Is Fraud the most damaging crime?

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Is fraud the most damaging crime?

Consider the damage caused by any fraud scheme. Many people are affected, companies lose millions, in many cases they have to close down or reduce staff and people lose their livelihood.

It is a fact that some of the most severe, debilitating pain is mental. Fraud is by definition the abuse of trust and relationships. This abuse causes severe mental anguish to those whose trust has been abused.

The circle of suffering caused by fraud is very wide; some of the people who are involved will never again be able to trust anyone. They will live their life in fear and suspicion.

There is also the knock on effect that some schemes have; perhaps investors lose money and this effects there other businesses who in turn must reduce staff or close; and so on and so on.

Quite apart from the perceptions created of our business climate and ethics that can affect investment and growth.

My opinion is that fraud is the most damaging crime; it is non violent, violence, violence against a large number of people.

What are the facilitators of fraud?

There are several factors that promote the possibility of fraud and inhibit its discovery and cure in an organisation:

These points are not made in any particular order of importance; pick your own favourite from my menu of mendacity.

Mr Ego

This is the person with a huge ego and its hand maidens of pomposity, and an overly sensitive character and an aggressive personality.

His know all attitude, implicit if misplaced confidence in his own vastly superior intellect and intelligence and an inability to listen to good advice is the biggest aid to fraud in an organisation.

This type of person is the archetypical Alpha male equipped with the complete and utter inability to recognise or admit when he is wrong or has made a mistake.

This is the person for whom that desk sign “Rule #1 The BOSS is always right and Rule # If you think the BOSS has made a mistake refer to Rule #1” was made.

This person does not tolerate discussion or dissention; he merely imposes his will and people are scared to tell him when he or they have made a mistake.

This is also the reason that a lot of what happens is covered up and never reported to Mr Ego.

Mr Ego is also very easy to fool, mislead and defraud. Convince him once and he can never admit he was wrong, so you are set.

This person will only ever admit he made a mistake when he is forced into a corner (usually by circumstances outside of his control).

Mr Ego will go to ridiculous lengths to prove that he was right, defying logic, common sense and the evidence.

It does not matter if Mr Ego is the CEO, the Manager or a cleaner he is always dangerous and must be carefully watched.

Fraudsters always target Mr Ego, he is easy meat.

Please note that I say Mr Ego not because I am sexist but because women almost never (in my experience) have these character traits!


There is an excellent reason why greed features prominently on the list of seven deadly sins.

Greed is singlehandedly responsible for all (or at least most) of the fraud, white collar crime and corporate abuse that takes place anywhere.

Greed comes in all sorts of guises; it is not just about money.

A person can be greedy for recognition, for promotion, for improved company standing in the market, a better share price; for approval, for love, the list is endless.

The common denominator is that greed will always make a person stupid, take away their judgement, and make them do things they will regret on sober reflection.

Greed is the fraudster’s friend; a greedy person can always be used, abused and manipulated.

Emotional control

Most of us have poor emotional control. The fact is that you cannot make quality decisions while under the influence of strong emotion.

Strong emotions; fear, love, hate and so on always result in a poor decision.

People trade on fear (buy this, sell that) and they take action on emotion (if I don’t push up the margins I won’t get the bonus).

This always ends badly.

The fraudster will target people with poor emotional control as they are very, very easy to manipulate into doing anything.

I include in this category the wine, women (or man) and song character.

This person displays distinct lack of control in his social life that is an excellent indicator of how he will conduct his professional life.

The WWS person is always vulnerable to abuse.

This person usually ends up doing something stupid. Just ask the Scorpions (South Africa’s FBI) advocate who got a lap dance paid for by a person he was prosecuting, he will tell you just how clever that was!


We all have it but we sometimes don’t use it. When factors like greed and emotion enter the picture our judgement is affected.

Make sure that you use your judgement in the cold, hard light of day, away from the influence of emotion and greed.

Above all trust your judgement.

It has been honed over the years and is usually right (that little prick of something just before we do something stupid!).

This goes right along with “I don’t know if so and so is right or honest or a good fit for the job” and so on.

If you don’t know, you know!


Most of us never think of or are able to anticipate the possible consequences of our actions or decisions.

We must think deeply on the immediate, short, medium and long term consequence of everything we do and say; of every commitment we make of every contract we sign.

If I take this sweetner from that company for giving them the contract, what could the consequences be?

If people thought of consequence a lot of heartache would be avoided.

Delusions and euphemisms

We must learn to call a spade a spade.

We make up all sorts of fancy names for our organisations or our own criminal or unethical conduct.

No it’s not a “sweetner, it’s a bribe.

No it’s not “the cost of doing business in Africa”, it’s corruption.

No it’s not “a misinterpretation of the geological survey results”; it’s a massive fraud scheme.

Don’t delude yourself and give things nice, fancy, sanitized names.

When you fraudulently get a contract, inflate your mineral reserves to boost your share price, bribe an official to get a tender, make your gardener a director of your company to comply with BEE (Black Economic Empowerment) requirements it is NOT “only business”. It is plain and simple fraud, corruption or unethical behaviour.

