Description
The purpose of this paper is to explore pathways to fraud perpetrated in accounting-related
roles, focusing both on situationally driven attitudes and contextual elements.
Design/methodology/approach – Drawing on an anom
Accounting Research Journal
Pathways to accountant fraud: Australian evidence and analysis
Paul Andon Clinton Free Benjamin Scard
Article information:
To cite this document:
Paul Andon Clinton Free Benjamin Scard , (2015),"Pathways to accountant fraud: Australian
evidence and analysis", Accounting Research J ournal, Vol. 28 Iss 1 pp. 10 - 44
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Pathways to accountant fraud:
Australian evidence and analysis
Paul Andon
School of Accounting, University of New South Wales, Sydney, Australia
Clinton Free
Australian School of Business, University of New South Wales,
Kensington, Australia, and
Benjamin Scard
Australian School of Business, University of New South Wales,
Sydney, Australia
Abstract
Purpose – The purpose of this paper is to explore pathways to fraud perpetrated in accounting-related
roles, focusing both on situationally driven attitudes and contextual elements.
Design/methodology/approach – Drawing on an anomie-based criminological taxonomy
developed by Waring et al. (1995) and Weisburd and Waring (2001), which highlights individual
attitudes and situational elements and their connection to illegitimate behaviour, the authors performa
qualitative content analysis of available media and court-reported information on a hand-collected
database of 192 accountant frauds in Australia during the period 2001-2011.
Findings – The analysis highlights four distinct pathways to accountant fraud – crisis responders,
opportunity takers, opportunity seekers and deviance seekers – and the relative distribution of
identifed cases among these pathways. It also identifes the prevalence of gambling, female offenders,
small and medium enterprises as victims, as factors in fraud, as well as the relatively unsophisticated
methods in much accountant fraud. In addition, it establishes the importance of situational attitude in
moderating inherent character as it relates to fraudulent behaviour and the variable importance of the
fraud triangle elements across the pathways to accountant fraud.
Originality/value – This paper provides direct evidence on the nature and pathways to accountant
fraud, thus improving understanding of a signifcant category of occupational fraud. The evidence
challenges conventional characterisations of accountant fraud offenders in prior research.
Keywords Internal controls, Gambling, Fraud, Accountant fraud
Paper type Research paper
Introduction
In spite of increasing attention among regulators, academics and practitioners, fraud
continues to impose enormous costs on society. Recently, the Association of Certifed
Fraud Examiners (ACFE) estimated that the cost of fraud globally was approximately 5
per cent of the revenue or $3.7 trillion annually (ACFE, 2014). In its most recent 2014
The authors gratefully acknowledge the fnancial support of the Accounting and Finance
Association of Australia and New Zealand Research Grant scheme, the assistance of Brett
Warfeld with data collection, and the participants of the Third National Forensic Accounting
Teaching and Research Symposium for their helpful comments.
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1030-9616.htm
ARJ
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10
Received23 June 2014
Revised13 September 2014
Accepted29 December 2014
Accounting Research Journal
Vol. 28 No. 1, 2015
pp. 10-44
©Emerald Group Publishing Limited
1030-9616
DOI 10.1108/ARJ-06-2014-0058
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Report to the Nations, the ACFE (2014) found that approximately 77 per cent of frauds
were committed by individuals in one of seven departments: accounting, operations,
sales, executive/upper management, customer service, purchasing and fnance. This
fnding, mirroring similar fndings elsewhere (Friedrichs, 2002), demonstrates the
intra-organisational character of much fraudulent activity[1], and focuses attention on
accounting-related roles. Individuals employed in these roles have a unique opportunity
to perpetrate and conceal fraud because they are frequently in a position to directly or
indirectly manipulate accounting records, circumvent internal controls and present
fraudulent fnancial information.
While a growing body of research has focused on fnancial statement fraud and
enhanced understanding of antecedents, trends and consequences of this phenomenon
(see Hogan et al., 2008 for a recent review of this literature), there has been a paucity of
work seeking to understand fraud perpetrated by those employed in accounting-related
roles. Apart from research on fraud in the savings and loan industry (Calavita and
Pontell, 1990; Calavita et al., 1997) and some inchoative comparative work (Holtfreter,
2005), little is known about how fraud varies in distinct occupational domains. The
purpose of this paper is to explore accountant fraud, a particular category of
occupational fraud (defned as “the use of one’s occupation for personal enrichment
through the deliberate misuse or misappropriation of the employing organisation’s
resource or assets”; ACFE, 2014, p. 6).
Traditionally, research into white-collar crime has generally focused on the ways in
which criminals differ from non-criminals (Weisburd and Waring, 2001). To this end,
Gabor (1994, p. 14) states:
Traditionally, criminologists have attempted to explain why some people become criminals
and others do not. Some have attributed the apparent differences between criminals and the
law-abiding to innate or genetic factors, others to personality differences, and still others to
social circumstances. Whatever their persuasions, these traditionalists shared the assumption
that there were key differences between criminals and the rest of society. The traditional goal
of research and theory in criminology, therefore, has been to identify the differences as
precisely as possible.
This approach provides limited insight into the ways in which offenders come to commit
crime. A small but growing body of criminological research has begun to identify
“pathways” to criminal behaviour (Byrne and Trew, 2008; France and Homel, 2007;
Murphy, 2012; Waring et al., 1995; Weisburd and Waring, 2001). This research has
focused attention on the immediate context of crime and its role in leading otherwise
conventional people to violate the law. In so doing, it presents different avenues to
criminal activity, drawing on research in decision-making and criminology and
providing insights into the importance of the immediate context of crime.
In exploring the situational context of accountant fraud[2], this paper draws on a
typology developed by Waring et al. (1995) and Weisburd and Waring (2001), which
offers a useful lens to consider individual attitudes and situational elements and their
connection to illegitimate behaviour. We explore the signifcant pathways to accountant
fraud, which we defne as occupational fraud perpetrated by an individual in the course
of his or her employment in an accounting-related role (e.g. accountant, bookkeeper,
receivables or payables clerk). To do so, we examined 192 fraud convictions in
Australian courts involving accountant fraud from 2001 to 2011.
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Four interesting contributions are made to understanding accountant fraud fromour
analysis of Australian cases. First, this study draws attention to four distinct pathways
to accountant fraud and the relative distribution of identifed cases among these
pathways:
(1) crisis responders;
(2) opportunity takers;
(3) opportunity seekers; and
(4) deviance seekers.
Second, our analysis reveals the prevalence of gambling, female offenders, small and
medium enterprises (SMEs) as victims, as well as the use of relatively unsophisticated
methods, in much accountant fraud. Third, in delineating the pathways to fraud, our
analysis highlights the importance of situational attitude in moderating inherent
character as it relates to fraudulent behaviour. Fourth, our analysis reveals different
emphases of fraud triangle elements across the pathways to accountant fraud.
The remainder of this paper is structured as follows. The next section provides an
overviewof the emerging literature relating to fraud. This is followed by a discussion of
the method used to identify and analyse court cases involving convictions of accountant
fraud over the period. This includes an analysis of this corpus of cases, highlighting the
major characteristics of the frauds perpetrated, the perpetrating fraudsters and
sentencing outcomes. The four emerging categories of fraud – crisis responders,
opportunity takers, opportunity, seekers and deviance seekers – are then discussed in
detail. The fnal sections present a discussion of the implications of these fndings and
conclude the paper.
Images of fraud perpetrators in accounting research
Power (2012) highlights that “fraud risk” and related risk management discourses are a
relatively recent phenomenon in contemporary business. Mirroring this, scholarly
interest in the nexus between external/internal audit, internal control and fraud has also
recently burgeoned. A recent special edition of Accounting, Organizations and Society,
along with a range of other scholarly outlets, published contributions to knowledge on a
range of fraud-related matters, encompassing agent-based models of fraud dynamics
(Davis and Pesch, 2013), fraud regulation (Williams, 2013), state-based enforcement
regimes (Braithwaite, 2013), the illusory construction of “trustworthy” investment
opportunities (Stolowy et al., 2013) and the fraud triangle (Cohen, 1995; Free and
Murphy, 2014; Morales et al., 2014; Murphy, 2012; Murphy and Dacin, 2011; Wilks and
Zimbelman, 2004).
The dominant framework relating to fraud in auditing and forensic accounting is the
“fraud triangle”. This framework is embedded in professional association standards
around the world (International Auditing and Assurance Standards Board (IAASB),
2009; PCAOB, 2005), including the USA (SAS No. 99), Australia (ASA 240) and
international audit standards (ISA 240)[3]. The fraud triangle comprises three
conditions that are argued to be present whenever a fraud occurs[4]:
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(1) an incentive or pressure that provides a motive to commit fraud (e.g. personal
fnancial problems);
(2) an opportunity for fraud to be perpetrated (e.g. weaknesses in or ability to
override internal controls); and
(3) an attitude that enables the individual to commit fraud or the ability to
rationalise the fraud.
The genesis of the fraud triangle is generally said to be the work of American
criminologist Donald Cressey, who conducted 133 interviews with inmates in the Illinois
State Penitentiary convicted for embezzlement. Based on these interactions, Cressey
(1950, 1953) hypothesised three criteria for criminal violations of trust:
(1) a non-shareable fnancial problem[5];
(2) knowledge of the workings of a specifc enterprise and the opportunity to violate
a position of trust; and
(3) the ability to adjust one’s self-perception such that violating this trust does not
constitute, in the individual’s mind, criminal behaviour.
Interestingly, the term “fraud triangle” was coined long after Cressey’s work and
popularised by Joseph Wells, the founder of the ACFE (Morales et al., 2014). Although
Wells (1997, p. 11) briefy mentions the notion of the non-shareable problem, this central
aspect of Cressey’s hypothesis is replaced with the broader notion of pressure[6]. Wells
simplifes Cressey’s work into the fraud triangle presented in Figure 1. Albrecht et al.
(1984) go further to replace the notion of rationalisation with “personal integrity” in their
fraud scale (Figure 2). According to Dorminey et al. (2012), “the beneft of examining
integrity is that an individual’s integrity can be inferred from past behaviour” (p. 562).
The fraud triangle has become an important focus in the growing feld of forensic
accounting and fraud examination (Ozkul and Pamukcu, 2012, p. 30). Although forensic
accountinghas a lengthyhistory(Crumbley, 2001), it has recentlyexperiencedrapidgrowth
in terms of professional accreditation (Huber, 2012) and status in the legal system [see
DiGabriele (2008, 2011) on the rise of forensic accounting expertise in the form of expert
witnesses, consultingexperts andfact witnesses intrials]. Ina comprehensive review, Smith
and Crumbley (2009) fnd that the fraud triangle represents the most commonly taught
Figure 1.
The fraud triangle
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frameworkinfraudexaminationandforensic accountingcourses inaccountingprograms in
the USA, UK, Australia, Hong Kong and Lebanon. The fraud triangle is also a mainstay in
the educational curricula of a growing number of certifcations in forensic accounting in the
USAand elsewhere (see Huber, 2012, for a review).
More broadly, concern with the drivers of white-collar crime has driven a vast body of
research across a range of different literature since British sociologist Edwin Sutherland
coined the term in 1939. Although a variety of labels has been used to describe the
dichotomy, an important characteristic of this research is the distinction between
individualistic or trait-basedexplanations, whichfocus onthe causes of crime that are located
within the individual, and situational explanations, which focus on the link between
individual actors and their immediate social context (Berger, 2011). We now turn to this
distinction as it applies to the emerging literature dealing with fraud in accounting.
Individualistic explanations of fraud
In spite of broad references to factors such as “tone at the top”, organisational culture
and internal controls, Morales et al. (2014) argue that the fraud triangle adopts an unduly
individualising conception of fraud that elevates the imperative of systematic controls
to prevent and detect the dangerous pathologies of some individuals. In this way, they
argue, the fraud triangle represents a translation intentionally designed to legitimise the
intervention of various professional communities including the ACFE[7]. In his writing,
Joseph Wells, the founder of the ACFE[8], has consistently considered fraud to be a
dishonest act perpetrated for personal enrichment as well as a generalised problemthat
necessitates the surveillance and examination of dangerous individuals and effective
internal controls in organisations (Wells, 2001). As Donegan and Ganon (2008, p. 3) state:
[…] the [fraud] triangle had the […] advantage of explaining fraud as the action of a loner
driven by need, taking advantage of a lack of internal control. Thus the deterrent to fraud was
more internal control, and the search for the culprit could focus on individual offenders, not on
the culture that may have encouraged and rewarded their actions.
Morales et al. (2014) point out that the attitude/rationalisation element of the fraud triangle
has tended to be associated with personality attributes that may be variously described as
ambitious, reckless, risky, egocentric, arrogant and power-driven (Berger, 2011). In
accounting research, fraud has been connected to neurotic personality (Dorminey et al.,
2010), Machiavellianism(Murphy, 2012), the industrial psychopath (Babiak and Hare, 2006)
Figure 2.
The fraud scale
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and pathological gambling (Kelly and Hartley, 2010), and linked to vice-related traits
(Kidder, 2005). Thesedepictionsrunparallel withresearchinother areasarguingthat certain
personality attributes are positively related to intention to engage in corporate offending
including “desire for control” (Piquero et al., 2010), “competitiveness” (Terpstra et al., 1993),
so-called“negative emotions” (lackof discipline, insensitivitytoothers) (Collins andBagozzi,
1999), extroverted, disagreeable and neurotic personality types (Alalehto, 2003), the absence
of “social conscientiousness” (Collins and Schmidt, 1993) or desire for control (Benson and
Simpson, 2009). Ineconomics, Paternoster andSimpson(1993) have characterisedcorporate
crime as criminal activity rooted in instrumental and strategic choices made by risk-averse
managers who weigh various perceived costs and benefts. The image that emerges from
these fndings is that the typical offender is male, opportunistic, manipulative and
suspicious. Levi (2006) presents a common set of metaphorical images in media coverage of
fraud including “dirty rotten scoundrels”, “cons”, “unscrupulous” and “fnancial predators”.
This focus on individual traits and dispositions is consistent with the notion of
fundamental error attribution[9] in social psychology, which refers to the error of
ignoring situational factors and overconfdently assuming that distinctive behaviour or
patterns of behaviour are due to an individual’s distinctive character traits (Ross, 1977).
Although people tend to attribute their own misadventure to external factors, they tend
to attribute the behaviour of others to the person rather than the context (Dripps,
2003)[10].
A focus on dispositions in relation to the conduct of crime has, however, been
criticised within sections of the criminological literature. For example, Katz (1988) takes
aim at essentialist characterisations of criminal behaviour, emphasising that criminals
(such as fraudsters) often fail to adhere to popular characterisations. As Katz’s explains,
many of those who display identifed traits leading to criminal behaviour do not commit
crime, many individuals who commit crime do not ft identifed criminal traits and many
who display traits consistent with criminal behaviour may not commit crime for a long
period despite the presence of those traits. As such, a focus on essential qualities (e.g.
instrumental rationality or individual character traits) is insuffcient to explain why
individuals may engage in criminal behaviour such as fraud.
Situational explanations of fraud
A growing body of ethics and psychology research recognises the importance of
situation in eliciting unethical behaviour (Acquino and Reed, 2002; Milgram, 1974;
Zimbardo, 2007). Situation is also recognised in understanding decision processes that
produce criminal behaviour (Clarke, 1992; Clarke and Cornish, 1985; Cornish and Clarke,
1986), and items such as organisational culture, tone at the top and embeddedness have
become increasingly invoked in the areas of corporate governance and risk
management. Theories such as differential association[11] and the normalisation of
deviance illuminate the link between individual actors and their immediate
organisational environment. To this end, in a series of experimental studies, Gino et al.
(2009, 2010) fnd that exposure to the unethical behaviour of in-group peers and social
norms can increase an individual’s dishonesty and cheating. Theories relating to
anomie-strain, criminogenic market structures and the disaster-capitalismcomplex focus
on the broader historical, economic and political factors that impact organisations
themselves (Berger, 2011). A critical stream of criminology research has pointed to the
criminogenic or even criminally coercive nature of certain organisations and social
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environments (Clinard, 1983; Clinard and Yeager, 1980; Coleman, 1987; Needleman and
Needleman, 1979).
A small but growing band of studies has explored the infuence of a range of
organisational and societal pressures on the decision to commit fraud, including the
impact of charismatic organisational leadership (Free et al., 2007), institutionalised
processes (Gabbioneta et al., 2012), corporate culture (Free and Macintosh, 2008; Free
et al., 2007), political entrepreneurship (Stalebrink and Sacco, 2007), neoliberal
infuences (Chwastiak, 2013), co-offender bonds (Free and Murphy, 2014), institution-
based forms of trust (Stolowy et al., 2013), public interest emphasis (Stuebs and
Wilkinson, 2010) and industry and operating conditions (Bayou and Reinstein, 2001).
The emphasis has tended to be on macro-contextual factors rather than immediate
context of crime.
In summary, both scholarly and professional investigations into fraud have tended to
focus on the relationship between individual factors and the decision to defraud, leading
Power (2012, p. 18) to conclude that “the grammar of fraud risk management is
essentially individualistic”. We believe that this has led to an under-appreciation of the
central role of situation in explaining fraud by accountants. Drawing on a typology
developed by Waring et al. (1995) and Weisburd and Waring (2001), we aim to explore
the signifcant pathways to fraud by accountants, centring on individual attitudes and
situational elements and their connection to illegitimate behaviour.
The situation – attitude – behaviour framework
To facilitate our analysis for this paper, we use a framework for understanding
connections between situation, attitudes and fraudulent behaviour developed in
criminology by Waring et al. (1995) and Weisburd and Waring (2001) (referred to as the
“situation-attitude-behaviour framework” herein for convenience). Grounded in Robert
Merton’s theory of social structure and anomie (Merton, 1938, 1964, 1968), this
framework is premised on the idea that fraud arises when individuals face pressures to
achieve culturally valued goals (e.g. fnancial enrichment), and at the same time perceive
their situation to lack legitimate means to achieve those goals[12]. This disjuncture
between ends and legitimate means leads to situations of anomie, where moral
standards and legal norms lose their impact and force. The sense of disillusionment,
estrangement and/or powerlessness that ensues breaks down an individual’s
motivation to act legitimately in pursuit of his or her fnancial goals. The framework
developed by Waring et al. (1995) and Weisburd and Waring (2001) extends this general
theorisation of precursors to fraud by developing a typology to understand the role that
situation plays in shaping confgurations of attitudes that lead to fraud. This typology
is summarised in Table I.
Table I highlights that to engage knowingly in fraudulent conduct, offenders have to
adopt, either generally or situationally, a positive attitude to illegitimate means of
achieving fnancial enrichment. This positive attitude does not mean that the individual
has to favour illegitimate means generally, but rather that engaging in these means
serves the individual’s goals in his or her circumstances. As such, fraud offenders are
considered to have the following in common:
• they subscribe to the culturally sanctioned goal of fnancial enrichment;
• they have a positive situational attitude to the use of illegitimate means of
achieving fnancial ends;
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Table I.
Framework of fraud
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e
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a
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d
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a
r
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g
(
2
0
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)
;
W
a
r
i
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g
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a
l
.
(
1
9
9
5
)
17
Accountant
fraud
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
2
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
• they have situational access to these illegitimate means; and
• they situationally behave in a way that does not conform to legitimate means.
