PROFESSOR MARK BUTTON, DEAN BLACKBOURN AND DAVID SHEPHERDDIRECTOR OF CENTRE FOR COUNTER FRAUD STUDIES

 Preventing fraud: learning from the fraudsters

PREVENTION OF OCCUPATIONAL CORRUPTION Started Oct 2014: 2 year project funded

by our Faculty as Strategic Project ‘Abuse of a position of trust for gain’ Fraud, bribery, integrity related

behaviours Develop of database of those

sanctioned for corruption: 476 entries Interview variety of those sanctioned:

17 Psychological profile of 17

THE RESEARCH ON FRAUDSTERS AND THE CORRUPT (STAFF) LESS ON GENERAL AND BRIBE-PAYERS Within limited study of criminals handful

on fraud and corruption (tends to be upon internal fraud type corruption)

Interviews with fraudsters: Cressey (1973), Gill (2005+), Goldstraw-White (2011), other American: All in prison, nearly all fraud related

Profile of Fraudsters: KPMG, ACFE etc Organisational cultures: Mars (1982),

Ditton (1977) etc Attitude Surveys

THE OVER-GENERALISATION OF WHITE COLLAR CRIME Number of WCC studies which treat them as

group Occupational fraudsters (against employers) Occupational fraudsters (against clients,

contractors, state) Bribepayers passive (confronted with demand) Bribepayers active (offer bribe with no request) Bribetakers passive (offered a bribe without

asking) Bribetakers active (demand bribe) Conspirators (persons drawn into corruption to

support primary scheme) leaders versus pawns

INTERVIEWS WITH THOSE SANCTIONED: 17 Analysis of interviews not complete Going to give you some early snippets from early analysis

of interviews 17 include convictions/sanctions for:

Various Fraud Act offences False Accounting Misconduct in a Public Office Corruption offences FSA sanction

Acts engaged in include Employee defrauding organisation they work for Owner/manager defrauding investors/banks Bribe payer and bribe taker Those responsible for others engaged in corrupt acts Those covering up for others engaged in corrupt acts

All interviewed outside prison

PROFILE OF INTERVIEWEES Gender: 15 men, 2 women Age: 3 (18-40), 9 (41-60) and 5 (61+) Only 4 of 17 with any higher education Types of Corrupt:

2 bribe payers (Active) 2 bribe takers (Passive) 9 abuse of position 4 conspirators (some merge into bribe

takers/payers) FSA sanctioned 1 of abuse of position, but

some others involved investment related frauds

MODELS Building on tradition of Mars’s: Donkeys, Hawks, Wolves

and Vultures; and Bamfields’s: Angels, Baboons, Jackdaws and Crocodiles

Wolves: Active decisions to engage in corrupt activities and work in groups in more than one scheme

Lone Wolves: Active decision to engage in corrupt activity across more than one scheme acting alone.

Hedgehogs: Driven to one off unexpected scheme of corruption (usually occupational fraud).

Sheep: Recruited into corrupt scheme by Wolves through incentives and or coercion to support scheme

EXPLAINING INVOLVEMENT

IN FRAUD/ CORRUPTION

OPPORTUNITY BASED Rational Choice/Routine Activity Theory Cressey’s Fraud Triangle Relevance to Occupational Fraud, but

what about Corruption?

CULTURE AND CORRUPTION Edwin Sutherland’s Differential

Association

How individuals learn to become criminals through the interaction with others.

Focus upon development of values, attitudes, rationale and modus-operandi.

Gangs but also think about: workplaces, ethnic groups, societies, extended families etc.

NEUTRALISATION: ITS NOT CRIME, EVERYBODY IS AT IT? Sykes and Matza (1957) Denial of responsibility; Denial of injury; Denial of the victim; Condemnation of the condemners; and Appeal to higher loyalties.

