Casanova and The Seducers game

The Seducer's Game

A new methodology illustrates the psychology behind modern-day frauds and offers a tool to limit risks within organizations. Sanya Morang and Steve MorangNovember 10, 20200 Comments

Intelligent, innovative, witty, charming, persistent, optimistic, bold, adaptable, and business savvy — these often are the key traits of a leader. But what if those traits mask other, less exemplary characteristics, such as being manipulative, deceptive, fearless, and thinking he or she is untouchable, while also lacking any sense of integrity, honesty, and empathy? Unfortunately, these traits can coincide within the same person.

The unique combination of these personality traits defines a seducer, which can be seen in modern-day fraudsters such as Theranos’ Elizabeth Holmes and Fyre Festival’s Billy McFarland. Within the Seduction of Fraud methodology, seduction refers to a psychological process that often plays a significant role in contemporary frauds. Therefore, it is important for internal auditors to understand the seduction of fraud and how it relates to fraud prevention, detection, and investigation within their own organizations.

The Seduction of Fraud Diamond For decades, internal auditors have relied on the elements of the Fraud Triangle — pressure, opportunity, and rationalization — to understand fraud and develop internal controls that limit the risk of fraud to their organizations. While experts have provided alternatives to the Fraud Triangle, a new approach can be used to understand and prevent the latest variations of fraud, what we call Big Frauds, from occurring. These Big Frauds — such as Fyre Festival, Theranos, Volkswagen, and Wells Fargo — are similar to their traditional counterparts, yet stark differences become apparent under evaluation. It was through this evaluation that we realized the limitations of the Fraud Triangle and developed a tool to replace it — The Seduction of Fraud Diamond (See “The Seduction of Fraud Diamond” below).

There are differences between the Fraud Triangle approach and the Seduction of Fraud methodology. First, it is important to understand the original intent of Donald Cressey, who is attributed as the creator of the Fraud Triangle. As a criminologist, Cressey wanted to understand why trusted employees without a history of unethical or illegal behavior would decide to betray their employers. So, after excluding from his study anyone with a criminal record or a history of unethical behaviors, Cressey interviewed inmates who were first-time embezzlers to determine any similarities among them and try to understand their motivations. His observations and key takeaways resulted in the well-known attributes of the Fraud Triangle. But the study’s objectives and parameters point out obvious limitations in applying the Fraud Triangle to a wide array of modern white-collar schemes and perpetrators.

The Fraud Triangle’s primary weakness is its basis of starting with an honest person — a person who needs a combination of specific motivations and circumstances to commit fraud. The Fraud Triangle fails to explain why most people involved in the Big Frauds had no history of criminal activity or unethical behaviors, yet committed fraud even though there were no circumstances that justified their behavior.

The Psychology of Fraud The Seduction of Fraud methodology examines human behavior and ethical decision-making related to fraud. Using this methodology, auditors not only rely on traditional understanding within the anti-fraud and audit community, but they also reach into the fields of analytical psychology, psychiatry, literature, philosophy, and religious studies. Combining these divergent areas of study can bridge the gap between fraud prevention, ethics, and human behavior.

As a psychological process, seduction has existed since the beginning of time. It is described in religious scripture in the Garden of Eden; historical chronicles of Cleopatra’s power and control; and 18th century Giacomo Casanova’s detailed use of seduction as a tool to commit frauds, cons, and social engineering. From an early age, Casanova understood the importance of reading the emotions of others, which allowed him to manipulate and deceive, and become one of the most infamous con artists in history.

Understanding the true meaning of the Seduction of Fraud requires removing the veil of normal human behavior to look earnestly at the inner core of humans to realize their true motivations. The Seduction of Fraud Diamond starts with a temptation, which might involve some sort of pressure, but does not require it. Once the temptation is set, the next part of the psychological process begins: deception. The goal of seduction is to gain power and control over the person being defrauded — not through force, but by subtle coercion. The seducer’s aim is to make victims feel as if they are in control and making decisions on their own, for their own benefit. It is only after the fraud is exposed that the illusion becomes apparent. Therefore, seducers can either use the Seduction of Fraud to commit fraud themselves, or they can use it to convince other people to commit fraud or perform unethical actions without their full knowledge or understanding.