This is not to say that all pathways to fraud are equivalent. According to the model
proposed, individual variations can be accounted for by the following three factors:
(1) general attitude to legitimate means;
(2) general attitude to illegitimate means; and
(3) situational attitude to illegitimate means.
From these variations, Waring et al. (1995) and Weisburd and Waring (2001)
characterise four different pathways to offending – crisis responders, opportunity
takers, opportunity seekers and deviance seekers.
Crisis responders are considered by and large to be conformists, but in a particular
situation feel they need to engage in behaviour they consider wrong to address
perceived fnancial pressure or hardship, relating to themselves, their family or their
organisation. This is refected in this category of offender displaying a positive general
attitude to legitimate means of fnancial gain, a negative general attitude towards
illegitimate means, but a positive situational attitude towards legitimate means. This
combination of attitudinal positions leads the individual to believe that he or she cannot
conform to legitimate means of fnancial gain if fnancial goals are to be realised.
Opportunity takers are similarly characterised as individuals who generally seek to
conformto legitimate forms of conduct. However, their path to fraud is infuenced by the
appearance of an opportunity that “looks too good to pass up” (Waring et al., 1995,
p. 216). These individuals display a positive general attitude towards legitimate means,
a negative general attitude to illegitimate means and a negative situational attitude to
legitimate means. While such individuals do not seek out opportunities for fraud due to
their conforming general attitudes, once an opportunity appears, they are drawn to take
up this opportunity for fnancial gain.
Opportunity seekers are individuals who view favourably any possible means for
fnancial gain, whether legitimate or not. They showa positive general attitude towards
both legitimate and illegitimate means, and a negative situational attitude to legitimate
means. As a consequence, opportunity seekers are characterised not as taking
advantage of illegitimate opportunities that befall them, but by actively searching for
such opportunities in their employment. While always willing to follow legitimate
approaches, an opportunity seeker will reject such approaches in a given situation when
it does not suit their instrumental purposes.
Deviance seekers, the fnal category, displaya negative situational andgeneral attitude to
legitimate means of fnancial gain and a positive general attitude towards illegitimate
means. Because of their preferential attitudes to illegitimate means of achieving fnancial
success, deviance seekers often engage in high rates of criminal activity and are likely to
have criminal histories that extend to other forms of criminal activity.
Method
An extensive and systematic search of court judgements was performed to build a
database of cases involving accountant fraud for the period 2001-2011. This task
involved a multi-faceted approach, as there is no single resource where Australian court
ARJ
28,1
18
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
2
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
judgements (criminal or otherwise) can be publicly accessed. Avariety of databases and
information sources were consulted. Akey source was the AustLII database, Australia’s
largest on-line resource of Australian legislation and case law, which provided access to
cases of interest heard in superior courts – state Supreme Courts and Courts of Criminal
Appeal. Information on relevant proceedings in lower courts (County, Local,
Magistrates and District courts) was not available via AustLII or any other publicly
available database, so information on relevant cases heard in these courts was sourced
from media outlets (searched via the ProQuest Australia & New Zealand Newsstand
database[13]), as well as the industry experience of a leading Australian fraud examiner.
In addition, Internet searches were performed to locate additional cases and to
supplement information about cases extracted from the AustLII and ProQuest
repositories. Approaches were also made directly to relevant courts to obtain further
information about identifed cases where other sources proved insuffcient.
The items obtained from these searches were initially read by each of the authors to
ensure their relevance to this study (i.e. that the case reported related to the actions of an
accountant, bookkeeper or related role). Cases involving related but non-accounting/
non-bookkeeping roles (e.g. bank clerks or lawclerks) were eliminated fromthe sample.
So too were cases where the offender’s employment in an accounting-related role was
incidental to the fraud committed (e.g. social security or personal tax fraud). This review
and refnement of collected materials produced an initial catalogue of 203 cases. Of
these, 11 cases had to be discarded due to insuffcient information about the offence.
Information collected about each of the 192 cases was drawn upon to produce a database
of key attributes for each case. Table II provides a summary of the key attribute
information collected.
The authors used content analysis to analyse these materials. In broad terms, content
analysis refers to the process of reading documents systematically, recording consistent
features of each one and then drawing inferences about the use and meaning of those
documents (Hall and Wright, 2008). The coding scheme used focused on various
attitudinal cues to categorise and analyse the identifed cases within the four offender
categories defned by Waring et al. (1995) and Weisburd and Waring (2001): crisis
responder, opportunity taker, opportunity seeker and deviance seeker. The frst step in
this process was to conduct a detailed analysis of the Waring et al. (1995) and Weisburd
and Waring (2001) materials to elicit attitudinal cues that would help to discern positive/
negative attitudes to legitimate/illegitimate means of fnancial gain. These cues are
summarised in Table III.
The authors then came together to code each of the cases, focusing on a holistic
reading of general and situational attitudes noticeable in each case, facilitated by the
cues outlined in Table III. Diffcult/ambiguous cases were actively discussed and
debated. Competing attitudinal explanations between the authors were a particular
focus, with classifcation of these cases arrived at only after the authors could reach
consensus on the weight of available evidence and the best ft between the data and
analysis (Patton, 1990).
Offenders and offences
Summary descriptive statistics about the sample cases are presented in Table IV, which
reveals interesting observations about fraud offences and offenders pertaining to fraud
perpetrated in accounting-related roles.
19
Accountant
fraud
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
2
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Table II.
Information compiled
in accountant fraud
database
Category Details Description
Offender details Name As recorded in source documentation
Gender Male/Female
Age Reported age at time of conviction
Role Accountant/Bookkeeper
Prior criminal history Yes/No
Location of fraud Employer As recorded in source documentation
Employer size Categorised by headcount as follows (Australian
Bureau of Statistics, 2001):
small/medium enterprise (SME: ?199 employees);
and
large business (200?employees)
Industry Identifed employer classifed according to ANZSIC
Division categories
State As recorded in source documentation
Offence elements Amount Reported aggregate dollar amount of frauds
committed by each offender
Duration Reported time period over which an offender’s
fraudulent behaviour took place
Method Primary method used to perpetrate fraud, recorded
in the following categories (Association of Certifed
Fraud Examiners, 2014):
asset misappropriation – theft of
cash/disbursement of cash;
asset misappropriation – other;
fnancial statement fraud;
corruption; and
other
Gambling involved Yes/No
Detection Primary means by which fraud was frst detected,
recorded in the following categories (Association of
Certifed Fraud Examiners, 2014):
audit (internal/external);
by accident;
accounting and other controls (e.g. management
review, reconciliations, document examination,
surveillance/monitoring, IT controls;
Tip/notifcation (e.g. by police, bank, government
agency);
confession; and
other
Plea and
sentencing
Plea Guilty/Not guilty
Head sentence Maximum time offender could spend in gaol
Minimum time in custody Minimum gaol time before offender is eligible for
parole or non-suspended portion of sentence is
completed
Other sentencing
information
Other sentence elements handed down (e.g. bonds,
restitution)
ARJ
28,1
20
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
2
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Over the 10-year period of analysis, this occupational category of offender defrauded
$362,895,787, with an average of $1,887,478. In many cases, fraudulent conduct
continued undetected for some time (an average of 32 months), often connected to the
level of trust that offenders accrued in their accounting roles. By and large, and in
contrast to the stereotypical public image of fraud, the methods utilised were relatively
unsophisticated and mainly involved some form of theft or fraudulent disbursement of
cash (132 of 192 cases, 68.8 per cent). Alternative methods used included more involved
arrangements such as tax fraud schemes. Financial statement fraud, corruption and
more elaborate fraud schemes were relatively under-represented.
While various forms of audit (external audit, internal audit, tax offce audit: 26 of 192
cases, 13.5 per cent) and, to a lesser degree, management reviews and controls (15 of 192
cases, 7.8 per cent) were observed to play their part in the detection of some accountant
frauds, the most common means of detecting fraud came from whistle-blowers and
external notifcations (42 of 192 cases, 21.9 per cent). A large proportion of accountant
frauds were also detected rather accidentally (36 of 192 cases, 18.8 per cent), following an
offender going on holiday, leaving the frm or some other serendipitous event that
allowed the offending to be brought to light.
Avery high proportion of these offences was carried out within SMEs[14] (144 of 192
cases, 75 per cent), and in the vast majority of these cases, the SMEwas the victimof the
fraudulent conduct. This is perhaps unsurprising, given that SMEs are likely to have
Table III.
Indicators of
attitudinal
characteristics drawn
from Waring et al.
(1995) and Weisburd
and Waring (2001)
Attitudinal characteristic Cues indicating a positive attitude Cues indicating a negative attitude
General attitude towards
legitimate means
Expressions/indications of
conforming morality
Expressions/indications of regret
or remorse
No/low criminal record
Pathological drive to commit crime
Expressions/indications of
disregard for morality/conforming
behaviour
Pattern of offendingCriminal
history
General attitude towards
illegitimate means
Expressions/indications of
willingness to pursue illegitimate
opportunities
Proactive seeker of illegitimate
opportunities
Pattern of offending
Criminal history
Expressions/indications of
conforming morality
Expressions/indications of regret
or remorse
No/low criminal record
Situational attitude
towards legitimate
means
Illegitimate behaviour driven by
situated causes (family, fnancial,
addiction)
Expressions/indications that
abuse of trust was anomalous to
otherwise conformist behaviour
Forced in the circumstances to act
illegitimately
Lowered capacity to deal with
diffculties
Sees no other way out of a
situation
Taking advantage of situational
norms/practices otherwise
considered illegitimate
Need to “show off” or “please
others”
Expressions of disenchantment/
disenfranchisement with
circumstances
21
Accountant
fraud
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
2
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Table IV.
Database summary
statistics
C
a
t
e
g
o
r
y
D
e
t
a
i
l
s
M
e
a
s
u
r
e
m
e
n
t
C
o
u
n
t
/
T
o
t
a
l
(
%
)
M
e
a
n
M
e
d
i
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g
e
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f
f
e
n
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1
0
0
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e
m
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l
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9
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7
.
9
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g
e
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e
a
r
s
4
5
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0
-
8
1
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c
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.
8
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r
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s
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L
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p
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r
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z
e
(
w
h
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r
e
k
n
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)
S
M
E
(
?
2
0
0
)
1
4
4
7
5
.
0
L
a
r
g
e
(
2
0
0
?
)
3
3
1
7
.
2
U
n
k
n
o
w
n
1
5
7
.
8
O
f
f
e
n
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e
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t
s
A
m
o
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t
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u
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t
.
D
o
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l
a
r
s
$
3
6
2
,
8
9
5
,
7
8
7
$
1
,
8
8
7
,
4
7
8
$
3
4
0
,
0
0
4
$
5
,
3
5
9
-
$
4
5
,
3
6
7
,
2
4
8
D
u
r
a
t
i
o
n
M
o
n
t
h
s
3
2
2
4
1
-
1
3
5
M
e
t
h
o
d
A
s
s
e
t
m
i
s
:
c
a
s
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t
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f
t
/
d
i
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b
1
3
2
6
8
.
8
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s
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e
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m
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s
:
o
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e
r
0
0
.
0
F
i
n
a
n
c
i
a
l
m
i
s
s
t
a
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m
e
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9
4
.
7
C
o
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3
1
.
6
O
t
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r
4
8
2
5
.
0
D
e
t
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t
i
o
n
(
w
h
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k
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)
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u
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t
2
6
1
3
.
5
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c
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3
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1
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8
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9
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6
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3
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a
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s
5
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8
.
6
P
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a
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n
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P
l
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a
(
w
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)
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u
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y
1
5
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3
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9
6
ARJ
28,1
22
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
2
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
smaller accounting teams (and fewer opportunities to separate duties), and have fewer
resources to devote to maintaining robust management controls. Nonetheless, the
reported average monetary amount involved in accountant fraud underscores that fraud
by staff employed in accounting-related roles at SMEs can have severe consequences.
With regard to summary characteristics of offenders convicted of fraud in
accounting-related roles, it is interesting to note that there is a relatively even
distribution between male (100 of 192 cases, 52.1 per cent) and female (92 of 192 cases,
47.9 per cent) offenders. A similar observation is also noted for the split between
offenders employed in accounting (106 of 192 cases, 55.2 per cent) and bookkeeping
(86 of 192 cases, 44.8 per cent) roles. Only a small proportion of the sample offenders had
a prior criminal history (28 of 192 cases, 14.6 per cent). Once caught, the vast majority of
offenders pleaded guilty to their charges (157 of 192 cases, 81.8 per cent). Convicted
offenders were given an average head sentence of just over four years (mean: 49 months,
range: 0-180 months), with average minimumtime in custody being just under two years
(mean: 23 months; range: 0-96 months).
Analysis
This section examines the nature of offenders and offences using the situation – attitude –
behaviour framework described above. Summary statistics from the analysis are
presented in Table V. A précis of key situation – attitude – behaviour pathways is
presented in Table VI, including a brief overviewof typical characteristics and example
cases fromour accountant fraud database. What follows is a more detailed explication of
the categories of the framework, as they have manifested within the perpetration of
accountant fraud over the period of analysis.
Crisis responder
The offences for which the respondent was sentenced [conspiracy to cheat and defraud and
accessory before the fact to maliciously damage property by fre] arose from his employment
as a “high level accountant” with the Charsamgroup of companies (“Charsam”) […]. Charsam
was in fnancial diffculties at the time [and the offences were aimed at keeping the company
afoat] […]. [The respondent] stated that he feels the fnancial and emotional stress he was
under caused him to become involved in a situation which he did not know how to get out of.
[The respondent] stated that his actions were “stupid” and recalled that he had always lived a
law-abiding life and never before felt that he would fnd himself before the Courts. The
offender presented as remorseful and willing to take responsibility for his offending behaviour
(Brown v. R; R v. Brown [2010] NSWCCA 73).
The above quote from the sentencing judgement of Gareth Brown refects typical
situational infuences characterising a crisis responder offender. The primary driver for
his offending was personal crisis (in his case, fnancial and emotional diffculties
precipitated by an earlier marriage breakdown and the collapse of his aviation
business). He lived at home with his mother to conserve money, and sought employment
with Charsam, as he had no other form of income. It seems that in spite of his better
judgement, Mr Brown engaged in fraud, in the face of his personal circumstances, in
order to keep the company afoat and thus secure his only stream of income.
Mr Brown’s case is one of many classifed in the crisis responder category that refect
a combination of fnancial and psychological circumstances precipitating a personal
crisis leading to fraud. Most notable in this regard was that much of the offending in this
23
Accountant
fraud
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
2
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Table V.
Summary
information of
accountant offender
categories
C
a
t
e
g
o
r
y
D
e
t
a
i
l
s
M
e
a
s
u
r
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m
e
n
t
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i
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a
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e
r
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v
i
a
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k
e
r
T
o
t
a
l
T
o
t
a
l
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o
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n
t
8
5
5
6
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5
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6
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9
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f
t
o
t
a
l
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4
4
.
3
%
)
(
2
9
.
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8
.
3
%
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(
1
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%
)
O
f
f
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n
d
e
r
d
e
t
a
i
l
s
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e
n
d
e
r
M
a
l
e
3
7
(
4
3
.
5
%
)
3
1
(
5
5
.
4
%
)
2
2
(
6
2
.
9
%
)
1
0
(
6
2
.
5
%
)
1
0
0
(
5
2
.
1
%
)
F
e
m
a
l
e
4
8
(
5
6
.
5
%
)
2
5
(
4
4
.
6
%
)
1
3
(
3
7
.
1
%
)
6
(
3
7
.
5
%
)
9
2
(
4
7
.
9
%
)
A
g
e
M
e
a
n
4
4
4
5
4
7
5
1
4
5
M
e
d
i
a
n
4
2
4
4
4
7
5
2
4
4
R
a
n
g
e
2
0
-
8
1
2
6
-
7
3
2
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2
3
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7
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2
0
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1
R
o
l
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A
c
c
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t
a
n
t
4
0
(
4
7
.
1
%
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2
9
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5
1
.
8
%
)
2
3
(
6
5
.
7
%
)
1
4
(
8
7
.
5
%
)
1
0
6
(
5
5
.
2
%
)
B
o
o
k
k
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e
p
e
r
4
5
(
5
2
.
9
%
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2
7
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8
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2
%
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(
3
4
.
3
%
)
2
(
1
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%
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4
4
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8
%
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C
r
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m
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Y
e
s
5
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.
9
%
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7
.
1
%
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1
2
(
3
3
.
3
%
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7
(
4
6
.
7
%
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8
(
1
4
.
6
%
)
L
o
c
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t
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E
m
p
l
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r
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z
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S
M
E
(
?
2
0
0
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5
9
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6
9
.
4
%
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4
3
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7
6
.
8
%
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8
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8
0
.
0
%
)
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4
(
8
7
.
5
%
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4
4
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7
5
.
0
%
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(
w
h
e
r
e
k
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a
r
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(
2
0
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)
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8
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.
2
%
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(
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7
.
9
%
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3
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8
.
6
%
)
2
(
1
2
.
5
%
)
3
3
(
1
7
.
2
%
)
U
n
k
n
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w
n
8
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9
.
4
%
)
3
(
5
.
4
%
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4
%
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.
0
%
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5
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.
8
%
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O
f
f
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c
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l
e
m
e
n
t
s
A
m
o
u
n
t
(
A
U
D
)
M
e
a
n
$
1
,
3
0
7
,
9
0
7
$
1
,
4
8
4
,
5
6
1
$
2
,
2
6
0
,
5
4
1
$
5
,
5
6
0
,
5
8
1
$
1
,
8
8
7
,
4
7
8
M
e
d
i
a
n
$
3
2
8
,
6
9
2
$
3
0
5
,
5
0
2
$
9
9
2
,
0
0
0
$
9
1
5
,
5
0
0
$
3
4
0
,
0
0
4
R
a
n
g
e
$
5
,
3
5
9
-
$
1
0
,
1
6
8
,
3
0
4
$
1
0
,
0
0
0
-
$
2
1
,
0
0
0
,
0
0
0
$
1
6
,
7
0
0
-
$
1
8
,
0
0
0
,
0
0
0
$
8
3
,
5
0
0
-
$
4
5
,
3
6
7
,
2
4
8
$
5
,
3
5
9
-
$
4
5
,
3
6
7
,
2
4
8
D
u
r
a
t
i
o
n
(
m
o
n
t
h
s
)
M
e
a
n
3
2
3
0
3
5
2
8
3
2
M
e
d
i
a
n
2
4
2
1
2
8
2
3
2
4
R
a
n
g
e
1
-
1
3
5
1
-
1
2
0
1
-
1
2
0
1
-
1
1
8
1
-
1
3
5
M
e
t
h
o
d
A
s
s
e
t
m
i
s
:
c
a
s
h
t
h
e
f
t
/
d
i
s
b
6
9
(
8
1
.
2
%
)
3
8
(
6
7
.
9
%
)
1
6
(
4
5
.
7
%
)
9
(
5
6
.
3
%
)
1
3
2
(
6
8
.
8
%
)
A
s
s
e
t
m
i
s
:
o
t
h
e
r
0
(
0
.
0
%
)
0
(
0
.
0
%
)
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(
0
.
0
%
)
0
(
0
.
