05 February 2016

Examining white collar fraud

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Recent news reports on fraud have highlighted the prevalence of white collar fraud.

A recent case involved a bookkeeper being jailed for six years for defrauding her company of millions of dollars. She was a serial offender, stealing millions since the 1990s from three different companies that hired her despite an in-between jail stint.

Another fairly recent high profile case involved CBA, Australia’s largest bank, where its second-in-command in the IT department amassed more than a million dollars in kickbacks in return for awarding the bank’s IT contracts to a US-based company.

These cases are but a drop in the ocean of internal fraud cases committed in Australia. A recent report by KPMG suggested that Australia was set back by over $128M due to fraud incidences in just the period of April to September 2015. Internal fraud cases committed by management and employees in Australia amounted to $3.3M, and a total of $57M worth of liabilities were also borne by government and investors as a result.

These white collar crimes are mostly perpetrated by people in respected, high-standing positions. What motivates them, and how does a decent person see these actions as being acceptable?

There are various reasons and suggestions as to why. Psychological issues come up often, a veil behind which serial fraud perpetrators are keen to hide behind. Company culture and the “tone at the top” is another one, with the CBA fraud article above giving a glimpse of a toxic culture among a proportion of the banking and finance sector. Greed, naturally, is another common theme among most cases.

However, there is a common thread amongst these key themes. This site mentions that most fraudsters believe that they are doing the right thing. This trend, termed the rationalisation of fraud, argues that social structures provide motivation for negative conduct because they “focus individuals on competition, the importance of money in society and the erosion of social norms that encourage legitimate money-making goals”.

The article delves into the Fraud Triangle, which has gathered research from various fields including criminology, psychology and accounting (among others), to identify three key factors that will influence a person to commit fraud:

  1. A perceived pressure facing the person
  2. A perceived opportunity to commit fraud
  3. The person's rationalization or integrity

This article, written by a previous convicted fraudster, quotes a clinical psychologist and fraud expert Joan Pastor who has stated that we all are capable of committing a crime. For us generally, ethics is “a matter of convenience depending on the situation and pressures involved”.

Given a social structure that is highly-pressured, it is not a wonder that fraud is often rationalised by the perpetrators.

What all this means is that fraud fighters and stewards of companies have to become smarter about how they fight fraud. Delving into the psychology of fraudsters and identifying gaps in warning systems are instrumental in ensuring that fraud is prevented and detected early.


Su grew up dreaming of being a journalist, dodging bullets and gunfire with a camera thrust in front of her reporting from a war zone. Having realised that she is not really as agile as she thought, she has settled for dodging cockroaches in metropolitan Sydney as her adrenaline fix. Su is inquisitive and loves a good challenge, which is why she has chosen to produce conferences at Akolade. In her spare time, Su likes to read, drink green tea, and fantasise about making the world a better place; getting rid of the need for war journalists entirely.

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