Organi-Cultural DevianceTHE CULTIVATION OF A WHITE COLLAR CRIMINAL

(Husted & Gendron 2011)

Joe Collins, CFE

Agenda

New Pay Plan

What is Corporate Deviance

Types of Behavior

Gang Mentality

Takeaway

This is an exercise

MEMORANDUM

To: All Certified Fraud ExaminersCC: Chief Financial OfficerFrom: HeadquartersDate: 4/1/2013Re: Compensation Policy Change

New Compensation Plan for All Fraud Examiners

Due to changes in our economy, sequester, Obamacare, devaluation of the dollar, increases in the money supply and an $8 Trillion deficit we will no longer be able to pay you what you are currently earning. Beginning April 2, 2013 all fraud examiners will work a maximum of 29 hours per week and will be paid $8.50 per hour.

MEMORANDUM

To: All Certified Fraud ExaminersCC: Chief Financial OfficerFrom: HeadquartersDate: 4/1/2013Re: Compensation Policy Change

New Compensation Plan for All Fraud Examiners

Due to changes in our economy, sequester, Obamacare, devaluation of the dollar, increases in the money supply and an $8 Trillion deficit we will no longer be able to pay you what you are currently earning. Beginning April 2, 2013 all fraud examiners will work a maximum of 29 hours per week and will be paid $8.50 per hour.

This is an exercise

New Pay Plan

This is an exercise

Top Reason for Revising the Payplan

•Improve alignment between fraud investigation, pay & business strategy

•Decrease the time it take to catch fraud, simplify pay plan

•Change performance measures to place more emphasis on stopping fraud in its tracks

This is an exercise

Credit Card Fraud

20%

AllFraud

Confessionsand/or

convictionsCONFESSIONS GET PAID

This is an exercise

Commission ExampleCase Type: Ghost EmployeePerpetrator: “Sue” in AccountingAmount: $120,000 stolen in the last yearCommission: 20%Actual Payout: $24,000Recovery: $20,000Commission: (3%) $600Types of Fraud: Corrupution, Billing Schemes, Financial Statement Fraud, A/R,A/P, Asset Misappropriation, Expense account

This is an exercise

Fast Start Bonus

2013 Camaro

Chevrolet.com

90 Days

This is an exercise

2nd Place

2009 moviescreenshots.blogspot.comThis is an exercise

3rd Place

This is an exercise

Nervous?Hungry?

White Collar Crime

The term "white-collar crime" was coined in 1939 during a

speech given by Edwin Sutherland to the American Sociological Society.

Sutherland defined the term as "crime committed by a person of respectability and high social status in the course of his occupation.”

Many white-collar crimes are especially difficult to prosecute because the perpetrators are sophisticated criminals who have attempted to conceal their activities through a series of complex transactions.

Corporate Deviance

Organization culture has been defined as: “written and unwritten expectations (rules and norms) that influence members of the

organization” (Ross, 1995, page. 346

Corporate CrimeA crime is committed by corporate employees or owners to financially advantage a corporation

Lack of Supervision

LackLack of Critical thought , input of substance from group members or meaningful opportunities to engage in constructive criticism of the leaders action, direction of the organization, process and/or overall Ethical soundness of a situation.

Group Think

Micromanagement

Deviant Organizations

Self Censorship

(Fukashima)

Illusion of invulnerability

Collective Rationalization(Challenger Disaster)

Stereotyping(goody two shoes)Pressure

to Conform(robosigning)

Group Think

Symptoms

Illusion of Morality

Illusion of Morality

Illusion of

Unanimity(gangs)

Illusion of

Unanimity(gangs)

Mind Guards

Mind Guards

Deviance in GovernmentExamples: Blagojevich affair –

Rod Blagovich began serving a 14 year sentence in federal prison following his conviction for corruption including thesolicitation of bribes for the political appointments including the US Senate seat President Obama gave up to when he went to the white house.

No CommentAccuse the AccusersInsisting Deviant Action was Necessary (End Justified the Means)

Social Learning TheorySocial Control is formal and informal attempts at enforcing norms.

