History repeats itself, yet we learn nothing?!?

“The man who is admired for the ingenuity of his larceny is almost always rediscovering some earlier form of fraud. The basic forms are all known, have all been practiced. The manners of capitalism improve. The morals may not.”

– John Kenneth Galbraith

Bernie Madoff stunned the world with an audacious $65 billion fraud. However, there is nothing new about Madoff’s method of fraud. In fact, the type of scheme that he operated – commonly known as a Ponzi scheme – dates back to the 1920s and an infamous fraudster named Charles Ponzi.

The numbers may be bigger and the public outrage much more vocal, but fraud has been part of society for as far back as there are records. How big a problem is fraud today? The Association of Certified Fraud Examiners, the preeminent authority on internal and external fraud reported in their 2010 “Report to the Nation” that organizations lose 5% of their gross revenue to fraud every year.

Internal fraud (fraud perpetrated by employees and members of management) routinely grabs the headlines. The damage that can be caused by internal fraudsters can range from a mere nuisance to a catastrophe that can literally destroy a company, wipe out shareholder value and leave thousands without jobs. Internal fraud schemes range in complexity from simple embezzlement schemes to highly orchestrated financial statement frauds that require tremendous time, effort and resources to perpetrate.

Typically, frauds perpetrated by members of management are far more damaging and costly than employee level fraud. The Madoff, WorldCom, Enron and Stanford cases all involved white males, over 50 years of age, all well educated. In addition, each man had a large team of helpers that knowingly, or unknowingly, helped perpetuate the alleged fraud schemes over multiple years.

Does this mean that all males over 50 with college degrees are fraudsters in the making? Certainly not, but it does give you an idea as to which individuals are more likely to involved.

So what? Fraud happens, and we move on with our lives. Well not exactly… In a recent article by Brian Payne, chair of the Department of Criminal Justice in the Andrew Young School of Policy Studies at Georgia State, he noted the following:

“…white-collar crime harms the community by reducing the faith that individuals have in public and private leaders. This consequence is particularly problematic given that most white-collar leaders are, in fact, honest professionals. Make no mistake about it — the vast majority of white-collar professionals never engage in wrongdoing. The few professionals who do commit crime dramatically lower the trust that individuals have in our political and economic institutions. The consequences of this broken trust are enormous.”

How much faith, or trust in the “system” has been lost as a result of headline grabbing frauds and the resulting collapse of the global economy? It is impossible to tell, but whether you agree with the tactics or not, “Occupy Wall Street” is just one example of frustration with the “system” and a desire to do “something”.

If we reduced the amount of fraud in the economy, would the level of trust in our institutions automatically increase? Probably not. Fraud is just one piece of a very large complex puzzle. However, when the people don’t trust the system, they push for change. Something eventually gives. Wouldn’t it be nice to see less fraud, and more trust? We can dream, right?

Need a writer that understands fraud? When you hire me to write an article, blog post, newsletter or white paper you get an accomplished writer that is also an expert in fraud.



About Paul McCormack
I have over 20 years of experience in corporate fraud and intellectual theft prevention, detection and investigation. Unlike many fraud experts, I have both industry and professional services experience. To date, I have conducted over 800 interrogations of fraud suspects including numerous senior corporate executives. As a freelance writer, I have written over 1,000 articles on a broad range of topics. My areas of expertise include: • Asset Misappropriation • Big Data • Bribery, Corruption, and Collusion • Check, Wire, ACH, and Credit Card Fraud • Consumer Fraud • Corporate Security • Cybersecurity • Data privacy (Europe, Brazil, Russia, India, and China) • Drug Trafficking • Embezzlement • Employee Fraud • Executive Protection • Fintech • Financial Statement Fraud • FCPA • Healthcare fraud • Identity Theft • Intellectual Property Theft • Internal Audit • Interrogation Tactics • Loss Prevention • Mobile Fraud • Money Laundering • Operational Excellence • Organized Crime • Payments Fraud • PCI Compliance • Retail Fraud • Risk Management • Terrorism and Counterterrorism • UK Bribery Act • Workplace Violence

5 Responses to History repeats itself, yet we learn nothing?!?

  1. Pingback: 5 reasons why companies struggle to combat fraud « Fraud Happens

  2. The is an excellent article on Fraud and a must read for small business… Thanks for the incite.

  3. Pingback: History repeats itself, yet we learn nothing?!? « Fraud Happens by Paul McCormack « ecnbsolutions

  4. Pingback: The confession « Fraud Happens

  5. Pingback: Don’t forget about fraud perpetrated by customers… « Fraud Happens

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