Understanding Corporate Fraud: Lessons from a Fraudster

Get inside the mind of a career criminal to learn about corporate fraud prevention

Posted by Brian Fox & Rick Schumacher in Ethics & Compliance, Fraud, Human Resources on May 21st, 2012

With ACFE statistics showing that companies lose five percent of annual revenue to fraud, it makes sense to put substantial time and effort into fraud prevention. Part of that effort can be focused on understanding the motivation of a fraudster so that you know what to look for.

Various fraud theories address a fraudster’s motivation. The fraud triangle shows that pressure, rationalization and opportunity combine to motivate someone to commit fraud. It’s also helpful to simply listen to what fraudsters have to say.

A recent interview with Tony Sales, a convicted/reformed fraudster, provided critical insight into the mind and thoughts of a fraudster. The interview was presented by the Merchant Risk Council and sponsored by TeleSign. Here is a summary:

Born a Fraudster

Tony started early as a fraudster. As a child he would go door to door with sponsorship forms presumably for charity, but would pocket the funds himself. As he grew older, so did his knowledge of fraud and what he was exposed to.

Tony found credit card fraud to be simple and lucrative. He would buy credit card numbers from waiters and others would use personal swiping machines to steal the information off of credit cards. Tony used these stolen credit and personal credentials online and over a 20 year period he was reported to have stolen more than 30 million pounds (UK), though Tony insinuated that the actual figures could be well above that.

Addictive Nature of Fraud

Over time Tony says that the rush of pulling off a job became addictive and turned it into his full time job. At that point, it was less about the money and more about beating the system. He even had an office where he went each day to “work.”

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His wife didn’t know that Tony was a professional fraudster, nor did most people. Because he associated with well-to-do friends and neighbors – judges, accountants, doctors etc. – and had nice big house in a great neighborhood, his kids in the best schools and he and his wife drove fancy cars, he projected a successful image which no one questioned. Even his family members didn’t know.

Tony was eventually caught and convicted, not for online fraud, but for cloning someone’s identity and using it to shop in department stores. When a fraudster-friend of his asked for help picking up a large screen TV, Tony and his friend were arrested in a police sting.

An Easy Way to Make a Buck

He spent 12 months in jail because he convinced the police that he was just the van driver and was delighted with his light sentence.

Tony says that online fraud is much easier than offline fraud. It takes the face away from the fraud and online fraudsters can work at it 24hrs a day from home.

Fraudsters work on the weakest targets for as long as they can and then move on. And they know that only a handful of fraudsters actually get caught. While Tony and other fraudsters can work their frauds 24 hours a day, they knew that law enforcement worked in shifts and therefore was always a step behind.

What We Can Learn from an Online Fraudster

What lessons can we learn from Tony that will help in prevention and detection of corporate fraud?

  1. Some people are dishonest from an early age. Keep them out of your organization by doing thorough background checks.
  2. Fraud is addictive. Look for signs of someone with a lavish lifestyle. You know how much your employees make.
  3. Don’t make it easy for fraudsters to find a weak link in your organization. Employ preventative measures such as segregation of duties, mandatory vacations and job rotation.
  4. Give a human face to your business. Get to know your employees. As Tony points out, it’s easier to commit fraud when the victim doesn’t have a face.

While Tony’s interview was certainly fascinating, it highlighted the fact that we must all remain diligent, maintain the highest levels of security for deterrence, and certainly keep up to date on the latest fraud trends and techniques.

Brian Fox
Brian Fox

Brian Fox is Founder, Capital Confirmation Inc. and Rick Schumacher is Managing Director, Cover Six Risk

Brian Fox, CPA, MBA, is the creator of Electronic Confirmations, receiving the first two patents granted on electronic audit confirmations. He founded Capital Confirmation, Inc. (https://www.confirmation.com/) and Confirmation.com, now used by all of the Top 10 Banks and by more than 45,000 accountants in 100 countries. Brian is a four-time winner of the accounting profession’s “Top 40 Under 40 CPA in America,” was named as an “Entrepreneur of the Year” in Nashville. Brian previously worked in audit for Ernst & Young LLP and in mergers and acquisitions for PriceWaterhouseCoopers. Follow him on Twitter @BrianFoxCPA

Richard (Rick) Schumacher, CFE, is the Managing Director of Cover Six Risk (https://richardschumacher.intuitwebsites.com). Prior to that he spent 10 years as a US Army Special Operator in the Middle East during both Operation Iraqi Freedom and Operation Enduring Freedom where he conducted Information Operations and Psychological Operation campaigns with the goal of eliminating miscommunication between Coalition Forces and native audiences. Rick perfected his investigative skills with the Military Police where he led investigations and interviews. For the last 7 years he has also been a criminal investigator for the state of Texas and is a specialist in interpersonal and intercultural communication. He is also an instructor on interviewing techniques and effective communications. Follow him on Twitter @rickslastchance

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