Why We Fraud

According to psychologists and economists, financial gain is not the motivation for most frauds. It’s friendship.
Drew Grossman

TheCredit Union Times and Credit Union Journal have recently published several articles related to fraud in the credit union movement. There’s the New Jersey woman’s loan scheme that milked $1.6 million from five credit unionsand a bank, the Taupa Luthuanian CEO embezzlement that possibly cost the Cleveland credit union more than $10 million and its solvency, and the two Chicago men charged with trying to steal debit card numbersand PINs from members of Kemba Credit Union. The examples go on, but what motivates these fraudsters? Researchers suggest it might not be what you think.

According to the NPR piece Psychology of Fraud, most of us are capable of behaving unethically and, in many cases, we do. Bad behavior is not tied to character, and the mantra bad people do bad things is simply not true. The misconception lies in the fallacy that when people face an ethical decision, they clearly understand the choice they are making, Notre Dame researcher Ann Tenbrusnel tells NPR.

According to Tenbrusnel, who studies unethical behavior, the following experiment illustrates the problem of linking such behavior to poor character:

Two groups are presented with a decision that is framed as a business decision for one group and as a moral decision for the other. The two groups generate different mental checklists. After the subjects are presented with an unrelated task to distract them from the meaning of the experiment, they are presented the opportunity to cheat. The group cognitively primed to think about business behaves differently from the one that is not. Character and moral upbringing do not factor into the results.

Researchers say people can be genuinely unaware they’re making a profoundly unethical decision. According to their findings, the prime motivator for people to commit fraud is the human desire to be liked and help others, especially others we identify with.

NPR used the example of emissions testers who are tasked with testing whether a car is too polluting to stay on the road. According to Lamar Pierce, an associate professor at Washington Univeristy in St. Louis, somewhere between 20% and 50% of cars that should fail are passed. Why? Testers are more likely to pass more modest cars, like an old Honda Civic, than a fancy BMW, becuase the testers bring in a modest salary and can better empathize with the Civic owner.

What does this mean? Instead of wasting hours and resources trying to prevent bad eggs from behaving unethically, try to to establish workplace regulations and practices that don’t allow for personal relationships to affect the ethics of business decisions. The best way to address this is by collaborating on projects and sharing responsibility. Instead of leaving employees stranded to solve problems on their own, promote a combined effort where the burden doesn’t fall on only one staff member to make decisions. When goals are shared among a department and the path to success is clearly charted, there is less opportunity for cutting corners and in-house fraud.

November 7, 2013

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