The Psychology of Fraud
Duffield, Grace, Grabosky, Peter, Trends & Issues in Crime and Criminal Justice
Fraud, like other crime, can best be explained by three factors: a supply of motivated offenders, the availability of suitable targets and the absence of capable guardians-control systems or someone "to mind the store", so to speak (Cohen & Felson 1979). In this, the first of two papers, the authors focus on motivation and other psychological aspects of fraud. They identify a number of psychological correlates of fraud offending, but note that these are by no means unique to fraud, and do not necessarily differentiate fraudsters from law-abiding citizens. The other two factors, opportunities and guardianship, provide more scope for fraud control and will be addressed in a companion paper on "red flags", or situational indicia, of fraud risk.
In its broadest terms, fraud means obtaining something of value or avoiding an obligation by means of deception. This embraces many and varied forms of conduct, ranging from false claims against an insurance policy to some corporate frauds that are meticulously planned and intricate in their execution. The variety and complexity of fraud necessitates that, for purposes of explanation, the concept of fraud be "broken down" into manageable categories. This paper categorises fraud in terms of the organisational context in which it occurs, and the nature of the relationship between offender and victim. It then explores what the perpetrators of these different types of fraud have in common, and what distinguishes them from each other. For the purposes of comparison, the following categories of fraud have been set out.
* Fraud committed against an organisation by a principal or senior official of that organisation. Examples of this include offences against shareholders or creditors by errant "high-flying entrepreneurs" (Sykes 1994) or corrupt practices by senior public officials.
* Fraud committed against an organisation by a client (an "outsider") or employee (an "insider"). This category includes embezzlement, insurance fraud, tax evasion and other fraud against government.
* Fraud committed against one individual by another in the context of direct face-to-face interaction. This would include classic "con games" (Maurer 1940), frauds by sales staff, and predatory activities against clients or customers by unethical investment advisers, shady roof repairers and others who prey directly on a consumer.
* Fraud committed against a number of individuals through print or electronic media, or by other indirect means. This would include Nigerian advance fee frauds (Smith, Holmes & Kaufmann 1999), share market manipulation, and deceptive advertising or investment solicitations pitched at a relatively large number of prospective victims.
The above categories are neither definitive nor mutually exclusive, but they do provide a useful starting point for explanation.
Like other crime, fraud can best be explained by three factors: a supply of motivated offenders, the availability of suitable targets and the absence of capable guardians (Cohen & Felson 1979; Krambia-Kapardis 2001). The three are inextricably linked. As Nettler (1974) observes:
The intensity of desire and the perception of opportunity are personality variables. The balance between desire and opportunity moves. Temptation to steal fluctuates with individual temperament and situation, (p. 75)
Motivation is therefore a combination of an individual's personality and the situation in which they find themselves. Conversely, psychological factors will influence the way a person interprets the situation they are in and this, in turn, will influence the action they choose to take.
Psychological Factors in Fraud
At first glance, a psychological explanation for fraud would appear simple-greed and dishonesty. Such an explanation is, however, overly simplistic. There are many in society who are aggressively acquisitive but generally law abiding. …