1. Psychology of
Fraud
Understanding Gender Bias
and
Applied Interviewing
Psychology
Tommy Seah
ACFE, Regent Emeritus

2. © 2014 by Tommy Seah
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3. FOREWORD
Dr. Frank LAW,
Chief Inspector of Police, Head,
Cyber Security Centre,
Technology Crime Division,
Commercial Crime Bureau,
Hong Kong Police Force
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4. ACKNOWLEDGEMENTS
All books are, in a way, the work of others….those who
inspired me as a kid, taught me to be a an accountant, an
auditor, a computer science lecturer, a fraud examiner, a
writer, a father. Those of you who grew up during the Cold
War will remember what it was like to be caught on the
wrong side. The nightmares of that time did not happen to
me directly but one does wonder if such warnings ensued
that indeed such things did not happen at all when I was a
involved in the war against fraud. I remember distinctly one
of the first lesson learned was a maxim borrowed from an
intelligence agency that drilled into us that it is “In
Deception, We shall do War”. Their impact on me is obvious
with this work, their warnings as real then as the warning of
this book the potential reality now. Just in case you are
confused, I am talking about the intense psychology exerted
upon opposing forces during the Cold War. I am a product of
that war and I used that knowledge to write this book. I am
hoping that this book which comes in a series, might give the
reader some insights into the psychology of fraud.
Special thanks must go to early pioneers and researchers
Graham Davies and Ray Bull from the University of Leicester,
UK who published the authoritative manual on The
Psychology of Crime, Policing and Law. I am also deeply
indebted to David E. Zulawski and Douglas E. Wicklander who
edited Practical Aspects of Interview Interrogation. These
folks have been inspirational in my writing, Last but certainly
not in the least, I am extremely grateful to Dr. Gerald L.

5. Kovacich who wrote Fighting Fraud - How to Establish and
Manage an Anti-Fraud Program. The author wishes to
express his deep appreciation to Dr. Frank Haronian and
Dr.Roberto Assagioli, M.D. for their helpful publication on
The Psychology of Woman And her Psychosynthesis. I have
learned much from all of them.
I am particularly indebted to Dr.Frank LAW, Chief Inspector
of Police, Head, Cyber Security Centre, Technology Crime
Division, Commercial Crime Bureau, Hong Kong Police Force
for writing the foreword.
I am also grateful to transparency international in its
publication Global Corruption barometer 2013, Transparency
International is the global civil society organization leading
the fight against corruption. through more than 90 chapters
worldwide and an international secretariat in Berlin.
Transparency International raise awareness of the damaging
effects of corruption and work with partners in government,
business and civil society to develop and implement effective
measures to tackle it.
Lastly, a writer cannot function without good editors,
publishers, Seminar organizers and Sales agents. Stanley Chia
will always stand as one of the best in carrying my books. As
for my many friends and supporters who believe in this work,
all I can say is thanks.

6. Introduction
Crime is a blight on any societies. From Australia to the
United States, Russia to South Africa, Singapore to Argentina,
crime has a major impact on how people live their daily lives.
Minor crimes such as larceny and petty theft are a nuisance,
and while they typically have comparably little economic
impact, they create an environment of distrust and suspicion
that can poison communities. More serious white-collar
crimes such as bribery, extortion, misappropriation of assets
and conflict of interests have a more profound impact both
on business organization and their communities, leading to
fear, hatred and isolation of the alleged perpetrators.
Technological advances, for example DNA testing and CCTV,
have improved our methods of investigating and prosecuting
crime, but despite these advances the majority of forensic
investigations and prosecutions still rely on human factors. In
this respect forensic investigations and prosecutions have
changed little over the past couple of centuries. Investigators
still rely on their own conceptualizations of who commits
certain crimes to identify potential offenders, eyewitnesses
are still integral to most investigations and prosecutions, and
a suspect confessing still has a major impact on decisions to
convict a suspect. It is in these human factors where
psychology has its role. In this book, we outline current,
cutting-edge research and its application to investigating and
prosecuting offences among white-collar workers. We begin
by explaining the nature of fraud. Examine the distinction
between fraud and employee misdemeanor. Take a detailed

7. look at the limitations of internal controls. Identify the three
variables of opportunities, motivation and rationalization for
fraud. Explain the psychological profile of man and woman.
Devote a substantial portion of the book to the interviewing
techniques that need to be applied to obtain the truth
notwithstanding the gender bias in rationalization in
committing fraud. Throughout history, one of the great
problems we have faced has been the development of a
system by which truth may be made known. Solutions to this
problem have ranged from such extremes as the torture
chambers of the middle ages to the unhesitating acceptance
of the word of a gentleman in the eighteenth century.
Neither extreme meets the requirements of today's
complicated world. We respect human dignity too much to
permit physical and psychological abuse of an individual in
the search for truth. Yet we recognize that fraud perpetrators
will lie without hesitation, even under oath, if this will further
their aims. The truth can be determined only after the
evidence has been collected and analyzed. The public should
not be misled into thinking that this is an automatic process.
Investigative interviewers should use psychology only as the
best means available on behalf of society to collect and
preserve evidence.
The tactics in this book to encourage the cooperation of
interviewees are ethical. A primary objective in this book is
intended to counteract the often illegal coercive tactics of
the past and to promote perceptive interviewing. The maxim
to remember when interviewing someone is that : Things can
go so wrong when the approach is wrong.

