+ Public Finance for Public Administration, Northwestern University May 27th, 2014 THE PSYCHOLOGY OF FRAUD Daven Morrison MD Morrison Associates, Ltd. Asst. Clinical Professor of Psychiatry, Chicago Medical School Subject Matter Expert, Institute of Fraud Prevention
64
Embed
+ Public Finance for Public Administration, Northwestern University May 27th, 2014 THE PSYCHOLOGY OF FRAUD Daven Morrison MD Morrison Associates, Ltd.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
+
Public Finance for Public Administration, Northwestern UniversityMay 27th, 2014
THE PSYCHOLOGY OF FRAUD
Daven Morrison MDMorrison Associates, Ltd.Asst. Clinical Professor of Psychiatry,Chicago Medical SchoolSubject Matter Expert,Institute of Fraud Prevention
What a tangled web we weave when first we practice to deceive.
Marmion an epic poem
Walter Scott, 1808
“As a fraudster, I succeeded for almost two decades because I understood how to exploit the psychological and emotional weaknesses of my victims. This book teaches auditors and antifraud professionals about fraud psychology, the “soft underbelly of fraud” —the emotional manipulation, big and small lies, and other behavioral cues that fraudsters employ to successfully execute their crimes. I call it the art of spinning, and the authors have described it as the predator-prey dance. Without such an understanding of the behavioral dynamics of fraud, victims will always be doomed to lose (lots of money) and fraudsters will always have the upper hand.”
—Sam E. AntarFormer Crazy Eddie CFO, former CPA,
and a convicted felon
+Alan Greenspan: What Went Wrong I've always considered myself more of a mathematician than a psychologist. It all fell apart, in the sense that not a single major forecaster of note or institution caught it.
The Federal Reserve has got the most elaborate econometric model, which incorporates all the newfangled models of how the world works—and it missed it completely.
“What Went Wrong” Alexandra Wolfe WSJ, Oct 18, 2013
+DEFINING FUNDAMENTALS
White Collar Crime
Caveat Emptor
FRAUD
+Recent Cases of Fraud in the News NY Times: Fraud in
Army Recruiting Bonus Program May Cost Nearly $100 Million
Chicago Tribune: Republican Party wing creates 18 fake websites for Democrats
WSJ: Ex-SAC Trader Found Guilty
My inbox: Dewey-Leboef Law Firm
Chicago Drivers use old stubs to fake parking payments
+Affects as Data and the BrainThe A.B.C.s: Appendix B
Richard D. Lane and David A. S. Garfield, “Becoming Aware of Feelings: Integration of Cognitive-Developmental, Neuroscientific, and Psychoanalytic Perspectives,” Neuropsychoanalysis 7, no. 1 (2005): 5–30
+Recent Banking Fraud ScenarioFriday Afternoon, Wire Transfer
+Predator Tactics
Masking
Dazzling
Decoying
Mimicking
Repackaging
Double Play The A.B.C.’s p 182
+The Seduction of the Profile
Imagine how hard physics would be if particles could think.
Murray Gell-Man, Physics Nobel Laureate
+Summary
Two new ways of thinking means questioning answers:
Blaming “Greed” will limit your seeing the larger ecology/environment of fraud
Profiling Employees will make more anxiety and distance than you want and will provide a road map for those fraudsters motivated to read from the play book!
+
Affects are the tracer bullets flying on the battlefield of fraud
What level of the human brain is your team using?
GOOD LUCK!
+
Questions?
+Fraud: Ideas from “A.B.C.” Text:
Two New Models: Bringing Freud to Fraud
Who is (s)he? What about the victim? Is there a Bad Bushel or
Crop?
ABC’s of Behavioral Forensics
What is in the Headlines? What is most common? What do you need to
know about each of them?
The Bad Apple? Predatory vs Accidental
+Professional Competence
TIME on the JOB
KnowledgePercentage
0%
100%
Day One First Year
Professor Harry Kraemer, MBA
Technical Knowledge
Interpersonal Knowledge
Having the Answer vs Getting the Answer
+
Tone at the Top:Executive AssessmentStrengths and Weaknesses in Judgment
+ Effective Judgment
High
Need for structure
MinimalRelationships Task
Emotional Elements
Competitiveness
Trust
Emotional energy
Standards
Need for nurturance
Shame
Collect All Relevant Available Data
Boil Down To Essence
Act
Impulsive
Procrastinate
Predict interpersonal environment
Practical problem solving
Verbal Abstractions
Changing Conceptual Sets
Low HighTolerance of ambiguity
+Executive Judgment
Strong Perceptions in ambiguity
Strong intellect in abstractions, and practical problem solving
Work Ethic
Reality-based approach (pragmatic)
Narcissism
Poor Capacity to read Emotions and fit with Context (EQ)
The role of the Charismatic Leader The A.B.C.s Ch 7
The Challenge of the Entrepreneur
The critical answer to question
+Clients: When does your
organization say “no” to a client? Corporate
What are the clients sharing?
