Management Motives for Fraud

This year’s Educator of the Year Award recipient, Dr. Rasha Kassem, CFE, walked 36th Annual ACFE Global Fraud Conference attendees through the major motives for management fraud and discussed how they improve their organizations’ fraud risk assessments and audits. 

Beyond the Fraud Triangle 

Moving beyond the Fraud Triangle, Kassem explained that the major motivating factors for management fraud are motives, opportunities, rationalization, integrity and capability. “No one is going to commit fraud for the sake of it,” Kassem told attendees. Motives may fall into financial, nonfinancial and reputational categories.  

Weaknesses and vulnerabilities in an organization’s controls create opportunities. A lack of integrity can cause someone to compromise ethical standards when faced with temptations and challenges. Possessing the ability to override controls or an advanced knowledge of accounting can increase fraud capability. 

Management fraud is committed by an organization’s executives or managers and involves asset theft and abuse, manipulating financial records, or corruption. Kassem noted, “They have to have that drive to commit it,” adding that their power often shields them from consequences. 

Pay Attention to Red Flags 

For fraud examiners to best assess management motives in their investigations, Kassem advises observing their attitude. If an executive refuses to cooperate with members of their team, Kassem said that’s a red flag. She recounted a story of a professor she worked with who didn’t want his students to share modules with her class and limited their communication. It turned out the professor was using his position to extort students. 

Fraud examiners can pay attention to other red flags, including management’s resistance to developing and implementing a company code of conduct. She explained that if management tries to avoid taking responsibility by asserting they’re unaware of discrepancies, such as significant budget variances, fraud examiners can ask them directly why that is and question why they aren’t overseeing and monitoring.  

Another red flag emerges when managers aren’t willing to take corrective action. 

Kassem recommended fraud examiners who are investigating executives for previous frauds to collect primary data. They can reach out to law enforcement for information on white-collar criminals and use survey companies to search for convicted criminals. She also advised fraud examiners who are working with top leaders who don’t understand fraud to make a business case for them. If management isn’t motivated to maintain ethics and integrity at their organization, they may be persuaded by better understanding the financial costs of fraud to their business.  

Kassem realizes it may be difficult to call out executives and managers at one’s organization for being unethical. “It can be tough, and you can lose your job doing it,” she told conference attendees. “If someone’s not doing the right thing, stand up to them.”