Look for the anomaly to find fraud

Ralph Summerford

By Ralph Summerford

Events may happen in a person’s life that can lead to an act of desperation. And desperate people may take irrational actions.

I am talking about bad economic times, the failure of a business, the loss of a job, divorce, a family member on drugs, disease, children in trouble, criminal acts by a family member or close friend. And the list goes on.

Any or all of these adverse life events can be the catalyst to commit an irrational act by an otherwise honest, hardworking employee, a trusted friend or a co-worker. Statistics tell us that two out of three people will commit fraud if the perceived need is great enough.

No matter what the event, it often creates a deep personal need that may push a person to commit fraud. People will react differently to the needs in their life.

However, predicting their behavior can be close to impossible, and creating a safety net for the varied reactions may be impractical.

Athletic coaches take a group of athletes and work daily on teaching how to react to each situation in a game. Coaches take individuals from diverse backgrounds and work to mold those individuals to perform at peak performance.

Business leaders do the same thing to train their employees to react to the demands of the job. The way these people will react under normal circumstances is therefore predictable.

Unfortunately, when life events (needs) happen to athletes, employees or our friends, we can’t predict how the person will react.

If the person reacts in desperation and does something irrational, such as committing fraud, the loss can be devastating. Not just in dollars, but the loss of trust, friendship and even one’s life.

Businesses have spent megabucks on detection systems and controls to prevent fraud — and yet fraud still occurs. There are ways, however, that all individuals and businesses can recognize fraud.

People ask me continuously, “How do you find fraud?” The answer is simple: You look for the anomaly! I mean, look for the unusual.

A great example is people who spend beyond their means.

And remember how HealthSouth always made their numbers and how Bernie Madoff made consistently high returns?

If something seems too good to be true, adopt the philosophy that IT IS. As Mark Twain said, “Trust everyone, just always cut the cards.”

But here is the real secret: You must look for the anomaly, recognize it and not ignore it. In hindsight, people will tell you they saw the signs of their kids or spouse using drugs, but they ignored it.

In interviews I have conducted after a fraud is discovered I ask the perpetrator, “What did you plan to do to either end the fraud scheme or what would you do if you got caught?” The answer is always the same: “I never thought of that!”

It only stands to reason — if the person did not know how to deal with the “need” they sure could not deal with the consequences.

No one likes a thief. No business will knowingly hire a thief. But adverse life events may cause an honest, hardworking co-worker or employee to become irrational and commit fraud.



Tags: ,

Leave a Reply