Do Executive Fraudsters Ever Quit Before Being Caught?

Do fraudsters ever quit before being caught?(This is very much work in progress and is only posted to assist others in the field of executive fraudwhich is very under-researched 11th Nov 2010)From my doctoral research (Sheridan 2010) on senior manager fraudsters, it is my conclusion thatPredator type executive fraudsters will inevitably get caught. The Predators tend to show psychopathictendencies with the added dash of superiority, arrogance, are highly manipulative as well as driven tohave power over their subordinates, co-workers and senior management.Entry into the organisationThe fraud process for a Predator begins with a deliberate targeting of an enterprise. Their way in is byavoiding the recruitment process altogether by being highly recommended by themselves or others whohave been hoodwinked. They do not want their past scrutinised as usually there will be some indicatorsof things not quite as they should be - either in the workplace history or at home. Very few have acriminal history. For a Predator, a criminal check tells you nothing. For instance, Jeff Skillings (whohas all the hallmarks of a Predator) entry into Enron was by recommendation to Kenneth Lay, theChairman of the Board.Predators are parasitesOnce in they immediately start to work out how to defraud the enterprise. This can be done on severalfronts: from fiddling their expenses to massive frauds. They will then commence the activity as soon asthey are able. They will carry on their parasitic behaviour sucking funds out of the hostbusiness as long as possible. In comparison to what fraudsters do, leeches, as revolting as they appear,are actually far less harmful to their hosts. Leeches get their fill of blood and move on. However,fraudsters can literally bring down the whole company in their desire to have money and their activityranges usually into years.Most fraudsters experimentally test their system by using a very small amount at the beginning. Thereasoning here is that if the theft fails then they will be only have to own up to a small amount. This isquite a critical point in their thinking, as this they will argue that the issue was about doing a systemstest or it was just a silly mistake as they pressed the wrong buttons on the computer and not fraud atall. When this type of argument are given on these lines, suspicion must be raised to the distinctpossibility of a Predator. To allow the manager to stay on is inviting disaster without a full vettingprocedure and spot audit taking place.Modus OperandiiThe Predator is very interesting to watch at work. Examination of Predator practice show a long termpassing of funds into their own accounts. They are there, in situ, for a long time. There is no point ofmoving on, they are happy with pulling the wool over the owner/Boards eyes, in fact they enjoy thisvery much. This is part of their urge to seize power and the money gives them power. They feelsuperior to all and sundry and let them know it in very subtle ways. For instance, a common featurewas to drive an old wreck of a car to work and at home (or in storage) in the garage there is a gleamingFerrari. The owner of the business may only be able to run an old BMW, but they delight in the secretknowledge of the gleaming roadster at home.Owning such status symbols is paramount to themA female Predator may shower her partner with such cars and herself with expensive jewellery. Theylie their way through these status symbols by tending to explain away the discrepancy of salarycheques to the items bought as bonuses or gifts from the boss. Their families become used to tripsabroad as normal for their holidays as they are freebies offered by travel agents or paid out onFrequent Flier points.The ExitSome may plan their exit strategy in advance. From my research the more intelligent Predators appearto have a finely tuned plausible exit, as Jeff Skilling did from Enron. But it is my belief that Skillingsaw the signs of closure on his high price end game and jumped the Enron ship just before it sank. Tobe the "smartest guy in the room" he should have left Enron years before the hedge fund ruse was to beexposed. Instead he hung on to the bitter end. And this is another hallmark of a Predator. They cannotstop. They are addicted to power and cannot give it up. Therefore they continue their fraudulentactivity until they are discovered.This is the critical point that determines if the managerial fraudster is going to be on the loose againwithin a few months to find his or her next victim. The enterprise has three options: Electronic copy available at: http://ssrn.com/abstract=1707283

1) Call the Police immediately2) Co-operate with the fraudster in an attempt to recover the stolen funds and continue the employmentin the short term.3) Dismiss/let go the fraudster with or without a reference.Regarding Option 1: I do not have data to form this conclusion as it is unavailable, but certainlyinformed opinion is that at least a third of companies in Australia do not report fraud to the police(Smith 1999). To summarise Smith’s reasons for this: the company was able to deal with the matterinternally by warning or dismissal; a belief that the matter was not serious enough for prosecution; afear of consumer backlash; inadequate proof and a reluctance to devote resources to the prosecutionprocess; spending ‘good money after bad’ with little hope of asset recovery; sending messages out tothe community about their vulnerability and encouraging more frauds. Frauds that come into the publicview are therefore only the tip of the iceberg.Option 2 was the preferred option by the organisations in my doctoral research. The business ownersonly had the Police involved if regulatory authorities (such as taxation, stock market etc) were alreadyinformed through the alerting process. Bear in mind that my study focused on convicted fraudsters, butI was surprised that the cases were not reported to the Police immediately upon discovery.Option 3 appears then to be the most preferred option, and this is a major concern, as what the seniormanagement or Boards fail to consider is that they are unleashing the fraudster directly into the handsof their next victim. And so the cycle begins again.So the answer to the question posed in the title?It is a clear Yes, my conclusion is that they get caught every time, but a good proportion of thecompanies and the non-profit organisations that discover the theft let the executive fraudster go.My research also uncovered the huge emotional burden that is carried along with the financial loss tothe struggling enterprise owners. To allow this to happen, is to me, unconscionable and immoral. Electronic copy available at: http://ssrn.com/abstract=1707283

Do Executive Fraudsters Ever Quit Before Being Caught?

by Vyacheslav Nehoroshih on Dec 12, 2010

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Do Executive Fraudsters Ever Quit Before Being Caught? Document Transcript

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