White collar crime is estimated to cost the South African economy billions per annum and no industry or business sector can claim to be immune to it. It has, therefore, never been more important than now for companies to be vigilant in preventing fraud. With the recession felt by many, fraudsters are more compelled than ever to find ways to hold on to their assets and maintain their lifestyles.

There are three factors that usually converge before a fraud takes place:
Pressure to commit the crime
The pressure on individuals to supplement income streams is derived from a variety of sources, the most prevalent being a tendency of many individuals to live beyond their means. Fraudsters love 4x4s and expensive German cars and, of course, these types of toys are expensive. The employee is then induced to steal in order to maintain a lifestyle that is more extravagant than his or her income stream allows. Sometimes fraud is committed out of a desire to look after the best interests of the family, for example, paying private school or university fees. Extra-marital affairs are often a potential inducement to commit fraud as perpetrators often need to fund their mistresses and illicit activities. They then need to look for an income stream which is out of reach of the prying eyes of their partner.

Fraud is also often motivated by habits like gambling and drug or alcohol dependency where the addict becomes pressured to find alternative sources of money to feed the habit. Sometimes gamblers advertise their regular visits to the casino to colleagues at the office in order to conceal the proceeds of a crime. They know that if they suddenly display signs of wealth, people– notably their employers – may become suspicious. By letting colleagues know that they are big winners at casinos, nobody will think twice about the new house, car or the building alterations. The most tragic aspect to fraudsters who gamble heavily is that there is often a genuine hope on their part to make good. They believe that they will eventually win big at the casino and be able to enjoy a fairytale ending by secretly replacing stolen funds prior to being found out – while still, of course, having sufficient funds to live comfortably and honestly in the future.

Opportunity to commit the crime
Once a fraudster is financially stressed, the next step in the fraud equation is to find an opportunity to commit the crime. If the need is great and the controls are weak or non-existent, it becomes immensely difficult for the employee to resist the temptation to help him or herself to company money. Once they realise that they are not subject to oversight, or there is a gap, this is the first step down the proverbial slippery slope. Financial managers, accountants, clerks, managers and directors commit a large percentage of the white collar crime in South Africa because these are the individuals who have access to either the physical cash or the payment processes, and sometimes they have the final control to prevent abuses by others. Provided that they almost never take leave or resign, they are invariably in the perfect position to cover up their illicit transactions. Often when audits take place, they are the very individuals requested to supply the auditors with information and documentation. Covering up becomes a way of life.

Rationalisations for committing the crime
Pressure and opportunity may be one thing. But what is it that moves individuals to commit acts of dishonesty when there are so many honest people out there who are able to resist temptation? This is where an interesting psychology comes into play. The fraudster who has succumbed to pressure and exploited an opportunity to steal will, in the normal course of events, be plagued by a guilty conscience. This can be a source of considerable irritation. However, it would seem, some ethically challenged citizens do not even feel this. The way white collar criminals alleviate a guilty conscience is through rationalisation. They re-label their illicit conduct in their own minds in a desperate attempt to water down the moral reprehensibility of it. A common rationalization is the employee who steals from his or her employer but considers the misappropriation as unauthorised borrowing – a ‘loan’ which will be repaid as soon they get back on their feet. Another equally common rationalization is where a decision maker in an organisation accepts a kickback in exchange for giving a large order to a particular supplier. In order to sleep better at night, he or she classifies the payment as a ‘loan’ or ‘commission’ in his or her mind. The ‘loan’ excuse is frequently used, but with one so-called ‘loan’ leading to another and another, it soon becomes impossible to ever repay – even if this was the original intention, which is questionable.

When forensic investigators drill down to the detail of the ‘loan’, they usually find that there is no formal contract and repayment has not yet commenced. Often it comprises a large amount of cash in an envelope handed over in a restaurant or a bar, an all expenses paid holiday, a luxury car, employment for family or friends, or even sexual favours. Other equally insidious forms of rationalisation include creating a framework of entitlement in terms of which they convince themselves that they are under-valued and under-rewarded, which in due course allows them to feel entitled to take something back from the organisation. This is particularly true of employees overlooked for potential promotion. In their mind, they have been unfairly treated and deserve more money – if the company can’t see that, well then they will simply have to help themself. In terms of this rationalisation, the company is the rogue, not the fraud perpetrator who is merely correcting an injustice.

A further complication is recidivism. Once the white collar criminal becomes accustomed to enjoying the proceeds of illicit activity, it becomes difficult to voluntarily desist. On occasion, when finally apprehended, some offenders express relief. They declare that a huge weight has been lifted off their shoulders and express that they felt a desire to be caught as the fraud itself had become an uncontrollable addiction. Psychiatric evidence recently led in the trial of a financial manager convicted of irregular electronic funds transfers likened the misappropriation to an over-eating disorder in that once the accused had started stealing, he simply could not stop himself. In this investigation, forensic investigators noted an interesting choice of bedside literature when executing a search warrant – a book on how to survive the prison environment, which must have come in handy when the suspect received a five-year jail term in a plea bargain scenario.

Be proactive
Companies are advised to be proactive and take positive measures to prevent fraud by getting into the mind of the white collar criminal before he gets his criminal mind into your business!

Steven Powell is a Director in the forensics department at ENS spowell@ens.co.za