Winter 2014 Elgin State Hospital Daven Morrison MD Asst Clinical Professor of Psychiatry Chicago Medical School Oh what a tangled w eb w e weave Fraud and the Mind ID: 289840
Download Presentation The PPT/PDF document "Grand Rounds," is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Grand Rounds, Winter, 2014Elgin State HospitalDaven Morrison MDAsst. Clinical Professor of Psychiatry Chicago Medical School
“
Oh, what a tangled
w
eb
w
e weave . . .
”
Fraud
and the MindSlide2
Financial Fraud Organizational PsychiatryCertified Fraud ExaminersWhite Collar CrimeSlide3
Psychiatry and FraudHave you ever been deceived?Slide4
The Multi-Disciplinary Team for Managing FraudFraud prevention requires these three cogs to turn together
EXHIBIT 9.1Slide5
Fraud Defined A generic term, embracing all multifarious means which human ingenuity can devise, and which are resorted to by one individual to get advantage over another by false suggestions or by suppression of truth, and includes all surprise, trick, cunning, dissembling, and any unfair way by which another is cheated. . . . Elements of a cause of action for “fraud” include false representation of
a present or past fact made by defendant, action in
reliance thereupon
by plaintiff, and
damage
resulting to
plaintiff from
such misrepresentation
.
Black’s Law DictionarySlide6
White Collar CrimeThose classes of nonviolent illegal activities which principally involve traditional notions of deceit, deception, concealment, manipulation, breach of trust, subterfuge or illegal circumvention.”Caveat EmptorSlide7
Fraud Background:Focus on Private IndustryMorrison Associates, Ltd.Arthur AndersenContinental BankConseco Insurance Food LionDaven MorrisonPsychiatric Resident and Chief Resident (1996)Morrison Associates since 1996Consultation to Leadership Teams
Fraud
Institute of Fraud Prevention
Tomkins Institute of Fraud Prevention
Senior Editor and Author: The A.B.C.s of Behavioral ForensicsSlide8
FRAUDTHE FRAUD TRIANGLE
Rationalize:
Justify theft to self
Opportunity
:
Find a hole in accounting process
Pressure/Incentives:
Knowingly
commit fraud for a perceived need
EXHIBIT 6.1Slide9
Recent Cases of Fraud in the NewsNY Times: Fraud in Army Recruiting Bonus Program May Cost Nearly $100 MillionChicago Tribune: Republican Party wing creates 18 fake websites for DemocratsWSJ: Ex-SAC Trader Found GuiltyRita
Crundwell
Jesse Jackson
LIBOR
Raj
Rajaraptnam
SAC Capital
Chicago
DriversSlide10
Dixon Illinois The Best Reason Ever to have Professional ManagementSlide11
Questions for TodayAdvances are made by answering questions. Discoveries are made by questioning answers. Bernard Haisch; Director, Calphysics InstituteSlide12
Alan Greenspan: I've always considered myself more of a mathematician than a psychologist. It all fell apart, in the sense that not a single major forecaster of note or institution caught it.The Federal Reserve has got the most elaborate econometric model, which incorporates all the newfangled models of how the world works—and it missed it completely.
“
What Went Wrong
”
Alexandra Wolfe
WSJ, Oct 18, 2013Slide13
Brief TestSlide14Slide15
Answers to QuestionProfile the FraudsterGreed is the motivatorSlide16
Fraud: Ideas from “ABC” Text:Highlights of Bringing Freud to FraudNew Perspective
Building on What
’
s Known
Challenging old theories on motivation – beyond greed
Designed to get financial mind sets to see the human element
Two new ways of thinking about the crime of fraud
ABCs of Behavioral Forensics
: Using Psychology to Prevent, Deter, and Detect Fraud
Known Cases
Science of the Brain
Models of Deception
Experience with Senior Executives
Assessment of Senior ExecutivesSlide17
Fraud: Ideas from “ABC” Text:Highlights of Bringing Freud to FraudIS
IS NOT
A Human Act
Driven by emotions
Natural
Expensive
Likely reflects a
“
change of mind
”
ABCs of Behavioral Forensics
: Using Psychology to Prevent, Deter, and Detect Fraud
Mental Illness
One size fits all
Not a
“
shameless
”
act
Easily profiled
A
“
solo” actSlide18
Fraud: Ideas from “ABC” Text:Two New Models: Bringing Freud to FraudThe Bad Apple?
