Procurement Fraud (part 2) – why do they do it?

We looked yesterday at the different types of procurement fraud, and got onto the motivation – why does it happen? My hypothesis is that there are three key reasons (motives) why people – particularly internal staff – commit fraud. In no particular order;

Financial need – the most obvious, often driven by a problem such as debt. That may be caused by factors outside their control, such as mortgage rate increases, or more avoidable drivers such as a liking for expensive company of the opposite sex. Gambling is another not unusual factor that leads to debt and ultimately crime.  In one case I’m aware of, a senior accountant made payments to a dummy supplier (which he controlled) because he had “the Peterborough* mafia” on his back for gambling debts”.  No, I had no idea either....

A psychological defect (as we might call it)-  perhaps a pathological desire for excitement;  or a “cry for help”, as the newspapers like to put it. This is often unrelated to a tangible need for cash, and doesn’t appear to be even simple greed  - there’s a parallel perhaps with the shoplifting habits of Hollywood stars like Wynona Ryder.  In another case, I know of two very senior marketing executives who were fired for a complex fraud involving the submission of duplicated hotel bills to generate expense claims. Given the return compared to their salaries, I suspect it was driven by the thrill of the fraud, rather than real financial need.

A sense that “I deserve it”-  Whilst this could be considered as pure greed, it is often driven by a feeling of being under-valued in their job, or a jealousy of others. Perpetrators may even feel they are morally in the clear, and academic research suggests this is a major driver of fraud. It’s often evident in the type of fraud where a secretary or administrator working for a very rich individual, or a junior person in a firm where top staff are highly rewarded, helps themselves to some of the bosses wealth. Or a lowly paid  procurement person in a decision making role for a huge contract perhaps.

This final factor interests me. As the gap between rich and poor gets wider in our societies, are more people feeling like this? When a mid-level executive, whose salary is fairly static (or worse) sees bankers and CEOs earning millions, and footballers, rock stars or baseball players rewarded handsomely, are they more likely to think, “why not me – I deserve it as much as him / her”?

Clearly, the first of our three factors – financial need – is likely to become more significant  in tough economic times. Whether or not the final factor changes over time, I don’t know for certain, but it seems likely as inequality grows generally.  So we can assume, I suggest, that two of the key motivational drivers for fraud are increasing.

Is there anything organisations can do to counter this, beyond the appropriate process measures we’ll talk about in subsequent parts of this series?

Should organisations try to identify addictive personalities, or those individuals who are intrinsically thrill seeking? Avoiding blatantly unfair allocation of reward is clearly sensible for many reasons, not merely in order to minimise the chances of fraud. Being aware of staff who may feel, rightly or wrongly, that they’re under-valued, and not putting them in a position with the potential for fraud, is sensible.

But perhaps it’s just a case of being aware that fraud does happen, and the drivers, and keeping alert to individuals’ behaviour that might suggest a tendency to fall into one of these categories. More important, and actionable though are the process and control measures that can be put in place; we’ll cover those later.

*A small / midsized city in Eastern England, once an agricultural / religious centre, now a light industry / services hub. And apparently popular with illegal gambling rings and rife with scary enforcers...


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  1. Sam Unkim:

    It’s going to be interesting in future, with the current culture of X-factor, gang-rap, MP expenses etc..

    Is integrity going to become something to be ridiculed…like belief in UFO’s

    Or am I just being an old git…..

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