0
%
)
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(
0
.
0
%
)
F
i
n
a
n
c
i
a
l
m
i
s
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t
a
t
e
m
e
n
t
6
(
7
.
1
%
)
1
(
1
.
8
%
)
2
(
5
.
7
%
)
0
(
0
.
0
%
)
9
(
4
.
7
%
)
C
o
r
r
u
p
t
i
o
n
0
(
0
.
0
%
)
2
(
3
.
6
%
)
1
(
2
.
9
%
)
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(
0
.
0
%
)
3
(
1
.
6
%
)
O
t
h
e
r
1
0
(
1
1
.
8
%
)
1
5
(
2
6
.
8
%
)
1
6
(
4
5
.
7
%
)
7
(
4
3
.
8
%
)
4
8
(
2
5
.
0
%
)
G
a
m
b
l
i
n
g
i
n
v
o
l
v
e
d
Y
e
s
4
3
(
5
0
.
1
%
)
5
(
8
.
9
%
)
3
(
8
.
3
%
)
4
(
2
5
.
0
%
)
5
5
(
2
8
.
6
%
)
P
l
e
a
a
n
d
s
e
n
t
e
n
c
i
n
g
P
l
e
a
(
w
h
e
r
e
k
n
o
w
n
)
G
u
i
l
t
y
7
4
(
8
7
.
1
%
)
4
5
(
8
0
.
4
%
)
2
9
(
8
2
.
9
%
)
9
(
5
6
.
3
%
)
1
5
7
(
8
1
.
8
%
)
N
o
t
g
u
i
l
t
y
9
(
1
0
.
6
%
)
9
(
1
6
.
1
%
)
6
(
1
7
.
1
%
)
7
(
4
3
.
8
%
)
3
1
(
1
6
.
1
%
)
N
o
t
r
e
p
o
r
t
e
d
2
(
2
.
4
%
)
2
(
3
.
6
%
)
0
(
0
.
0
%
)
0
(
0
.
0
%
)
4
(
2
.
1
%
)
H
e
a
d
s
e
n
t
e
n
c
e
(
m
o
n
t
h
s
)
M
e
a
n
4
2
4
4
6
3
7
1
4
9
M
e
d
i
a
n
3
6
3
6
6
0
6
0
4
2
R
a
n
g
e
0
-
1
2
0
0
-
1
2
6
2
4
-
1
3
4
3
-
1
8
0
0
-
1
8
0
M
i
n
i
m
u
m
t
i
m
e
(
m
o
n
t
h
s
)
M
e
a
n
1
8
2
1
3
1
3
8
2
3
M
e
d
i
a
n
1
4
1
5
2
4
3
6
1
8
R
a
n
g
e
0
-
8
4
0
-
7
6
2
-
9
6
3
-
8
4
0
-
9
6
ARJ
28,1
24
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
2
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Table VI.
Summary of
accountant fraud
pathways, including
a typical
characteristics and
exemplar cases
C
a
t
e
g
o
r
y
T
y
p
i
c
a
l
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a
r
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r
i
s
t
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c
s
E
x
a
m
p
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e
c
a
s
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s
B
r
i
e
f
d
e
t
a
i
l
s
C
r
i
s
i
s
r
e
s
p
o
n
d
e
r
P
e
r
s
o
n
a
l
(
f
n
a
n
c
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a
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r
e
m
o
t
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o
n
a
l
)
c
r
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s
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s
O
f
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t
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t
o
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a
m
b
l
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g
,
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r
d
r
u
g
a
d
d
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c
t
i
o
n
G
a
r
e
t
h
B
r
o
w
n
I
n
t
h
e
f
a
c
e
o
f
s
e
r
i
o
u
s
f
n
a
n
c
i
a
l
a
n
d
e
m
o
t
i
o
n
a
l
s
t
r
e
s
s
,
M
r
B
r
o
w
n
a
l
l
o
w
e
d
h
i
m
s
e
l
f
t
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b
e
t
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k
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d
i
n
t
o
f
n
a
n
c
i
a
l
f
r
a
u
d
(
t
o
t
a
l
l
i
n
g
$
1
2
0
,
0
0
0
)
t
o
k
e
e
p
h
i
s
e
m
p
l
o
y
e
r
(
C
h
a
r
s
a
m
)
a
f
o
a
t
a
n
d
h
i
s
l
i
m
i
t
e
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s
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r
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f
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c
o
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u
r
e
.
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f
f
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n
d
i
n
g
c
o
n
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d
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r
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d
o
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t
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r
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c
t
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f
r
o
m
h
i
s
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h
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w
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s
e
l
a
w
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a
b
i
d
i
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g
l
i
f
e
F
r
a
n
k
D
e
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t
e
f
a
n
o
T
r
a
n
s
f
e
r
r
e
d
$
9
,
6
0
6
,
1
0
3
.
4
7
f
r
o
m
t
r
u
s
t
a
c
c
o
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d
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r
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d
a
p
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h
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l
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g
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a
r
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l
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i
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p
p
r
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p
r
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t
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$
1
7
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6
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2
.
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3
f
r
o
m
h
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r
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m
p
l
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y
e
r
(
G
r
a
h
a
m
J
C
l
a
r
k
&
C
o
)
.
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h
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R
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r
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A
l
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r
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d
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a
g
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l
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r
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$
7
2
4
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v
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a
p
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.
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l
t
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“
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c
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r
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,
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r
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28,1
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category was rooted in gambling addiction (43 of 85, 50.1 per cent, crisis responder
cases). The case of Frank De Stefano, a self-employed tax accountant who transferred
$8,606,103.47 from trust accounts under his control to personal accounts, presents a
stark example of the impact of pathological gambling on fraudulent conduct. Initially,
Mr De Stefano became involved in gambling as a means of relaxation and an escape
fromhis stressful working life. However, he was described by an expert witness as being
a “perfectionist, obsessive, driven, needing to succeed, workaholic”, and subsequently
developed a pathological gambling disorder (R v. De Stefano [2003] VSC 68). Fraud
ensued, initially in small amounts, but later in larger amounts as the fnancial demands
of his gambling addiction grew (R v. De Stefano [2003] VSC 68).
Other psychological conditions and pressures also directed otherwise conforming
individuals to engage in fraud. The fraud offences perpetrated by Maria Elias against
her employer were seen to be driven by “battered woman syndrome” (R v. Elias [2007]
VSCA 125). According to court evidence presented by a psychologist in relation to Ms
Elias:
There was a “history of physical abuse” and also a “history of sexual abuse” [in her marriage].
The offending spanned the period of cohabitation. It was signifcant that the appellant had
been employed by Clark &Co for some years before her marriage, and had not offended in that
period. The appellant’s perception was that her husband always found fault with her […]. Her
bizarre, aberrant behaviour – although it was atypical – was her way of attempting to relieve
the source of depression and anxiety (R v. Elias [2007] VSCA 125).
Fraud was seen by Ms Elias as a way of relieving the physical, emotional and
psychological abuse she face in her marriage. Despite evidence suggesting that Ms
Elias’ offending was atypical, her feelings of helplessness, and her desire to appease her
husband drove her to seek illegitimate sources of fnancial gain.
Several aspects of the crisis responder category observed from the information
presented in Table Vwarrant comment. First and foremost, it was the largest offending
category, representing almost half the identifed accountant fraud cases (85 of 192 cases,
44.3 per cent). Second, it is the only category where bookkeepers make-up the majority
(albeit a slight one) of offenders (45 of 85, 52.9 per cent, crisis responder cases), which
perhaps relates to their relatively lower remuneration[15]. Third, it is the only category
where the majority of identifed offenders are female (48 of 85, 56.5 per cent, crisis
responder cases), refecting the relatively high representation of females in bookkeeping
roles[16].
Opportunity taker
In the County Court yesterday, Richard Alfred Nagul, 52, was described as a one-time
high-fyer who climbed to the top of a billion-dollar paper company before succumbing to
greed and using his position to conceal seven years of fraud […] Nagul, who earned about
$400,000 a year, gained a total beneft of $724,000 over 7½ years of deception […]. His
deception went unnoticed until international paper merchant PaperlinXtook over Spicers [Mr
Nagul’s employer] in 2001 and audited the company […]. Judge Tim Wood said Nagul had
abused his position to conceal his crimes. Judge Wood said that although he accepted Nagul’s
offending was out of character he had no option but to impose a jail term (Miletic, 2006).
In the above case of Richard Alfred Nagul (R v. Nagul [2007] VSCA 8), the opportunity
to defraud came with his growing power and infuence at his employer, Spicers Paper
27
Accountant
fraud
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Limited. In 1995, he was appointed Finance Director. In 1998, he became the General
Finance Manager and sat on the Board of Directors. In 1999, the Managing Director
became seriously ill, leaving Nagul and two other employees effectively in charge of the
daily operations of the organisation. It seems the opportunity to perpetrate fraud that
was presented by his growing infuence was too good to pass up. Mr Nagul was able to
conceal his fraudulent conduct until the company was taken over by PaperlinXLimited
in 2001, with a subsequent audit revealing his offending. Given the signifcant trust
organisations have to place in their fnancial offcers, it is perhaps unsurprising that
“opportunity takers” represent the second largest category of offender (56 of 192 cases,
29.2 per cent) within our sample of accountant fraud.
Like Mr Nagul, opportunity takers make use of situations presented to them. In
contrast to the crisis responder, where an emphasis is placed on unavoidable pressure
precipitating fraud, opportunity takers are characterised by the circumstantial
conditions that permit them to rationalise their offending in the absence of crisis-based
pressure. Such conditions could stem from power and infuence within an organisation
and/or abuse of trust placed in a fnancial offcer. This allows them to capitalise upon
identifed weaknesses in internal control and/or enforcement. However, offenders in this
category are not considered likely to have proactively set out to defraud, and would not
likely have engaged in such conduct had the specifc opportunity not proved readily
accessible and enticing. In Mr Nagul’s case, the judge accepted his previous good
character, quality of his prior work history, exemplary character references and
devotion to his family as mitigating evidence (R v. Nagul [2007] VSCA 8).
For the opportunity taker, situational elements were found to prompt the offender to
refect favourably on conduct they would otherwise consider illegitimate. Mr Nagul
submitted that his offending was justifed by a corporate culture that normalised
informal payments beyond those set out by the company remuneration committee.
Other circumstantial motivators included jealousy over pay, conditions and
promotional opportunities, disillusionment with current employer or career and a
perceived need to exact revenge/retribution on an employer. For example, Sergio Joseph
Bernardi, an accountant working at a crematorium in Victoria, defrauded his employer
of $2,299,772 between 2001 and 2006. It was tendered in court that Mr Bernardi “was
neither greedy nor addicted to gambling or drugs but rather left the money in his bank
accounts” (Berry, 2007). Rather, Mr Bernardi had offended primarily in response to his
disillusionment at being passed over for promotion. However, and most commonly, it
seemed that many identifed offenders simply seized on their opportunity to defraud to
fund a more extravagant lifestyle that they could not otherwise afford. For Craig Dean
Raneberg, who defrauded law frm Minter Ellison of approximately $2,700,000 during
his employment as their South Australian Accounting and Finance Manager and later
Chief Financial Offcer, he seized on his opportunity to “maintain a lifestyle of travel,
accommodation and profigate spending which [Mr Raneberg] would otherwise never
have been able to maintain” (R v. Craig Dean Raneberg [2012] DCCRM-12-474).
Opportunity seeker
Robert AndrewDangar Kirsopp, you have pleaded guilty on a State presentment to 13 counts
of obtaining property by deception and on a Federal indictment to one count of defrauding the
Commonwealth, 16 counts of obtaining a fnancial advantage by deception and 9 counts of
attempting to obtain a fnancial advantage by deception […] your offending involved
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countless individual acts of forgery and deceit. This was not spontaneous or impulsive
behaviour. It was premeditated and systematic, over a period of fve years, in a position of trust
(R v. Kirsopp [2005] VCC 0309).
The case of Robert Kirsopp presents a situation where the drive to commit fraud was
inextricably tied to his personal drive for fnancial success, whatever the means.
Described as intelligent and talented, and from a privileged background, Mr Kirsopp
was a high-achieving professional sprinter (he fnished second in the 1984 Stawell Gift,
Australia’s oldest and richest short distance running race). Mr Kirsopp’s drive for
success in the sporting feld was a refection of his general ambition, which was
considered central to understanding his offending. Mr Kirsopp took a number of
fnancial risks, borrowing heavily and investing in cafés, restaurants, race horses and a
glass manufacturing operation in China. When his business ventures became
unsustainable, Mr Kirsopp’s drive to “succeed and to be seen to succeed” (R v. Kirsopp
[2005] VCC 0309) in the face of his fnancial diffculties led him to seek alternative,
illegitimate means of keeping his business ambitions alive, including forging cheques to
disburse client funds into his own bank account ($3,199,056.63 in total), and submitting
false business activity statements to obtain signifcant GST refunds ($1,341,696.16 in
attempted refund claims).
For an opportunity seeker like Mr Kirsopp, the attitudinal lines between legitimate
and illegitimate means of achieving fnancial success become blurred. Although Mr
Kirsopp faced fnancial pressures, these were entirely of his own making, spurred on by
his ambition for business success. In his situation, legitimate means of fnancial gain
were not meeting his instrumental ends, and other illegitimate means were proactively
sought. Further, while Mr Kirsopp’s offences were conducted in the face of fnancial
pressures, they cannot be meaningfully characterised as a crisis response. His offending
was not spontaneous or impulsive, but premeditated, taking place over a period of fve
years, and involving a number of acts of forgery and deceit. Mr Kirsopp hoped that his
“win at all costs” attitude would bring himsuccess, but in the end it was his undoing, as
he became caught in a downward spiral of “inevitable detection, ruin, disgrace and
prison” (R v. Kirsopp [2005] VCC 0309).
Key to understanding cases falling in the opportunity seeker category is that
offenders are ambivalent about how they achieve fnancial gain, and attempt to fnd
opportunities for achieving such gains if it suits their circumstances, irrespective of the
legitimacy of the opportunities sought. This is highlighted in Mr Kirsopp’s case. It is
also emphasised in the case of Ka-Hung Ip, who was convicted of dishonestly
persuading his employer (the National Archives of Australia, NAA, where he was the
Director of Finance) to bypass normal tendering protocols and outsource their
accounting data processing requirements to 3I Consulting, which was owned by Mr Ip.
At no stage was Mr Ip’s ownership interest in 3I Consulting disclosed. Rather, NAA’s
contact with 3I consulting was directed to a fctitious alter-ego of Mr Ip, “Victor Seng”.
While Mr Ip was considered to have a generally law-abiding disposition, he actively
sought in these circumstances to shape deceptively the outsourcing negotiations in his
favour. His behaviour was said to refect a “high degree of criminality”, involving
“numerous instances of deception and dishonest departure fromtrust [which] led to the
obtaining of the ultimate advantage” (Director of Public Prosecutions v. Ka-Hung Ip
[2005] ACTCA 24). Consistent with the image of an opportunity seeking offender, Mr
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Ip’s attitudes to illegitimate fnancial gains displayed an attitudinal fexibility, despite a
more conformist attitude to earning fnancial benefts more generally.
Deviance seeker
The offending here [a sophisticated tax avoidance scheme designed to strip companies of their
assets so they were unable to meet their tax obligations] was serious, protracted, deliberate and
grossly dishonest. The criminal conspiracy involved elaborate attempts at concealment and
disguise […]. The criminal histories of Henke and Huston is also relevant as showing some
propensity to dishonesty and a reluctance to learn from the consequences of past misconduct
(R v. Huston, R v. Fox, R v. Henke [2011] QCA 349).
Ian Sydney Henke (a registered tax agent), Robin David Huston and Brian Francis Fox
(both accountants) were convicted of conspiring together, and with others, to defraud
the Commonwealth of Australia of $4,590,137.63 over almost two years. The offenders
attempted this through devising, promoting and implementing a sophisticated tax
avoidance scheme that was mass-marketed to owners of successful small businesses.
The scheme was designed to strip companies of their assets so they were unable to meet
their tax obligations and utilised offshore entities and bank accounts based in Vanuatu
set up specifcally to avoid detection of the scheme by the Australian Tax Offce.
Deviance seekers like Mr Henke and his co-conspirators refect characteristics that
most resemble the hallmarks of a criminal pathology often associated with fraud
offenders. These individuals are characterised as displaying a morally corrupt attitude
to seeking fnancial gain. They are calculating and unremorseful in their actions, and
because of this are seen to threaten public faith in conformist behaviour. The case of
Geoffrey Robert Dexter presents another example of the generally criminogenic attitude
displayed within this category of offenders. Mr Dexter was convicted of 31 fraud-related
charges for his part in inducing people to invest over $160 million in investment in the
Wattle Group, a “Ponzi” scheme promising returns of around 50 per cent per annum. Mr
Dexter’s fnancial gain from this scheme totalled $1,200,000. In sentencing, Queensland
Supreme Court Justice Nicholas Samios refected on Mr Dexter’s attitude to his
offending:
Throughout this period you acted dishonestly, persistently and consistently sacrifcing the
interests of innocent people […]. [Your] conduct shows a ruthless arrogance of how you could
deal with people and their money (Webb, 2001).
Further, the criminal pathology of this category of offender may not be limited to
white-collar crime, as refected in the cases of Mark Edward Norman (who
misappropriated $83,500 held on trust for the payment of tax liabilities) and Sneza
Suteski (who defrauded her employer of $289,075 through a range of fraudulent
disbursements). In both cases, the offenders’ criminal repertoire extended to attempted
murder in an effort to conceal their offending (Crichton, 2002; R v. Norman, R v. Olivieri
[2007] NSWSC 142).
Finally, while likely to be driven by fnancial gain, as in the case of Mr Henke and his
collaborators, the criminal pathology of offenders in this category may also by driven by
non-fnancial considerations. In the case of Rajina Rita Subramaniam, who defrauded
her employer (ING) of $45,367,248 over a fve-year period, signifcant personality
disorders drove a need to spend lavishly on things like expensive jewellery, and to be
accepted and praised by the assistants at the designer stores she frequented by
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showering them with gifts. She craved gratifcation from being recognised as wealthy
and generous, and a desirable customer at the boutiques she frequented (Davies, 2009).
Several aspects of the deviance seeker category shown in Table V are worth noting.
Contrary to some stereotypes about the deviant nature of fraud offenders, the deviance
seeker category was by far the smallest category of offender from within the identifed
cases (16 of 192 cases, 8.3 per cent). It is also the category with the highest proportion of
accountant offenders relative to bookkeepers. This is perhaps connected to the fact that
a larger degree of offending was carried out through elaborate tax, investment and other
deceptive schemes (7 of 16, 43.8 per cent, deviance seeker cases), requiring a higher level
of technical expertise to execute effectively. The high proportion of offending in the
context of SMEs (14 of 16, 87.5 per cent, deviant seeker cases) refects the fact that many
of the offenders in this category were either self-employed or worked in small
accounting practices. Perhaps refecting the criminal pathology of these offenders, along
with the sophistication of their schemes, the average amount defrauded by offenders in
this category is signifcantly higher than the other categories ($5,560,581, including one
offence for $45,367,248). A relatively lower level of contrition, refected in the highest
proportions of identifed not guilty pleas (7 of 16 cases, 43.8 per cent) is also refective of
the criminal pathology of this category of offender.
