The psychology of fraud

That fine line that divides good and evil.

When I was young, the product of Calvinist schooling, I thought good and bad people where two separate things. That the good guys fought the bad guys at some proverbial high noon in a shoot-out between the just and the wicked.

Only later when I understood the complex, paradoxical nature of humans, I came to appreciate what the Russian historian Aleksandr Solzhenitsyn meant in his Nobel address, “One word of truth”:

“If only there were evil people somewhere insidiously committing evil deeds, and it were necessary only to separate them from the rest of us and destroy them. But the line dividing good and evil cuts through the heart of every human being and who is willing to destroy a piece of his own heart.”

I was reminded of this recently when interviewing David Alexander, a white-collar criminal now helping to combat fraud in South Africa. In October 2003 Alexander was convicted of fraud and other economic offences in the amount of R372-million and was sentenced to 15 years imprisonment. He was paroled five years later after serving his term under horrific conditions in an over-crowded jail.

Alexander says fraud starts with minor misdemeanours. When people take stationary home, use their motor vehicle for private travel, or claim more than they should from business expenses.

All humans have a set of moral codes and it appears people will easily break a law if it doesn’t interfere with their internal moral code. People commit the little frauds because they can easily justify these in terms of their own internal standards.

“I fudge my taxes because quite frankly the government is corrupt and is doing an appalling job of running this country. Why shouldn’t I be able to manipulate my returns a little?”

Sound familiar?

Alexander reckons that some 10% of people in life are morally impeccable and would never transgress any laws. Another 10% of people are out and out crooks. The other 80%? Well Alexander reckons they are morally confused majority, and given the opportunity, the motivation and the justification, will commit crime.

Given that such a large percentage of the population (or your workforce) is easily disposed to crime the big questions to understand and answer are why do people commit fraud and what can you do to stop it?

Sociologist and criminologist Donald Cressey was a fraud guru who spent much of his life trying to understand why people violate positions, and why seemingly “good” people are overcome by temptation to commit crime.

After interviewing hundreds of fraudsters in jail he found the most common reason for committing fraud was because the person was in dire financial straights, and could not share this predicament with anyone.

Given the global financial crisis, South Africa’s problem with credit and over-spending, hikes in food prices and the fact that corruption is daily news in this country, it’s a safe assumption that company fraud is a big workplace problem.

So how do you get the morally ambiguous 80% to become honest and walk the straight and narrow?

Alexander maintains unethical behaviour is bred from the top and filters down like gravity. When company leadership behave in a way that is unjust or morally ambiguous the rest of the pack simply follow suit.

Then people need to be educated about moral confusion to become very clear about what fraud is and how easy it is to commit fraud. They also need to be absolutely clear about what the consequences of any criminal action will be.

Fraud is a deception made for personal gain, and fraud can be about potential prejudice, and not actual loss. The line is fine, but extremely clear.

Each time you fudge your taxes, steal a pencil, fix the bread price, ask for a personal kick-back when making a sale, add a few extra lines on your expense claim, you’re committing fraud.

Now tell me that’s worth spending a significant part of your life in an overcrowded jail cell?