8. CONTENTS
WHAT IS FRAUD
What is the distinction between fraud and Employee
misdemeanor
What would qualify as a fraudulent activity
What is Employee Misconduct
WHEN WILL FRAUD HAPPEN
What factors cause these otherwise normal, law-abiding
persons, to commit fraud
Conflict of Interest, is it fraud
THE LIMITATIONS OF INTERNAL CONTROLS
Why we must not blame the Internal Auditor for every fraud
Why so some management thinks that Sanctions Don't Deter
Fraud Internal control myths and facts
Why we must not blame the Internal Auditor for every fraud
THE PSYCHOLOGY OF FRAUD FOR MAN AND WOMAN
Motivation and Rationalization in fraud is Gender bias.
Understanding bias and psychosynthesis
Psychological Differences between Men and Women
Identifying and understanding the characters of fraudsters
INTRODUCTION TO INTERVIEWING TECHNIQUES
Interviewing Techniques
Finding the truth ethically

9. How to strategically investigate “he said/she said” allegations
where there are no eyewitnesses
WARNING SIGNS FOR FRAUD
Red Flags for fraud and Misconduct
Specific method to interview witnesses.
The Interviewer – Knowing Thyself
Interview Techniques Fundamental
The Traits of a Good Interviewer
Interview vis-à-vis Interrogation
More RED Flags of that employees may have committed
fraud
The Interviewing Process using the “P.E.A.C.C.E” model
5 Steps in Integrating Interviewing Techniques into FactFinding Enquiries
Psychological Elements for the Interviewing Process
Practical Tips on Handling Interviewees
Effective Negotiation Techniques
How to Detect, Manage and Mitigate Deceptions by Asking
Different Types of Question
Practical Techniques to Verify Information Provided
NOTE TAKING DURING INTERVIEW
Other techniques and questioning strategies you can use to
determine whether a witness is lying
Is it lawful to use social media in your investigation?

10. THE 4 STEPS IN ANY INVESTIGATION

11. What is Fraud
There will always be fraud. If I remember correctly it was
Singapore Minister Mentor Lee Kuan Yew, the then Prime
Minister of Singapore who once said with words to the effect
that “If we were to spend a hundred dollars and ninety nine
reaches the ground, I will be a happy man.” This man is a
realist. He must be commended for his willingness to come
to term with the reality that even as he builds a clean
government, he is fully conscious that there is no such thing
as a completely clean civil service. Subsequent fraud
scandals in the public sectors proved that he is absolutely
right about the need for a clean government. The thing about
fraud is that if you cannot prove it in court it did not
happened. It is totally irrelevant who we suspect or what we
know. Knowledge about something does not make it a fact in
court. In the court of law, it is all about proving that the
alleged event did in fact took place.
Fraud is the intentional deception with intent to make a gain
or to cause a loss, or to expose another to the risk of loss. It
can be perpetrated for the benefit of or the detriment to the
employer, and can be committed by persons outside as well
as inside organization. In practice, all allegations of fraud are
initially looked into by an Investigation team, irrespective of
where the allegation has come from. This does not mean that
all allegations are investigated. Allegations can sometimes be
malicious or the information being alleged is already
declared. There should be a referral process that will identify
the cases that merit an investigation. It is important to

12. remember that a person is innocent until proven guilty and
the fact that someone maybe being investigated does not
make them guilty. There are many reasons why someone
decides to report an allegation of fraud and it is important
that people continue to do so. Although all allegations
should be treated with the strictest confidence and can also
be made anonymously, keeping things under wrap might
prove to be difficult in practice. Making an allegation can for
some be a very difficult thing to do. Fraud is destructive in
nature, In the private sector, the stakeholders and the
employees are the one that suffers. It is important to
remember that even in the public sector, this is not a
complainantless crime, in a lot of cases it is theft from the
public purse. Money pilferage from the government coffers
could far better be spent on public services.
Fraud is generally defined as:
• A knowing misrepresentation of the truth or concealment
of a material fact to induce another to act to his or her
detriment.
• A misrepresentation made recklessly without belief in its
truth to induce another person to act.
• A tort arising from a knowing misrepresentation,
concealment of a material fact, or reckless
misrepresentation made to induce another to act to his or
her detriment.

13. • Unconscionable dealing; especially contract law, and the
unfair use of the power arising out of the parties’ relative
positions and resulting in an unconscionable bargain.

14. What is Employee Misconduct?
Most employees perform their jobs competently and
meticulously. Others who do not possess the same drive and
expertise, still manage to perform satisfactorily. However,
there are a few employees whose consistent misconduct set
them apart from their peers and require a large amount of
management time. These employees can be said to be guilty
of employee misconduct. Simply put, employee misconduct
can be defined as a breach of duty or discipline which is
inconsistent with the express or implied conditions of an
employee's contract of service or employment bargain.
Examples of misconduct are theft or dishonesty, disorderly or
immoral conduct at work, willful insubordination etc.
The employment bargain is an agreement between an
employer and an employee whereby the employer agrees to
employ the employee for a specific job and pay the employee
a predetermined salary. Acceptance of the terms of
employment by the employee signifies that the employee
has agreed to work regularly and with reasonable skill under
the directions of the employer.

15. There are two types of employee misconduct; culpable
conduct and non-culpable conduct.
Culpable conduct is blameworthy conduct which can be
legally corrected with progressive discipline. Examples of
culpable conduct are theft and assault.
Non-culpable conduct is non-blameworthy conduct that
cannot be legally corrected with discipline. This refers to
cases whereby the employee cannot be blamed for his or her
poor performance. For example, cases whereby the
employee is excessively absent from work due to chronic
medical problems. Other examples include failure to perform
due to disability or lack of aptitude.
Although it is possible for both culpable conduct and nonculpable conduct to exist in the same case, it is essential to
distinguish the two as they are very different and have to be
treated separately.
Elements of Proof
The term "elements of proof" is defined by Black's Law
Dictionary as: Those constituent parts of an action that would
tend to prove it occurred and the perpetrator was the
individual that did it.
There are several kinds elements of proof when it comes to
employee misconduct. Examples consist of: proof that a
violation occurred, proof that the employee performed an
act that violates the law, proof that the employee performed
an act in violation of policy or procedure, proof that the
employee avoided performing a particular act in agreement