Comparison of “Crimes of crisis and opportunity” and “Chronic offenders”
In addition to examining each of the four offender categories derived from the situation –
attitude –behaviour framework, Weisburd and Waring (2001) also highlight the value of
comparing offenders described as undertaking “crimes of crisis and opportunity” (a
combination of the crisis responder and opportunity taker categories) with those
characterised as more “chronic offenders” (combining the opportunity seeker and
deviance seeker categories). The former group, “crisis and opportunity”, can generally be
considered more reactive offenders, with their generally negative attitudes towards
illegality overcome by situation and circumstances. On the other hand, chronic
offenders are more proactive perpetrators, with attitudes more disposed to fraudulent
conduct and generally associated with a criminal pathology. This section briefy
undertakes this comparison between the more “reactive” and “proactive” groupings of
offender categories for the sample cases, using the summary category information
presented in Table V.
An examination of the Table V information reveals some clear distinctions in the
observed characteristics between these category groupings. Above all, and contrary to
conventional imagery of frauds committed by individuals in accounting-related roles,
the vast majority of offenders fall within the crisis and opportunity grouping (141 of 192
cases, 73.4 per cent). This highlights that many accountant fraud offenders are primarily
drawn to fraud because of some real-life crisis or a specifc set of circumstances. Their
offending is largely aberrant in a life that is otherwise characterised by socially
conforming attitudes and behaviour, and, but for their offending, they are rather
indistinguishable from other individuals in similar social and economic circumstances
(Weisburd and Waring, 2001). But placed in positions of trust and fnancial authority,
people in accounting-related roles are often in positions where circumstantial pressures
and opportunities may more readily convert to accessing fnancial resources
illegitimately.
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From Table V, it is observed that the crisis and opportunity category can be
distinguished from the chronic offender category in several ways, many of which are
consistent with the reactive/proactive distinction made between these two groupings.
The crisis and opportunity grouping has a lower proportion of offenders with a criminal
history (9 of 141, 6.4 per cent, crisis and opportunity cases vs 19 of 51, 37.3 per cent,
chronic offender cases), and involved a notably lower average amount defrauded
($1,378,068 vs $3,295,848). The crisis and opportunity grouping of fraud offences is also
more likely to be carried out using simpler methods involving the misappropriation of
cash (107 of 141, 75.9 per cent, cases vs 25 of 51, 49.0 per cent, chronic offender cases). On
the other hand, the chronic offender grouping showed a greater propensity to use more
elaborate tax, investment and other schemes than the crimes of crisis and opportunity
grouping (23 of 51, 45.1 per cent, of cases vs 25 of 141, 17.7 per cent, crimes, respectively).
These observations regarding the methods used are consistent with the differing split
between proportion of accountants and bookkeepers between the two groupings, with a
slight majority of bookkeepers in the crisis and responsibility grouping (72 of 141, 51.1
per cent, cases), and a majority of accountants in the chronic offender grouping (32 of 51,
62.7 per cent, cases).
Perhaps refecting the relative sophistication of the methods used, the pathology and
intent of the offender and the amounts involved, the average head sentences and
minimumtime recorded on conviction are markedly lower for the crisis and opportunity
grouping (43 [19] months for average head [minimum] sentence vs 65 [33] months for the
chronic offender categories). The fnal distinction that can be made between the two
groups is in the gender split, with a slight majority of females in the crisis and
opportunity grouping (73 females of 141, 51.8 per cent, cases), and majority of males in
the chronic offender grouping (32 males of 51, 62.7 per cent, cases).
Discussion
It is clear that the labels “fraudster” and “criminal” in popular culture refer to more than
simply someone who has come into contact with the criminal justice system. These
labels have a much broader meaning intended to convey a great deal about the
individual to whom they are applied. As Weisburd and Waring (2001, p. 138) observe:
Criminals are generally viewed as dangerous to society, as products of bad genes or bad
parenting or broken communities. Crime is not merely an incident in such peoples’ lives. The
criminal label summarizes a vast array of behaviors and activities, and it communicates
something very meaningful about who such people are and where they are going. Most
importantly, criminals are different. This is a very comfortable moral position, and one that
helps the rest of us to defne what we have in common with each other.
However, in spite of the gravity of these labels, research into fraud has increasingly
emphasised that anyone can commit fraud (Albrecht and Albrecht, 2004; Wells, 1997).
SAS 99 includes the observation that “even otherwise honest individuals can commit
fraud in an environment that imposes suffcient pressure on them” (AICPA, 2002,
paragraph 7, p. 8). These observations are useful only to a point and add little to
understanding the involvement in fraud of many of those in our sample. More research
is required to elaborate on the ways in which people come to commit fraud, and our data
confrm the importance of the immediate context of crime and its role in leading
otherwise conventional accountants to violate the law.
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Our study reveals interesting characteristics regarding the perpetration of fraud
within the occupational category of accounting. First, it highlights important features of
accountant fraud. Second, it highlights the fexibility of individual attitudes to
offending, and howsuch attitudes can be infuenced by the confuence of circumstances
in which an individual may fnd himself/herself. This is contrary to common
typifcations of fraud, which tend to emphasise the immutable infuence of a person’s
general values, personality and deliberated intentions. Third, it provides a unique
insight into the confuence of situation, attitudes and behaviour, highlighting the varied
pathways to fraud offending within accounting-related roles. These pathways can be
reactive, rooted in crisis and opportunity (e.g. crisis responders and opportunity takers),
or proactive, rooted in chronic offending (e.g. opportunity seekers and, more
particularly, deviance seekers). This section elaborates on the implications of these
observed characteristics of fraud offenders and offences for thinking about fraud
prevention and detection.
The body of offences analysed here, from the sample of identifed fraud by people in
accounting-related roles, refects the wide range of offences that are combined under the
broad umbrella of fraud. There are two particularly striking features about this
occupational category of offenders. The frst is the relatively balanced representation of
women in our sample, in contrast to broader published surveys of fraud, which have
consistently indicated that men are more highly associated with white-collar offending
(Alalehto, 2003; Albonetti, 1998; Maddan et al., 2012). Broader criminological research
also suggests that males participate in criminal behaviour at much higher rates than
females (Lauritson et al., 2009; Rennison, 2009). Despite criminological arguments about
gendered differences in moral sensibilities, patterns of socialisation and levels and social
control, females seem as likely to commit fraud within this occupational category.
However, it should be noted that the average duration of frauds was lower for females
(average 28.5 months) than males (average 34.8 months).
A second observation is the relatively uncomplicated nature of offending. Forms of
cash theft and illegitimate disbursement constituted the most common modes of
fraudulent behaviour. Despite this, a large proportion of offending was detected
accidentally or through notifcation by external entities. Formalised control systems
and audits were identifed as having detected fraud in only a minority of cases. These
fndings raise questions about howwell victimorganisations in this sample (which were
typically SMEs) maintained basic internal controls, particularly in relation to their
accounting functions. In SMEs, managing “soft/informal controls” (Chtiouia and
Thiéry-Dubuissonb, 2011; Lowry, 1990; Pant, 2001), which focus on managing corporate
culture and employee norms, is crucially important, as relatively limited resources and
small workforces constrain investment in formal controls such as supervision,
separation of responsibilities and job rotation.
In addition, our fndings provide further evidence of the extent and coercive nature of
gambling addiction, which was considered a motivating factor in approximately
one-third of the cases in our sample, refecting prior research suggesting that
gambling-motivated fraud tends to be over-represented in employee – employer frauds
(Sakurai and Smith, 2003). In terms of gender, gambling addiction was involved in 37
per cent of frauds perpetrated by women (representing 62 per cent of total gambling
related cases) and 21 per cent of frauds perpetrated by males (38 per cent of total
gambling related cases). In light of these fndings, employers must be cognisant of
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problem gambling issues in their staff. Further, debates about regulation of gambling,
such as current debates about poker machines in Australia, should be informed by
further work examining the growing role of gambling addiction in crime (Orford, 2011).
A large proportion of cases also exhibited the important role of depression, stress,
anxiety and other impairments to an offender’s psychological condition in the
commission of these frauds.
More generally, an important implication of the situation – attitude – behaviour
framework is to further unpack the notion of attitude in the fraud triangle. SAS No. 99
alludes to a broad concept of attitude as follows:
Some individuals possess an attitude, character or set of ethical values that allow them
knowingly and intentionally to commit a dishonest act. However, even otherwise honest
individuals can commit fraud in an environment that imposes suffcient pressure on them.
In short, this implies that while some individuals possess an inherent disposition
towards fraud, others who are otherwise law-abiding may commit fraud in the face of
“suffcient pressure”. To date, we argue that most attempts to operationalise attitude/
rationalisation in fraud research have been problematic and fail to take account of the
fexibility and situational nature of these notions. In empirical research, attitude/
rationalisation has been proxied variously by fnancial restatements (Lou and Wang,
2009), auditor change (Skousen et al., 2009) and personal integrity (Dorminey et al.,
2010); however, these terms fail to capture the complexity and subtlety of this element.
The situation – attitude – behaviour framework helps to further unpack the complex,
situationally specifc nature of fraudulent activity. That is, the attitude/rationalisation
element of the fraud triangle is impacted by both inherent disposition, in the case of
general attitude, as well as a situational attitude that is importantly driven by contextual
organisational and social factors.
The four emerging categorisations – crisis responder, opportunity taker, opportunity
seeker and deviance seeker – demonstrate how the interplay between general
disposition, situational factors and context open up different pathways to fraud. The
cases reviewed here underscore the fexibility with which individuals attend to, alter or
ignore aspects of their self-concept. According to Greenwald’s notion of ego-tasks,
individuals use a variety of specifc strategies (depending on the situation) to achieve
more abstract goals (Greenwald, 1982). Showers and Cantor (1985) demonstrate that
people show fexibility in:
• adjusting interpretations in respect to situational features;
• taking control of their thoughts and their plans;
• seeing multiple alternatives for interpreting the same event or outcome; and
• changing their own knowledge repertoire by adding new experiences and by
reworking cherished beliefs, values and goals.
A large number of cases involved judicial statements that otherwise law-abiding
accountants had become implicated in fraud due to situational factors such as personal
and organisational crises.
Moreover, the framework provides an opportunity to refect on the fraud triangle. As
others have indicated, while the fraud triangle may be heuristically helpful, it is neither
rigid nor perspicacious (Dorminey et al., 2010; Free and Murphy, 2014; Morales et al.,
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2014). All elements of the fraud triangle are not required for fraud, and our different
pathways place the emphasis on distinct elements. The categories of opportunity
seekers and deviance seekers mean that the conventional notion of situational incentive/
pressure is not a necessary condition for fraud. This is in keeping with the notion of
Dorminey et al. (2012) of a fraudulent predator, who possesses an attitude consistent
with actively seeking out fraud. For opportunity takers, pressure/incentive is
subordinate to the availability of an opportunity, as the presence of a fraudulent
opportunity importantly drives the decision to engage in fraud. In other cases, the
fexibility of situational attitudes means that the conceptual distinction between
incentive/pressure and attitude/rationalisation becomes inseparable. That is, for many
crisis responders, the presence of a crisis relating to organisational performance,
gambling or drug addiction provides both the impetus for fraud and dramatically
altered attitudes such that conduct previously considered unacceptable is perceived to
be justifed in the circumstances.
These categories represent a move away from simplistic, popular characterisations
of fraudsters as atypical deviants with inherently unethical dispositions. Many of the
cases take shape as a personal recounting of human situations, as complex and
uncertain as the people and situations themselves, harbouring a host of ineffable
experiences and emotions. As Dripps (2003, p. 1400) concludes, “the law describes
criminal behaviour as the free choice of deviant individuals, when in fact human
behavioural response to specifc situations vary less across persons than is commonly
supposed”.
Conclusion
Fraud is clearly a complex, multifaceted phenomenon. This study has sought to provide
direct evidence on the nature of accountant fraud in an effort to improve our
understanding of a signifcant category of occupational fraud in practice. A hand-
collected database of fraud convictions in Australia in the period 2001-2011 provides a
valuable opportunity to examine offenders. In contrast to the characterisations of fraud
offenders in prior research (e.g. male, opportunistic, manipulative and suspicious;
Babiak and Hare, 2006; Berger, 2011; Collins and Schmidt, 1993; Dorminey et al., 2010;
Kidder, 2005; Levi, 2006; Murphy, 2012), offenders in our sample of accountant fraud
were far more diverse, refecting a mix of gender, levels of seniority/responsibility and
motives/rationalisations. Other notable features of this cohort include the prevalence of
gambling addiction, the often simple modes of execution and the large proportion of
cases that involved SMEs as victim organisations.
Drawing on the situation – attitude – behaviour framework developed by Waring
et al. (1995) and Weisburd and Waring (2001), four distinct pathways to accountant
fraud were revealed. In order of frequency, these were: crisis responder, opportunity
taker, opportunity seeker and deviance seeker. Analysis of these pathways to offending
highlights the varying importance of fraud triangle elements across differing offender
categories, and underlines the importance of context and situational attitude in
moderating inherent disposition and personality.
The results of this study should be interpreted in light of two important limitations.
First, we have relied primarily on judicial accounts and media reporting of motivation in
our analysis, which may contain bias. Direct access to convicted prisoner accountants in
the feld has proven elusive (cf. Free and Murphy, 2014), and press reports have been
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used in similar contexts where direct access to participants is not a viable research
approach (Andon and Free, 2012). Furthermore, we excluded cases where there were
insuffcient data to permit a comprehensive content analysis, and many of our case fles
comprised lengthy judicial observations triangulated by media reporting. Second, case
availability in lower courts throughout Australia means that this database is unlikely to
have accounted for every single case over the period of analysis. In spite of these data
limitations, we pursued several avenues to complete the database including direct
approaches to local courts throughout the country and media searches, and we believe
that our sample refects a frst attempt to examine systematically the perpetration of
accountant fraud.
Anumber of lines of future inquiry are suggested by this research. Primary research
into offender motivation beyond simple dichotomies involving gambling, personal
issues and greed as well as more refned research into the age – gender nexus of fraud
offenders would improve understandings of fraud in practice. Further work could
usefully investigate the relationships between offences, offenders and particular fraud
triangle elements. Furthermore, direct interviews with perpetrators, the methodology
originally used by Cressey in his formative research in the 1960s, offers great potential
to further refne and further elaborate models and frameworks seeking to enhance
understanding of fraud.
Notes
1. Survey research has consistently found that employees commit the vast majority of frauds
(Hayes and Prenzler, 2003). Ernst and Young (2003) found that 85 per cent of frauds were
committed by victim organisation employees, while Graycar (2000), using an Australian
sample, placed the percentage at 80 per cent.
2. Fraud is a generic term that refers to deceptive or other actions undertaken with the aim of
acquiring fnancial/other gains to which the recipient would not normally be entitled
(Attorney-Generals Department, 2011). The range of acts deemed to be fraudulent is quite
diverse. For instance, the Australian Bureau of Statistics’ Australian and New Zealand
Standard Offence Classifcation document includes 59 specifc offence types, including
welfare fraud, tax fraud, identity fraud, insurance fraud, various forms of forgery and false
documentation, counterfeiting, embezzlement and misappropriation (Australian Bureau of
Statistics, 2011b). There can also be some variation in particular defnitions and qualifcations
of fraudulent behaviours, owing to differences in how they have been codifed in criminal
laws/regulations across jurisdictions.
3. In spite of this widespread diffusion, the fraud triangle has also been the subject of
considerable debate and criticism (Morales et al., 2014). Some scholars have sought to
augment it with other theoretical models in criminology; for example, Ramamoorti (2008),
who links the fraud triangle to routine activity theory, or elsewhere, for example Dorminey
et al. (2010), who summarise work seeking to augment the fraud triangle with a number of
acronyms and alternative frameworks. Others have gone further to even add additional
dimensions to the triangle converting it geometrically to a fraud diamond, for example Wolfe
and Hermanson (2004), who propose a fourth dimension of capability, fraud square
(Cieslewicz, 2010), fraud cube (Doost, 1990) or fraud pentagon, for example Marks (2009), who
adds dimensions of arrogance and competence.
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4. Explanations of the fraud triangle in auditing standards and textbooks all point to the need
for all three elements to be “generally present” for fraud to take place (Albrecht and Albrecht,
2004; Auditing and Assurance Standards Board, 2011; PCAOB, 2005; Wells, 2011).
5. Cressey (1953) divides non-sharable fnancial problems into six categories: diffculty in
paying back debts, problems resulting from personal failure, business reversals
(uncontrollable business failures such as infation or recession), physical isolation (trust
violator is isolated frompeople who can help him), status gaining (living beyond one’s means)
and employer – employee relations (employer’s unfair treatment).
6. These departures fromCressey’s work are explained by the age of the original research – the
study (Cressey, 1953) is nearly half a century old. There has been considerable social change
in the interim.
7. The ACFE is the world’s largest anti-fraud organization and provider of anti-fraud
training and education with over 60,000 members throughout the world. The stated
mission of the Association of Certifed Fraud Examiners is to reduce the incidence of
fraud and white-collar crime and to assist its membership in fraud detection and
deterrence (see www.acfe.com).
8. In spite of the fact that it is often attributed to Donald Cressey, the term “fraud triangle” was
frst coined by Joseph Wells, a CPA who founded the ACFE (Morales et al., 2014).
9. Terminology such as “error” or “bias” implies some deviation from an identifable norm of
rationality; a notion that is inherently problematic (Mitchell, 2002). As such, it is probably
more precise to speak of cognitive tendencies rather than biases, or of information-processing
propensities rather than errors. The research literature in social psychology and elsewhere,
however, uses the label “fundamental attribution error”, and that nomenclature is so widely
accepted that using alternative terminology is potentially confusing.
10. In their classic experiment, Jones and Harris (1967) asked subjects to identify the true
opinion held by writers of essays attacking or defending Cuban leader Fidel Castro. When
told that the essay writers had freely chosen their position, the subjects understandably
attributed a pro-Castro view to the relevant authors. However, when subjects were told
that the authors had been assigned the point of view, the subjects still tended to attribute
the viewpoint expressed in the essay to the author. In other words, subjects ascribed
behaviour to the author even when they had been informed of a powerful situational
constraint.
11. According to this theory, “criminal behavior is learned in interaction with others in a process
of communication […] within [an] intimate interpersonal group” (Sutherland, 1947).
12. This description represents the response to a particular confguration of possible
correspondences between culturally accepted goals and legitimate means of achieving them
(which is described as Innovation in Merton’s typology). Other responses, prompted by
alternative confgurations of acceptance/rejection of culturally sanctioned goals and
legitimised means of achieving them, are also outlined in Merton’s typology. They are:
conformity (acceptance of both culturally sanctioned goals and legitimised means of
achievement), ritualism (rejection of culturally sanctioned goals, but acceptance of
institutionalised conduct), retreatism (rejection of culturally sanctioned goals and legitimate
conduct) and rebellion (subscribing to new goals and new means for achievement).
13. Criminal fraud matters in Australia are mainly governed by state crimes acts and accordingly
are tried within the state court system. Each state has its own hierarchy of courts, with slight
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hierarchical variations across the states/territories. All states and territories have a Supreme
Court (including appeal divisions such as a Court of Criminal Appeal), which is the highest
court within that state/territory. Most states/territories have two further levels of courts.
