THE CRITICAL THINKING ERRORS OF UNETHICAL BEHAVIOUR
ISAM 542: FORENSIC ACCOUNTING AND FRAUD EXAMINATION
JANUARY 23, 2023
ASSIGNMENT I
IFEOMA NWAWE 151798
INTRODUCTION
Fraud exists in every country and across every industry. A challenging part of the fight against
fraud is grasping the reasoning behind someone's decision to commit fraud. How is the first
decision to defraud victims justified, and how do they continually rationalize their concurrent
crimes? It is of utmost importance to find the answers to these questions as fraud cannot be
wiped out entirely of a system, so a good understanding of the motivation and critical moment
for the fraudster is an excellent place to start when creating systems or controls to prevent fraud.
The critical thinking errors of unethical behaviour help the fraud investigator see common
thought patterns displayed by perpetrators before and after committing crimes.
1. Rationalization
It is not uncommon for fraudsters to rationalize their crimes; sometimes, they blame the
organizations they work for, especially if the company is slack in enforcing oversight of internal
controls. They often justify their actions by claiming the reason for committing fraud was the
desire to provide a better life for their families. Fraudsters always convince themselves that the
first time they steal without getting caught will be the last, but personal confessions from
convicted fraudsters show that it is like an addiction.
2. Instant gratification
A common thread with white-collar criminals is a lack of willingness to work hard, so they take
shortcuts and do not have to wait long for their results. They are also not long-term oriented in
their reasoning because they want to gather what they can get in the shortest time possible and
leave the organization. When people become interested in short-term results, the danger of fraud
increases. They also have a massive desire for instant gratification but are not patient enough to
follow through by doing honest work.
3. Disregard for authority
A disregard for constituted authority is a pointer to fraud. When fraudsters orchestrate ways to
perpetuate fraud, they do not raise moral concerns in their business conduct. Nobody considers
what the rule of law states, so they go out of their way to look for other businesses or people
involved in such crimes, so they find comfort in knowing that other people are also involved in
similar crimes.
4. Being overly optimistic
Fraudsters have an optimism bias, so they have a tendency to overestimate their likelihood of
experiencing positive events (i.e. the belief that their scams will be successful) and underestimate
their likelihood of experiencing negative events (i.e. getting caught by law enforcement)
They are also usually optimistic that their actions will have no consequences, so they do not
adequately assess the risks.
5. Sense of entitlement
In organisations, there are employees that feel they have a right to company profits even without
authorization to do so; this is very common in family-owned businesses, especially when there
are perks that some family members can enjoy because they are part of the ownership group.
These white-collar criminals feel wronged because they believe they are not adequately
compensated, and they start looking for ways to steal and scheme, for example approving bogus
invoices to be paid. They believe whatever they steal is rightfully theirs, and all they have taken
is what they are owed.
6. Lack of remorse
Fraudsters get to a point where they do not care and don't take time to think of their victims and
how much worse they have made their victims' lives. In many fraud cases, the convicted
fraudsters claim they only cooperate with law enforcement because they want reduced sentences,
not because they have any guilt about their actions. They even go further by justifying this lack
of remorse by comparing their actions to those of other people or organizations who have
committed such crimes on a large scale, making them continue with the crime.
7. Peer or financial pressure
Some people are more susceptible to peer pressure. In scenarios where low profits or price
volatility, C-suite executives like a CFO can cook the books to present a company's financial
statements to look better than it is, as there is financial pressure to meet financial targets.
8. Inadequate fear of punishment
A common way criminals think is that even if they get caught, the punishment is not enough to
dissuade them from committing fraud. Criminals have a misperception of the punishments that
will be meted out to them when caught. The justice system feeds this inadequate fear because, in
some cases, the punishments feel like a slap on the wrist, and this does not deter the criminals; it
only motivates them to be less negligent when committing their subsequent crimes.
9. Egoism
Egoism is considered a foolproof barometer for detecting fraud. Seeing fraud as a challenge is a
part of egoism; a fraudster sees a company and its internal control system as a challenge to beat
and gains satisfaction when they eventually beat the system and get away with the crime. Egoism
can also come from a fraudster's knowledge of how a system works and the best ways to commit
the crimes undetected. Criminals with huge egos always assume they are more intelligent than
their victims and regulators, and this confidence comes from having good working knowledge.
10. Diffusion of harm
This critical thinking error is a judgement of error made by white-collar criminals when they
think a crime is diffused because they are stealing small amounts from multiple people instead of
stealing a bulk sum from one person because they assume the amount will be negligible and will
go unnoticed. The fraudsters that exhibit this particular thinking error believe that if just enough
people are involved in this crime, it can be excused because the blame and losses is distributed
across the board (i.e. fraudsters and victims, respectively).
CONCLUSION
Identifying the problem is only the first step in the fight against fraud; another next step is to
recognize the pressure executives are under that leads to illegal actions like financial
misstatements and securities fraud.
A lot can be learnt from white-collar criminals and used to train employees and show them the
consequences of what has happened to convicted fraudsters.
Implementing adequate controls like purchasing the right software and having an effective
auditing department are also effective deterrents for employees under pressure to commit
white-collar crimes.
Fraud prevention procedures must come from the top, and the leaders set the ethical tone at the
company. The tone at the top can encourage or discourage employees from committing financial
crimes. If ethics is absent at the top, the employees at the bottom of the food chain are not
incentivized to act ethically because they have the group mentality that it is okay because
everyone is doing it. Employees should also be educated on ethics as it is not innate.
REFERENCES
[1] - https://vimeopro.com/user25326105/inside-the-fraudsters-mind/video/230991995