A.B.C.'s of Behavioral Forensics: Applying Psychology to Fraud Prevention and Detection / Edition 1

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Overview

In today's environment, highly educated, experienced, andwell-paid professionals seem willing to risk everything and commitfoolish—even criminal—acts. "Good" people do "bad"things! How do we understand the human actions that are behindevery fraud? Fraud requires accounting professionals to "think likea crook to catch a crook."

A.B.C.'s of Behavioral Forensics turns business fraud onits head, focusing less on the how of fraud, and more on the why,with a no-nonsense examination of fraud as a result of humanbehavior. Written by an author team imparting diverse yetspecialized perspectives to the understanding of fraud in all itscomplexity, A.B.C.'s of Behavioral Forensics providesstriking insights on the psychology of white-collar crime withpractical tools to help you detect and prevent fraud.

In this book, you'll discover the behavioral red flags to lookfor in your workplace, and understand why leaders should care aboutorganizational culture. Topics include:

  • The relevance of behavioral approaches
  • The fraud triangle and beyond
  • The bad apple, bad bushel, and bad crop(A.B.C.) theory
  • How the basics of human behavior tie into fraud
  • Understanding the "balance sheet basics" of the mind
  • The mind of the predatory fraudster—a la "Step into myparlor . . ."
  • When honesty reverses course—and stays there
  • Helping senior executives stay on the right side of theline—"good ethics is good business"
  • Developing psychological awareness and recognizingbehavioral/integrity risks surrounding financial fraudsuspicions

White-collar criminals know you well, but do you know them andhow they operate? If you thought you knew everything there was toknow about financial fraud, white-collar crime, and the psychologyof fraud, think again. Learn how to get into the mind of thefraudster with A.B.C.'s of Behavioral Forensics.

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Product Details

  • ISBN-13: 9781118370551
  • Publisher: Wiley
  • Publication date: 9/23/2013
  • Edition number: 1
  • Pages: 271
  • Sales rank: 713,948
  • Product dimensions: 6.10 (w) x 9.10 (h) x 1.30 (d)

Meet the Author

Dr. SRIDHAR RAMAMOORTI, ACA, CPA/CITP/CFF/CGMA, CIA, CFE,MAFF, CFSA, CGAP, CGFM, CRMA, is currently an AssociateProfessor of Accounting and Director, Corporate Governance Center,at Kennesaw State University. A former University of Illinoisaccountancy faculty member, he has worked for Arthur Andersen andErnst & Young, and is a former corporate governance partnerwith Grant Thornton. A board member of the Institute for Truth inAccounting and Ascend, he chairs the Financial ExecutivesInternational's Committee for Governance, Risk, and Compliance.

DAVID E. MORRISON III is a Clinical Assistant Professorof Psychiatry and Behavioral Sciences at Chicago Medical School,Rosalind Franklin University of Medicine and Science. An advisor tothe Institute of Fraud Prevention (IFP) of West Virginia Universitysince 2008, he is also a past president of the Academy ofOrganizational and Occupational Psychiatry, Group for theAdvancement of Psychiatry (GAP) member, and a Tomkins Instituteboard member. He works full time as a principal at MorrisonAssociates, Ltd., with a career focused on leadership and executivedevelopment.

JOSEPH W. KOLETAR, DPA, CFE, is an independent forensicinvestigator and consultant. He has held senior positions such asprincipal and director with Ernst & Young and Deloitte in thefirms' forensic and investigative practices. Before joining theprivate sector, Dr. Koletar spent twenty-five years as a specialagent in the FBI, the last seven in senior executive positions. Hewas formerly chairman of the Board of Regents of the Association ofCertified Fraud Examiners.

KELLY RICHMOND POPE, PhD, CPA, is an Associate Professorin the School of Accountancy at DePaul University and founder ofHelios Digital Learning. She is the creator of the award-winningwhite-collar crime documentary Crossing the Line: OrdinaryPeople Committing Extraordinary Crimes. Her work has beenpublished in numerous academic journals such as BehavioralResearch in Accounting, Journal of Business Ethics, andAuditing: A Journal of Practice & Theory. She alsowrites for Forbes.com, Newsweek Daily Beast, and PBS's Need toKnow. Prior to academia, she worked as a forensic accountantfor KPMG LLP. In 2012, Dr. Pope was elected to the AICPA GoverningCouncil for a three-year term.