District Courts (or County Courts in Victoria) hear criminal trials for less serious offences.
Magistrates’ Courts (or Local Courts) handle criminal summary matters (Association of
Commonwealth Criminal Lawyers, 2010).
14. The defnition of SMEs used here has been taken from the Australian Bureau of Statistics
defnition of such entities (businesses employing less than 200 people) (Australian Bureau of
Statistics, 2001).
15. The Australian Bureau of Statistics reports that bookkeepers earn an average of $643.90 per
week, which compares unfavourably to individuals in higher-level accounting roles
($1,432.40) and the national average weekly earnings ($1,182.40) (Australian Bureau of
Statistics, 2014).
16. In Australia, of the 218,478 Australians employed in bookkeeping roles, 186,818 (85.5%) are
female (Australian Bureau of Statistics, 2011a). The data reported relates to the Australian
and New Zealand Standard Classifcation of Occupations (ANZSCO) category 551
(Accounting Clerks and Bookkeepers).
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Wells, J. (2001), “Why employees commit fraud”, Journal of Accountancy, Vol. 191 No. 2, pp. 89-91.
Wells, J. (2011), Corporate Fraud Handbook: Prevention and Detection, 3rd ed., John Wiley and
Sons Publishing, Hoboken, NJ.
Wilks, T.J. and Zimbelman, M.F. (2004), “Decomposition of fraud-risk assessments and auditors’
sensitivity to fraud cues”, Contemporary Accounting Research, Vol. 21 No. 3, pp. 719-745.
Williams, J. (2013), “Regulatory technologies, risky subjects, and fnancial boundaries: governing
“fraud” in the fnancial markets”, Accounting, Organizations and Society, Vol. 38 No. 6,
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Further reading
Auditing and Assurance Standards Board (2011), “Auditing standard ASA 240: the auditor’s
responsibilities relating to fraud in an audit of a fnancial report: Australian government”.
Corresponding author
Paul Andon can be contacted at: [email protected]
For instructions on how to order reprints of this article, please visit our website:
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doc_542221123.pdf
The purpose of this paper is to explore pathways to fraud perpetrated in accounting-related
roles, focusing both on situationally driven attitudes and contextual elements.
Design/methodology/approach – Drawing on an anom
Accounting Research Journal
Pathways to accountant fraud: Australian evidence and analysis
Paul Andon Clinton Free Benjamin Scard
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To cite this document:
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Pathways to accountant fraud:
Australian evidence and analysis
Paul Andon
School of Accounting, University of New South Wales, Sydney, Australia
Clinton Free
Australian School of Business, University of New South Wales,
Kensington, Australia, and
Benjamin Scard
Australian School of Business, University of New South Wales,
Sydney, Australia
Abstract
Purpose – The purpose of this paper is to explore pathways to fraud perpetrated in accounting-related
roles, focusing both on situationally driven attitudes and contextual elements.
Design/methodology/approach – Drawing on an anomie-based criminological taxonomy
developed by Waring et al. (1995) and Weisburd and Waring (2001), which highlights individual
attitudes and situational elements and their connection to illegitimate behaviour, the authors performa
qualitative content analysis of available media and court-reported information on a hand-collected
database of 192 accountant frauds in Australia during the period 2001-2011.
Findings – The analysis highlights four distinct pathways to accountant fraud – crisis responders,
opportunity takers, opportunity seekers and deviance seekers – and the relative distribution of
identifed cases among these pathways. It also identifes the prevalence of gambling, female offenders,
small and medium enterprises as victims, as factors in fraud, as well as the relatively unsophisticated
methods in much accountant fraud. In addition, it establishes the importance of situational attitude in
moderating inherent character as it relates to fraudulent behaviour and the variable importance of the
fraud triangle elements across the pathways to accountant fraud.
Originality/value – This paper provides direct evidence on the nature and pathways to accountant
fraud, thus improving understanding of a signifcant category of occupational fraud. The evidence
challenges conventional characterisations of accountant fraud offenders in prior research.
Keywords Internal controls, Gambling, Fraud, Accountant fraud
Paper type Research paper
Introduction
In spite of increasing attention among regulators, academics and practitioners, fraud
continues to impose enormous costs on society. Recently, the Association of Certifed
Fraud Examiners (ACFE) estimated that the cost of fraud globally was approximately 5
per cent of the revenue or $3.7 trillion annually (ACFE, 2014). In its most recent 2014
The authors gratefully acknowledge the fnancial support of the Accounting and Finance
Association of Australia and New Zealand Research Grant scheme, the assistance of Brett
Warfeld with data collection, and the participants of the Third National Forensic Accounting
Teaching and Research Symposium for their helpful comments.
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1030-9616.htm
ARJ
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Received23 June 2014
Revised13 September 2014
Accepted29 December 2014
Accounting Research Journal
Vol. 28 No. 1, 2015
pp. 10-44
©Emerald Group Publishing Limited
1030-9616
DOI 10.1108/ARJ-06-2014-0058
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Report to the Nations, the ACFE (2014) found that approximately 77 per cent of frauds
were committed by individuals in one of seven departments: accounting, operations,
sales, executive/upper management, customer service, purchasing and fnance. This
fnding, mirroring similar fndings elsewhere (Friedrichs, 2002), demonstrates the
intra-organisational character of much fraudulent activity[1], and focuses attention on
accounting-related roles. Individuals employed in these roles have a unique opportunity
to perpetrate and conceal fraud because they are frequently in a position to directly or
indirectly manipulate accounting records, circumvent internal controls and present
fraudulent fnancial information.
While a growing body of research has focused on fnancial statement fraud and
enhanced understanding of antecedents, trends and consequences of this phenomenon
(see Hogan et al., 2008 for a recent review of this literature), there has been a paucity of
work seeking to understand fraud perpetrated by those employed in accounting-related
roles. Apart from research on fraud in the savings and loan industry (Calavita and
Pontell, 1990; Calavita et al., 1997) and some inchoative comparative work (Holtfreter,
2005), little is known about how fraud varies in distinct occupational domains. The
purpose of this paper is to explore accountant fraud, a particular category of
occupational fraud (defned as “the use of one’s occupation for personal enrichment
through the deliberate misuse or misappropriation of the employing organisation’s
resource or assets”; ACFE, 2014, p. 6).
Traditionally, research into white-collar crime has generally focused on the ways in
which criminals differ from non-criminals (Weisburd and Waring, 2001). To this end,
Gabor (1994, p. 14) states:
Traditionally, criminologists have attempted to explain why some people become criminals
and others do not. Some have attributed the apparent differences between criminals and the
law-abiding to innate or genetic factors, others to personality differences, and still others to
social circumstances. Whatever their persuasions, these traditionalists shared the assumption
that there were key differences between criminals and the rest of society. The traditional goal
of research and theory in criminology, therefore, has been to identify the differences as
precisely as possible.
This approach provides limited insight into the ways in which offenders come to commit
crime. A small but growing body of criminological research has begun to identify
“pathways” to criminal behaviour (Byrne and Trew, 2008; France and Homel, 2007;
Murphy, 2012; Waring et al., 1995; Weisburd and Waring, 2001). This research has
focused attention on the immediate context of crime and its role in leading otherwise
conventional people to violate the law. In so doing, it presents different avenues to
criminal activity, drawing on research in decision-making and criminology and
providing insights into the importance of the immediate context of crime.
In exploring the situational context of accountant fraud[2], this paper draws on a
typology developed by Waring et al. (1995) and Weisburd and Waring (2001), which
offers a useful lens to consider individual attitudes and situational elements and their
connection to illegitimate behaviour. We explore the signifcant pathways to accountant
fraud, which we defne as occupational fraud perpetrated by an individual in the course
of his or her employment in an accounting-related role (e.g. accountant, bookkeeper,
receivables or payables clerk). To do so, we examined 192 fraud convictions in
Australian courts involving accountant fraud from 2001 to 2011.
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Four interesting contributions are made to understanding accountant fraud fromour
analysis of Australian cases. First, this study draws attention to four distinct pathways
to accountant fraud and the relative distribution of identifed cases among these
pathways:
(1) crisis responders;
(2) opportunity takers;
(3) opportunity seekers; and
(4) deviance seekers.
Second, our analysis reveals the prevalence of gambling, female offenders, small and
medium enterprises (SMEs) as victims, as well as the use of relatively unsophisticated
methods, in much accountant fraud. Third, in delineating the pathways to fraud, our
analysis highlights the importance of situational attitude in moderating inherent
character as it relates to fraudulent behaviour. Fourth, our analysis reveals different
emphases of fraud triangle elements across the pathways to accountant fraud.
The remainder of this paper is structured as follows. The next section provides an
overviewof the emerging literature relating to fraud. This is followed by a discussion of
the method used to identify and analyse court cases involving convictions of accountant
fraud over the period. This includes an analysis of this corpus of cases, highlighting the
major characteristics of the frauds perpetrated, the perpetrating fraudsters and
sentencing outcomes. The four emerging categories of fraud – crisis responders,
opportunity takers, opportunity, seekers and deviance seekers – are then discussed in
detail. The fnal sections present a discussion of the implications of these fndings and
conclude the paper.
Images of fraud perpetrators in accounting research
Power (2012) highlights that “fraud risk” and related risk management discourses are a
relatively recent phenomenon in contemporary business. Mirroring this, scholarly
interest in the nexus between external/internal audit, internal control and fraud has also
recently burgeoned. A recent special edition of Accounting, Organizations and Society,
along with a range of other scholarly outlets, published contributions to knowledge on a
range of fraud-related matters, encompassing agent-based models of fraud dynamics
(Davis and Pesch, 2013), fraud regulation (Williams, 2013), state-based enforcement
regimes (Braithwaite, 2013), the illusory construction of “trustworthy” investment
opportunities (Stolowy et al., 2013) and the fraud triangle (Cohen, 1995; Free and
Murphy, 2014; Morales et al., 2014; Murphy, 2012; Murphy and Dacin, 2011; Wilks and
Zimbelman, 2004).
The dominant framework relating to fraud in auditing and forensic accounting is the
“fraud triangle”. This framework is embedded in professional association standards
around the world (International Auditing and Assurance Standards Board (IAASB),
2009; PCAOB, 2005), including the USA (SAS No. 99), Australia (ASA 240) and
international audit standards (ISA 240)[3]. The fraud triangle comprises three
conditions that are argued to be present whenever a fraud occurs[4]:
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(1) an incentive or pressure that provides a motive to commit fraud (e.g. personal
fnancial problems);
(2) an opportunity for fraud to be perpetrated (e.g. weaknesses in or ability to
override internal controls); and
(3) an attitude that enables the individual to commit fraud or the ability to
rationalise the fraud.
The genesis of the fraud triangle is generally said to be the work of American
criminologist Donald Cressey, who conducted 133 interviews with inmates in the Illinois
State Penitentiary convicted for embezzlement. Based on these interactions, Cressey
(1950, 1953) hypothesised three criteria for criminal violations of trust:
(1) a non-shareable fnancial problem[5];
(2) knowledge of the workings of a specifc enterprise and the opportunity to violate
a position of trust; and
(3) the ability to adjust one’s self-perception such that violating this trust does not
constitute, in the individual’s mind, criminal behaviour.
Interestingly, the term “fraud triangle” was coined long after Cressey’s work and
popularised by Joseph Wells, the founder of the ACFE (Morales et al., 2014). Although
Wells (1997, p. 11) briefy mentions the notion of the non-shareable problem, this central
aspect of Cressey’s hypothesis is replaced with the broader notion of pressure[6]. Wells
simplifes Cressey’s work into the fraud triangle presented in Figure 1. Albrecht et al.
(1984) go further to replace the notion of rationalisation with “personal integrity” in their
fraud scale (Figure 2). According to Dorminey et al. (2012), “the beneft of examining
integrity is that an individual’s integrity can be inferred from past behaviour” (p. 562).
The fraud triangle has become an important focus in the growing feld of forensic
accounting and fraud examination (Ozkul and Pamukcu, 2012, p. 30). Although forensic
accountinghas a lengthyhistory(Crumbley, 2001), it has recentlyexperiencedrapidgrowth
in terms of professional accreditation (Huber, 2012) and status in the legal system [see
DiGabriele (2008, 2011) on the rise of forensic accounting expertise in the form of expert
witnesses, consultingexperts andfact witnesses intrials]. Ina comprehensive review, Smith
and Crumbley (2009) fnd that the fraud triangle represents the most commonly taught
Figure 1.
The fraud triangle
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frameworkinfraudexaminationandforensic accountingcourses inaccountingprograms in
the USA, UK, Australia, Hong Kong and Lebanon. The fraud triangle is also a mainstay in
the educational curricula of a growing number of certifcations in forensic accounting in the
USAand elsewhere (see Huber, 2012, for a review).
More broadly, concern with the drivers of white-collar crime has driven a vast body of
research across a range of different literature since British sociologist Edwin Sutherland
coined the term in 1939. Although a variety of labels has been used to describe the
dichotomy, an important characteristic of this research is the distinction between
individualistic or trait-basedexplanations, whichfocus onthe causes of crime that are located
within the individual, and situational explanations, which focus on the link between
individual actors and their immediate social context (Berger, 2011). We now turn to this
distinction as it applies to the emerging literature dealing with fraud in accounting.
Individualistic explanations of fraud
In spite of broad references to factors such as “tone at the top”, organisational culture
and internal controls, Morales et al. (2014) argue that the fraud triangle adopts an unduly
individualising conception of fraud that elevates the imperative of systematic controls
to prevent and detect the dangerous pathologies of some individuals. In this way, they
argue, the fraud triangle represents a translation intentionally designed to legitimise the
intervention of various professional communities including the ACFE[7]. In his writing,
Joseph Wells, the founder of the ACFE[8], has consistently considered fraud to be a
dishonest act perpetrated for personal enrichment as well as a generalised problemthat
necessitates the surveillance and examination of dangerous individuals and effective
internal controls in organisations (Wells, 2001). As Donegan and Ganon (2008, p. 3) state:
[…] the [fraud] triangle had the […] advantage of explaining fraud as the action of a loner
driven by need, taking advantage of a lack of internal control. Thus the deterrent to fraud was
more internal control, and the search for the culprit could focus on individual offenders, not on
the culture that may have encouraged and rewarded their actions.
Morales et al. (2014) point out that the attitude/rationalisation element of the fraud triangle
has tended to be associated with personality attributes that may be variously described as
ambitious, reckless, risky, egocentric, arrogant and power-driven (Berger, 2011). In
accounting research, fraud has been connected to neurotic personality (Dorminey et al.,
2010), Machiavellianism(Murphy, 2012), the industrial psychopath (Babiak and Hare, 2006)
Figure 2.
The fraud scale
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and pathological gambling (Kelly and Hartley, 2010), and linked to vice-related traits
(Kidder, 2005). Thesedepictionsrunparallel withresearchinother areasarguingthat certain
personality attributes are positively related to intention to engage in corporate offending
including “desire for control” (Piquero et al., 2010), “competitiveness” (Terpstra et al., 1993),
so-called“negative emotions” (lackof discipline, insensitivitytoothers) (Collins andBagozzi,
1999), extroverted, disagreeable and neurotic personality types (Alalehto, 2003), the absence
of “social conscientiousness” (Collins and Schmidt, 1993) or desire for control (Benson and
Simpson, 2009). Ineconomics, Paternoster andSimpson(1993) have characterisedcorporate
crime as criminal activity rooted in instrumental and strategic choices made by risk-averse
managers who weigh various perceived costs and benefts. The image that emerges from
these fndings is that the typical offender is male, opportunistic, manipulative and
suspicious. Levi (2006) presents a common set of metaphorical images in media coverage of
fraud including “dirty rotten scoundrels”, “cons”, “unscrupulous” and “fnancial predators”.
This focus on individual traits and dispositions is consistent with the notion of
fundamental error attribution[9] in social psychology, which refers to the error of
ignoring situational factors and overconfdently assuming that distinctive behaviour or
patterns of behaviour are due to an individual’s distinctive character traits (Ross, 1977).
Although people tend to attribute their own misadventure to external factors, they tend
to attribute the behaviour of others to the person rather than the context (Dripps,
2003)[10].
A focus on dispositions in relation to the conduct of crime has, however, been
criticised within sections of the criminological literature. For example, Katz (1988) takes
aim at essentialist characterisations of criminal behaviour, emphasising that criminals
(such as fraudsters) often fail to adhere to popular characterisations. As Katz’s explains,
many of those who display identifed traits leading to criminal behaviour do not commit
crime, many individuals who commit crime do not ft identifed criminal traits and many
who display traits consistent with criminal behaviour may not commit crime for a long
period despite the presence of those traits. As such, a focus on essential qualities (e.g.
instrumental rationality or individual character traits) is insuffcient to explain why
individuals may engage in criminal behaviour such as fraud.
Situational explanations of fraud
A growing body of ethics and psychology research recognises the importance of
situation in eliciting unethical behaviour (Acquino and Reed, 2002; Milgram, 1974;
Zimbardo, 2007). Situation is also recognised in understanding decision processes that
produce criminal behaviour (Clarke, 1992; Clarke and Cornish, 1985; Cornish and Clarke,
1986), and items such as organisational culture, tone at the top and embeddedness have
become increasingly invoked in the areas of corporate governance and risk
management. Theories such as differential association[11] and the normalisation of
deviance illuminate the link between individual actors and their immediate
organisational environment. To this end, in a series of experimental studies, Gino et al.
(2009, 2010) fnd that exposure to the unethical behaviour of in-group peers and social
norms can increase an individual’s dishonesty and cheating. Theories relating to
anomie-strain, criminogenic market structures and the disaster-capitalismcomplex focus
on the broader historical, economic and political factors that impact organisations
themselves (Berger, 2011). A critical stream of criminology research has pointed to the
criminogenic or even criminally coercive nature of certain organisations and social
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r
y
2
0
1
6
(
P
T
)
environments (Clinard, 1983; Clinard and Yeager, 1980; Coleman, 1987; Needleman and
Needleman, 1979).
A small but growing band of studies has explored the infuence of a range of
organisational and societal pressures on the decision to commit fraud, including the
impact of charismatic organisational leadership (Free et al., 2007), institutionalised
processes (Gabbioneta et al., 2012), corporate culture (Free and Macintosh, 2008; Free
et al., 2007), political entrepreneurship (Stalebrink and Sacco, 2007), neoliberal
infuences (Chwastiak, 2013), co-offender bonds (Free and Murphy, 2014), institution-
based forms of trust (Stolowy et al., 2013), public interest emphasis (Stuebs and
Wilkinson, 2010) and industry and operating conditions (Bayou and Reinstein, 2001).
The emphasis has tended to be on macro-contextual factors rather than immediate
context of crime.
In summary, both scholarly and professional investigations into fraud have tended to
focus on the relationship between individual factors and the decision to defraud, leading
Power (2012, p. 18) to conclude that “the grammar of fraud risk management is
essentially individualistic”. We believe that this has led to an under-appreciation of the
central role of situation in explaining fraud by accountants. Drawing on a typology
developed by Waring et al. (1995) and Weisburd and Waring (2001), we aim to explore
the signifcant pathways to fraud by accountants, centring on individual attitudes and
situational elements and their connection to illegitimate behaviour.