16. of his or her job description, and last but not least, proof that
the employee behaved with irresponsible disregard for
policy, procedure and or common sense.
In the United States, Actual Fraud is defined as:
• A concealment or false representation through a statement
or conduct that injures another who relies on it in acting.
It also comprises three elements:
• Fraud in fact
• Positive fraud
• Moral fraud
In the case of an “actual fraud,” you want to be able to prove
these three elements and to have policies, procedures, and
processes in place to provide controls that will show that it
was in fact an actual fraud that an employee, supplier,
customer, or others committed and it was their intent to do
so.
It is also vitally important that the person committing the
actual fraud did so
• Knowing what the corporation’s policies, procedures, and
processes were; and that the fraudster
• Knew that those policies, procedures, and processes were
to be followed at all times, ideally by so attesting to this
knowledge in writing
— which is a key process in your anti-fraud program.

17. This consideration is important because in the U.S. judicial
system today, it generally must be shown that the person
perpetrating the fraud against the corporation, especially an
employee or someone who has a business working
relationship with the corporation, was aware of the policies,
procedures, and processes that were violated and/or knew
that such actions were against corporate policy, procedures,
or civil or criminal laws.
In the United States, an investigator, fraud examiner, or
security professional cannot rely on the expression
“ignorance of the law is no excuse” to help “make the case”
against the defrauder. In fact, there are some indications that
the alleged defrauder must also be told in advance when
making them aware of anti-fraud policies and procedures to
follow the consequences of his or her actions of not following
the “rules”. It is especially important in these days of “It’s not
my fault!” where personal responsibility seems to have taken
an extended holiday.
Remember that unless you are a lawyer and feel confident in
defining a fraud and how to go about identifying the
elements of proof, you should coordinate with the corporate
legal staff and get their input when such legal issues arise. It
will not only save you time and possible embarrassment but
will help ensure that your actions do not cause a lawsuit
against the corporation, which may have not otherwise been
contemplated by the “offended party.”

18. It may also to help ensure that your employment is not
terminated over such matters. Also remember that “anyone
can sue anyone over anything.”
However, with the proper anti-fraud program elements in
place, you have a better chance of ensuring that the fraud
miscreant does not successfully win his or her lawsuit.
Even though the preceding and succeeding definitions apply
to the United States and possibly some other countries, most
modern countries have similar laws that basically require the
same elements of proof.
However, a global corporation must know the specific fraudrelated statutes in each country and take these statutes into
consideration when developing and managing an anti-fraud
program for a global business.

19. How is Fraud different from Employee Misconduct
In the earlier chapter, fraud has already been defined as the
intentional deception with intent to make a gain or to cause
a loss, or to expose another to the risk of loss. It can be
perpetrated for the benefit of or the detriment to the
employer, and can be committed by persons outside as well
as inside organization. This definition draws a distinct line
between fraud and employee misconduct as employee
misconduct merely refers to a breach in the basic obligations
of the company. Employee misconduct does not involve any
intentional deception by the employee with an intent to
make a gain or cause a loss, employee misconduct involves
employees who do not abide by the rules of the company
and/or the terms of their employment bargain.
On another note, employees tend to misbehave when they
are cynical about the ethical culture of the corporation in
question. This means that employee misconduct can be
linked to the ethical nature of the corporation in question.
Fraud on the other hand, is due to the malicious nature of
the perpetrator and is not linked to the nature of any
corporation in particular.
Finally, the most obvious distinction between fraud and
employee misconduct would have to be that fraud can be
committed by persons outside the organization whereas only
employees of the organization can be guilty of employee
misconduct.

22. When will fraud happen IN your organization. The good
news is that most people who commit fraud are not career
criminals. The vast majority are trusted employees who have
no criminal history and who do not consider themselves to
be lawbreakers. So the question is, what factors cause these
otherwise normal, law-abiding persons, to commit fraud?
The best and most widely accepted model for explaining why
"good people" commit fraud is the fraud triangle. This is a
model developed by Dr. Donald Cressey, a criminologist
whose research focused on embezzlers, people he called
"trust violators."
According to Cressey, there are three factors that must be
present in order for an ordinary person to commit fraud. All
three of these factors must be present at the same time in
order for fraud to occur. The three factors are now referred
to as:

Pressure (also known as Motivation)

Opportunity

Rationalization
PRESSURE
The first leg of the fraud triangle represents pressure, or
what Cressey called a perceived non- sharable financial need.
This is what motivates the crime in the first place. The
fraudster has some financial problem that he is unable to
solve through legitimate means, so he begins to consider
committing an illegal act such as stealing cash or falsifying a

23. financial statement as a way to solve his problem. The
financial problem can be personal (too deep in personal
debt) or professional (the person's job or business is in
jeopardy). Examples of pressures that commonly lead to
fraud include:

Inability to pay one's bills

Drug or gambling addiction

Need to meet earnings to sustain investor confidence

Need to meet productivity targets at work

Desire for status symbols such as a bigger house,
nicer car, etc.

