CHARACTERISTIC OF A FRAUD

Focus on Fraud: Profiling the Typical Fraudster

A police detective once described on television a crime suspect to his captain based on interviewing eyewitnesses. The description went something like this:

"The suspect was a tall, short guy; somewhere between 125 and 250 pounds; one eye blue, one eye brown, the third one green."

While the description may be amusing, the truth is it isnt too far off the profile of a typical fraudster.

The Association of Certified Fraud Examiners (ACFE) " Report to the Nation on Occupational Fraud and Abuse, 1996," provides the following information profiling fraud perpetrators, based on the experience of 2,608 certified fraud examiners investigating more than one million cases of fraud occurring principally over the last 10 years:

The typical perpetrator was a college-educated white male;

Men committed nearly three-fourths of the offenses;

Median losses caused by men were nearly four times those caused by women;

Losses caused by managers were four times those caused by employees;

Median losses caused by executives were 16 times those of their employees;

Losses caused by perpetrators 60 and older were 28 times those caused by perpetrators 25 or younger;

Losses caused by perpetrators with post-graduate degrees were more than five times greater than those caused by high school graduates;

Male;

Egotistical (scornful of "obvious" control flaws, "dumb" managers, etc.);

Inquisitive (tempted by the discovery of a computer vulnerability, for example);

Intelligent (fraudsters may feel challenged by "secure" systems. The individual may be bored by the routineness of their job);

A risk taker (willing to bend the rules, take chances);

A rule breaker (takes short cuts, self-justifies infractions of law, rules, etc.);

A hard worker (first to arrive in the morning, last to leave at night, takes few vacations);

Under stress (suffering from a personal crisis, such as a financial problem, bad marriage, etc.);

Greedy or has a genuine financial need (illness, drugs, gambling, etc. He/She desires more than they have);

Disgruntled at work or a complainer (may try to "get even", or take what he/she "really deserves");

A big spender (expensive hobbies, living beyond means);

The median loss per case caused by males was $185,000; by females, $48,000;

Median losses caused by non-managerial employees were $60,000; by managers, $250,000; and by owners/executives, $1,000,000;

Perpetrators under age 25 caused median losses of about $12,000; perpetrators age 60 and older, $346,000 (Numbers have risen since 2000);

The average organization loses about six percent of its total annual revenue to fraud and abuse committed by its own employees, or more than $9 a day per employee;

Intelligent (challenged by secure systems, bored with the job routine)

Pretty general, right? Could fit many different people.

If the question is: Who is most likely to commit fraud?, the answer is:

about 90% of the population, given the right combination of opportunity, motive and ability to rationalize the act.

An easy (though not direct) example of how a law-abiding citizen can get drawn into committing fraud is to look at the typical motorist who speeds above the legal limit:

there's opportunity - relatively few patrols are out;

motive or need - late for work, a fast car;

and rationalization - everyone else is doing it, it doesn't really harm anyone, I'm not going to get caught.

The potential fraudster tests the system to see what happens a second time. AHA - did it again! And another fraud is born.

The fraudster can be:

the CEO;

the mail room clerk;

or anyone in between.

All it takes is opportunity, need and rationalization.

And the higher up in the organization, and the older the individual is, the greater the loss is likely to be.

Occupational fraud is the use of ones occupation for personal enrichment through the deliberate misuse or misapplication of the employing organizations resources or assets. The gains from the fraud can be direct (receipt of money or property) or indirect (reward or promotions, bonuses, power or influence).

Occupational fraud and abuse includes a variety of conduct by:

employees;

managers; and

principals of organizations.

The fraudulent act may range from pilferage to sophisticated investment swindles.

Common violations include:

asset misappropriation;

corruption;

False statements;

false overtime;

petty theft and pilferage;

use of company property for personal benefit; and

payroll; and

sicktime abuses.

Given the right pressures, opportunities, and rationalizations, every employee and person is capable of committing fraud.

Lawyers in Canada and Notaries are placed in position of trust which makes it very easy for them to fraud and assist their clients to commit fraud.

The opportunity is in their face everyday and most have succumbed to the temptation of stealing and cheating.

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A Good Example is the following story of another fraudster, who bought houses in need of subtantial repairs in distressed neighborhoods.

In British Columbia, realtors and lawyers prey on family who may appear in distress for the purpose of committing fraud. Unlike the US however, Law Enforcement in most part, turn a blind eye to mortgage fraud committed by members of the bar.

Ohio Rental Property Owner Guilty of Mortgage Fraud

Owner of Rental Property in Ohio, Guilty of Fraud and facing 35 years in prison

April 14, 2008

A hedge fund-backed real estate speculator and rental property owner in Columbus, Ohio, is facing 35 years in prison for his role in a mortgage fraud scheme that fraudulently secured more than $2.6 million in mortgage loans.

Donald F. Green, 48, pleaded guilty in U.S. District Court last Friday to one count of income tax evasion, one count of conspiracy to commit bank fraud and wire fraud, and one count of bank fraud.

According to Greens plea agreement, Green bought houses usually in need of substantial repairs in distressed neighborhoods in Columbus, Ohio, in 2003 and 2004 at or near their true-market value.

In 2003, Green developed a working relationship with Jonathan L. Boyd, a loan officer at Summer Tyme Mortgage. Boyd would recruit straw buyers to purchase Greens properties using fictitious income numbers in order to increase their reported credit worthiness.

Court documents also reveal that Boyd arranged for inflated appraisals of many of those properties by Darneil Gaither. All three, Green, Boyd, and Gaither, used false information to obtain approximately $2,651,200 in mortgage loans.

In 2004, Green sold similar houses to other straw buyers through a scheme set up by codefendants Aryeh Schottenstein, Jeffrey Lieberman and Shawn Griffin in an investment program with Stillwater Capital Partners.

Stillwater paid Griffin substantial amounts of money to renovate these properties provided by Green, but Griffin failed to follow through on any renovations. Green received consulting fees on several of these deals yet failed to report the income on his tax returns.

Green also gave his tax preparer schedules of fictitious improvements made on many of the properties in order to reduce his capital gains profits and therefore his taxes on the sale of the properties.

By not reporting all of his income, Green fraudulently avoided an additional tax due and owing of $100,332.97 for 2003, and $130,043.19 for 2004.

Green and the others were indicted in August, 2007.

Charges are still pending against Boyd and Gaither. Schottenstein, Lieberman and Griffin have plea agreements pending.