CONFIRMATION OF THESE

THEORIES BUT NEW

DIMENSIONS TOO

THE IMPORTANCE OF OPPORTUNITY/ POOR CONTROLS IN OCCUPATIONAL CORRUPTION Poor Internal Controls

Authorisations Access to sensitive information controlsHR controls Over-riding controls (Powerful managers

and corrupt) Screening Lack of Surveillance

CCTV (call centre)Knowledge of reporting (whistleblowing)

External Audit

Most of the payments are done through BACS, bank automated system, so if we were paying suppliers, or the salaries, or the wages, I went onto the computer, logged in. All we’d got was a card, I was authorised to use it, I could make payments up to £100,000, even more. Paul (Corrupt Accountant)

No, not at all it was proper slack; it was just me, a telephone and a computer system. No cameras, nobody walking around. It was just like a little back office, so it wasn't like a big, massive call centre you see, it's just a little back office above the place I worked. Tony (Corrupt Call Centre Operative)

I mean, I got 10 A to C’s when I was at secondary school and I put on my CV that five of them are A’s when none of them were. So vetting like that and that’s never checked. If you put down on a form that you haven’t got a criminal record are they going to check? Carl (Corrupt Prison Officer)

…in order to stay at #### I had to be taken on permanently. And I said well, you can't take me on permanently, I've got…I told her, I've got a really bad credit rating, it goes against the ethos of the bank, et cetera. She said well, I want you to work with me. So she kicked off and they got it passed and I ended up working there permanently. Jayne (Corrupt Banker).

Our audit, we would get two people come in one day, and then, oh I won’t be in tomorrow I’ve got to finish of another audit, and then down to one. And, a lot of the auditors you had in, in our case, were junior, just people doing paperwork trails along a start of an accountancy audit professional exam. So, a lot of them were pretty clueless, okay, you have an overhead head of eh audit, who is responsible to a senior accountant within the audit company, but most of them were almost junior, straight out of school studying for their audit exams, accountancy exams. Paul (Corrupt Accountant)

But, you know, what got me was the fact that auditors used to come and he'd just ring the powers that be up in #### and say, oh, they're causing us too much disturbance, you know, get them out. Or allegedly this is what he did. And they'd just disappear and they'd be pulled out again. Fred (Corrupt businessman)

Whistleblowing No, we didn't find out until after

that there was even an officer that had been given some sort of highfalutin label, but he was supposed to be the corruption officer, which we didn't know until the court case. There was no whistleblowing as such because… Carole (Corrupt Prison Nurse)

GETTING CAUGHT: PERCEPTION LOW FOR SOME No, I think, when you look at the SFO, and what

they’ve actually successfully prosecuted, it’s nothing. I mean it’s not even…I wouldn’t even say it’s the tip of the iceberg. Phil (Corrupt Businessman).

(Getting caught) No chance whatsoever. I was low profile, I dealt with low profile people, I would never do business with anyone who was high profile and corrupt, because the chances of getting caught were high. I dealt with people who were as professional as I was at what they did, and I was fortunate that I could make a very good living without trawling the pond and getting out the dangerous fish. And there’s plenty of them around. A lot of people do get caught and it’s largely out of stupidity. Phil (Corrupt Businessman)

INEVITABILITY OF GETTING CAUGHT: NOT ALWAYS THE RATIONAL OFFENDER Paul (Corrupt Finance Director) ‘Again, it’s like waiting for the VAT inspection, I wanted it to

come to an end.’ Carl (Corrupt Prison Officer) ‘I think you can tell yourself there’s an inevitability about it

that right, it is going to be found out at some point and it’s just like…it’s like I thought the relief is unbelievable especially once, like, okay, you know you’ve…it wasn’t…you know you’ve got your family support and I understand that, it’s unbelievable. It’s like a guillotine hanging over your head and you’re just waiting to see how much of your head it’s going to take off when it drops, sort of thing.‘

Tony (Corrupt Call Centre Operative) ‘I was always looking over my shoulders thinking

when will there be a knock on the door and what would happen if I was arrested on site.’

FINANCIAL PRESSURE: INDIVIDUAL And they stopped my pay one month, I

didn't know anything about it until the bank phoned me. I used to draw, say £2,000 per month, they then reduced it to £1,000 a month, which, without warning, hits you hard, shall we say. And obviously, things became tense between all the fellow directors - it was a family business. Other departments such as mine were being shut down and sold off, as quickly as possible. But not so easy when you've got an economy in reverse, shall we say. Morris (Corrupt Treasurer)

FINANCIAL PRESSURE COMPANIES You want twelve per cent of what you bid. So

there’s a shit load of work goes in for very little. So yes, when you’ve got a huge cost of bidding, you want to win. When you’re only going to get twelve per cent across the board after a year’s work, winning becomes hugely important. And if you’ve got to right in a percentage for local commissions, then do it. Otherwise don’t bid the country, go somewhere else, stay in England. But nine times out of ten, the companies I work for, there wasn’t enough business in England to keep them going. They were export dependant. Well, once you’re export dependant, you play by the rules of the country you export to. Phil (Corrupt Businessman)

