Sketching the mental framework and physical appearance of a fraudster

1http://totallyunrelatedrandomanddebatable.blogspot.com/

DELVING IN THE DEVIL’S MINDSketching the mental framework and physical appearance of a fraudster.

Kenny Ong


Business today…

13th April 2009

•Two Domino’s employees

•YouTube

•Apology from Domino’s after 48 hours

•1 million hits

•Twitter: questions on silence

•LinkedIn: suggestions by users in forum

BusinessWeek, May 4, 2009


€50 BillionWorldwide sales in

2011

2 billion peopleUse Unilever’s products

Each day worldwide

400 BrandsSold in 180 countries

167,000 employeesWork for Unilever

130 YEARS & STILL GROWING



Contents:

A. The Criminal Mind

B. Triggers

C. Minimizing Incidents

D. Future Fraud

When and how do you decide?


How many of us drive with the ultimate intention of breaking the

speed limit?


Fraud-O-Scope™

Fraud

1. Character

Good

Bad

2. Intelligence

Smart

Not Smart

3. Situation

Open Closed

4. Catchability

Easy Hard


The Criminal Mind

Profile of Potential Fraudster


“Everyone has a price”


Fraud-O-Scope™

Fraud

1. Character

2. Intelligence

Good

Bad

Smart

Not Smart


Fraud-O-Scope™

Fraud

1. Character

Good

Bad

1. Family2. Education3. Social4. Movies5. Books6. Religion7. Record8. Attribution


Fraud-O-Scope™

Fraud

2. Intelligence

Smart

Not Smart

1. Education level

2. Talent3. Analytical4. Systems5. Ask

questions6. Years of

Service


How would you profile him?


How would you have profiled him?


GENERAL FRAUDSTER PROFILE

• Profile: 68.6% – no prior criminal record, – Aged 26-40 years old, – Annual income between RM15k-RM30k, – 2-5 yrs of service

• Struggling financially or large purchases – difficult time in their lives– gets out of hand

• Merger and acquisition or reorganization activity. – ‘I don’t have a career here’ attitude.


Possible General Root Causes for Fraud Mindset

1. "Everyone does it."

2. "It was small potatoes."

3. "They had it coming." – the revenge syndrome

4. "I had it coming." – the equity syndrome



1. "Everyone does it.“1. Indiscipline employees commonly organize

themselves in cliques or clusters - the inner circle

2. Rarely does a repeat offender not involve an accomplice or at least a confidant.

3. “If my superior can come to work late and still be promoted, it means I can steal RM10. Both are indiscipline cases anyway.”



1. “It was small potatoes.“1. “What's a RM30 stolen calculator to a company that

makes millions each year or to a boss who drives a Mercedes?

2. “Zero Tolerance Policy” for identified disciplinary cases in any form or for any amount?



1. "They had it coming." – the revenge syndrome1. “The accounts department cuts down my lead time

to submit my claims yet take 60 days to compensate my claims. So I purposely come late to work to compensate.”

2. “The company keeps cutting down our benefits and allowances but keep asking us to produce more. So I compensate by being calculative with the company even for one sen.”



1. "I had it coming." – the equity syndrome1. Under-compensated or unrecognized -> self-

devised "bonus" plan.

2. Employee has been turned down for a raise or promotion; after a company-wide salary freeze has been established; during periods of company turmoil (restructuring, takeover, new management, etc.).


Reminder: Very few people join an organization with the objective to

commit fraud.


Triggers

Conditions for Fraud


Fraud-O-Scope™

Fraud3. Situation4. Catchability

Open ClosedEasy Hard


Fraud-O-Scope™

Fraud3. Situation

Open Closed

1. Self/Family2. Straight road3. Conflicts4. Bad Bosses5. M&A6. Org Character7. Controls8. No changes9. Power

Imbalance10.Amount, $$11.Org Systems


Fraud-O-Scope™

Fraud4. Catchability

Easy Hard

1. Check & Balance

2. Oversight3. Automation4. Burden of

Proof5. Line of Sight


Who is most likely to commit Fraud?