Attributes of the Seducer Common Seducer Personality Traits

The personality traits that historical seducers and modern-day fraudsters share include being:

 Improvisational  Flexible  Innovative  A risk taker  Intelligent  Charming  Bold  Assertive  Discerning  Persistent  Witty  Reinventive  Business savvy  Adaptable  Manipulative  Deceptive  Fearless

Understanding the attributes of the Seduction of Fraud Diamond and their application through audit procedures can help in the design of effective internal controls. While simple frauds still exist — such as the trusted bookkeeper who steals to pay for her husband’s gambling addiction — they are no longer the largest risks to the organization. It is the modern-day seductive fraudsters who will more likely cause turmoil in an organization at a multitude of levels —  financial, reputational, legal, compliance, etc.

While many of the seducer’s personality traits are positive attributes, it’s the traits that are missing that cause problems (See “Common Seducer Personality Traits” at right). For example, integrity, loyalty, and empathy are all missing, which should be a huge red flag for an auditor. Boldness without integrity can easily turn villainous. Additionally, when boldness is combined with any other negative personality attribute or personality disorder, such as narcissism or psychopathy, it can be a considerable threat to an organization. While opportunity is the most self- explanatory attribute of the Seduction of Fraud Diamond and the Fraud Triangle, the main difference is that in the Fraud Diamond, opportunity can be created, whereas the Fraud Triangle implies that opportunity must already exist. It is unchecked boldness that allows a potential fraudster to exploit existing opportunities or, if needed, create new opportunities. Furthermore, in many of today’s social engineering schemes, fraudsters use psychological manipulation to reach their goals.

Investigation and Analysis Another weakness inherent to the Fraud Triangle is that it relies on a functioning conscience. The conscience is meant to warn a person when making questionable decisions before violating an internal boundary. Even when a person has a conscience, his or her moral compass might be faulty. For example, when during a research study we asked fraudsters to explain whether their conscience bothered them when they were planning the fraud, there were recurring responses: “Yes, but only for a few minutes.” Therefore, internal auditors must consider the possibility that a perpetrator’s conscience may prohibit his or her moral compass from functioning correctly.

A faulty conscience may be a sign of narcissism, but not every person who is narcissistic or has narcissistic personality traits is a fraudster, and vice versa. Therefore, it is crucial to be conscientious about conclusions that are

not substantiated through factual evidence. This is where an auditor’s investigative skills can affirm or dispel any initial concerns.

Alongside narcissism, a faulty moral compass explains an increase in entitlement, a key attribute of the Seduction of Fraud Diamond. Self-aggrandizing behavior, which recent studies show is increasingly more common in today’s society, often leads to entitlement — a criterion used to diagnose a person with narcissistic personality disorder.

The Fraud Triangle’s final weakness is that an employee’s privacy makes it impossible for internal auditors and management to understand or analyze external pressures on that employee. This does not mean organizations need to or should conduct psychological profiles on every employee within the organization, but, at the very least, internal auditors should sharpen their skills of discernment using the Seduction of Fraud approach. Using the Seduction of Fraud Diamond will enable auditors to be attentive to potential behavioral red flags. If a person is under careful observation, and the number of red flags begins to accumulate, auditors can then consider what actions, if any, should be taken.

Update Your Toolbox Internal auditors need to understand that individuals do not necessarily fit into the framework as defined by the Fraud Triangle. By updating their professional toolbox to improve their analysis, internal auditors can better understand human behavior and detect potential behavioral red flags that could be indicators of the next Big Fraud. Internal auditors can use the insights provided by the Seduction of Fraud Diamond to prevent similar scandals at their own organizations.