Non-shareable problems and the importance of
status
Notice that Cressey did not say fraud is motivated by
financial pressure, but instead by a non-shareable financial
pressure. This is a very important distinction. Everybody has
financial pressures, but not everybody commits fraud. What
constitutes a non-shareable need is completely in the eye of
the beholder. One person could lose his rent money
gambling and will be motivated by this problem to write a
company check to cover his rent. Another person might
suffer the same loss and not feel compelled to commit an
illegal act. Non-shareable problems all involve some sort of
embarrassment, shame, or disgrace. More importantly, they
all threaten the fraudster's status as a person who is trusted

24. by others. In almost every fraud case, the fraudster's
financial problem relates to status-seeking or statusmaintaining. So you see, it has a lot to do with what he thinks
what others will think of him.
Consider the following sanitized cases that occurred in
Singapore :
Financial Statement Fraud
A CEO develops a new business plan. Unfortunately, the plan
fails miserably, and sales plummet. Having just suffered
through two previous bad quarters, the CEO is afraid that this
latest disaster will cost him his job. Unable to face the
shareholders and the board of directors and tell them the
bad news, the CEO persuades the CFO to help him create
fictitious sales to mask the losses. The CEO is convinced that
they can increase sales and correct the books next quarter.
Misappropriation of Assets
A high-ranking financial officer experiences heavy losses in
her personal investments. She feels unable to admit to her
personal financial failures because this would hurt her status
as a highly trusted person who is in charge of her company's
finances. Therefore, she tries to resolve her personal
financial problem in secret by writing company checks to a
shell company she controls.

25. Corruption
A bank Relationship Manager desires prestige symbols such
as a nicer car, better clothes, jewellery, etc., but she cannot
afford them on her salary. Because she cannot legitimately
obtain these items, and because she is unwilling to "settle"
for less expensive counterparts, she begins to get kickbacks
or grease money from the banks suppliers to purchase these
status symbols.
OPPORTUNITY
The second leg of the fraud triangle is opportunity,
sometimes referred to as perceived opportunity, which
defines the method by which the crime can be committed.
The person must see some way she can use (abuse) her
position of trust to solve her financial problem with a low
perceived risk of getting caught. It is also critical that the
fraudster be able to solve her problem in secret. Remember
that fraudsters are motivated by concerns over status. If a
perpetrator is caught embezzling or falsifying financial
information, this will hurt her status at least as much as the
underlying problem she was trying to conceal. So the
fraudster not only has to be able to steal funds, she has to be
able to do it in such a way that she will likely not be caught
and the crime itself will not be detected. For example, if an
employee has access to blank checks she may see an
opportunity to forge a company check payable to herself. But
that check might well be spotted during the reconciliation of
the bank statement and she would be caught. In this case,

26. even though there is an opportunity to steal the funds, there
is no opportunity to steal them in secret. But suppose the
same employee also reconciles the company's bank
statement. Now, she can write a check payable to herself and
then when the bank statement arrives she can destroy the
fraudulent check and force the balance on the reconciliation.
Now the person has a perceived opportunity to commit
fraud.
Rationalization
The third leg of the fraud triangle is rationalization. As we
stated already, the vast majority of fraudsters are first-time
offenders with no criminal past. They do not view themselves
as criminals. They see themselves as ordinary, honest people
who are caught in a bad set of circumstances. Because the
fraudster does not see himself as a criminal, he must justify
the crime to himself in a way that makes it an acceptable or
justifiable act. This is known as rationalization.
Common rationalizations include the following:

I was only borrowing the money

I was entitled to the money

I had to steal to provide for my family

I was underpaid/my employer had cheated me

My employer is dishonest and deserved to be fleeced

27. While the perpetrator must rationalize the crime to himself
before he commits the crime, after the act has taken place
the rationalization will often be abandoned.
CONFLICT OF INTEREST
A conflict of interest (COI) occurs when an individual or
organization is involved in multiple interests, one of which
could possibly corrupt the motivation for an act in another.
The presence of a conflict of interest is independent from the
execution of impropriety. It is important to understand that
not every conflict of interest is a fraudulent act. The corrupt
intent must be proven in order to establish a criminal act.
Therefore, a conflict of interest can be discovered and
voluntarily defused before any corruption occurs. A widely
used definition is: "A conflict of interest is a set of
circumstances that creates a risk that professional judgement
or actions regarding a primary interest will be unduly
influenced by a secondary interest." Primary interest refers
to the principal goals of the profession or activity, such as the
protection of clients, the health of patients, the integrity of
research, and the duties of public office. Secondary interest
includes not only financial gain but also such motives as the
desire for professional advancement and the wish to do
favours for family and friends, but conflict of interest rules
usually focus on financial relationships because they are
relatively more objective, fungible, and quantifiable. The

28. secondary interests are not treated as wrong in themselves,
but become objectionable when they are believed to have
greater weight than the primary interests. The conflict in a
conflict of interest exists whether or not a particular
individual is actually influenced by the secondary interest. It
exists if the circumstances are reasonably believed (on the
basis of past experience and objective evidence) to create a
risk that decisions may be unduly influenced by secondary
interests.
A most celebrated case in Singapore to illustrate this point
was exemplified when Former Central Narcotics Bureau
(CNB) director Ng Boon Gay was acquitted Thursday of all
four charges against him in the sex-for-contracts case that
gripped Singapore over the course of the trial that began
2012.
Reading out a 32-page oral judgment to a packed courtroom,
District Judge Siva Shanmugam impeached the testimony of
prosecution witness and former IT sales executive Cecilia
Sue, while accepting the evidence and explanations given by
Ng where his testimony was questioned.
Pointing out that prosecution lawyers had not disputed Sue's
dishonesty in court about her sexual relationship with Ng, he
said he found Sue's explanations for her discrepancies in
evidence "inadequate".