What is the tone of their leadership?
How self-reflective are they?
How do they make you feel? Is there Narcissism in
leaders? How charismatic are they?
Do the leaders understand and manage their executive presence?
Individuals Are they at risk of being
victim of an email scam? Distress? Excitement? Pride? Narcissism?
What of the family What is their tone? Is there potential for
fraud in the family?
+Employees
When do they get the message to “do the right thing” vs ask if it’s legal?
Do they have a reason to feel taken advantage of by the organization and want something in return?
Are they emotionally competent?
Can they be seduced by a predator?
How would a fraudster turn the culture to his advantage?
What are the subcultures that put the organization at risk?
Avoid Accidentals
Innoculate against Predators
+Vendors:
Who interfaces with them?
Service Providers to the organization
Providing Service to Clients
+Leadership
What is the tone of the leadership? Do the leaders understand their presence?
How well do they understand emotions? Are they competent? Are they creating a sense of belonging or alienation? Interpersonal Misfits are a breeding ground for risk/fraud? How competitive are they?
Are there Charismatic-Leader Follower Dynamics?
Do they understand their impact on culture?
+Op Risk Officers
Acts of Nature
Theft
Sabotage (non-IT)
Work Place Violence
Hackers: internal, external, contractors
Fraud
Navigate Regulators
Recruit and Retain Top Talent
Leverage Core Organizational Competencies
Asked early in the planning of new initiatives – is your perspective sought out? . .. Or avoided.
Managing Organizational Operational Risk
Running and growing the Organization
+To SELL: The challenge of convincing leadership to address fraud
1. Their attention
2. Their understanding
3. Their perspective
4. Their willingness to change
1. Your understanding of the business/strategy
2. Your willingness to change
3. Your efforts in executing the strategy
What you need What they need
+Required Dialogue on Risk
0% Low High100%
Safe Zone
Securities Traders
RegulatorsInternal Governance
H C A G E
F A D E BAffects are Data
+Fraud Defined
A generic term, embracing all multifarious means which human ingenuity can devise, and which are resorted to by one individual to get advantage over another by false suggestions or by suppression of truth, and includes all surprise, trick, cunning, dissembling, and any unfair way by which another is cheated. . . .
Elements of a cause of action for “fraud” include false representation of a present or past fact made by defendant, action in reliance thereupon by plaintiff, and damage resulting to plaintiff from such misrepresentation.
Black’s Law Dictionary
+White Collar Crime
“Those classes of nonviolent illegal activities which principally involve traditional notions of deceit, deception, concealment, manipulation, breach of trust, subterfuge or illegal circumvention.”
Caveat Emptor
+ Op Risk NY CityFederal Reserve Bank of Chicago
Operational Risk Specialist
ABU Dhabi Investments Authority Deputy Director
Intact Financial Corporation Vice President
Freddie Mac VP Internal Controls
International Monetary Fund Accountant
US Securities and Exchange Commission Staff Accountant
National Bank of Canada Vice-President, Operational & Reputation Risks
ABU Dhabi Investment Authority Senior Manager
Santander Director of Technology & Operations
Banque Pictet & Cie SA
Banco Bradesco SA - Controller
Brazilian Development Bank – BNDES Operational Risk Manager
+A Psychiatrist’s PerspectiveGetting into the Mind of the FraudsterAn Exploration of your ChallengesActions to Consider: Convincing Leadership to take it Seriously
+Background: Focus on Private Industry Morrison Associates, Ltd.
Arthur Andersen Continental Bank Conseco Insurance Food Lion
Daven Morrison Psychiatric Resident and Chief Resident (1996) Morrison Associates since 1996 Consultation to Leadership Teams Anti-Fraud Efforts
Institute of Fraud Prevention Tomkins Institute of Emotion and Cognition Senior Editor and Author: The A.B.C.s of Behavioral
Forensics
+ Dixon Illinois
The Best Reason Ever to have Professional Management