Predators Versus Situational Fraudsters

In 1999, real-estate manager Robert Wood’s house was destroyed by a fire. The Spokane County, Washington, man blamed the blaze on his 11-year-old son, Christopher, claiming that the young boy had been playing with matches. The reality was that Wood started the conflagration and strangled his son to death. The reason? Wood had been stealing thousands of dollars from his company, and he set his home on fire for the insurance money.

During her Tuesday morning breakout session, “Expanding Fraud Risk Awareness: Rationalization and Dark Triad Personalities,” at the 35th Annual ACFE Global Fraud Conference, Stephanie Mongiello, J.D., CFE, used Wood as an example of a predator-type fraudster. According to Mongiello, associate professor of accounting at the University of North Texas at Dallas, predator-type fraudsters are serial offenders noted for their lack of conscience. They are always on the lookout for an opportunity to commit fraud.

Mongiello contrasted the predator-type with the situational fraudster, the most common type of fraudster. Situational fraudsters generally commit just one fraud in their entire lifetime; they find themselves in a circumstance in which they surmise that committing fraud is the solution to a particular problem. They are facing some sort of pressure like having massive gambling debts or some other financial situation. They have a conscience, so they need to rationalize their decision to commit fraud. Mongiello provided an example of the 2016 Wells Fargo bank scandal in which employees created millions of unauthorized accounts for existing customers. They created all those new accounts for unsuspecting customers largely because the employees were expected to meet unrealistically high quotas.

While situational fraudsters are more common, predator-type fraudsters, with their criminal expertise and history of committing fraud, cause greater losses for organizations.

The Dark Triad

During her session, Mongiello broke down the dark triad personality traits that define the predatory fraudster: narcissism, Machiavellianism and psychopathy. Narcissists are selfish, arrogant and lack empathy. Mongiello gave the example of Miranda Priestly from the movie the “Devil Wears Prada,” as an example of a narcissist.

Traits for Machiavellianism include manipulation, self-interest, lack of emotion, absence of morality, ruthless deceit and a cynical view of the world's Machiavellian personality. “They strategize ruthlessly,” said Mongiello. Gordon Gekko from “Wall Street,” is the classic example.

According to Mongiello, Billy McFarland, mastermind behind the Fyre Festival fraud displayed both narcissism and Machiavellianism.

Mongiello used the Fraud Triangle as the vehicle for viewing the differences between situational fraudsters and predator-type fraudsters. As fraud examiners know, the Fraud Triangle, developed by criminologist Donald Cressey, explains the three elements needed for fraud to occur—financial pressure, opportunity and rationalization. According to Mongiello, predator-type fraudsters are “harder to pin down and analyze under the Fraud Triangle because the mere presence of that opportunity element may be enough for them to go ahead and commit fraud.” Situational fraudsters rely on their rationalizations. They are easier to understand through the Fraud Triangle because they have found themselves in a situation that puts pressure on them. They are in a position that provides them with the opportunity to commit fraud, such as a lack of internal controls. They tell themselves that they will steal this money, just this one time and they will never do it again.

“Rationalization is that story that the fraudster tells themself to make it morally acceptable to perpetrate the fraud. It's kind of that final step, the final story that the fraudster tells themselves that pushes them over the edge,” said Mongiello.

Yet while these situational fraudsters and predatory fraudsters have different goals, Mongiello said that anti-fraud professionals can approach fighting both types of fraudsters in a similar way.

“Opportunity is the element that we, as fraud-fighting professionals, have the most control over, because we can institute internal controls, strong internal controls that seal up all those opportunities that a fraudster might have to commit a fraud,” said Mongiello.

She told attendees that homing in on the opportunity element of the Fraud Triangle is key. “Opportunity is the marriage of a weakness in internal controls, plus the fraudster’s unique or specialized access to the systems of the organization and knowledge about where those internal controls are weak.”

Eliminating the opportunity for fraud works to fight the predatory fraudster because that is what they are always looking for. They are always looking for loopholes and weaknesses in the system. Mongiello suggests that the interview is the perfect time to guard against predatory fraudsters. For example, using personality tests as part of the interview process can be helpful—not because the test will necessarily reveal someone’s dark personality, but that the serial fraudster might pull themselves out of the process because they think the test will reveal their truth. The test provides the perception of detection.

“The perception of detection is key for deterring predator-type fraudsters from even coming into your organization in the first place. They're not going to take a job where they feel like they're going to be watched,” Mongiello told attendees. “The more roadblocks you put up even in the hiring process the better.”