29. In her testimony last year, Sue denied she had a sexual
relationship with Ng. She painted the picture of a man who
became increasingly desperate to obtain sexual gratification
in the form of oral sex, though she repeatedly rejected him.
"Her claims that she was tired, stressed and frightened, even
if true, would not satisfactorily account for the wide
divergence in her evidence," he said.
If Sue's statements after 12 January last year were to be
believed, it meant the accused forced her to perform oral sex
on him on 2 December 2011, the judge cited.
However, the judge noted that three days later after the
incident, Sue messaged "M u", which meant "miss you" and
when the accused did not respond, Sue messaged "u ignore
me" followed by "W her? Where's family day?"
Six days after the last occasion of alleged forced fellatio, Sue
sent the accused a sexually suggestive message "Did u DIY"
with "DIY" understood by the accused as referring to
masturbation.
"It would be surprising to see such conduct from someone
who had been the subject of forced oral sex," the judge
noted.

30. Overall, the judge said he found Sue's explanation for the
numerous material discrepancies unconvincing.
"The discrepancies went towards the crux of the charges," he
said. "After weighing her oral testimony with the evidence in
its entirety, I found that her credit had indeed been
successfully impeached."
The judge said he was satisfied that Ng and Sue were in a
consensual sexual relationship and that the acts as detailed
in the charges took place in that context.
Even though the prosecution had tried to explain Sue's denial
of her relationship with Ng, the judge felt that "this in itself is
indicative of a disturbing propensity on Ms Sue's part to be
untruthful when her own interests are called into question".
"Ms Sue had provided CPIB with two contrasting versions of
facts in her statements. As these versions are widely
divergent, one of them had to contain untruths. Effectively
she has been untruthful to both the court and the law
enforcement agency," said Shanmugam. "In the
circumstances I was of the view that it would be unsafe to
accept any part of Ms Sue's oral testimony on any
contentious matter which testimony was not independently

31. corroborated by some other evidence."
Ng's testimony 'largely consistent' with evidence
The judge then elaborated on his assessment of Ng's
testimony in court and performance as a witness, declaring
that he found that Ng's credit as a witness was not
impeached.
He said that Ng had given his evidence in a "forthright
manner", where he candidly admitted that he had known of
Sue's involvement with his agency after she told him about
the deals she closed that involved CNB indirectly, through
NCS.
Noting the need for Ng's statements in court to be
considered in context, Shanmugam said the issue of whether
engaging in sexual acts on an "on and off" basis equates to
being a "regular sex partner" is a subjective matter, and that
Ng was entitled to decide what was regular or not. Whether
or not Sue enjoyed the trysts was also subjective, said the
judge, since Ng would not have been in a position to state
what was on her mind.
"Contrary to the prosecution's assertions, I found that the
accused (Ng)'s statements, when viewed in context, were

32. largely consistent with his claim that he was in an intimate
relationship with Ms Sue," he said. He added further that
Ng's explanations for all the prosecution's alleged
discrepancies apart from his knowledge of Sue's involvement
with CNB were "credible and consistent", and that this
inconsistency, in turn, was "not particularly material" in the
circumstances, and did not go to the crux of the charges
against Ng.
He also noted that the process for procurement was driven
by CNB's IT department and that the accused did not take
part in that process or influence the work of the evaluation
committee that reviewed the agency's potential vendors.
Despite acknowledging that there was indeed a conflict of
interest, Shanmugam stated that the presence of conflict
does not automatically imply that there was corruption. He
said he was satisfied that there was neither corrupt element
or guilty knowledge on Ng's part in relation to his charges,
adding that in his view, throughout the time where the two
IT contracts were approved and processed, Ng possessed "no
ulterior motive, let alone a corrupt intent".
Shanmugam also noted that even though only Ng's intentions
behind the four instances of fellatio were relevant to the
trial, he found that both him and Sue had "innocuous"
motivations in giving and receiving oral sex.

33. "On this count alone I found that (Ng) had not only
successfully rebutted the presumption (of corrupt intent) but
had raised a reasonable doubt in the case against him, which
would warrant an acquittal on all four charges," he said,
which triggered a wave of relief across the courtroom, in
particular Ng's relatives, some of whom tear and hugged one
another.
Speaking to reporters after the verdict, defence counsel Tan
Chee Meng said it was "vindication of Ng Boon Gay, the fact
that he's not corrupt and his innocence has been proven".
What is the object lesson here? It is pretty obvious that once
again we must be reminded that what might be considered
as immoral by society does not make it illegal.

34. When Does the Fraud Triangle Not Apply?
The fraud triangle applies to most embezzlers and
occupational fraudsters, but it does not apply to the
"predatory employee"—the person who takes a job with the
intent of stealing from his employer. Also, as we stated
earlier, while a rationalization is necessary for most people to
begin committing fraud, the rationalization will often be
abandoned after the initial act has taken place. Most frauds
are not one-time events. They usually start as small thefts or
misstatements and they gradually increase in size and
frequency. As the perpetrator repeats the act, it becomes
easier to justify until no justification is needed at all.

35. THE LIMITATIONS OF INTERNAL CONTROLS
What Does the Fraud Triangle Tell Us? Perhaps the most
important lesson to be learned from the fraud triangle is the
inherent limitations of Internal Controls and the impotency
of the internal auditor.
Normally all three factors must be present for fraud to occur.
If any one of the three elements is missing, fraud will
normally not occur. Cressey's model also tells us that
concerns over status, not greed, is the primary motivator for
occupational fraud. That being the case, we must relook at
the function and purpose of the internal audit profession.
The Institute of Internal Auditors ("IIA") offers the following
description:
"Internal auditing is an independent, objective assurance and
consulting activity designed to add value and improve an
organisation's operations. It helps an organisation
accomplish its objectives by bringing a systematic, disciplined
approach to evaluate and improve the effectiveness of risk
management, control, and governance processes."
Major roles and responsibilities of internal audit function are
summarised as below:

evaluates and provides reasonable assurance that
risk management, control, and governance systems
are functioning as intended and will enable the