The situation – attitude – behaviour framework
To facilitate our analysis for this paper, we use a framework for understanding
connections between situation, attitudes and fraudulent behaviour developed in
criminology by Waring et al. (1995) and Weisburd and Waring (2001) (referred to as the
“situation-attitude-behaviour framework” herein for convenience). Grounded in Robert
Merton’s theory of social structure and anomie (Merton, 1938, 1964, 1968), this
framework is premised on the idea that fraud arises when individuals face pressures to
achieve culturally valued goals (e.g. fnancial enrichment), and at the same time perceive
their situation to lack legitimate means to achieve those goals[12]. This disjuncture
between ends and legitimate means leads to situations of anomie, where moral
standards and legal norms lose their impact and force. The sense of disillusionment,
estrangement and/or powerlessness that ensues breaks down an individual’s
motivation to act legitimately in pursuit of his or her fnancial goals. The framework
developed by Waring et al. (1995) and Weisburd and Waring (2001) extends this general
theorisation of precursors to fraud by developing a typology to understand the role that
situation plays in shaping confgurations of attitudes that lead to fraud. This typology
is summarised in Table I.
Table I highlights that to engage knowingly in fraudulent conduct, offenders have to
adopt, either generally or situationally, a positive attitude to illegitimate means of
achieving fnancial enrichment. This positive attitude does not mean that the individual
has to favour illegitimate means generally, but rather that engaging in these means
serves the individual’s goals in his or her circumstances. As such, fraud offenders are
considered to have the following in common:
• they subscribe to the culturally sanctioned goal of fnancial enrichment;
• they have a positive situational attitude to the use of illegitimate means of
achieving fnancial ends;
ARJ
28,1
16
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o
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b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
2
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Table I.
Framework of fraud
offenders based on
attitudinal
differences
T
y
p
e
o
f
f
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)
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(
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)
;
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.
(
1
9
9
5
)
17
Accountant
fraud
D
o
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o
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d
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P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
2
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
• they have situational access to these illegitimate means; and
• they situationally behave in a way that does not conform to legitimate means.
This is not to say that all pathways to fraud are equivalent. According to the model
proposed, individual variations can be accounted for by the following three factors:
(1) general attitude to legitimate means;
(2) general attitude to illegitimate means; and
(3) situational attitude to illegitimate means.
From these variations, Waring et al. (1995) and Weisburd and Waring (2001)
characterise four different pathways to offending – crisis responders, opportunity
takers, opportunity seekers and deviance seekers.
Crisis responders are considered by and large to be conformists, but in a particular
situation feel they need to engage in behaviour they consider wrong to address
perceived fnancial pressure or hardship, relating to themselves, their family or their
organisation. This is refected in this category of offender displaying a positive general
attitude to legitimate means of fnancial gain, a negative general attitude towards
illegitimate means, but a positive situational attitude towards legitimate means. This
combination of attitudinal positions leads the individual to believe that he or she cannot
conform to legitimate means of fnancial gain if fnancial goals are to be realised.
Opportunity takers are similarly characterised as individuals who generally seek to
conformto legitimate forms of conduct. However, their path to fraud is infuenced by the
appearance of an opportunity that “looks too good to pass up” (Waring et al., 1995,
p. 216). These individuals display a positive general attitude towards legitimate means,
a negative general attitude to illegitimate means and a negative situational attitude to
legitimate means. While such individuals do not seek out opportunities for fraud due to
their conforming general attitudes, once an opportunity appears, they are drawn to take
up this opportunity for fnancial gain.
Opportunity seekers are individuals who view favourably any possible means for
fnancial gain, whether legitimate or not. They showa positive general attitude towards
both legitimate and illegitimate means, and a negative situational attitude to legitimate
means. As a consequence, opportunity seekers are characterised not as taking
advantage of illegitimate opportunities that befall them, but by actively searching for
such opportunities in their employment. While always willing to follow legitimate
approaches, an opportunity seeker will reject such approaches in a given situation when
it does not suit their instrumental purposes.
Deviance seekers, the fnal category, displaya negative situational andgeneral attitude to
legitimate means of fnancial gain and a positive general attitude towards illegitimate
means. Because of their preferential attitudes to illegitimate means of achieving fnancial
success, deviance seekers often engage in high rates of criminal activity and are likely to
have criminal histories that extend to other forms of criminal activity.
Method
An extensive and systematic search of court judgements was performed to build a
database of cases involving accountant fraud for the period 2001-2011. This task
involved a multi-faceted approach, as there is no single resource where Australian court
ARJ
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Y
U
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A
t
2
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:
2
1
2
4
J
a
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2
0
1
6
(
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)
judgements (criminal or otherwise) can be publicly accessed. Avariety of databases and
information sources were consulted. Akey source was the AustLII database, Australia’s
largest on-line resource of Australian legislation and case law, which provided access to
cases of interest heard in superior courts – state Supreme Courts and Courts of Criminal
Appeal. Information on relevant proceedings in lower courts (County, Local,
Magistrates and District courts) was not available via AustLII or any other publicly
available database, so information on relevant cases heard in these courts was sourced
from media outlets (searched via the ProQuest Australia & New Zealand Newsstand
database[13]), as well as the industry experience of a leading Australian fraud examiner.
In addition, Internet searches were performed to locate additional cases and to
supplement information about cases extracted from the AustLII and ProQuest
repositories. Approaches were also made directly to relevant courts to obtain further
information about identifed cases where other sources proved insuffcient.
The items obtained from these searches were initially read by each of the authors to
ensure their relevance to this study (i.e. that the case reported related to the actions of an
accountant, bookkeeper or related role). Cases involving related but non-accounting/
non-bookkeeping roles (e.g. bank clerks or lawclerks) were eliminated fromthe sample.
So too were cases where the offender’s employment in an accounting-related role was
incidental to the fraud committed (e.g. social security or personal tax fraud). This review
and refnement of collected materials produced an initial catalogue of 203 cases. Of
these, 11 cases had to be discarded due to insuffcient information about the offence.
Information collected about each of the 192 cases was drawn upon to produce a database
of key attributes for each case. Table II provides a summary of the key attribute
information collected.
The authors used content analysis to analyse these materials. In broad terms, content
analysis refers to the process of reading documents systematically, recording consistent
features of each one and then drawing inferences about the use and meaning of those
documents (Hall and Wright, 2008). The coding scheme used focused on various
attitudinal cues to categorise and analyse the identifed cases within the four offender
categories defned by Waring et al. (1995) and Weisburd and Waring (2001): crisis
responder, opportunity taker, opportunity seeker and deviance seeker. The frst step in
this process was to conduct a detailed analysis of the Waring et al. (1995) and Weisburd
and Waring (2001) materials to elicit attitudinal cues that would help to discern positive/
negative attitudes to legitimate/illegitimate means of fnancial gain. These cues are
summarised in Table III.
The authors then came together to code each of the cases, focusing on a holistic
reading of general and situational attitudes noticeable in each case, facilitated by the
cues outlined in Table III. Diffcult/ambiguous cases were actively discussed and
debated. Competing attitudinal explanations between the authors were a particular
focus, with classifcation of these cases arrived at only after the authors could reach
consensus on the weight of available evidence and the best ft between the data and
analysis (Patton, 1990).
Offenders and offences
Summary descriptive statistics about the sample cases are presented in Table IV, which
reveals interesting observations about fraud offences and offenders pertaining to fraud
perpetrated in accounting-related roles.
19
Accountant
fraud
D
o
w
n
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o
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b
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P
O
N
D
I
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H
E
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Y
U
N
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V
E
R
S
I
T
Y
A
t
2
1
:
2
1
2
4
J
a
n
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r
y
2
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1
6
(
P
T
)
Table II.
Information compiled
in accountant fraud
database
Category Details Description
Offender details Name As recorded in source documentation
Gender Male/Female
Age Reported age at time of conviction
Role Accountant/Bookkeeper
Prior criminal history Yes/No
Location of fraud Employer As recorded in source documentation
Employer size Categorised by headcount as follows (Australian
Bureau of Statistics, 2001):
small/medium enterprise (SME: ?199 employees);
and
large business (200?employees)
Industry Identifed employer classifed according to ANZSIC
Division categories
State As recorded in source documentation
Offence elements Amount Reported aggregate dollar amount of frauds
committed by each offender
Duration Reported time period over which an offender’s
fraudulent behaviour took place
Method Primary method used to perpetrate fraud, recorded
in the following categories (Association of Certifed
Fraud Examiners, 2014):
asset misappropriation – theft of
cash/disbursement of cash;
asset misappropriation – other;
fnancial statement fraud;
corruption; and
other
Gambling involved Yes/No
Detection Primary means by which fraud was frst detected,
recorded in the following categories (Association of
Certifed Fraud Examiners, 2014):
audit (internal/external);
by accident;
accounting and other controls (e.g. management
review, reconciliations, document examination,
surveillance/monitoring, IT controls;
Tip/notifcation (e.g. by police, bank, government
agency);
confession; and
other
Plea and
sentencing
Plea Guilty/Not guilty
Head sentence Maximum time offender could spend in gaol
Minimum time in custody Minimum gaol time before offender is eligible for
parole or non-suspended portion of sentence is
completed
Other sentencing
information
Other sentence elements handed down (e.g. bonds,
restitution)
ARJ
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1
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4
J
a
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a
r
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2
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(
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)
Over the 10-year period of analysis, this occupational category of offender defrauded
$362,895,787, with an average of $1,887,478. In many cases, fraudulent conduct
continued undetected for some time (an average of 32 months), often connected to the
level of trust that offenders accrued in their accounting roles. By and large, and in
contrast to the stereotypical public image of fraud, the methods utilised were relatively
unsophisticated and mainly involved some form of theft or fraudulent disbursement of
cash (132 of 192 cases, 68.8 per cent). Alternative methods used included more involved
arrangements such as tax fraud schemes. Financial statement fraud, corruption and
more elaborate fraud schemes were relatively under-represented.
While various forms of audit (external audit, internal audit, tax offce audit: 26 of 192
cases, 13.5 per cent) and, to a lesser degree, management reviews and controls (15 of 192
cases, 7.8 per cent) were observed to play their part in the detection of some accountant
frauds, the most common means of detecting fraud came from whistle-blowers and
external notifcations (42 of 192 cases, 21.9 per cent). A large proportion of accountant
frauds were also detected rather accidentally (36 of 192 cases, 18.8 per cent), following an
offender going on holiday, leaving the frm or some other serendipitous event that
allowed the offending to be brought to light.
Avery high proportion of these offences was carried out within SMEs[14] (144 of 192
cases, 75 per cent), and in the vast majority of these cases, the SMEwas the victimof the
fraudulent conduct. This is perhaps unsurprising, given that SMEs are likely to have
Table III.
Indicators of
attitudinal
characteristics drawn
from Waring et al.
(1995) and Weisburd
and Waring (2001)
Attitudinal characteristic Cues indicating a positive attitude Cues indicating a negative attitude
General attitude towards
legitimate means
Expressions/indications of
conforming morality
Expressions/indications of regret
or remorse
No/low criminal record
Pathological drive to commit crime
Expressions/indications of
disregard for morality/conforming
behaviour
Pattern of offendingCriminal
history
General attitude towards
illegitimate means
Expressions/indications of
willingness to pursue illegitimate
opportunities
Proactive seeker of illegitimate
opportunities
Pattern of offending
Criminal history
Expressions/indications of
conforming morality
Expressions/indications of regret
or remorse
No/low criminal record
Situational attitude
towards legitimate
means
Illegitimate behaviour driven by
situated causes (family, fnancial,
addiction)
Expressions/indications that
abuse of trust was anomalous to
otherwise conformist behaviour
Forced in the circumstances to act
illegitimately
Lowered capacity to deal with
diffculties
Sees no other way out of a
situation
Taking advantage of situational
norms/practices otherwise
considered illegitimate
Need to “show off” or “please
others”
Expressions of disenchantment/
disenfranchisement with
circumstances
21
Accountant
fraud
D
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N
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t
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1
:
2
1
2
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a
n
u
a
r
y
2
0
1
6
(
P
T
)
Table IV.
Database summary
statistics
C
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1
1
6
.
1
N
o
t
r
e
p
o
r
t
e
d
4
2
.
1
H
e
a
d
s
e
n
t
e
n
c
e
M
o
n
t
h
s
4
9
4
2
0
-
1
8
0
M
i
n
i
m
u
m
t
i
m
e
M
o
n
t
h
s
2
3
1
8
0
-
9
6
ARJ
28,1
22
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
2
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
smaller accounting teams (and fewer opportunities to separate duties), and have fewer
resources to devote to maintaining robust management controls. Nonetheless, the
reported average monetary amount involved in accountant fraud underscores that fraud
by staff employed in accounting-related roles at SMEs can have severe consequences.
With regard to summary characteristics of offenders convicted of fraud in
accounting-related roles, it is interesting to note that there is a relatively even
distribution between male (100 of 192 cases, 52.1 per cent) and female (92 of 192 cases,
47.9 per cent) offenders. A similar observation is also noted for the split between
offenders employed in accounting (106 of 192 cases, 55.2 per cent) and bookkeeping
(86 of 192 cases, 44.8 per cent) roles. Only a small proportion of the sample offenders had
a prior criminal history (28 of 192 cases, 14.6 per cent). Once caught, the vast majority of
offenders pleaded guilty to their charges (157 of 192 cases, 81.8 per cent). Convicted
offenders were given an average head sentence of just over four years (mean: 49 months,
range: 0-180 months), with average minimumtime in custody being just under two years
(mean: 23 months; range: 0-96 months).
Analysis
This section examines the nature of offenders and offences using the situation – attitude –
behaviour framework described above. Summary statistics from the analysis are
presented in Table V. A précis of key situation – attitude – behaviour pathways is
presented in Table VI, including a brief overviewof typical characteristics and example
cases fromour accountant fraud database. What follows is a more detailed explication of
the categories of the framework, as they have manifested within the perpetration of
accountant fraud over the period of analysis.
Crisis responder
The offences for which the respondent was sentenced [conspiracy to cheat and defraud and
accessory before the fact to maliciously damage property by fre] arose from his employment
as a “high level accountant” with the Charsamgroup of companies (“Charsam”) […]. Charsam
was in fnancial diffculties at the time [and the offences were aimed at keeping the company
afoat] […]. [The respondent] stated that he feels the fnancial and emotional stress he was
under caused him to become involved in a situation which he did not know how to get out of.
[The respondent] stated that his actions were “stupid” and recalled that he had always lived a
law-abiding life and never before felt that he would fnd himself before the Courts. The
offender presented as remorseful and willing to take responsibility for his offending behaviour
(Brown v. R; R v. Brown [2010] NSWCCA 73).
The above quote from the sentencing judgement of Gareth Brown refects typical
situational infuences characterising a crisis responder offender. The primary driver for
his offending was personal crisis (in his case, fnancial and emotional diffculties
precipitated by an earlier marriage breakdown and the collapse of his aviation
business). He lived at home with his mother to conserve money, and sought employment
with Charsam, as he had no other form of income. It seems that in spite of his better
judgement, Mr Brown engaged in fraud, in the face of his personal circumstances, in
order to keep the company afoat and thus secure his only stream of income.
Mr Brown’s case is one of many classifed in the crisis responder category that refect
a combination of fnancial and psychological circumstances precipitating a personal
crisis leading to fraud. Most notable in this regard was that much of the offending in this
23
Accountant
fraud
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
2
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Table V.
Summary
information of
accountant offender
categories
C
a
t
e
g
o
r
y
D
e
t
a
i
l
s
M
e
a
s
u
r
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m
e
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t
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r
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k
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e
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i
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k
e
r
T
o
t
a
l
T
o
t
a
l
C
o
u
n
t
8
5
5
6
3
5
1
6
1
9
2
%
o
f
t
o
t
a
l
(
4
4
.
3
%
)
(
2
9
.
2
%
)
(
1
8
.
2
%
)
(
8
.
3
%
)
(
1
0
0
%
)
O
f
f
e
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d
e
r
d
e
t
a
i
l
s
G
e
n
d
e
r
M
a
l
e
3
7
(
4
3
.
5
%
)
3
1
(
5
5
.
4
%
)
2
2
(
6
2
.
9
%
)
1
0
(
6
2
.
5
%
)
1
0
0
(
5
2
.
1
%
)
F
e
m
a
l
e
4
8
(
5
6
.
5
%
)
2
5
(
4
4
.
6
%
)
1
3
(
3
7
.
1
%
)
6
(
3
7
.
5
%
)
9
2
(
4
7
.
9
%
)
A
g
e
M
e
a
n
4
4
4
5
4
7
5
1
4
5
M
e
d
i
a
n
4
2
4
4
4
7
5
2
4
4
R
a
n
g
e
2
0
-
8
1
2
6
-
7
3
2
5
-
8
1
2
3
-
7
1
2
0
-
8
1
R
o
l
e
A
c
c
o
u
n
t
a
n
t
4
0
(
4
7
.
1
%
)
2
9
(
5
1
.
8
%
)
2
3
(
6
5
.
7
%
)
1
4
(
8
7
.
5
%
)
1
0
6
(
5
5
.
2
%
)
B
o
o
k
k
e
e
p
e
r
4
5
(
5
2
.
9
%
)
2
7
(
4
8
.
2
%
)
1
2
(
3
4
.
3
%
)
2
(
1
2
.
5
%
)
8
6
(
4
4
.
8
%
)
C
r
i
m
i
n
a
l
h
i
s
t
o
r
y
Y
e
s
5
(
5
.
9
%
)
4
(
7
.
1
%
)
1
2
(
3
3
.
3
%
)
7
(
4
6
.
7
%
)
2
8
(
1
4
.
6
%
)
L
o
c
a
t
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f
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E
m
p
l
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r
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z
e
S
M
E
(
?
2
0
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)
5
9
(
6
9
.
4
%
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4
3
(
7
6
.
8
%
)
2
8
(
8
0
.
0
%
)
1
4
(
8
7
.
5
%
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4
4
(
7
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.
0
%
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(
w
h
e
r
e
k
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w
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a
r
g
e
(
2
0
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?
)
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8
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2
1
.
2
%
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0
(
1
7
.
9
%
)
3
(
8
.
6
%
)
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(
1
2
.
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%
)
3
3
(
1
7
.
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%
)
U
n
k
n
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w
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(
9
.
4
%
)
3
(
5
.
4
%
)
4
(
1
1
.
4
%
)
0
(
0
.
0
%
)
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5
(
7
.
8
%
)
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s
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m
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u
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(
A
U
D
)
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e
a
n
$
1
,
3
0
7
,
9
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7
$
1
,
4
8
4
,
5
6
1
$
2
,
2
6
0
,
5
4
1
$
5
,
5
6
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,
5
8
1
$
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,
8
8
7
,
4
7
8
M
e
d
i
a
n
$
3
2
8
,
6
9
2
$
3
0
5
,
5
0
2
$
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9
2
,
0
0
0
$
9
1
5
,
5
0
0
$
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4
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0
4
R
a
n
g
e
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5
,
3
5
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-
$
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0
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3
0
4
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0
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$
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1
,
0
0
0
,
0
0
0
$
1
6
,
7
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0
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$
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8
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0
0
,
0
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$
8
3
,
5
0
0
-
$
4
5
,
3
6
7
,
2
4
8
$
5
,
3
5
9
-
$
4
5
,
3
6
7
,
2
4
8
D
u
r
a
t
i
o
n
(
m
o
n
t
h
s
)
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e
a
n
3
2
3
0
3
5
2
8
3
2
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e
d
i
a
n
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4
2
1
2
8
2
3
2
4
R
a
n
g
e
1
-
1
3
5
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2
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-
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1
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3
5
M
e
t
h
o
d
A
s
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e
t
m
i
s
:
c
a
s
h
t
h
e
f
t
/
d
i
s
b
6
9
(
8
1
.