Predatory vs Accidental
Who is he?
What about the victim?
Is there a Bad Bushel or Crop?
ABCs of Behavioral Forensics
: Using Psychology to Prevent, Deter, and Detect Fraud
What is in the Headlines?
What is most common?
What do you need to know about each of them?Slide19
Fraud FundamentalsFraud TriangleThe CrimeA Shared Daily Fraud ExperienceSlide20
Questioning Answer #1 The answer to halting fraud is a: ProfileWhat is Happening in the Mind?Slide21
Predatory Fraud is a DancePredatorNigerian PrinceSpiderMadoffPreyGrandmaFlyMadoff’s friendsSlide22
IMPORTANT TOPICS AND NEGATIVE AFFECT
Trivial
Important
IMPORTANT
IMPORTANT
TOPICS: IMPORTANT
IMPORTANT
IMPORTANT
Important
TrivialSlide23
INNATE AFFECTSFrom TomkinsPositive 1. Interest—excitement 2. Enjoyment—joy
Neutral
3.
Surprise—startle
Negative
4.
Fear—terror
5. Distress—anguish
6. Anger—rage
7. Shame—humiliation
8. Contempt (Dissmell)
9. DisgustSlide24
ContextSlide25
Our biologySlide26
Our biologySlide27
H C A G E
F A D E B
Affects are DataSlide28Slide29
The Progression, Examples I and II: We (I) Need Money 419ExcitementEnjoymentFearShameDistressExcitementSlide30
Predatory DynamicSlide31
Richard D. Lane and
David
A. S. Garfield
,
“
Becoming Aware of Feelings:
Integration
of Cognitive-Developmental,
Neuroscientific
,
and
Psychoanalytic Perspectives
,
”
Neuropsychoanalysis
7, no. 1 (2005): 5–30 Slide32
Affects as Data and the BrainHigher CPUs: Blends of blends (Prefrontal Cortex)Blends of emotion (Paralimbic)Discrete emotions (Limbic)
Action tendencies (Diencephalon)
Richard D. Lane and David A. S. Garfield,
“
Becoming Aware of Feelings: Integration of Cognitive-Developmental,
Neuroscientific
,
and Psychoanalytic Perspectives,
”
Neuropsychoanalysis
7, no. 1 (2005): 5–30 Slide33
Searching for the profileSummary of the first of two wrong questionsSlide34
The Seduction of the ProfileWhen there is a need for primary prevention, the profile is a waste of timeMay even be causative of fraud.Predatory fraudsters adapt to what you give them.Self Reflect: Can you use emotions as data?Can the critical people on your team?what can con you?Slide35
Professional CompetenceTIME on the JOB
Knowledge
Percentage
0%
100%
Day One
First Year
Professor Harry Kraemer, MBA
Technical
Knowledge
Interpersonal Knowledge
Having the Answer vs Getting the AnswerSlide36
Questioning Answer #2: Greed is the motivationWhat is Happening in the Mind?Slide37
Accidental Fraud is a Wall FlowerRita Crundwell Diann CattaniSlide38
The Values of the 8 Motivational States38
Serious
Rebellious
Other
Playful
Conforming
Mastery
Sympathy
Control
Fitting In
Individualism
Caring
Achievement
Enjoyment
Collectivism
Freedom
Playful
Self
EXHIBIT 6.2Slide39
Sources of Motivation are LimitedHelps those who are listening for Risk Factors to be focused on a finite list of optionsSlide40
FRAUDTHE FRAUD TRIANGLE IN MOTION
Step Three: Rationalize
Step One: Opportunity
Find a hole in accounting/oversight process
Step Two: Pressure
Knowingly
commit fraud for a perceived need
The
“
unofficial
”
legal line
Fraud is expensive over time
$$$
$$$$$
EXHIBIT 6.3Slide41
FraudHow Honesty Reverses
Answer: Yes
Question: Do I keep the money?