36. organisation's objectives and goals to be met

reports risk management issues and internal controls
deficiencies identified directly to the audit
committee and provides recommendations for
improving the organisation's operations, in terms of
both efficient and effective performance

evaluates information security and associated risk
exposures

evaluates regulatory compliance program with
consultation from legal counsel

evaluates the organisation's readiness in case of
business interruption

maintains open communication with management
and the audit committee

teams with other internal and external resources as
appropriate

engages in continuous
development

provides support to the company's anti-fraud
programs.
education
and
staff
There is no such thing as a perfect control system. Staff size
limitations may obstruct efforts to properly segregate duties,
which requires the implementation of compensating controls
to ensure that objectives are achieved. A limited inherent in
any system is the element of human error,

37. misunderstandings, fatigue and stress. Employees are to be
encouraged to take earned vacation time in order to improve
operations through cross training while enabling employees
to overcome or avoid stress and fatigue.
The cost of implementing a specific control should not
exceed the expected benefit of the control. Sometimes there
is no out-of-pocket costs to establish an adequate control. A
realignment of duty assignments may be all that is necessary
to accomplish the objective. In analysing the pertinent costs
and benefits, managers also need to consider the possible
ramifications for the organization at large and attempt to
identify and weigh the intangible as well as the tangible
consequences.
Internal controls should reduce the risks associated with
undetected errors or irregularities, but designing and
establishing effective internal controls is not always a simple
task and cannot always be accomplished through a short set
of quick fixes. However, we hope this chapter has helped to
explain the basic internal control concepts and given you
some ideas for improving your department's controls. The
conclusion of the of the whole matter is that there is no such
thing as a perfect system of internal control because of its
inherent limitations :

38. 
Errors may arise from misunderstandings of
instructions, mistakes of judgment, fatigue, etc.

Controls that depend on the segregation of duties
may be circumvented by collusion

Management may override the structure

Compliance may deteriorate over time

39. Why we must not blame the Internal Auditor for every
fraud
Corporate internal auditors (those who are employees of the
corporation and are paid directly by the corporation) are
hired to internally audit corporate departments for
compliance with corporate and government policies, laws,
regulations, and the like.
Although some may argue that there may be a few
exceptions out there in the corporate world, auditors
basically look for compliance and if it looks good on paper,
they are usually satisfied if one plus one equals two.
Remember that “corporate fraud” means the frauds
perpetrated against a corporation or other business-related
entity by individuals within and/or external to a corporation.
It does not mean frauds perpetrated exclusively by
“corporations.”
Fraud is a “people business.”
The accountants and/or auditors (who often have an
accountancy background and experience) can provide a good
supporting role in combating corporate fraud. However,
although they have been receiving some training and gaining
some experience in dealing with frauds over the years, they
approach it from an auditor’s viewpoint and not as part of
leading an assets protection program that includes a
proactive anti-fraud program.
No offense is intended to auditors or others, for they are just
doing what they have been trained to do in the manner in

40. which they were trained. Frauds are perpetrated by people,
and therefore, one’s anti-fraud training, education, and
experience should focus in part on understanding people in
general, as well as defrauders and their motivations. This
aspect is not emphasized to auditors in their auditing and
accounting education.
In addition, most people do not like confrontation, nor do
they like dealing with hostile people. Even security and law
enforcement professionals do not like hostile encounters.
However, the training and experiences of security and law
enforcement professionals place them in a better position to
successfully deal with people in confrontational situations.
One of the key question that needs to be addressed is :
Should the manager of the audit department also be the
leader of a corporate anti-fraud program? The answer is no,
for several reasons, including those stated earlier. For
example, this would include compliance with the corporate
anti-fraud program, as well as the audit staff writing the
antifraud program and its policies, and perhaps also many of
its processes, procedures, and such.
This would represent a conflict of interests in as much as they
themselves approve what they have written and
implemented; they also serve as the auditors to determine
whether what they did was the correct thing to do and
supports compliance with other corporate policies,
government oversight laws, regulations, and so on.

41. Why do some management thinks that Sanctions Don't
Deter Fraud
We can also deduce from the fraud triangle that simply
punishing people who are caught committing fraud is not an
effective way to deter fraud. There are several reasons why
this is so:

Fraudsters only commit their crimes when there is a
perceived opportunity to solve their problems in
secret. In other words, fraudsters do not anticipate
getting caught.

The threat of sanctions does not carry significant
weight with a fraudster because he never expects to
face them.

Fraudsters rationalize their conduct so that it seems
legal or justified. Thus, they do not see their actions
as something that is or should be sanctioned.

Because fraudsters are primarily motivated by status,
the greatest threat they face is that their crime will
be detected.

Detection will result in loss of status. Any sanctions
that follow are only a secondary consideration.
Given the above observations, how does one go about
addressing the primary motivational need? The solution
seem to be more psychological than physiological. This is
where applied psychology comes in handy for the fraud
examiner. The fraud examiner need to understand the

42. psychological profiles of both sexes in their motivational
needs.

43. Motivation and Rationalization in fraud is Gender bias.
Financial exploitation, and particularly thefts and scams, are
increasing at an alarming rate. In this book, we (a)
determined the national prevalence of older adults who
report having been a victim of fraud, (b) created a
population-based model for the prediction of fraud, and (c)
examined how fraud is experienced by the most
psychologically vulnerable adults. Financial satisfaction and
social-needs fulfillment were significantly related to fraud.
Using depression and social-needs fulfillment to determine
the most psychologically vulnerable adults, we found that
fraud prevalence was three times higher among those with
the highest depression and the lowest social-needs fulfilment
than among the rest of the people.Fraud Examiners and
other professionals in the field need to be aware of their
psychologically vulnerable clients' heightened exposure to
financial fraud.

