The Human Element of Fraud
Peter D. Goldmann · 2012
This chapter looks at one critical set of data in defining who commits fraud. There is some disparity in the findings of several research studies on how much of total fraud is committed by insiders compared with external perpetrators.The chapter describes various element of fraud along with the category and their consequences. External fraudsters are a varied and demographically diverse group, which makes it difficult for fraud fighters to profile these criminals. The best approach to detecting and preventing external fraud against financial institutions is to understand the red flags of these crimes. Internal fraudsters do have common behavioral and personality traits, which helps to detect suspicious activity before it is too late. Up to 80 percent of employees are either totally honest or honest to the point that they will not steal except in situations in which the opportunity to do so presents itself. And even then, these “fence sitters” may err on the side of honesty. The remaining 20 percent of your organization's employees are fundamentally dishonest and will go out of their way to commit fraud. Internal fraud can be divided into two categories: employee level and management at which fraud is committed and the amount of financial loss resulting from frauds at each level. Thus, while management-level frauds are committed less frequently than employee-level frauds, the financial loss resulting from the former is almost always significantly greater than the amount lost from the latter. The Fraud Triangle (Pressure, Opportunity, and Rationalization) helps fraud fighters identify and stop potential fraudsters from carrying out crimes that could result in financial losses to the organization.