With our discussion of Enron this week, I was reminded of an article I read in Audit class about the Psychology of Fraud. I feel as though we often hear stories about different accounting/financial fraud that have happened either in recent or past events and look at the perpetrators as awful, moral-lacking people without considering how one gets to the point of committing fraud.
The article highlights a massive bank fraud by Toby Groves and I felt as though remaking the conversation between Toby and a skeptical interviewer would be able to shed some light on how executives justify committing fraud in their companies.
Interviewer: Toby, before you committed this multi-million dollar fraud, did you ever consider yourself as someone who would do something like this?
Toby: Absolutely not. When I was younger my older brother was arrested of bank fraud, and my father was a wreck. He made me promise I would never end up like my brother, and I did. I thought I was a good person and could never find myself in the same position as my brother.
Interviewer: So what happened?
Toby: While originally my business had been doing well, but suddenly I found that we weren’t doing so hot. I tried to make some changes to the business to solve our problems but it didn’t help. I knew I could save my business and I wanted to do anything I could to save my business. I needed a loan and I wasn’t going to get it without lying.
Interviewer: At the time did it seem like you were making an unethical decision?
Toby: No, I thought it would be a one-time thing. I could get the money I needed, fix my company’s debt and all could be forgotten. I never expected anyone else to become involve or to be hurt in the process. I thought I was making the best business decision at the time
Interviewer: At what point did you realize the gravity of what you were doing?
Toby: Eventually other people had to be involved for my plan to work. Surprisingly everyone I asked for help was willing to, despite the fact that I was asking them to commit fraud. Once I had other people committing illegal acts I knew how wrong what I was doing was, but I was so deep in that I just wanted to find some way, any way to fix my problem.
As most of these cases go, Toby’s fraud ended poorly for many people, costing millions of dollars and the loss of several other companies and about a hundred jobs. While there is no justification for committing this type of business fraud, I think it is interesting to consider the psychology that goes into a seemingly good person to commit fraud. I recommend reading the entire NPR article, as they offer some interesting alternatives businesses could take to possibly reduce the willingness of executives to commit fraud.