Excellent

Very Good

Average

Not Good

Commit Suicide


The Four Desperates

1. Desperate Competition

2. Desperate Consumer

3. Desperate Achievers

4. Desperate Changes


Dangers of Direct Incentives

1. lessen internal motivation, 2. switch to mercenary mode, 3. do something and do not do something else, 4. bribe and fraud culture, 5. easier for competitors to recruit, 6. lessen teamwork & helpful culture, 7. less and less impact for same value, 8. mockery of base salary and employment contract, 9. rebellion from non-incentivised staff, 10. end up incentivising everyone for everything?,


Curse of the Bell Curve

‘A’ Staff

‘B’ Staff

‘D’ Staff

‘E’ Staff

‘C’ Staff


Biggest Issue in Financial Product Innovation?


Power Imbalance

1. Propose

2. Approve

3. Execute

4. Monitor



1. "Everyone does it."

2. "It was small potatoes."

3. "They had it coming." – the revenge syndrome

4. "I had it coming." – the equity syndrome


Minimizing Incidents

Prevent. Deter. Kill.


"Fear not the 10,000 moves practiced once. Fear the one move

practiced 10,000 times"Chandni Chow to China


GENERAL STRATEGIES AND POLICIES

• B1. Classification of Behaviors– B1.1 Disrespectful Workplace Behavior

– B1.2 Progressive Discipline

– B1.3 Zero Tolerance



• B2. Recruitment and Selection• B3. Exit• B4. Employee Assistance Program• B5. Anonymous Hotline• B6. Communication and Feedback• B7. Training and Education• B8. Formal Complaint and Grievance



• B9 Leadership– 1. Leaders act as role models whether

consciously or unconsciously

– 2. Leaders determine the working environment



• B9 Leadership– 1. Educate– 2. Involve– 3. Teach – 4. Eliminate


SPECIFIC STRATEGIES AND POLICIES

• C1. Theft and Fraud – Root Causes– Profile: 68.6% - no prior criminal record,

Aged 26-40 years old, Annual income between RM15k-RM30k, 2-5 yrs of service

– Struggling financially or large purchases • difficult time in their lives• gets out of hand

– Merger and acquisition or reorganization activity.

• ‘I don’t have a career here’ attitude.



• C1. Theft and Fraud - Prevention– Background checks– Duties segregated– Anonymous hotline – Share the wealth– Communicate successes– Make a big noise when discovered– Video surveillance equipment



• C2. Violation of confidentiality or security of company information - Prevention– a. ICT Security Policies*– b. Ownership of Intellectual Property– c. Inside Information and Trading of company

shares


*ICT Security and Fraud (1/3)

Biggest ICT risks

1. Security – All matters relating to the ‘coming-in’ and ‘going-out’ of all systems and information

2. Backup - including Storage of critical and non-critical information and Disaster Recovery

3. Continuity – Availability of systems and information at a 24x7x365 standard


*ICT Security and Fraud (2/3)

The following are threats faced by organizations from ‘inside’ the company:

• Current Employees, • On-site Contractors, • Former Employees, • Vendors/Suppliers, • Strategic Partners, and • OEMs


“Asking the people responsible for preventing a problem if there is a problem is like

delivering lettuce by rabbit"

Norman Augustine

CEO & Chairman, Lockheed Martin


"He has 20 years experience: 1 year of bad experience

repeated 20 times"


Future Fraud

We all need help


Finance Today…

$19.90


New Fraud Opportunities

Change in Business Models: InexperiencedeCommercePartnersFranchiseDownstream/UpstreamM&A Targets


eCommerce Frauds

AccountTakeover

Pharming

Counterfeit Advances

Phishing

Application

Lost/Stolen Credit Cards

eCom Frauds?


End Points


Mistakes and Lessons Learned

1. Price to Pay for Fraud/Risk Mitigation => Business Flexibility

2. Control vs. Growth

3. Rules vs. Humanity/Motivation

4. Not tackling the root cause i.e. Motive + Opportunity i.e. Humans

5. Focus on F&A vs. Sales/Marketing => who has control?

6. Relationship Role vs. Enforcement Role


In the end…

• Great Wall of China– humans are the weakest link– bad treatment of staff will lead to weak link i.e.

easier to bribe, easier to con, etc; – bad treatment examples: insulting, lose face,

broken promises, no dignity, public criticism, restructure without communication

Thank You.

soft copy of slides: http://totallyunrelatedrandomanddebatable.

blogspot.com/