What Are the Common Characteristics of Fraudsters?

A fraudster is an individual who intentionally uses deceit for personal or financial gain. These actions can range from impersonating someone to manipulating financial records, causing significant harm to individuals and businesses. Understanding the psychological, behavioral, and situational factors behind fraudulent acts is a step in developing effective prevention and detection strategies. This knowledge helps organizations and individuals protect themselves from the resulting financial and emotional distress.

The Fraud Triangle Framework

A widely recognized model for understanding the conditions that lead to fraudulent behavior is the Fraud Triangle. This framework posits that three elements are present when an individual commits occupational fraud: pressure, opportunity, and rationalization. By analyzing these components, organizations can identify potential risks and implement targeted strategies to mitigate them before they result in financial loss or damage to their reputation.

Pressure

Pressure represents the “why” behind a fraudulent act. These pressures are often non-shareable, meaning the individual feels they cannot solve their problem through legitimate means. Common drivers include personal debt, medical emergencies, or a desire to maintain a certain lifestyle. Work-related pressures, such as the need to meet aggressive sales targets, can also motivate individuals to manipulate financial reporting.

The source of the pressure can be internal, like a gambling addiction, or external, such as pressure from family. In a corporate context, an employee might create fictitious revenue entries to meet quarterly earnings projections. The motivation is not always purely financial; it can also be about maintaining a reputation or avoiding the perception of failure.

Opportunity

Opportunity refers to the circumstances that allow a person to commit fraud, conceal it, and avoid detection. This is the only component of the Fraud Triangle that a company has direct control over. Opportunities arise from weak internal controls, such as a poor segregation of duties. For example, if one person can both approve payments and issue checks, they can create a fictitious vendor and pay themselves without oversight.

A lack of management review, inadequate oversight, or excessive trust in one employee can also create opportunities. To counter this, organizations implement controls like mandatory vacations, dual authorization requirements for large transactions, and regular, independent reconciliation of financial statements.

Rationalization

Rationalization is the internal justification that allows a fraudster to reconcile their behavior with their own ethical code, viewing their actions as acceptable. This mental process allows them to commit the act without feeling guilt. Common rationalizations include telling oneself, “I’m only borrowing the money and I’ll pay it back,” or “The company owes me for all my hard work.”

Other justifications involve depersonalizing the victim, such as thinking, “It’s a large corporation, they won’t even miss this amount.” Individuals may also rationalize their actions by believing they are acting for a greater good, such as “saving the company” or protecting their colleagues’ jobs.

Common Personality Traits

Beyond the situational factors of the Fraud Triangle, certain personality traits can make an individual more predisposed to committing fraud. While not causal on their own, these traits can amplify the risk when pressure and opportunity are present.

One observed trait is a propensity for risk-taking, as these individuals may be less deterred by the potential consequences of being caught. This can be coupled with a sense of ego or superiority, where the person believes they are smarter than others and can outwit any controls. This narcissistic tendency often includes a need for admiration and a lack of empathy for victims.

Many individuals who commit fraud are also intelligent, creative, and charismatic. Their intelligence allows them to understand and exploit complex systems, while their creativity helps them devise novel schemes. Charm and charisma are often used to gain the trust of colleagues and superiors, disarming suspicion where their actions are not questioned.

A disregard for rules and authority is another common characteristic. These individuals view policies and procedures as obstacles to be overcome rather than guidelines to be followed. This mindset, combined with a talent for rationalizing, makes it easier for them to justify breaking the rules.

Observable Behavioral Red Flags

Personality traits often manifest as observable behaviors that can serve as warning signs of fraudulent activity. Recognizing these red flags is a component of early fraud detection.

One of the most common red flags is an individual living a lifestyle beyond their financial means. This could include sudden purchases of luxury items like expensive cars, lavish vacations, or a new home inconsistent with their salary. This behavior may also accompany signs of financial distress, such as creditor calls at work.

Another behavioral indicator is an unwillingness to take vacations or share job duties, as the employee may fear their activities will be discovered in their absence. Similarly, someone who is excessively controlling of their work area and resists oversight may be trying to conceal their actions. This person might insist on handling all aspects of a vendor relationship, from approving invoices to processing payments.

Unusual defensiveness, irritability, or secretiveness about work-related matters can also be a red flag. An employee might react aggressively when questioned about their work or prevent others from reviewing their files. An excessively close relationship with a specific vendor or customer can also be a warning sign of collusion.

Positional and Environmental Factors

The context in which an individual works, including their position and the corporate culture, can be a powerful contributor to fraud. A person’s role and the company’s values can create a high-risk situation by enabling or even encouraging fraudulent acts.

An individual’s position can grant them the authority and access needed to commit large-scale fraud. High-level executives often have the ability to override internal controls, making it easier to manipulate financial statements or misappropriate assets. Long tenure in a position of trust is also a risk factor, as long-serving employees may have gained such a level of confidence that their actions go unquestioned.

The corporate culture, or “tone at the top,” plays a significant role. If leadership prioritizes results at all costs and tolerates unethical behavior, it can create an environment where employees feel pressured to commit fraud. This type of culture normalizes dishonest behavior, making it easier for individuals to rationalize their actions.

Conversely, a strong ethical culture that promotes transparency and accountability is a powerful deterrent. When leadership demonstrates a commitment to integrity, it reinforces ethical conduct throughout the organization. This environment makes it more difficult for individuals to rationalize fraud and encourages employees to speak up if they suspect wrongdoing.