STARTING Motivation:
Follow the rules
FINAL Motivation:
Disobey the rules
The
“
unofficial
”
legal line
EXHIBIT 6.3
?
!
The Reversal
Fraud Perpetration requires repetitionSlide42
Fraud
Reversal
START:
Rules Matter
Sustaining Large Scale Fraud is
Sustaining the Reversal
Motivations to sustain fraud (rationalizations)
Self:
They don
’
t care
‘
bout me
Othe
r: I
need $ for our medical bills
Play:
who can catch me?
Mastery:
Now they will know who
’
s boss!
4 More possible motivations
$$$$$
$$
Time remains the enemy . . . because the cost grows
EXHIBIT 6.4
Over time the fraudster
’
s believes:
“
the rules are not for me
”Slide43
Fraud
Reversal
START:
Rules Matter
Sustaining large frauds requires getting
others to Reverse Motivation
Motivations to recruit others (rationalizations)
Self:
They don
’
t care
‘
bout you!
Othe
r:
You
need $ for our medical bills
Play:
who can catch us?
Mastery:
Now they will know we
‘
re in charge!4 More possible motivations
$$$$$
$$
Time AND Title is the enemy . . .
As the cost grows
EXHIBIT 6.5
Over time the fraudster
’
s TEAM believes:
“
the rules are not for us
”Slide44
Bad Bushels and Beyond: Leadership ToneThe Role of NarcissismThe Role of PsychopathyThe role of the Charismatic LeaderThe Challenge of the EntrepreneurThe critical answer to questionSlide45
Cases:On Making * The NumbersPowerful CFOBank PresidentVideo: From $200K to several million dollarsSlide46
Fraud Overlap: Psychiatry and Forensic Accounting AKA “Shrinks and Spread Sheets”Financial ServicesMental Health
Expensive
Harms trust
Affiliation Scam
Insider Training
Regulatory environment
COSO
Sarbanne
-Oxley
Expensive
Harms trust
“malingerer”
“Crock”, Drug seeker
Regulatory Environment
HIPPA
Conflict of Interest DisclosureSlide47
LeadershipWhat is the tone of the leadership?Do the leaders understand their presence?How well do they understand emotions?Are they competent?Are they creating a sense of belonging or alienation?Interpersonal Misfits are a breeding ground for risk/fraudHow competitive are they?Are there Charismatic-Leader Follower Dynamics?Do they understand their impact on culture?Slide48
Clients CorporateWhat are they sharing?What is the tone of their leadership?How self-reflective are they?How do they make you feel?Is there Narcissism in leaders?How charismatic are they?Do the leaders understand and manage their executive presence?IndividualsAre they at risk of being victim of an email scam?Distress?
Excitement?
Pride? Narcissism?
What of the family
What is their tone?
Is there potential for fraud in the family?
When does the Northern say
“
no
” to a client?Slide49
EmployeesAvoid “Accidentals”Innoculate against “Predators”
When do they get the message to
“
do the right thing
”
vs ask if it
’
s legal?
Do they have a reason to feel taken advantage of by the bank and want something in return?
Are they emotionally competent?
Can they be seduced by a predator?
How would a fraudster turn the culture to his advantage?
What are the subcultures that put the bank at risk?Slide50
Summary Two new ways of thinking means questioning answers:Blaming “Greed” will limit your seeing the larger ecology/environment of fraudProfiling Employees will make more anxiety and distance than you want and will provide a road map for those fraudsters motivated to read from the play book!Slide51
Final Thoughts:Use Affects as Data for Fraud PreventionOnly two ways to tell a malingerer
GOOD
LUCK!