44. Man and woman do not rationalise the same way when it
concerns fraud.
Before entering upon the specific subject, let us – for the
sake of those who are not yet acquainted with bias and
psychosynthesis – touch upon the theme in a general way.
Bias is an inclination to hold a skewed or prejudiced opinion
of something or someone — objects, individuals, or groups.
Bias can be positive or negative. If you are positively biased
towards somebody, chances are that anything they do will
seem good to you even if that’s not really the case. They
enjoy a certain ‘privilege’ in your eyes. And if you are
negatively biased towards somebody, even if they do their
best to please you, you will still be able to find fault with
them.
When you were young, haven’t you found it unfair that the
teacher’s pet in class gets away with everything? Talking in
class, not submitting homework etc., while a student the
teacher doesn’t like much seems to be getting into trouble
always? This is a very simple example but when we talk
about biases that exist in society, it become a lot more
complicated.
This is because societies consist of people who have multiple
identities — of sex, gender, sexuality, religion, race, caste,
class, community and so on, and one person can suffer a bias
or enjoy a privilege at many levels.
Gender bias is one of the many forms of biases that exist in
society. Believing a certain gender to be superior to another

45. and discriminating on the basis of this belief can be called
gender bias.
Why is there a need for fraud examiners to understand
psychosynthesis
Because all of us have within ourselves different and
contrasting psychological elements which alternate and
collide. They often reach such a degree of forcefulness as to
form separate personalities or sub-personalities which
struggle for supremacy within us.
This results in a number of contradictions, conflicts, turmoil
and upheavals, which may produce serious nervous
difficulties, and often gives the individual a painful and
growing sensation of dissatisfaction, instability and
disharmony.
But this “human condition” is by no means fatal and
inevitable; we can change and remedy it if we are willing to
examine ourselves thoroughly and if we apply the methods
that are necessary in order to combine the dissociated and
contrasting elements and transform them into a rich and
harmonious synthesis.
Synthesis is an organizing and unifying principle which acts in
all the kingdoms of nature. We find manifestations of it in
inorganic matter in the form of chemical combinations. It
acts in a more evident and complicated way in organic life as
the power of self-regulation of living bodies, as the delicate

46. and admirable balance between the wear and tear and the
rebuilding of tissues.
In the psychological life, the principle of synthesis finds its
application in different ways : by unifying opposite vital
interests and activities in regard to the outer as well as the
inner world of the individual (extraversion and introversion);
by synthesizing thought and feeling and other psychological
elements around a unifying centre in the psychosynthesis of
the personality.
Then there is the problem of spiritual psychosynthesis, that
between the personality and the Self or soul that some
defines as the seat of the man, which constitutes the high
aim and aspiration of all individuals who cannot be satisfied
with terrestrial values only.
Another aspect of synthesis is that which unites and
individual in numerous relations of integration with other
individuals. There is, first of all, the psychosynthesis of the
human couple, the eternal problem of the relation between
the sexes, about which we shall have more to say further on.
Then comes the synthesis of the family group, of social
groups, national groups and, at the very last – as the final
ideal - the psychosynthesis of all mankind. This very lengthy
explanation essentially means, as fraud examiners we must
understand that different people have different makeup.
That being the case, we must treat them as individuals and
understand that each have a very different psychological
profile.

47. Psychological Differences between Men and Women
The first question which calls for our consideration in this
context concerns the functions and duties which a woman
can and must discharge, the particular types of
psychosynthesis which she can bring about in accordance
with her particular psychological constitution, and the many
problems which arise from woman’s own psyche or and her
relation with man.
Situations and problems of this nature arise in every
woman’s life and it is necessary that she face them in a way
that is most satisfying to herself and to the other people
concerned.
The most natural thing and frequent role for woman is that
of being man’s companion, his wife. An Italian author, Lucio
d’Ambra, wrote two novels entitled respectively The
Occupation of the Husband and The Profession of the Wife.
In these different designations albeit outdated, an important
psychological truth is alluded to, namely that while man’s
principal functions are his activities outside the family and
are of a social character, woman’s most important activity,
her “profession”, is generally in and with the family. A
simpler way to understand this is that woman in general
tend to live for others and that is something that comes quite
naturally.
To use a less modern but gentle and apt expression: woman
is, or should be, “the queen of the home”.

48. Unfortunately, this kingdom of the home is often troubled by
silent or noisy disharmonies and conflicts which sometimes
shake it to its very foundations and can even dismember it.
If we search for the causes of these discords, we discover
that there are mainly two: selfishness and lack of
understanding.
The corresponding remedies can, therefore, be reduced to
two principal ones:
The first one is goodness and a spirit of sacrifice. These are
hard to develop, but are high qualities which everybody
should cultivate because their fruits are most rewarding.
The second remedy consists of an intelligent, intuitive, willing
psychological
and
spiritual
understanding.
This
understanding is not easy to acquire because the
psychological constitutions of man and woman are deeply
different, much more so than we generally realize. One could
almost say that they belong to two different species. It
therefore seems useful to pause and examine somewhat the
differing characteristics of male and female psychology. In
speaking frankly, I may at times seem rude to both sexes.
Typically, although by no means universally, there exists
between a husband and his wife polarities of psychological
functions. The man tends to excel in certain vital operations
while the woman manifests others. For example, in dealing
with the physical world, man has active, manipulative and
creative functions while woman, as wife and mother is
primarily concerned with maintaining and preserving the life
and resources of the family. On the other hand, in the sphere

49. of the emotions and of the imagination, it is the woman who
is usually the better developed, more positive and productive
of the two. In this area, the husband is apt to be relatively
naive and easily confused. So there is an apparent inversion
of dominance functions that man and woman need to
appreciate, and therefore collaborate with each other in
order to form an effective team. When that actually happens,
we call it the “optimum” point. In practice this is usually
achieved at the moment when two individuals decide to get
married. But the “optimum” point in itself is an abstract
concept. It is not static. Reality shows that expectation
between man and woman change with time. Most woman
marry a man to change it into her own image of what should
be the perfect man. Man in general and in most instances
does not know what they are doing.
Furthermore, there is a similar inverted polarity between
man and woman in the intellectual sphere.
Man tends to be the more rational, logical, and active. He is
consciously oriented toward facts, their relationships and
their implications. By contrast woman’s mental functions are
less developed, but balanced by her superiority in another
sphere, that of the intuition. This is the capacity for attaining
understanding in non-rational and unconscious ways which
are fully as valid as man’s thoughtful rationality.
These different polarities define some important qualitative
distinctions between man and woman. These differences can
explain many psychological conflicts and disorders.

