Fraud investigators look out for alpha males, female gamblers

Waipawa accountant Warren Pickett last week became the first finance company boss to be jailed on fraud charges in the aftermath of the sector meltdown that locked up or lost several billions in New Zealanders' savings in the past three years.

Pickett, given five years after leaving investors almost $20 million out of pocket, is unlikely to be the last.

A number of often high-profile companies have failed and, in the ensuing receiverships, yielded pitiful returns to investors amid clear signs their problems were more than just the result of unfavourable market conditions.

As the Serious Fraud Office, the Companies Office and Securities Commission continue their work in relation to these firms, most who have lost money will be anxious to see those responsible answer for their apparent disregard of fiduciary duty, and in some cases, their greed and dishonesty.

Many will be asking how the people they entrusted with their savings, very often representing years of hard work, could let them down so badly?

That is something the investigators from various agencies will themselves be trying to work out.

Deloittes forensic partner Barry Jordan, emphasising he is talking about fraud generally rather than anything directly related to finance companies, says fraud investigators look for three elements: "We refer to it as the fraud triangle."

The first angle is the motivation or a pressure point. The second is the opportunity or method "and the third is the rationalisation - why they do it".

Plenty of people have both pressure, usually financial stress, and the opportunity to steal, "but not everyone steps across the line".

"When I'm doing fraud investigations I always have those three things in the back of my mind because if I only know two reasons I don't have the full picture. Often the rationalisation is the hardest to get your head around."

PriceWaterhouseCoopers' (PWC) director of forensic services, Alex Tan, divides fraud into four categories.

There is the Enron-style financial statement fraud driven by pressures to perform such as growing the share price. There is no direct gain to the person but they benefit indirectly. Tan says this is more common overseas. Then there is the "get rich quick" investment scheme, usually a type of Ponzi arrangement. The most prevalent form of fraud in New Zealand - "people just steal the money" - is far more banal, according to PWC's somewhat poignant profile of the typical white-collar criminal: "Female, working in payroll or accounts payable positions, more often than not with a gambling habit which is more often than not pokie machines, low self-esteem, and married with kids and feel as though they are in a rut."

Tan puts some of the finance industry figures who have or may become the focus of investigations and then legal proceedings into a fourth group, where the motivation for their alleged offending is less clear cut but often involves a familiar personality type.

"They're very confident, often very good businessmen, have maybe had failures in the past - like many now-successful businessmen. They are arrogant alpha males, they like the trappings of wealth, they drive the [expensive cars]. Most of them have failed where they tried to do something and things didn't work out so they've fudged it along the way ... They just need this to tide them over then it snowballs."

In that sense there are parallels to big corporate frauds overseas.

"It's like the Enrons, when it's all going well they're not going to do anything wrong but when it turns to custard they are.

"That's different to someone who's sitting in a company, like Mike Swann at Otago District Health Board, and deliberately stealing money."

Tan says all fraudsters have some kind of ethical flaw "as virtually all of us do".

It is just that in some cases where the opportunity is large, so too is the relevant ethical flaw.

"It's the same stuff as when people are violent" says forensic psychologist Nigel Latta.

"I've seen quite a few of the white-collar people and essentially it's the same as the other crims really. It's all about having a lack of conscience, depersonalising people and the things they say inside their heads to make what they do all right. Human beings are very good at finding reasons to tell ourselves that why we're doing stuff isn't so bad.

"Then there are those people who are just blatant liars and they'll misrepresent the health of their companies and all that kind of stuff because it's all about keeping the thing going, feeding it and playing the game.

"For some it's about the money but I suspect for some it's all about the adrenaline rush, the thrill they get out of keeping this great big thing lumbering along, siphoning stuff off and hiding it in trusts and all the rest of it.

"It's all romantic and high-pressure and they get the big thrill and buzz out of it but it doesn't flow through to basic ethics. When the whole thing crashes they just hide in amongst all the paper."

FRAUD TRIANGLE

The three elements fraud investigators look for:

* Motivation or a pressure point.
* Opportunity or method.
* Rationalisation - why did they do it?