2
%
)
3
8
(
6
7
.
9
%
)
1
6
(
4
5
.
7
%
)
9
(
5
6
.
3
%
)
1
3
2
(
6
8
.
8
%
)
A
s
s
e
t
m
i
s
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o
t
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r
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(
0
.
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%
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.
0
%
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(
0
.
0
%
)
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(
0
.
0
%
)
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(
0
.
0
%
)
F
i
n
a
n
c
i
a
l
m
i
s
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t
a
t
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n
t
6
(
7
.
1
%
)
1
(
1
.
8
%
)
2
(
5
.
7
%
)
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(
0
.
0
%
)
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(
4
.
7
%
)
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o
r
r
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p
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o
n
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(
0
.
0
%
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(
3
.
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%
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(
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.
9
%
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(
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.
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%
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t
h
e
r
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0
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1
1
.
8
%
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1
5
(
2
6
.
8
%
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1
6
(
4
5
.
7
%
)
7
(
4
3
.
8
%
)
4
8
(
2
5
.
0
%
)
G
a
m
b
l
i
n
g
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n
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o
l
v
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Y
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s
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3
(
5
0
.
1
%
)
5
(
8
.
9
%
)
3
(
8
.
3
%
)
4
(
2
5
.
0
%
)
5
5
(
2
8
.
6
%
)
P
l
e
a
a
n
d
s
e
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t
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c
i
n
g
P
l
e
a
(
w
h
e
r
e
k
n
o
w
n
)
G
u
i
l
t
y
7
4
(
8
7
.
1
%
)
4
5
(
8
0
.
4
%
)
2
9
(
8
2
.
9
%
)
9
(
5
6
.
3
%
)
1
5
7
(
8
1
.
8
%
)
N
o
t
g
u
i
l
t
y
9
(
1
0
.
6
%
)
9
(
1
6
.
1
%
)
6
(
1
7
.
1
%
)
7
(
4
3
.
8
%
)
3
1
(
1
6
.
1
%
)
N
o
t
r
e
p
o
r
t
e
d
2
(
2
.
4
%
)
2
(
3
.
6
%
)
0
(
0
.
0
%
)
0
(
0
.
0
%
)
4
(
2
.
1
%
)
H
e
a
d
s
e
n
t
e
n
c
e
(
m
o
n
t
h
s
)
M
e
a
n
4
2
4
4
6
3
7
1
4
9
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e
d
i
a
n
3
6
3
6
6
0
6
0
4
2
R
a
n
g
e
0
-
1
2
0
0
-
1
2
6
2
4
-
1
3
4
3
-
1
8
0
0
-
1
8
0
M
i
n
i
m
u
m
t
i
m
e
(
m
o
n
t
h
s
)
M
e
a
n
1
8
2
1
3
1
3
8
2
3
M
e
d
i
a
n
1
4
1
5
2
4
3
6
1
8
R
a
n
g
e
0
-
8
4
0
-
7
6
2
-
9
6
3
-
8
4
0
-
9
6
ARJ
28,1
24
D
o
w
n
l
o
a
d
e
d
b
y
P
O
N
D
I
C
H
E
R
R
Y
U
N
I
V
E
R
S
I
T
Y
A
t
2
1
:
2
1
2
4
J
a
n
u
a
r
y
2
0
1
6
(
P
T
)
Table VI.
Summary of
accountant fraud
pathways, including
a typical
characteristics and
exemplar cases
C
a
t
e
g
o
r
y
T
y
p
i
c
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x
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r
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r
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o
k
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r
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category was rooted in gambling addiction (43 of 85, 50.1 per cent, crisis responder
cases). The case of Frank De Stefano, a self-employed tax accountant who transferred
$8,606,103.47 from trust accounts under his control to personal accounts, presents a
stark example of the impact of pathological gambling on fraudulent conduct. Initially,
Mr De Stefano became involved in gambling as a means of relaxation and an escape
fromhis stressful working life. However, he was described by an expert witness as being
a “perfectionist, obsessive, driven, needing to succeed, workaholic”, and subsequently
developed a pathological gambling disorder (R v. De Stefano [2003] VSC 68). Fraud
ensued, initially in small amounts, but later in larger amounts as the fnancial demands
of his gambling addiction grew (R v. De Stefano [2003] VSC 68).
Other psychological conditions and pressures also directed otherwise conforming
individuals to engage in fraud. The fraud offences perpetrated by Maria Elias against
her employer were seen to be driven by “battered woman syndrome” (R v. Elias [2007]
VSCA 125). According to court evidence presented by a psychologist in relation to Ms
Elias:
There was a “history of physical abuse” and also a “history of sexual abuse” [in her marriage].
The offending spanned the period of cohabitation. It was signifcant that the appellant had
been employed by Clark &Co for some years before her marriage, and had not offended in that
period. The appellant’s perception was that her husband always found fault with her […]. Her
bizarre, aberrant behaviour – although it was atypical – was her way of attempting to relieve
the source of depression and anxiety (R v. Elias [2007] VSCA 125).
Fraud was seen by Ms Elias as a way of relieving the physical, emotional and
psychological abuse she face in her marriage. Despite evidence suggesting that Ms
Elias’ offending was atypical, her feelings of helplessness, and her desire to appease her
husband drove her to seek illegitimate sources of fnancial gain.
Several aspects of the crisis responder category observed from the information
presented in Table Vwarrant comment. First and foremost, it was the largest offending
category, representing almost half the identifed accountant fraud cases (85 of 192 cases,
44.3 per cent). Second, it is the only category where bookkeepers make-up the majority
(albeit a slight one) of offenders (45 of 85, 52.9 per cent, crisis responder cases), which
perhaps relates to their relatively lower remuneration[15]. Third, it is the only category
where the majority of identifed offenders are female (48 of 85, 56.5 per cent, crisis
responder cases), refecting the relatively high representation of females in bookkeeping
roles[16].
Opportunity taker
In the County Court yesterday, Richard Alfred Nagul, 52, was described as a one-time
high-fyer who climbed to the top of a billion-dollar paper company before succumbing to
greed and using his position to conceal seven years of fraud […] Nagul, who earned about
$400,000 a year, gained a total beneft of $724,000 over 7½ years of deception […]. His
deception went unnoticed until international paper merchant PaperlinXtook over Spicers [Mr
Nagul’s employer] in 2001 and audited the company […]. Judge Tim Wood said Nagul had
abused his position to conceal his crimes. Judge Wood said that although he accepted Nagul’s
offending was out of character he had no option but to impose a jail term (Miletic, 2006).
In the above case of Richard Alfred Nagul (R v. Nagul [2007] VSCA 8), the opportunity
to defraud came with his growing power and infuence at his employer, Spicers Paper
27
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Limited. In 1995, he was appointed Finance Director. In 1998, he became the General
Finance Manager and sat on the Board of Directors. In 1999, the Managing Director
became seriously ill, leaving Nagul and two other employees effectively in charge of the
daily operations of the organisation. It seems the opportunity to perpetrate fraud that
was presented by his growing infuence was too good to pass up. Mr Nagul was able to
conceal his fraudulent conduct until the company was taken over by PaperlinXLimited
in 2001, with a subsequent audit revealing his offending. Given the signifcant trust
organisations have to place in their fnancial offcers, it is perhaps unsurprising that
“opportunity takers” represent the second largest category of offender (56 of 192 cases,
29.2 per cent) within our sample of accountant fraud.
Like Mr Nagul, opportunity takers make use of situations presented to them. In
contrast to the crisis responder, where an emphasis is placed on unavoidable pressure
precipitating fraud, opportunity takers are characterised by the circumstantial
conditions that permit them to rationalise their offending in the absence of crisis-based
pressure. Such conditions could stem from power and infuence within an organisation
and/or abuse of trust placed in a fnancial offcer. This allows them to capitalise upon
identifed weaknesses in internal control and/or enforcement. However, offenders in this
category are not considered likely to have proactively set out to defraud, and would not
likely have engaged in such conduct had the specifc opportunity not proved readily
accessible and enticing. In Mr Nagul’s case, the judge accepted his previous good
character, quality of his prior work history, exemplary character references and
devotion to his family as mitigating evidence (R v. Nagul [2007] VSCA 8).
For the opportunity taker, situational elements were found to prompt the offender to
refect favourably on conduct they would otherwise consider illegitimate. Mr Nagul
submitted that his offending was justifed by a corporate culture that normalised
informal payments beyond those set out by the company remuneration committee.
Other circumstantial motivators included jealousy over pay, conditions and
promotional opportunities, disillusionment with current employer or career and a
perceived need to exact revenge/retribution on an employer. For example, Sergio Joseph
Bernardi, an accountant working at a crematorium in Victoria, defrauded his employer
of $2,299,772 between 2001 and 2006. It was tendered in court that Mr Bernardi “was
neither greedy nor addicted to gambling or drugs but rather left the money in his bank
accounts” (Berry, 2007). Rather, Mr Bernardi had offended primarily in response to his
disillusionment at being passed over for promotion. However, and most commonly, it
seemed that many identifed offenders simply seized on their opportunity to defraud to
fund a more extravagant lifestyle that they could not otherwise afford. For Craig Dean
Raneberg, who defrauded law frm Minter Ellison of approximately $2,700,000 during
his employment as their South Australian Accounting and Finance Manager and later
Chief Financial Offcer, he seized on his opportunity to “maintain a lifestyle of travel,
accommodation and profigate spending which [Mr Raneberg] would otherwise never
have been able to maintain” (R v. Craig Dean Raneberg [2012] DCCRM-12-474).
Opportunity seeker
Robert AndrewDangar Kirsopp, you have pleaded guilty on a State presentment to 13 counts
of obtaining property by deception and on a Federal indictment to one count of defrauding the
Commonwealth, 16 counts of obtaining a fnancial advantage by deception and 9 counts of
attempting to obtain a fnancial advantage by deception […] your offending involved
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countless individual acts of forgery and deceit. This was not spontaneous or impulsive
behaviour. It was premeditated and systematic, over a period of fve years, in a position of trust
(R v. Kirsopp [2005] VCC 0309).
The case of Robert Kirsopp presents a situation where the drive to commit fraud was
inextricably tied to his personal drive for fnancial success, whatever the means.
Described as intelligent and talented, and from a privileged background, Mr Kirsopp
was a high-achieving professional sprinter (he fnished second in the 1984 Stawell Gift,
Australia’s oldest and richest short distance running race). Mr Kirsopp’s drive for
success in the sporting feld was a refection of his general ambition, which was
considered central to understanding his offending. Mr Kirsopp took a number of
fnancial risks, borrowing heavily and investing in cafés, restaurants, race horses and a
glass manufacturing operation in China. When his business ventures became
unsustainable, Mr Kirsopp’s drive to “succeed and to be seen to succeed” (R v. Kirsopp
[2005] VCC 0309) in the face of his fnancial diffculties led him to seek alternative,
illegitimate means of keeping his business ambitions alive, including forging cheques to
disburse client funds into his own bank account ($3,199,056.63 in total), and submitting
false business activity statements to obtain signifcant GST refunds ($1,341,696.16 in
attempted refund claims).
For an opportunity seeker like Mr Kirsopp, the attitudinal lines between legitimate
and illegitimate means of achieving fnancial success become blurred. Although Mr
Kirsopp faced fnancial pressures, these were entirely of his own making, spurred on by
his ambition for business success. In his situation, legitimate means of fnancial gain
were not meeting his instrumental ends, and other illegitimate means were proactively
sought. Further, while Mr Kirsopp’s offences were conducted in the face of fnancial
pressures, they cannot be meaningfully characterised as a crisis response. His offending
was not spontaneous or impulsive, but premeditated, taking place over a period of fve
years, and involving a number of acts of forgery and deceit. Mr Kirsopp hoped that his
“win at all costs” attitude would bring himsuccess, but in the end it was his undoing, as
he became caught in a downward spiral of “inevitable detection, ruin, disgrace and
prison” (R v. Kirsopp [2005] VCC 0309).
Key to understanding cases falling in the opportunity seeker category is that
offenders are ambivalent about how they achieve fnancial gain, and attempt to fnd
opportunities for achieving such gains if it suits their circumstances, irrespective of the
legitimacy of the opportunities sought. This is highlighted in Mr Kirsopp’s case. It is
also emphasised in the case of Ka-Hung Ip, who was convicted of dishonestly
persuading his employer (the National Archives of Australia, NAA, where he was the
Director of Finance) to bypass normal tendering protocols and outsource their
accounting data processing requirements to 3I Consulting, which was owned by Mr Ip.
At no stage was Mr Ip’s ownership interest in 3I Consulting disclosed. Rather, NAA’s
contact with 3I consulting was directed to a fctitious alter-ego of Mr Ip, “Victor Seng”.
While Mr Ip was considered to have a generally law-abiding disposition, he actively
sought in these circumstances to shape deceptively the outsourcing negotiations in his
favour. His behaviour was said to refect a “high degree of criminality”, involving
“numerous instances of deception and dishonest departure fromtrust [which] led to the
obtaining of the ultimate advantage” (Director of Public Prosecutions v. Ka-Hung Ip
[2005] ACTCA 24). Consistent with the image of an opportunity seeking offender, Mr
29
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Ip’s attitudes to illegitimate fnancial gains displayed an attitudinal fexibility, despite a
more conformist attitude to earning fnancial benefts more generally.
Deviance seeker
The offending here [a sophisticated tax avoidance scheme designed to strip companies of their
assets so they were unable to meet their tax obligations] was serious, protracted, deliberate and
grossly dishonest. The criminal conspiracy involved elaborate attempts at concealment and
disguise […]. The criminal histories of Henke and Huston is also relevant as showing some
propensity to dishonesty and a reluctance to learn from the consequences of past misconduct
(R v. Huston, R v. Fox, R v. Henke [2011] QCA 349).
Ian Sydney Henke (a registered tax agent), Robin David Huston and Brian Francis Fox
(both accountants) were convicted of conspiring together, and with others, to defraud
the Commonwealth of Australia of $4,590,137.63 over almost two years. The offenders
attempted this through devising, promoting and implementing a sophisticated tax
avoidance scheme that was mass-marketed to owners of successful small businesses.
The scheme was designed to strip companies of their assets so they were unable to meet
their tax obligations and utilised offshore entities and bank accounts based in Vanuatu
set up specifcally to avoid detection of the scheme by the Australian Tax Offce.
Deviance seekers like Mr Henke and his co-conspirators refect characteristics that
most resemble the hallmarks of a criminal pathology often associated with fraud
offenders. These individuals are characterised as displaying a morally corrupt attitude
to seeking fnancial gain. They are calculating and unremorseful in their actions, and
because of this are seen to threaten public faith in conformist behaviour. The case of
Geoffrey Robert Dexter presents another example of the generally criminogenic attitude
displayed within this category of offenders. Mr Dexter was convicted of 31 fraud-related
charges for his part in inducing people to invest over $160 million in investment in the
Wattle Group, a “Ponzi” scheme promising returns of around 50 per cent per annum. Mr
Dexter’s fnancial gain from this scheme totalled $1,200,000. In sentencing, Queensland
Supreme Court Justice Nicholas Samios refected on Mr Dexter’s attitude to his
offending:
Throughout this period you acted dishonestly, persistently and consistently sacrifcing the
interests of innocent people […]. [Your] conduct shows a ruthless arrogance of how you could
deal with people and their money (Webb, 2001).
Further, the criminal pathology of this category of offender may not be limited to
white-collar crime, as refected in the cases of Mark Edward Norman (who
misappropriated $83,500 held on trust for the payment of tax liabilities) and Sneza
Suteski (who defrauded her employer of $289,075 through a range of fraudulent
disbursements). In both cases, the offenders’ criminal repertoire extended to attempted
murder in an effort to conceal their offending (Crichton, 2002; R v. Norman, R v. Olivieri
[2007] NSWSC 142).
Finally, while likely to be driven by fnancial gain, as in the case of Mr Henke and his
collaborators, the criminal pathology of offenders in this category may also by driven by
non-fnancial considerations. In the case of Rajina Rita Subramaniam, who defrauded
her employer (ING) of $45,367,248 over a fve-year period, signifcant personality
disorders drove a need to spend lavishly on things like expensive jewellery, and to be
accepted and praised by the assistants at the designer stores she frequented by
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showering them with gifts. She craved gratifcation from being recognised as wealthy
and generous, and a desirable customer at the boutiques she frequented (Davies, 2009).
Several aspects of the deviance seeker category shown in Table V are worth noting.
Contrary to some stereotypes about the deviant nature of fraud offenders, the deviance
seeker category was by far the smallest category of offender from within the identifed
cases (16 of 192 cases, 8.3 per cent). It is also the category with the highest proportion of
accountant offenders relative to bookkeepers. This is perhaps connected to the fact that
a larger degree of offending was carried out through elaborate tax, investment and other
deceptive schemes (7 of 16, 43.8 per cent, deviance seeker cases), requiring a higher level
of technical expertise to execute effectively. The high proportion of offending in the
context of SMEs (14 of 16, 87.5 per cent, deviant seeker cases) refects the fact that many
of the offenders in this category were either self-employed or worked in small
accounting practices. Perhaps refecting the criminal pathology of these offenders, along
with the sophistication of their schemes, the average amount defrauded by offenders in
this category is signifcantly higher than the other categories ($5,560,581, including one
offence for $45,367,248). A relatively lower level of contrition, refected in the highest
proportions of identifed not guilty pleas (7 of 16 cases, 43.8 per cent) is also refective of
the criminal pathology of this category of offender.
Comparison of “Crimes of crisis and opportunity” and “Chronic offenders”
In addition to examining each of the four offender categories derived from the situation –
attitude –behaviour framework, Weisburd and Waring (2001) also highlight the value of
comparing offenders described as undertaking “crimes of crisis and opportunity” (a
combination of the crisis responder and opportunity taker categories) with those
characterised as more “chronic offenders” (combining the opportunity seeker and
deviance seeker categories). The former group, “crisis and opportunity”, can generally be
considered more reactive offenders, with their generally negative attitudes towards
illegality overcome by situation and circumstances. On the other hand, chronic
offenders are more proactive perpetrators, with attitudes more disposed to fraudulent
conduct and generally associated with a criminal pathology. This section briefy
undertakes this comparison between the more “reactive” and “proactive” groupings of
offender categories for the sample cases, using the summary category information
presented in Table V.
