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A.B.C.'s of Behavioral Forensics: Applying Psychology to Financial Fraud Prevention and Detection

Book Description

Get practical insights on the psychology of white-collar criminals—and how to outsmart them

Understand how the psychologies of fraudsters and their victims interact as well as what makes auditors/investigators/regulators let down their guard. Learn about the psychology of fraud victims, including boards of directors and senior management, and what makes them want to believe fraudsters, and therefore making them particularly vulnerable to deception. Just as IT experts gave us computer forensics, we now have a uniquely qualified team immersed in psychology, sociology, psychiatry as well as accounting and auditing, introducing the emerging field of behavioral forensics to address the phenomenon of fraud.

Ever wonder what makes a white-collar criminal tick? Why does she or he do what they do? For the first time ever, see the mind of the fraudster laid bare, including their sometimes twisted rationalizations; think like a crook to catch a crook! The A.B.C.'s of Behavioral Forensics takes you there, with expert advice from a diverse but highly specialized authoring team of professionals (three out of the four are Certified Fraud Examiners): a former accounting firm partner who has a PhD in psychology, a former FBI special agent who has been with investigative practices of two of the Big Four firms, an industrial psychiatrist who has worked closely with the C-level suite of large and small companies, and an accounting professor who has interviewed numerous convicted felons. Along with a fascinating exploration of what makes people fall for the common and not-so-common swindles, the book provides a sweeping characterization of the ecology of fraud using The A.B.C.'s of Behavioral Forensics paradigm: the bad Apple (rogue executive), the bad Bushel (groups that collude and behave like gangs), and the bad Crop (representing organization-wide or even societally-sanctioned cultures that are toxic and corrosive). The book will make you take a longer look when hiring new employees and offers a deeper more complex understanding of what happens in organizations and in their people. The A.B.C. model will also help those inside and outside organizations inoculate against fraud and make you reflect on instilling the core values of your organization among your people and create a culture of excellence and integrity that acts as a prophylactic against fraud. Ultimately, you will discover that, used wisely, behavioral methods trump solely economic incentives. With business fraud on the rise globally, The A.B.C.'s of Behavioral Forensics is the must-have book for investigators, auditors, the C-suite and risk management professionals, the boards of directors, regulators, and HR professionals.

  • Examines the psychology of fraud in a practical way, relating it to aspects of fraud prevention, deterrence, detection, and remediation

  • Helps you understand that trust violation—the essence of fraud—is a betrayal of behavioral assumptions about "trusted" people

  • Explains how good people go bad and how otherwise honest people cross the line

  • Underscores the importance of creating a culture of excellence and integrity that inoculates an organization from fraud risk (i.e., honest behavior pays, while dishonesty is frowned upon)

  • Provides key takeaways on what to look for when hiring new employees and in your current employees, as well as creating and maintaining a culture of control consciousness

  • Includes narrative accounts of interviews with convicted white-collar criminals, as well as interpretive insights and analysis of their rationalizations

  • Furnishes ideas about how to enhance professional skepticism, how to resist fraudsters, how to see through their schemes, how to infuse internal controls with the people/behavioral element, and make them more effective in addressing behavioral/integrity risks

  • Provides a solid foundation for training programs across the fraud risk management life cycle all the way from the discovery of fraud to its investigation as well as remediation (so the same fraud doesn't happen again)

  • Enables auditors/investigators to engage in self-reflection and avoid cognitive and emotional biases and traps that lead to professional judgment errors (e.g., overconfidence, confirmation, self-deception, groupthink, halo effect, availability, speed-accuracy trade-off, etc.)

  • Ever since the accounting scandals surrounding Enron and WorldCom surfaced, leading to the passage of the Sarbanes Oxley Act of 2002, as well as the continuing fall out from the Wall Street financial crisis precipitating the Dodd-Frank Act of 2010, fraud has been a leading concern for executives globally. If you thought you knew everything there was to know about financial fraud, think again. Get the real scoop with The A.B.C.'s of Behavioral Forensics.

