The mindset of white-collar criminal

Auditors of all kinds would be wise to read up on the psychology of white-collar criminals, to better understand the rationalization vector of the fraud triangle:

David Myers, the former controller of WorldCom, recalled thinking that he was “helping people and doing the right thing” while perpetrating one of the largest accounting frauds in history. In his mind, the fraud was superficially sustaining the company, its stock price, and the jobs of its employees.

For some, the theory is that it was a simple cost-benefit calculation, underestimating the likelihood of being caught and, therefore, the cost. But the article linked to above notes that in other cases, there wasn’t a whole lot of calculating going on at all:

Waksal understood that calling his daughter and telling her to dump her shares was wrong. Since he knew the SEC monitors this kind of trading, his decision couldn’t possibly represent the careful reasoning of a self-made man who prided himself on his intellectual prowess. Had he actually put his mind to it, presumably he could have devised a better fraud.

Part of the problem is how separated the perpetrators of white-collar crime are from their victims, or how relatively small the impact of their fraud will be on them, in their minds. As businesses become bigger, and our communities grow and our connections to each other loosen, this will continue to be a big factor.

Actually the article doesn’t really conclude much. Some felt remorse, some didn’t. Most didn’t think things though, but if they did they underestimated the impact on their lives and their victims’ lives. Some acted out of perceived pressure to meet earnings targets, while others believed they were doing what was right and would be recognized as such (*cough* Fastow).

Interesting read, and always fun to read about the schemes and perpetrators’ justifications for them. Be vigilant, it can happen in your company.

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