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Table of Contents

Foreword xv

Preface xvii

Acknowledgments xxiii

Introduction 1

The Human Factor 2

Trust Violation and Its Consequences 4

This Book’s Approach: The A.B.C.’s of BehavioralForensics 4

An Interdisciplinary Approach 6

Part I When Fraud Is Committed 9

Chapter 1 Fraud Is Everywhere 13

The Pervasiveness of Fraud 14

On Making (Up) the Numbers 16

A Slippery Slope 19

From Slippery Slope to Broken Windows 21

Fraud Is a Human Act 23

Conclusion 24

Chapter 2 The Sins of Quantification and Other Mind-SetImpediments 27

The Danger of Numbers 29

Data Analysis Is Not Enough 31

Hard Numbers versus Reality 33

Conclusion 37

Chapter 3 Beyond the Fraud Triangle: Toward an Outline of A.B.C.Theory 41

The Relevance of Behavioral Approaches 41

Understanding White-Collar Crime 43

The Fraud Triangle and Other Theories of Causation 45

A.B.C. Theory: A New Fraud Taxonomy 49

Conclusion 53

Part II The Foundations of Behavioral Forensics: Why Good PeopleDo Bad Things 55

Chapter 4 Beyond the Fraud Triangle and into the Mind: TheBuilding Blocks of Behavioral Forensics— Understanding Howthe Basics of Human Behavior Tie into Fraud 59

Deception Is a Natural Phenomenon 59

The Mind and the Fraud Triangle 60

Emotions: The Power behind Psychological Defenses 67

Affect’s Two Ties to Fraud: Motivation and Communication73

Conclusion 76

Chapter 5 “Said the Spider to the Fly . . .”: ThePredator-Prey Dance— Putting Behavioral Science Fundamentalsinto Motion 81

Emotions, Unconscious, Defenses—Oh My! 82

Relationships: Where Fraud Is Set in Motion 82

The Relationship as an End in Itself: Bernie Madoff 87

Lance Armstrong and His Accomplices 91

Where Is the Humility? 93

The Power of Shame 94

Good to Evil: How a Hardwired Emotion Is Ignored and Manipulated99

When Shame Is Maladaptive at Work 104

False Pride: With the Threat of Shame Comes Hubris 107

The Predator Bullies the Professionals 108

The Role of Mental Illness 111

Conclusion 116

Chapter 6 The Accidental Fraudster (Bad Apple): When the AppleTurns and Honesty Reverses Course 121

Committing the Crime 121

Beyond Greed 122

Exploiting a Weakness: A Motivational

Theory of the Accidental Fraudster (Bad Apple) 123

New Insights in Behavioral Forensics 127

Disregarding Risk: The Thrill of Being Close to, but Not in, Danger133

Why Now? Understanding Life-Span Issues in Fraud Reversals137

Lessons from Executives and Managers on the Couch 139

Conclusion 139

Chapter 7 The Bad Bushel and Beyond: Seeing the Larger Contextof the C-Suite 143

Luck and Effort Distinguish Senior Executives 144

Life as an Executive: Excitement, Vigilance, and Caution 147

Trouble in the C-Suite: Overwhelmed, Overpaid, andOverconfident—Narcissism and Beyond 148

The Individual and the Group: Bad Bushels Arise 153

The Science of Persuasion 158

Conclusion 161

Part III A Call to Action 165

Chapter 8 Managing the Ecology of Fraud: What You Can Do onMonday Morning 171

The Financial Markets: The Moral Foundations of Capitalism172

Helping Senior Executives to Stay on the Right Side of the Line176

Piercing the Rationalizations 177

Emotional Manipulation 179

On Lies and Misrepresentation 181

The Operational Fraud Triangle 183

What You Can Do Monday Morning 185

Recognizing Tipping Points (of the Mind) 188

Conclusion 191

Chapter 9 The Future of Behavioral Forensics: DevelopingPsychological Awareness to Complement Financial Fraud Suspicions195

Fraud: A Global Scourge 196

Fraud Is Not a Problem with an Easy Answer 197

A Psychological Autopsy of Fraud 207

The Future of Behavioral Forensics 209

Afterword 213

Appendix A The Psychology and Sociology of Fraud: Integrating theBehavioral Sciences Component into Fraud and Forensic Accounting Curricula 217

Appendix B Chapter Supplements 231

Bibliography 247

About the Authors 255

Index 261

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