An examination of the Table V information reveals some clear distinctions in the
observed characteristics between these category groupings. Above all, and contrary to
conventional imagery of frauds committed by individuals in accounting-related roles,
the vast majority of offenders fall within the crisis and opportunity grouping (141 of 192
cases, 73.4 per cent). This highlights that many accountant fraud offenders are primarily
drawn to fraud because of some real-life crisis or a specifc set of circumstances. Their
offending is largely aberrant in a life that is otherwise characterised by socially
conforming attitudes and behaviour, and, but for their offending, they are rather
indistinguishable from other individuals in similar social and economic circumstances
(Weisburd and Waring, 2001). But placed in positions of trust and fnancial authority,
people in accounting-related roles are often in positions where circumstantial pressures
and opportunities may more readily convert to accessing fnancial resources
illegitimately.
31
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From Table V, it is observed that the crisis and opportunity category can be
distinguished from the chronic offender category in several ways, many of which are
consistent with the reactive/proactive distinction made between these two groupings.
The crisis and opportunity grouping has a lower proportion of offenders with a criminal
history (9 of 141, 6.4 per cent, crisis and opportunity cases vs 19 of 51, 37.3 per cent,
chronic offender cases), and involved a notably lower average amount defrauded
($1,378,068 vs $3,295,848). The crisis and opportunity grouping of fraud offences is also
more likely to be carried out using simpler methods involving the misappropriation of
cash (107 of 141, 75.9 per cent, cases vs 25 of 51, 49.0 per cent, chronic offender cases). On
the other hand, the chronic offender grouping showed a greater propensity to use more
elaborate tax, investment and other schemes than the crimes of crisis and opportunity
grouping (23 of 51, 45.1 per cent, of cases vs 25 of 141, 17.7 per cent, crimes, respectively).
These observations regarding the methods used are consistent with the differing split
between proportion of accountants and bookkeepers between the two groupings, with a
slight majority of bookkeepers in the crisis and responsibility grouping (72 of 141, 51.1
per cent, cases), and a majority of accountants in the chronic offender grouping (32 of 51,
62.7 per cent, cases).
Perhaps refecting the relative sophistication of the methods used, the pathology and
intent of the offender and the amounts involved, the average head sentences and
minimumtime recorded on conviction are markedly lower for the crisis and opportunity
grouping (43 [19] months for average head [minimum] sentence vs 65 [33] months for the
chronic offender categories). The fnal distinction that can be made between the two
groups is in the gender split, with a slight majority of females in the crisis and
opportunity grouping (73 females of 141, 51.8 per cent, cases), and majority of males in
the chronic offender grouping (32 males of 51, 62.7 per cent, cases).
Discussion
It is clear that the labels “fraudster” and “criminal” in popular culture refer to more than
simply someone who has come into contact with the criminal justice system. These
labels have a much broader meaning intended to convey a great deal about the
individual to whom they are applied. As Weisburd and Waring (2001, p. 138) observe:
Criminals are generally viewed as dangerous to society, as products of bad genes or bad
parenting or broken communities. Crime is not merely an incident in such peoples’ lives. The
criminal label summarizes a vast array of behaviors and activities, and it communicates
something very meaningful about who such people are and where they are going. Most
importantly, criminals are different. This is a very comfortable moral position, and one that
helps the rest of us to defne what we have in common with each other.
However, in spite of the gravity of these labels, research into fraud has increasingly
emphasised that anyone can commit fraud (Albrecht and Albrecht, 2004; Wells, 1997).
SAS 99 includes the observation that “even otherwise honest individuals can commit
fraud in an environment that imposes suffcient pressure on them” (AICPA, 2002,
paragraph 7, p. 8). These observations are useful only to a point and add little to
understanding the involvement in fraud of many of those in our sample. More research
is required to elaborate on the ways in which people come to commit fraud, and our data
confrm the importance of the immediate context of crime and its role in leading
otherwise conventional accountants to violate the law.
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Our study reveals interesting characteristics regarding the perpetration of fraud
within the occupational category of accounting. First, it highlights important features of
accountant fraud. Second, it highlights the fexibility of individual attitudes to
offending, and howsuch attitudes can be infuenced by the confuence of circumstances
in which an individual may fnd himself/herself. This is contrary to common
typifcations of fraud, which tend to emphasise the immutable infuence of a person’s
general values, personality and deliberated intentions. Third, it provides a unique
insight into the confuence of situation, attitudes and behaviour, highlighting the varied
pathways to fraud offending within accounting-related roles. These pathways can be
reactive, rooted in crisis and opportunity (e.g. crisis responders and opportunity takers),
or proactive, rooted in chronic offending (e.g. opportunity seekers and, more
particularly, deviance seekers). This section elaborates on the implications of these
observed characteristics of fraud offenders and offences for thinking about fraud
prevention and detection.
The body of offences analysed here, from the sample of identifed fraud by people in
accounting-related roles, refects the wide range of offences that are combined under the
broad umbrella of fraud. There are two particularly striking features about this
occupational category of offenders. The frst is the relatively balanced representation of
women in our sample, in contrast to broader published surveys of fraud, which have
consistently indicated that men are more highly associated with white-collar offending
(Alalehto, 2003; Albonetti, 1998; Maddan et al., 2012). Broader criminological research
also suggests that males participate in criminal behaviour at much higher rates than
females (Lauritson et al., 2009; Rennison, 2009). Despite criminological arguments about
gendered differences in moral sensibilities, patterns of socialisation and levels and social
control, females seem as likely to commit fraud within this occupational category.
However, it should be noted that the average duration of frauds was lower for females
(average 28.5 months) than males (average 34.8 months).
A second observation is the relatively uncomplicated nature of offending. Forms of
cash theft and illegitimate disbursement constituted the most common modes of
fraudulent behaviour. Despite this, a large proportion of offending was detected
accidentally or through notifcation by external entities. Formalised control systems
and audits were identifed as having detected fraud in only a minority of cases. These
fndings raise questions about howwell victimorganisations in this sample (which were
typically SMEs) maintained basic internal controls, particularly in relation to their
accounting functions. In SMEs, managing “soft/informal controls” (Chtiouia and
Thiéry-Dubuissonb, 2011; Lowry, 1990; Pant, 2001), which focus on managing corporate
culture and employee norms, is crucially important, as relatively limited resources and
small workforces constrain investment in formal controls such as supervision,
separation of responsibilities and job rotation.
In addition, our fndings provide further evidence of the extent and coercive nature of
gambling addiction, which was considered a motivating factor in approximately
one-third of the cases in our sample, refecting prior research suggesting that
gambling-motivated fraud tends to be over-represented in employee – employer frauds
(Sakurai and Smith, 2003). In terms of gender, gambling addiction was involved in 37
per cent of frauds perpetrated by women (representing 62 per cent of total gambling
related cases) and 21 per cent of frauds perpetrated by males (38 per cent of total
gambling related cases). In light of these fndings, employers must be cognisant of
33
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problem gambling issues in their staff. Further, debates about regulation of gambling,
such as current debates about poker machines in Australia, should be informed by
further work examining the growing role of gambling addiction in crime (Orford, 2011).
A large proportion of cases also exhibited the important role of depression, stress,
anxiety and other impairments to an offender’s psychological condition in the
commission of these frauds.
More generally, an important implication of the situation – attitude – behaviour
framework is to further unpack the notion of attitude in the fraud triangle. SAS No. 99
alludes to a broad concept of attitude as follows:
Some individuals possess an attitude, character or set of ethical values that allow them
knowingly and intentionally to commit a dishonest act. However, even otherwise honest
individuals can commit fraud in an environment that imposes suffcient pressure on them.
In short, this implies that while some individuals possess an inherent disposition
towards fraud, others who are otherwise law-abiding may commit fraud in the face of
“suffcient pressure”. To date, we argue that most attempts to operationalise attitude/
rationalisation in fraud research have been problematic and fail to take account of the
fexibility and situational nature of these notions. In empirical research, attitude/
rationalisation has been proxied variously by fnancial restatements (Lou and Wang,
2009), auditor change (Skousen et al., 2009) and personal integrity (Dorminey et al.,
2010); however, these terms fail to capture the complexity and subtlety of this element.
The situation – attitude – behaviour framework helps to further unpack the complex,
situationally specifc nature of fraudulent activity. That is, the attitude/rationalisation
element of the fraud triangle is impacted by both inherent disposition, in the case of
general attitude, as well as a situational attitude that is importantly driven by contextual
organisational and social factors.
The four emerging categorisations – crisis responder, opportunity taker, opportunity
seeker and deviance seeker – demonstrate how the interplay between general
disposition, situational factors and context open up different pathways to fraud. The
cases reviewed here underscore the fexibility with which individuals attend to, alter or
ignore aspects of their self-concept. According to Greenwald’s notion of ego-tasks,
individuals use a variety of specifc strategies (depending on the situation) to achieve
more abstract goals (Greenwald, 1982). Showers and Cantor (1985) demonstrate that
people show fexibility in:
• adjusting interpretations in respect to situational features;
• taking control of their thoughts and their plans;
• seeing multiple alternatives for interpreting the same event or outcome; and
• changing their own knowledge repertoire by adding new experiences and by
reworking cherished beliefs, values and goals.
A large number of cases involved judicial statements that otherwise law-abiding
accountants had become implicated in fraud due to situational factors such as personal
and organisational crises.
Moreover, the framework provides an opportunity to refect on the fraud triangle. As
others have indicated, while the fraud triangle may be heuristically helpful, it is neither
rigid nor perspicacious (Dorminey et al., 2010; Free and Murphy, 2014; Morales et al.,
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2014). All elements of the fraud triangle are not required for fraud, and our different
pathways place the emphasis on distinct elements. The categories of opportunity
seekers and deviance seekers mean that the conventional notion of situational incentive/
pressure is not a necessary condition for fraud. This is in keeping with the notion of
Dorminey et al. (2012) of a fraudulent predator, who possesses an attitude consistent
with actively seeking out fraud. For opportunity takers, pressure/incentive is
subordinate to the availability of an opportunity, as the presence of a fraudulent
opportunity importantly drives the decision to engage in fraud. In other cases, the
fexibility of situational attitudes means that the conceptual distinction between
incentive/pressure and attitude/rationalisation becomes inseparable. That is, for many
crisis responders, the presence of a crisis relating to organisational performance,
gambling or drug addiction provides both the impetus for fraud and dramatically
altered attitudes such that conduct previously considered unacceptable is perceived to
be justifed in the circumstances.
These categories represent a move away from simplistic, popular characterisations
of fraudsters as atypical deviants with inherently unethical dispositions. Many of the
cases take shape as a personal recounting of human situations, as complex and
uncertain as the people and situations themselves, harbouring a host of ineffable
experiences and emotions. As Dripps (2003, p. 1400) concludes, “the law describes
criminal behaviour as the free choice of deviant individuals, when in fact human
behavioural response to specifc situations vary less across persons than is commonly
supposed”.
Conclusion
Fraud is clearly a complex, multifaceted phenomenon. This study has sought to provide
direct evidence on the nature of accountant fraud in an effort to improve our
understanding of a signifcant category of occupational fraud in practice. A hand-
collected database of fraud convictions in Australia in the period 2001-2011 provides a
valuable opportunity to examine offenders. In contrast to the characterisations of fraud
offenders in prior research (e.g. male, opportunistic, manipulative and suspicious;
Babiak and Hare, 2006; Berger, 2011; Collins and Schmidt, 1993; Dorminey et al., 2010;
Kidder, 2005; Levi, 2006; Murphy, 2012), offenders in our sample of accountant fraud
were far more diverse, refecting a mix of gender, levels of seniority/responsibility and
motives/rationalisations. Other notable features of this cohort include the prevalence of
gambling addiction, the often simple modes of execution and the large proportion of
cases that involved SMEs as victim organisations.
Drawing on the situation – attitude – behaviour framework developed by Waring
et al. (1995) and Weisburd and Waring (2001), four distinct pathways to accountant
fraud were revealed. In order of frequency, these were: crisis responder, opportunity
taker, opportunity seeker and deviance seeker. Analysis of these pathways to offending
highlights the varying importance of fraud triangle elements across differing offender
categories, and underlines the importance of context and situational attitude in
moderating inherent disposition and personality.
The results of this study should be interpreted in light of two important limitations.
First, we have relied primarily on judicial accounts and media reporting of motivation in
our analysis, which may contain bias. Direct access to convicted prisoner accountants in
the feld has proven elusive (cf. Free and Murphy, 2014), and press reports have been
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used in similar contexts where direct access to participants is not a viable research
approach (Andon and Free, 2012). Furthermore, we excluded cases where there were
insuffcient data to permit a comprehensive content analysis, and many of our case fles
comprised lengthy judicial observations triangulated by media reporting. Second, case
availability in lower courts throughout Australia means that this database is unlikely to
have accounted for every single case over the period of analysis. In spite of these data
limitations, we pursued several avenues to complete the database including direct
approaches to local courts throughout the country and media searches, and we believe
that our sample refects a frst attempt to examine systematically the perpetration of
accountant fraud.
Anumber of lines of future inquiry are suggested by this research. Primary research
into offender motivation beyond simple dichotomies involving gambling, personal
issues and greed as well as more refned research into the age – gender nexus of fraud
offenders would improve understandings of fraud in practice. Further work could
usefully investigate the relationships between offences, offenders and particular fraud
triangle elements. Furthermore, direct interviews with perpetrators, the methodology
originally used by Cressey in his formative research in the 1960s, offers great potential
to further refne and further elaborate models and frameworks seeking to enhance
understanding of fraud.
Notes
1. Survey research has consistently found that employees commit the vast majority of frauds
(Hayes and Prenzler, 2003). Ernst and Young (2003) found that 85 per cent of frauds were
committed by victim organisation employees, while Graycar (2000), using an Australian
sample, placed the percentage at 80 per cent.
2. Fraud is a generic term that refers to deceptive or other actions undertaken with the aim of
acquiring fnancial/other gains to which the recipient would not normally be entitled
(Attorney-Generals Department, 2011). The range of acts deemed to be fraudulent is quite
diverse. For instance, the Australian Bureau of Statistics’ Australian and New Zealand
Standard Offence Classifcation document includes 59 specifc offence types, including
welfare fraud, tax fraud, identity fraud, insurance fraud, various forms of forgery and false
documentation, counterfeiting, embezzlement and misappropriation (Australian Bureau of
Statistics, 2011b). There can also be some variation in particular defnitions and qualifcations
of fraudulent behaviours, owing to differences in how they have been codifed in criminal
laws/regulations across jurisdictions.
3. In spite of this widespread diffusion, the fraud triangle has also been the subject of
considerable debate and criticism (Morales et al., 2014). Some scholars have sought to
augment it with other theoretical models in criminology; for example, Ramamoorti (2008),
who links the fraud triangle to routine activity theory, or elsewhere, for example Dorminey
et al. (2010), who summarise work seeking to augment the fraud triangle with a number of
acronyms and alternative frameworks. Others have gone further to even add additional
dimensions to the triangle converting it geometrically to a fraud diamond, for example Wolfe
and Hermanson (2004), who propose a fourth dimension of capability, fraud square
(Cieslewicz, 2010), fraud cube (Doost, 1990) or fraud pentagon, for example Marks (2009), who
adds dimensions of arrogance and competence.
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4. Explanations of the fraud triangle in auditing standards and textbooks all point to the need
for all three elements to be “generally present” for fraud to take place (Albrecht and Albrecht,
2004; Auditing and Assurance Standards Board, 2011; PCAOB, 2005; Wells, 2011).
5. Cressey (1953) divides non-sharable fnancial problems into six categories: diffculty in
paying back debts, problems resulting from personal failure, business reversals
(uncontrollable business failures such as infation or recession), physical isolation (trust
violator is isolated frompeople who can help him), status gaining (living beyond one’s means)
and employer – employee relations (employer’s unfair treatment).
6. These departures fromCressey’s work are explained by the age of the original research – the
study (Cressey, 1953) is nearly half a century old. There has been considerable social change
in the interim.
7. The ACFE is the world’s largest anti-fraud organization and provider of anti-fraud
training and education with over 60,000 members throughout the world. The stated
mission of the Association of Certifed Fraud Examiners is to reduce the incidence of
fraud and white-collar crime and to assist its membership in fraud detection and
deterrence (see www.acfe.com).
8. In spite of the fact that it is often attributed to Donald Cressey, the term “fraud triangle” was
frst coined by Joseph Wells, a CPA who founded the ACFE (Morales et al., 2014).
9. Terminology such as “error” or “bias” implies some deviation from an identifable norm of
rationality; a notion that is inherently problematic (Mitchell, 2002). As such, it is probably
more precise to speak of cognitive tendencies rather than biases, or of information-processing
propensities rather than errors. The research literature in social psychology and elsewhere,
however, uses the label “fundamental attribution error”, and that nomenclature is so widely
accepted that using alternative terminology is potentially confusing.
10. In their classic experiment, Jones and Harris (1967) asked subjects to identify the true
opinion held by writers of essays attacking or defending Cuban leader Fidel Castro. When
told that the essay writers had freely chosen their position, the subjects understandably
attributed a pro-Castro view to the relevant authors. However, when subjects were told
that the authors had been assigned the point of view, the subjects still tended to attribute
the viewpoint expressed in the essay to the author. In other words, subjects ascribed
behaviour to the author even when they had been informed of a powerful situational
constraint.
11. According to this theory, “criminal behavior is learned in interaction with others in a process
of communication […] within [an] intimate interpersonal group” (Sutherland, 1947).
12. This description represents the response to a particular confguration of possible
correspondences between culturally accepted goals and legitimate means of achieving them
(which is described as Innovation in Merton’s typology). Other responses, prompted by
alternative confgurations of acceptance/rejection of culturally sanctioned goals and
legitimised means of achieving them, are also outlined in Merton’s typology. They are:
conformity (acceptance of both culturally sanctioned goals and legitimised means of
achievement), ritualism (rejection of culturally sanctioned goals, but acceptance of
institutionalised conduct), retreatism (rejection of culturally sanctioned goals and legitimate
conduct) and rebellion (subscribing to new goals and new means for achievement).
13. Criminal fraud matters in Australia are mainly governed by state crimes acts and accordingly
are tried within the state court system. Each state has its own hierarchy of courts, with slight
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hierarchical variations across the states/territories. All states and territories have a Supreme
Court (including appeal divisions such as a Court of Criminal Appeal), which is the highest
court within that state/territory. Most states/territories have two further levels of courts.
District Courts (or County Courts in Victoria) hear criminal trials for less serious offences.
Magistrates’ Courts (or Local Courts) handle criminal summary matters (Association of
Commonwealth Criminal Lawyers, 2010).
14. The defnition of SMEs used here has been taken from the Australian Bureau of Statistics
defnition of such entities (businesses employing less than 200 people) (Australian Bureau of
Statistics, 2001).
15. The Australian Bureau of Statistics reports that bookkeepers earn an average of $643.90 per
week, which compares unfavourably to individuals in higher-level accounting roles
($1,432.40) and the national average weekly earnings ($1,182.40) (Australian Bureau of
Statistics, 2014).
16. In Australia, of the 218,478 Australians employed in bookkeeping roles, 186,818 (85.5%) are
female (Australian Bureau of Statistics, 2011a). The data reported relates to the Australian
and New Zealand Standard Classifcation of Occupations (ANZSCO) category 551
(Accounting Clerks and Bookkeepers).
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responsibilities relating to fraud in an audit of a fnancial report: Australian government”.
Corresponding author
Paul Andon can be contacted at: [email protected]
For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
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