Posted by on May 25, 2016 Comments Off on Liar’s Poker

Liar's-PokerOur Chapter Member’s Lecture for CPE credit for this month (Interviewing for Prosecution) elicited a number of questions about the distinction between lying and deception from attendees of our May Training Event so I thought I’d address them in a post.

Our May-June lecture states that everyone lies and, in most people, lying produces stress. The human body will attempt to relieve this stress (even in practiced liars) through verbal and nonverbal clues. So a practiced interviewer will be able to draw inferences from subjects’ behavior about the honesty of their statements. The ACFE tells us that conclusions concerning behavior must be tempered by a number of factors. The physical environment in which the interview is conducted can affect behavior. If the respondent is comfortable, fewer behavioral quirks might be exhibited. The more intelligent the respondent, the more reliable verbal and nonverbal clues will be. If the respondent is biased toward the interviewer, or vice versa, this will also affect behavior. People who are mentally unstable or under the influence of drugs will be unsuitable to interview because their behavioral symptoms are generally unreliable. Likewise, the behavioral symptoms of juveniles are generally unreliable.

Additionally, during an investigation, it’s always important to never lose sight of the fact  that people do things for a reason. The fraud examiner might not understand the reasons a fraudster commits his or her crime, but the motivations make sense to the perpetrator. For example, a perpetrator might commit fraud because his life has spiraled out of control, although it might not be out of control under a reasonable person’s definition. In the perpetrator’s view, his life has become so problematic that fraud is the only way he can restore balance. And during the fraud examination, if the examiner can get the perpetrator to talk about the lack of control in her life, the examiner can use this information to compel the fraudster to admit guilt and provide valuable insight into ways to prevent similar frauds in the future.

When conducting interviews leading to possible prosecution with suspects, interviewers should seek to understand the possible motives of various suspects. To do this, interviewers should suspend their own value system. This will better position the interviewer to persuade the suspect to reveal information providing insight into what might have pressured or motivated them and how they might have rationalized their actions. In an interview situation, the examiner should not suggest reasons for the crime. Instead, the examiner should let the individual share his motivations, even if the suspect reveals his motivations in an indirect manner. Remember to:

  • Leave your ego at the door.
  • Talk to the suspected perpetrator as an adult.
  • Do not patronize the suspect.
  • Use good communication skills to develop rapport with subjects so that they will feel comfortable talking to you.
  • Avoid being confrontational with the suspect. If the interviewer is confrontational, the perpetrator will be less likely to make an admission.

When conducting an interview with a suspect, the interviewer should begin by asking questions about the standard procedures and the normal, actual practice of the operations at issue. This is necessary to gain an understanding of the way the relevant process is intended to work and how it actually works. Additionally, asking such basic questions early in the interview will help the interviewer observe the interviewee’s “normal” behavior so that the interviewer can notice any changes in the subject’s mannerisms and word choice. Next, the interviewer might ask non-accusatory questions related to the issue at hand, such as:

  • Why do you think someone would do something like this?
  • What do you think should happen to a person who would do something like this?
  • Of all of the people who work in this area, who could be involved?

The answers to these questions can help the interviewer understand the possible motives of various suspects, narrow the pool of suspects, or obtain an admission. For example, a suspect who answers the question ”Why do you think someone would do something like this?” with a sympathetic answer might be trying to appeal to the interviewer’s sense of compassion to reduce or minimize her punishment.

One of our attendees brought up the issue of fraudsters’ seemingly irrational behavior.  It’s a good point.  During the interview, fraud examiners should be aware that there are times when otherwise rational people behave irrationally. It’s important in the interview process because it will help humanize the misconduct. Unless the perpetrator has a mental or emotional disorder, it’s acceptable to expect that the perpetrator committed the fraud for a reason. Situational fraudsters-those who rationalize their right to an illegal enrichment and perpetrate fraud when the opportunity arises–do not tend to view themselves as criminals. In contrast to deviant fraudsters, who are more proactive than situational fraudsters and who are always on the alert for opportunities to commit fraud, situational fraudsters rationalize their crimes. As indicated above, situational fraudsters feel that they need to commit fraud to regain control over their lives. Thus, an interviewer will be more likely to obtain a confession from a situational fraudster if he can genuinely communicate that he understands how anyone under similar circumstances might commit such a crime. Genuineness, however, is key. If the fraudster in any way detects that the interviewer is presenting a trap, he generally will not make an admission of wrongdoing.

Deception refers to actions designed to mislead or deceive someone into believing an inaccuracy or untruth. Studies tell us that people lie an average of three times during a ten-minute conversation. By definition, fraud involves deception for personal gain. Most humans commit deceptive acts to protect themselves from various consequences of the truth.  Lying refers to the deliberate act of departing from the truth. A lie is an untruthful statement, especially one made with an intention to deceive others. The capacity to lie is noted early and nearly universally in human development. At about the age of five, most children begin to be able to lie convincingly. Before this, they seem simply unable to comprehend why others do not have the same view of events that they do and assume that there is only one point of view-their own. When children first learn how lying works, they lack the moral understanding of when to refrain from doing it. In this stage of development, children will sometimes tell outrageous and unbelievable lies, because they lack the conceptual framework to judge whether a statement is believable, or even to understand the concept of believability. Developing a proper understanding of these concepts takes years of watching people tell lies and the results of these lies. It is this observation, however, that typically allows young children to learn that stating an untruth can avoid punishment for misdeeds, often even before they understand why it works.

Finally, many people consider withholding the truth to be the same as lying, and while they both do involve deception, there is a distinct difference between the two: Lying requires an active approach to deception, whereas withholding the truth involves a passive approach. For example, a fraudster might withhold the truth by disappearing to Brazil after embezzling enough money to retire. Thus, if the perpetrator is missing, he cannot be confronted or punished for his actions. Most people would prefer avoiding the truth when compared to lying because it is easier to be silent than to lie. Additionally, it’s difficult to be consistent with lies, and a person who has committed fraud is generally aware of this risk and wants to avoid it at all costs!  Remember, people can become so engaged in managing how others perceive them that they become unable to separate the truth from fiction in their own minds.