MATERIALISM And so I just wanted to not be the normal, live in three bed

semi land, no disrespect to anyone who lives in three bed semi land, but I had a picture in my head when I was 15, 16 or what I wanted and I was going to do everything I possibly could to get it. Growing up I established myself in the early 80s, it was a time where greed was good, debt was good, getting into debt was the best thing to do because it made you get up in the morning and work hard. I took all the Americanisms and did it, Thatcher's child and everything else. And I decided that I was going to make £1m by the time I was 30, and so I got into finance. But being that I was…I think I'd say I didn't come from the wrong side of the tracks, I wasn't accepted in the circles that my brain should've allowed me to be accepted in, if that makes sense.

I wasn't just sitting at home collecting money, I mean I was very, very, busy. I had two kids at private school, I had a big house in the country, we had two or three holidays a year, expensive ones, flash cars, I was flying helicopters, I was doing everything that everyone…dream land really. Frank (Corrupt businessman)

ORGANISATIONAL AND INDUSTRY CULTURE Historic ‘teaching’ of corruption as

normal means of business Perception/experience corruption

extensive in immediate habitus Perception/experience corruption

required to win business Perception in some chances of getting

caught low/penalties low

Oh I remember. We use to have training courses in the company … In …this was in the 80’s I think, early 90’s. A chap use to come in. A consultant use to come in and he would talk about our business. And we use to have role play…he would talk about you and our customer over there, and his big thing was you have to know the difference between subjective and objective needs of your customer. His objective need, yes he wants your product and he has to… you know…His subjective need, he has to look after himself and he also has to make himself look good to his boss. And we were taught all these things about how to make his subjective needs and obviously this included making himself a bit wealthier. You know, this was being taught to us. Brian (Corrupt Businessman)

I know a man who used to deliver an envelope to him monthly in cash to his house, so don’t start kidding me… Harvey (Corrupt Property Developer)

WIDER SOCIETY AND CULTURE Perception fraud and corruption

widespread and everybody at it (MPs) Double standards and corruption (BAE,

Banks etc)

Now, if you then track back to the countries that carry out the construction in those countries, because they don’t have the technology to do it themselves, or supply the goods, France, Italy, Germany, I dealt with the European suppliers and contractors, I would say that probably 30 per cent of the procurement is bent, is corrupt, is commissionable, to win that work. 30 per cent, at least. Phil (Corrupt Businessman)

NEUTRALISATION: DENIAL OF RESPONSIBILITY My own view was always, we’re guests in their

country, if you don’t like it, don’t go there. But if you do like it, and you want to go there, and you need the business, then keep your mouth shut and play by the rules. If you don’t like the rules, don’t do business there. Because they won’t apologise or make any exceptions for you, in much the same way if they came over here, we wouldn’t make any exceptions for them with our laws. And we might find their laws archaic and whatever, but they are the laws. And if it’s perceived as the way to do business, well then you must be prepared to do it. I mean I’ve been all over the world, and it comes in many faces, but at the end of the day, people in a position of power are always, in my view, going to use it. Phil (Corrupt Businessman)

NEUTRALISATION: EVERYBODY IS AT IT Yes. Did I take money from people on the

basis of lies? Then the answer is yes. That by definition is fraud. However, I did no different to what the City of London does all day long and what the directors of RBS did just before they folded. When they stood up in front of the shareholders and said everything's fantastic, give us another £60m or whatever it was, and then six months later folded the company or had to be bailed out. So I was in a culture where…a City culture, Frank (Corrupt Businessman)

NEUTRALISATION: DENIAL OF VICTIM Well forgotten than forgiven, because as

I said it's hard to say forgiven because I wasn't really like, it wasn't like I had beaten somebody up or anything like that, it was just stealing money from a company, just obviously the people got paid by their credit card people, so it's just like the insurance that would have lost out. Tony (Corrupt call centre operative)

LESSONS FOR PREVENTION Ensure resilience/prevention strategies in place and are

working Don’t rely on traditional audit Understand real perception of culture in organisation/sector: if

perception of corruption/fraud need to challenge and change Promote anti-fraud/corruption culture and make clear the rules Corrupt individuals suspicion: intelligence and surveillance on

networks Lifestyle of at risk individuals Offer confidential reporting counselling Educate staff at risk of corruption to recognise risks of

‘grooming’ and to report Catch more and publicise Wider society government: unambiguous in stance on

corruption and catch more.