    Table of Contents

    1. Cover
    2. Praise
    3. Title Page
    4. Copyright
    5. Dedication
    6. Epigraph
    7. Foreword
    8. Preface: A Serendipitous Journey to This Book
    9. Acknowledgments
    10. Introduction
      1. The Human Factor
      2. Trust Violation and Its Consequences
      3. This Book's Approach: The A.B.C.'s of Behavioral Forensics
      4. An Interdisciplinary Approach
    11. Part I: When Fraud Is Committed
      1. Chapter 1: Fraud Is Everywhere
        1. The Pervasiveness of Fraud
        2. On Making (Up) the Numbers
        3. A Slippery Slope
        4. From Slippery Slope to Broken Windows
        5. Fraud Is a Human Act
        6. Conclusion
      2. Chapter 2: The Sins of Quantification and Other Mind-Set Impediments
        1. The Danger of Numbers
        2. Data Analysis Is Not Enough
        3. Hard Numbers versus Reality
        4. Conclusion
      3. Chapter 3: Beyond the Fraud Triangle
        1. The Relevance of Behavioral Approaches
        2. Understanding White-Collar Crime
        3. The Fraud Triangle and Other Theories of Causation
        4. A.B.C. Theory: A New Fraud Taxonomy
        5. Conclusion
    12. Part II: The Foundations of Behavioral Forensics: Why Good People Do Bad Things
      1. Chapter 4: Beyond the Fraud Triangle and into the Mind
        1. Deception Is a Natural Phenomenon
        2. The Mind and the Fraud Triangle
        3. Emotions: The Power behind Psychological Defenses
        4. Affect's Two Ties to Fraud: Motivation and Communication
        5. Conclusion
      2. Chapter 5: “Said the Spider to the Fly . . .”1
        1. Emotions, Unconscious, Defenses—Oh My!
        2. Relationships: Where Fraud Is Set in Motion
        3. The Relationship as an End in Itself: Bernie Madoff
        4. Lance Armstrong and His Accomplices
        5. Where Is the Humility?
        6. The Power of Shame
        7. Good to Evil: How a Hardwired Emotion Is Ignored and Manipulated
        8. When Shame Is Maladaptive at Work
        9. False Pride: With the Threat of Shame Comes Hubris
        10. The Predator Bullies the Professionals
        11. The Role of Mental Illness
        12. Conclusion
      3. Chapter 6: The Accidental Fraudster (Bad Apple)1
        1. Committing the Crime
        2. Beyond Greed
        3. Exploiting a Weakness: A Motivational Theory of the Accidental Fraudster (Bad Apple)
        4. New Insights in Behavioral Forensics
        5. Disregarding Risk: The Thrill of Being Close to, but Not in, Danger
        6. Why Now? Understanding Life-Span Issues in Fraud Reversals
        7. Lessons from Executives and Managers on the Couch
        8. Conclusion
      4. Chapter 7: The Bad Bushel and Beyond
        1. Luck and Effort Distinguish Senior Executives
        2. Life as an Executive: Excitement, Vigilance, and Caution
        3. Trouble in the C-Suite: Overwhelmed, Overpaid, and Overconfident—Narcissism and Beyond
        4. The Individual and the Group: Bad Bushels Arise
        5. The Science of Persuasion
        6. Conclusion
    13. Part III: A Call to Action
      1. Chapter 8: Managing the Ecology of Fraud
        1. The Financial Markets: The Moral Foundations of Capitalism
        2. Helping Senior Executives to Stay on the Right Side of the Line
        3. Piercing the Rationalizations
        4. Emotional Manipulation
        5. On Lies and Misrepresentation
        6. The Operational Fraud Triangle
        7. What You Can Do Monday Morning
        8. Recognizing Tipping Points (of the Mind)
        9. Conclusion
      2. Chapter 9: The Future of Behavioral Forensics
        1. Fraud: A Global Scourge
        2. Fraud Is Not a Problem with an Easy Answer
        3. A Psychological Autopsy of Fraud
        4. The Future of Behavioral Forensics
    14. Afterword
    15. Appendix A: The Psychology and Sociology of Fraud: Integrating the Behavioral Sciences Component into Fraud and Forensic Accounting Curricula
    16. Appendix B: Chapter Supplements
      1. Supplement to the Preface: 2011 ACFE Video, Inside the Fraudster's Mind
      2. Supplement 1 to Chapter 3: “Greed Takes the Blame”
      3. Supplement 2 to Chapter 3: “Fraud Is a Bad Thing” by Michael Grayson
      4. Supplement to Chapter 4: The Mind Today: Peeking into the Brain
      5. Supplement 1 to Chapter 5: Sample Phishing E-Mail—the Case from the In-Box
      6. Supplement to Chapter 7: Executive Assessment at Morrison Associates, Ltd.
      7. Supplement 1 to Chapter 8: Investment Guru Ken Fisher on How to Smell a Rat
      8. Supplement 2 to Chapter 8: On the Psychology of an Unindicted Coconspirator Sought by Government as a Cooperating Witness
      9. Supplement 3 to Chapter 8: Fraudster Modus Operandi—Convicted Felon Samuel Antar on the Art of Spinning
    17. Bibliography
    18. About the Author
    19. Index