Tell it like it is, at least to yourself.

The “Blind Eye”

When the Admiral, Lord Nelson, turned his literal blind eye to the signal flag ordering him to withdraw at the battle of Copenhagen, it was heroic.

When you turn a “blind eye” to what is happening in your company or department it is criminal stupidity.

The old “I didn’t know what they were doing!” defence.

Very often you don’t want to know what your people are doing to achieve the targets you set for them. How they achieve those profits.

The old saying “When ignorance is bliss, tis folly to be wise” applies.

Watch out, it will bite you in the end (literally and figuratively)

What are your people doing in your name today and how are you benefitting from it?

Justification and Rationalisation

We all indulge in these twin evils.

Know that if you have to justify or rationalise a decision or action it was wrong.

There is a vast difference between explaining something (decision or action) and justifying or rationalising it.

This of course goes along very strongly with Mr Ego who can never be wrong. So evils are perpetuated until the situation goes from bad to disastrous.

Accept right is right and wrong is wrong and no amount of justification or rationalisation can ever change that situation.

The longer you justify or rationalise the longer a fraudster (potential or otherwise) has to operate.

Make the difficult decision, take the pain, admit you blundered, the sooner the better for everybody.

Moral and Ethical mismatch

We all have one to some extent or other.

This happens when it is legal but not right or right but not legal.

In our opinion, that is.

“I don’t pay taxes because I don’t agree with the States spending policies”

“I deal in illicit diamonds because God put the diamonds in the ground for everybody”

“I speed because I am in a hurry”

“I pay bribes because that is how business is done in Africa”

“I inflated and overstated my expense claim, it’s not fraud everybody does it”

“It’s not fraud to inflate my ore reserves and delude investors, its only business”

This happens because we all have our own internal “moral standards”. We will quite happily break a law when that action does not offend our “moral standards”

The only solution is to apply rigid ethics and morality and to weed out those who have a mismatch that cannot be cured.


One of the primary weapons of the fraudster is trust. One of his main aims is to get himself into a position of trust. From there he can work the scheme with impunity.

He is aided in this goal because it is an inborn human tendency to trust people until they prove unworthy of our trust. Unfortunately by then it is always too late, the damage is done.

The solution then is simple.

Trust no one, not a single person, ever.

Can’t be done?

You are right of course.

To go through life mistrusting everyone and everything is very, very tiring. And it is almost impossible.

The solution then is to bestow limited trust, never total and check on what people are doing.

This may offend some people who will trot out the old emotional “He doesn’t trust me” lament, but so what. If someone is going to be unhappy, rather let it be them than you.

We sometimes avoid asking difficult, potentially embarrassing question because we have a natural tendency to avoid confrontation.

Take nothing at face value, ask those difficult questions, and demand honest answers.

Know that this is your only defence.

The “Pyramid of Power”

This is a wonderful weapon of fraud, abuse and exploitation.

When the fraudster targets the man at the top or the man who makes the decisions or the man he wants to reach, he does not go straight to that person.

The direct approach may sometimes work but it is strategically weak.

The better strategy is to start at the bottom and build up a pyramid one layer at a time.

Your product or service or “investment” must look very, very good and be worthy of the attention of the top man.

Get a person to influence his boss to accept you and your proposal.

He then gets his boss to accept your proposal. You, of course, now have the endorsement and trust of two people. I mean a person only recommends you if he trusts you, right?

The next man in the chain accepts the proposal not because he knows and trusts you but because he knows and trusts the two people who are now pushing your idea.

The further you go up the chain the more “inherited credibility” you have and the less likely it is that your proposal will be questioned or examined very closely.

It goes like this “old Joe brought this to me. He has been with me for ten years, I trust his judgement, and he will have done his homework”

Trouble is Joe is trusts Koos who is trusts Sipho who trusts me.

So are disasters made; this system is nearly foolproof.

Unless someone on the way asks all the difficult questions and displays a little healthy paranoia.

Remember what Andy grove said “Only the paranoid survive”

What can I do?

Several things in addition to what has already been covered.

Brutal Honesty

Foster a culture of brutal honesty without fear or favour in your organisation.

Encourage your people to tell you when you make a stupid decision or do something unethical or downright dodgy.

And don’t punish them for it.

Culture of Failure

Create a culture of failure in your organisation. I don’t mean that you should encourage your people to fail but I do mean that they must be allowed to fail without negative consequence.

A lot of things are covered up because the consequence of failure is so terrible that people make wrong decisions and cover things up until a failure becomes a disaster.

Don’t punish people for being wrong.

Early disclosure

Encourage and reward early, full disclosure of every problem that could affect the business.

The sooner you know, the sooner you can act to resolve the issue, whatever it is.

You must fire people who hide anything from you, immediately.


Never rely on systems for protection. They were made by people; they can be abused by people.

Know your staff

Know your staff and their personal circumstances so that when Koos arrives in that new CLK you can ask him were the hell he got it.

You must also know who you need to help so that they can avoid any traps of temptation laid by clever abusers.


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