If you think that perpetrators of occupational fraud are inherently bad people, you’re wrong. The most recent Report to the Nation on Occupational Fraud and Abuse by the Association of Certified Fraud Examiners reports that 92% of employees who commit fraud have no prior record of fraud charges or convictions.
Those who think the perpetrators of fraud are inherently bad are refusing to confront the issue that good people can turn bad. We trust people who seem trustworthy. But we have to accept that they can change. Many executives who commit fraud were at one time considered rising stars with good values. If they showed a lack of ethics at any point in their careers, they were likely still promoted because their superiors believed the results were more important than the methods.
Who knows for sure why a top executive commits fraud? We can’t get into their minds to determine where it all started, but a look at common motivations for fraud by upper-level executives might help companies prevent fraud.
Probably the two most common reasons upper managers commit fraud are greed and need. Both greed and need can come into play on a personal level and on a corporate level.
As an employees is moving up through the ranks, monetary rewards for performance increase. By the time they reach the executive suite, they may be earning more money than they ever imagined. Add to the paycheck the stock options, bonuses and fringe benefits, and an executive can be raking in the money.
Such large monetary rewards can create an attitude of greed or entitlement. When a company is doing well, an executive’s pay and perks may rise rapidly. The prospect of that ending is not appealing, and the executive often has a lifestyle that matches the compensation and must still be funded. In this situation a personal “need” may have been established.
Consider what happens when the company is not doing well. Executives face the prospect of lower earnings and perks, and that may be unthinkable to them. Inflating revenue or falsifying other financial statement items may be an answer to this problem.
An executive’s job may also be dependent upon whether or not a company is doing well. The “need” to show certain financial results can be a strong motivator for fraud. IT is a simple fact that banks, shareholders, and other third parties expect certain number from corporations, and executives may turn to fraud to produce those results on paper.
There are many motivations and factors that go into the decision to commit fraud, and I can appreciate that “greed” and “need” are only two small pieces of the puzzle. Nonetheless, they can be primary motivators for upper-level executives to commit fraud within corporations, so they must be taken seriously if we are to have any chance at preventing fraud.