50. Speaking of man in general, the average so-called normal
man develops qualities and functions such as aggressiveness,
mental activity, and efficiency. These he manifests to a
marked degree, whereas qualities of a feminine type such as
sensitivity, feeling, imagination, and intuition remain in an
undeveloped and, at times, almost atrophied conditions.
Because these latter functions do not keep pace with the rest
of his growth, it therefore often happens that the average
man remains relatively primitive and sometimes even
barbaric. His imagination, generally repressed in the
unconscious, is disordered when it does rise to the surface,
and often expresses itself in fancies of which he himself is
ashamed. His feeling nature tends to remain primitive; he has
neither delicacy nor plasticity. He can pass from outbursts of
almost savage passion to hardness and insensitivity, and vice
versa, or he can pass from insensibility to almost childish
weakness and sentimentality. His intuition is generally
rudimentary, almost non-existent. He endeavours to solve all
problems, whether practical or abstract, through mental
processes only, and because he does not take into
consideration the more subtle and imponderable elements,
he is often mistaken as being insensitive. In the various
events of life, his cleverly formulated plans and programs
often come to naught, and instead of finding the faults that
lie within himself and his own shortcomings, he blames other
people and events for his failures.

51. The Editor
ACFE Regent Emeritus
Tommy Seah, Certified Fraud Examiner
He is the elected Vice Chairman (2005/07) of The Association
of Certified Fraud Examiners Board of Regents based in
Texas, USA. CFE is a post graduate professional qualification
recognized by the FBI and USA Central Intelligence Agency in
it’s recruitment of auditors for combating fraud. His services
in providing technical training is much sought after by
numerous banks in the region, including Germany, Singapore,
Malaysia, China, Indonesia, Philippines and Taiwan. Tommy's
previous experience includes systems based auditing in an
American International Bank, where he was the Senior
Regional Auditor responsible for the Bank's audit in the Asia
Pacific region. He has also held the top executive position of
Chief of Internal Audit in a prime offshore bank where his
audit duties cover the Singapore and Hong Kong operations
of the bank. He covers all areas of the bank's audit of
operations and IT systems. He also has practical working

52. experience in the Operations Department of a foreign bank.
Tommy Seah is the author of seven banking books including
the F.I.G. Program. The FIG is the authoritative and definitive
text on Financial Instruments designed to be used in the
world wide banking industry for product training. This
publication has received excellent review and first class
commendation from some of the most authoritative
professional certification body and top rated banks in the
world. The other six authoritative texts used in his training
are The Audit Foreign Exchange in Banks, The Control of
Money Market Activities in Banks, Financial Management,
MCA for Banks, SWAPS in Investment Banking and AntiMoney Laundering 101. His latest publication is
Understanding and Auditing BASEL II, Operational Risk
Management.
For the past thirty years, Tommy Seah has trained some of
the top banks and financial institutions in the region. In
particular, his expertise in SOX 404, AML and Basel II systems
implementation is much sought after by financial institutions
and banks in Germany, Brunei, China, Indonesia, Malaysia,
Philippines, Singapore, Taiwan and Thailand.
His prolific training career has seen him trained over many
Chief Financial Officers, Compliance Officers, Auditors, Risk
Managers, fraud investigators, financial analysts, forex
managers, IT Professional, legal counsels, private bankers
and accountants.
Today, he is still a very much a hands on practitioner doing
Independent Third Party work for audit practice assurance,

53. compliance review and fraud investigation in the Asia Pacific
Region. He is also a Certified SOX Professional and appointed
as Professor of Economics of the CHINA Institute of Directors.

54. Some of the world’s leading banks and financial institutions
staff trained by Tommy :
• The Government Investment Corporation of Singapore
• The Stock Exchange of Singapore
• Deutsche Bank (participants from 40 countries)
• Westpac Banking Corp
• Monetary Authority of Singapore (Central Bank)
• United Overseas Bank (UOB)
• BNP Paribas
• Bank of China (China-wide)
• Hong Kong and Shanghai Bank
• Overseas Chinese Banking Corporation Ltd
• Bank Negara (Malaysia Central Bank)
• May Bank

55. REVIEW
By
JOSEPH R. DERVAES, CFE, ACFE Fellow, CIA
AUDIT MANAGER FOR SPECIAL INVESTIGATIONS
WASHINGTON STATE AUDITOR'S OFFICE
U.S.A.
Tommy Seah is a gentle giant whose writings continue to
demonstrate why he is a recognized authority in the banking
industry. This latest handbook provides valuable knowledge,
tools, and best practices to practitioners that will help
prevent, detect, and even discourage future money
laundering activities from occurring. The membership of the
Association of Certified Fraud Examiners has also recognized
the author's leadership in this field and elected him to the
Board of Regents of the Association, one of the highest
positions any CFE may hold in the profession. I know that
this handbook will be destined to become a welcome
addition to the personal library of both CFEs and banking
professionals worldwide.