Why fraud hurts

Forensic Focus - February 2016

There is no denying any discussion about fraud is compelling and often evokes curious questions. Whether it’s how the fraudster concocted their plan to take money from their colleagues; how they planned to avoid detection, why they did it or better still what they would have done with all the money they intended to steal if they had not got caught.

But what about those who have had to go through it all.  We are not talking about the forensic investigator, the lawyer helping with the investigation, the media that may report on it, or even the perpetrator.  Our interest is around what the victims (and others associated with the fraud) have to go through.  Why does fraud hurt so much?

As we have worked with people within organisations who have been impacted by fraud over the last few years, we have taken extra notice about what the people impacted by fraud personally go through.  What they say; how they react; and the emotions they experience through the various stages of any investigation until the dust eventually settles.

When people lose money to a fraudster, the focus is very rarely about the money itself.  Invariably there is insurance or recovery available to cover off any financial loss.  Even if that’s not available, rarely are the frauds so large that they completely destroy the financial viability of the organisation itself. 

Yet fraud can destroy the culture of an organisation and has a profound impact on the people associated with the victim organisation, specifically the fraudster’s colleagues and managers.  These people commonly talk about their fraud experience with vivid detail for many years.  They often talk about how it has impacted on their ability to trust those they work with and on their relationship with the fraudster themselves, who up until that point they could have considered a trusted colleague or even a friend.  Sometimes this dent in trust is so deep that the people we talk to say they wondered if they would ever operate the same again.  We have noticed that there are analogies between what people experience in a fraud and how people react to grief; especially how they manage the shock and confusion associated with the fraud event, which they had neither anticipated nor faced before. 

Elisabeth Kubler-Ross was a Swiss based psychiatrist.  In the late 1960’s she began work on what people dealing with grief go through.  In her book “On Death and Dying” she laid out five stages of grief that many people seemed to go through (denial → anger → bargaining → depression (or detachment) → acceptance).  Since then more work has been undertaken in this field with some suggesting the grief cycle does not follow such an orderly or linear process as Kubler-Ross suggested.  This may or may not be true, but for now the Kubler-Ross model does provide a very useful lens through which to view the impact that fraud has on a victim.  It has also helped us as forensic investigators to understand what our clients might be going through at each stage and why the feelings they experience are normal. 

Let’s move through these stages in the context of a hypothetical fraud investigation to see how it can be applied.

Stage 1 = Denial (preceded by shock).  When a fraudster is caught it’s almost always a surprise.  It could be that the organisation stumbled on to it, someone saw something, or the fraudster simply made a big mistake.  When this happens and the fraud is first identified, the people working in the organisation at first experience shock and then quickly move into denial. People often talk about feeling numb and confused in this early stage of a fraud as they try and process what has happened.  This quickly turns into feelings of helplessness and fear as they try and organise what needs to happen.  This is a critical period when the victim organisation needs a lot of help (quickly) from someone who knows what to do, who has a level head, and is sufficiently detached to get things underway appropriately.  It is very easy for poor decisions to be made during this stage that can have serious repercussions down the track.

Stage 2 = Anger.  By this stage the investigation proper is well under way.  The forensic team will be working on following the trail working out who was involved, what ways the person  used to carry out fraud, how the person skipped past controls, when this all happened and how much is involved.  Why the person did it is probably still not clear yet, but there will be some theories.  Also at this stage the employment process is well under way as disciplinary steps are followed through.  As the victim learns what happened (and perhaps also deals with the painful consequences of a departing employee threatening unfair dismissal) shock quickly turns to anger. 

The victims are also very anxious at this stage.  They want to ensure proper process is followed but they may be starting to wonder what the consequences will be for themselves.  We often see victims get hyper-suspicious at this stage.  Normal work processes suddenly take an extra level of complexity, analysis and review as people no longer trust those working with them (even if there is no suggestion they are involved).  Organisations will often go from one extreme to the other and tie their employees up in knots with systems and controls designed to add further protection.

Stage 3 = Bargaining. Once the feelings of frustration and detachment pass (which people say is the lowest part of the cycle) there will come a point where the victim will see some progress.  The forensic team now have a solid set of facts to work from, they know the transactions involved, they know the quantum of the loss and they know who was involved (and just as importantly who was not involved).  Decisions can start to be made on ongoing employment or laying complaints with the SFO / Police.  This seems to provide victims with a sense of control again which was absent for the last few weeks. 

The financial recovery aspect also provides the victim with an opportunity to start bargaining to improve their financial position.  It could involve litigation to recover funds from those who received the stolen funds or whose conduct perhaps contributed to allow the fraud to not be detected quickly.  Not to say this is not challenging work, but is more constructive and it makes the people involved start to feel that they are regaining some control.

Stage 4 = Depression (or detachment).  During this stage the victim has to get used to telling the story of the fraud to staff, stakeholders and even the media.  This is never easy.  The emotions experienced in this stage can be quite difficult to process particularly given there had just been positive experience of having turned a corner.  But we notice also this story telling stage does often provide a feeling of release to the victim because up until this point much of the investigation has been kept from others and has remained very confidential. 

In this stage people also tell us the early feelings of anxiety and fear return.  Perhaps this is because there is a sense of embarrassment as the fraud is explained and what happened becomes more transparent.  We have found though, there are ways to make this stage a more positive experience, if not for the victim personally, certainly for staff and stakeholders.  This is often a time, when it goes well, that there is an opportunity for the culture of the organisation to be materially enhanced. 

Stage 5 = Acceptance.  Victims know when they reach this stage because “the fraud” no longer occupies most of their working week.  They get on with doing their normal job; albeit with the odd moments of nausea as the person recounts what Stage 1 felt like.  But over time these feelings pass.

In summary the Kubler-Ross five stages of grief model helps us start to understand what people go through when fraud hits and why fraud hurts so much.  It provides us with a guide to know where we are on the process and helps victims of fraud understand why they are experiencing certain emotions.  As such, it is very important for all of us who work in the area of investigating white collar crime.  We have more work to do in this area, much of it well advanced, which we will roll out over the course of the year in coming Forensic Focus articles and sharing sessions.  We would always welcome any conversations to share any experiences or thoughts you have in this area.

If you would like to discuss the content of this article further, please do not hesitate to contact Barry Jordan.







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