White Collar Criminal

Lifestyle Red Flags of Fraud Perpetrators
Introduction
As the Association of Certified Fraud Examiners (2010) points out, the average fraud perpetrator has—like David L. Miller—no prior fraud convictions. The offender is typically in the 30 to 45 years age range and is more likely to be male than female. Both of these characteristic profile traits fit Miller to a “t”. Moreover, four out of five fraud perpetrators are likely to work in the accounting department of an organization, again just like David L. Miller. And as the perpetrator ages so too does the level of fraud increase in terms of losses (Association of Certified Fraud Examiners, 2010)—again just like with the case of David L. Miller. This paper will analyze the case of David L. Miller and show why he fits the profile of a fraud perpetrator well and why companies tend not to press charges against people like him.
Analysis
The most common traits of fraud perpetrators were all evident in the person of David L. Miller: he was living beyond his apparent means and was committing fraud to pay off prior victims; he had never been charged with fraud; and he worked in accounting. He was also promoted to CFO, so was a high level executive and as Association of Certified Fraud Examiners (2010) notes it is the high level executive fraud perpetrators who cause the most damage to their organizations, as David did. He differed from the common fraud perpetrator, however, in that he was genuinely well-liked by his victims and his colleagues never suspected that such a person could be a fraud perpetrator. In fact, so well was he regarded, that he was even hired to work for a former colleague at a firm he had defrauded of more than one million dollars—on the condition that he receive counseling for embezzling. David’s willingness to confess and admit that he had a psychological addiction to fraud is another way in which he is different from other fraud perpetrators: he was willing to receive treatment and did so and has been fraud free. Most perpetrators are not so lucky. Still, it was David’s genuinely well-liked demeanor that allowed his fraud to go undetected—that and the fact that he would go about his fraud in ways that drew the least red flags—such as getting bosses to sign checks on their way out the door for holidays and destroying canceled checks and charging the amount to an expense account.
The elements of the Opportunity Triangle (commit, conceal, convert) present in Miller’s case that allowed him to circumvent controls when embezzling funds from Associated Communications consisted of the fact that he could get around the requirement for two signatures on checks by asking executives leaving on vacation to sign several checks “just in case” the company needed to disburse funds while the executive was away. He had the opportunity to do this and was able to conceal the crime by removing the canceled check from the bank reconciliation and destroying it. The stolen amount would then be charged to a unit’s expense account to balance the company’s books.
The pressures that motivated Miller to embezzle were two-fold: first, there was the pressure to pay back prior victims; second, there was the subconscious need to be admired and liked by others and David thought that by spending money, others would like him—thus, he embezzled. So the pressure was one part financial and one part psychosocial. Miller rationalized his actions by pointing to his need to pay back prior victims, and so robbing Peter to pay Paul made sense to him; he also rationalized it by chalking it up as a compulsion that he could not control—like gambling or alcoholism: he was addicted to it and thus justified it by saying he had no control over it. Instead of getting help, he just continued to do it.
The fact that Miller had a t-shirt in his office that said, “He who dies with the most toys wins” suggests he was a materialistic person, who enjoyed having lots of possessions and was willing to steal to get it. This should have been a red flag to the company, considering that Miller’s salary in no way justified such a form of gloating or bravado. The fact that Miller also had two Mercedes sedans, a condo in Myrtle Beach, expensive suits; tailored and monogrammed shirts; gave diamond, sapphire, ruby, and emerald rings for his wife; and bought a new car for his father-in-law—all of this should have been a red flag as well. Undoubtedly, David enjoyed spending money on himself and on others and it is unlikely that he would have concealed his purchases. Since David did not make enough money for these types of purchases, these lifestyle red flags could have and should have tipped off the company to the possibility of fraud had it been paying attention.
Companies hesitate to prosecute white collar criminals, however, because they know them personally, do not want to see their families destroyed (David had a wife and children and out of mercy for them the companies did not press charges). David was always remorseful and once caught did not attempt to hide his crimes, but freely admitted them, repented them and promised to pay everything back, even putting a lien on his property or selling it outright to make good with his victims. Since he did not try to fight them, they were not inclined to prosecute. If anything, it betrays a kind heart on the part of the companies that they chose not to press charges.
However, the consequences of not prosecuting are that, as David said, it is like enabling the addict: David could return to work for different companies and again and again set about embezzling money from them. He could go on to do even more damage to more people and more businesses all because people liked him, felt sorry for him and his family, and felt that his promise to repay them was good enough. In reality, it just gave him an excuse to steal from his next employer.
Law enforcement officials could encourage more prosecution by showing the difference between David L. Miller and David H. Miller. David H. Miller was convicted of embezzling $1.5 million “from Virginia State Senator Richard Saslaw’s campaign account, a Canadian business, and an organization intended to support students with autism and other intellectual disabilities” (US Attorney’s Office, 2019). They could show that David H. Miller is now being taken off the streets and will no longer victimize or steal from anyone, whereas someone like David L. Miller, who goes scot-free because his victims feel sorry for him is simply incentivized to go out and do it again and again. They could argue that these people never stop until they are stopped and to stop them the best way is to prosecute.
Victimized companies could have done much to prevent Miller’s embezzlement: for instance, they could have implemented better controls and better auditing standards. They could have had an independent auditing board to conduct the internal audit. Fraud risk assessment should focus on whether the misappropriation of assets is occurring, whether reporting (both financial and non-financial) is being done accurately, whether there is compliance with regulations and laws in all areas of the firm, and whether any illegal acts are occurring. The fraud assessment can be conducted by managers overseeing their own departments with results being reported to the Board but self-regulation and internal controls should be overseen by the internal audit team. Every company should have an independent audit team that is tasked with auditing accounting and investigating any red flags. Records should be submitted to an independent external auditor, as well. Auditing is one of the best ways to self-regulate and firms provide a degree of security for themselves when they focus on making sure the company “is not engaging in actions harmful to the interest of shareholders and is not engaged in unwarranted forms of self-dealing” (Friedrichs, 2009, p. 305). The board should also have a degree of independence from the company. Whenever the Board is lacking in independence, fraud can creep in as people become too familiar with one another and are more willing to look the other way when red flags crop up.
Conclusion
David L. Miller is but one example of a fraud perpetrator who manages to evade the law because he is never prosecuted. When companies fail to press charges or fail to report crimes like these to the authorities, they simply ensure that such crimes will continue to happen in the future. Failure to report is the problem that they suffer from through and through: they lack the internal controls for preventing fraud from occurring and they lack the audit team to catch bad reporting from lower down in the company. They do not report to law enforcement when a crime takes place and the keep the cycle of fraud going on. Companies should know that cases like David L. Miller do not stop until they are treated like David H. Miller and prosecuted. They also should know that red flags are something to pay attention to, because where there is smoke there is usually fire.
References
Association of Certified Fraud Examiners. (2010). Who is Most Likely to Commit Fraud at Your Company? Retrieved from https://www.acfe.com/press-release.aspx?id=1677
Friedrichs, D. (2009). Trusted Criminals: White Collar Crime In Contemporary Society. Cengage Learning.
US Attorney’s Office. (2019). Attorney Convicted of Embezzling Over $1.5 Million from Virginia Senator, Canadian Business, and Autism Organization. Retrieved from https://www.justice.gov/usao-edva/pr/attorney-convicted-embezzling-over-15-million-virginia-senator-canadian-business-and-0