For Negative behavior For Positive behavior

The NORMS are exactly opposite in culturally deviant organizations

Progress Diagram

Changing RolesRole ManipulationLoaded languageGroup becomes the ultimate authority

Changing RolesRole ManipulationLoaded languageGroup becomes the ultimate authority

Stripped of Personal identify

Self-ActualizationGroup identity

Unethical Acts

“Tests”

Keep a secret

Stripped of Personal identify

Self-ActualizationGroup identity

Unethical Acts

“Tests”

Keep a secret

Isolation from healthy dialogue, processes & actionDevelops subcultureUnquestioning allegienceUndivided time and attention

Isolation from healthy dialogue, processes & actionDevelops subcultureUnquestioning allegienceUndivided time and attention

ALLEGIENCEALLEGIENCE PROBATIONARYPROBATIONARY Role dispossessionRole dispossession

Individual Indoctrination

Confront the reality of the new job- adjust your expectations

Achieve role clarity-

Locate oneself in the organization-

How does your work contribute?

Assess success- Newcomers assess the value of their contributions

Socialization- learn the language of the organization

Do You Accept Society’s Goals?

“focuses on materialism and monetary gain

as being of utmost importance in capitalist society.”

Toxic LeadershipPablo Escobar

Drug CartelPower

RespectMoney- Inv. Banking

Protection$160 millionPackagingBrokering

Securitization

Dick Fuld- Lehman Brothers

PowerRespect

Money- CocaineProtection

NW- $3 billionExtortion

TraffickingRobbery

Kidnapping

Maslow’s Heirarchy of Needs turned upside down.

Hierarchial Funnel of Individual Needs

MS13 vs. Wall Street

Wall Street brokerage firm was founded in 1869 and is headquartered Lower Manhatten area of New York City, with additional offices in international financial centers. The firm provides mergers and acquisitions advice, underwriting services asset management and prime brokerage to its clients, which include corporations, governments and individuals. The firm also engages in Market making and private equity deals, and is a primary dealers in the United States Treasury securities.

Mara Salvatrucha is a criminalgang that originated in Los Angeles with additional offices in other parts of the US, Canada, Mexico, and Central America. The gang is known to provide asset (human and arms) smuggling, drug smuggling, robbery, extortion, illegal immigration, murder, racketeering and kidnapping to it clients which include the Sinaloa cartel, Gulf Cartel, La Familia, Mexican Mafia, and Los Zetas.

Source: Wikipedia

Gang MembershipComparing mafia, cults, and gangs to deviant corporations. •Isolation•Discouraged from expressing dissenting views•Altruistic purpose•Confession•Sanctification•Transactional Relationships•Reward- Meeting the Groups wishes•Sacred Science- Rules of the Group are viewed as supreme governing rule•Cults strongly discourage critical thinking

DARK LEADERSHIP

What does it look like?

Example: Lehman Brothers

The Goldman executives, including CEO Lloyd Blankfein said they didn’t do anything irresponsible. “Regret to “Regret to me means something you feel you did me means something you feel you did wrongwrong– I don’t have that.” said Daniel Sparks, head of Goldman’s mortgage department.

Gregory Zuckerman (WSJ)

The Smartest Guys In the Room?Skilling: “ Andy what is going on?”

Andy: “Jeff, I don’t know,”. “They won’t tell me.”

“I don’t think I did anything wrong.”

This after Fastow ripped off Enron for over $60 million.

The Smartest Guys in the Room, Page 377

Predictive Behavior?

Quote from LinkedIn

Don’t know David, what I do know is . . .I will do whatever it takes to provide for my wife and my children. I’m an opportunist and if all else fails I will be a criminal. March 23, 2013 LinkedIn post.

Reducing Unethical Behavior

Here’s what to look for:

Clarity- Telling management and staff what is desirable and undesirable behavior

Role Modeling-

Achievability of Goals

Commitment

Transparency of Behavior

Openness

Enforcement

Sources

1. Organi-Cultural Deviance- Gendron & Husted, 2011- Presented to The American Association of Behavioral and Social Secience (2011) 1. Colossal Failure of Common Sense, Lawrence McDonald & Patrick Robinson (2009)2. The Smartest Guys in the Room, Bethany McLean & Peter Elkind (2004)3. Financial Serial Killers- Tom Ajamie & Bruce Kelly (2010)5. Tangled Webs- James Stewart (2011)6. Hearings Possible on Whale Loss, Scott Patterson & Daniel Fitzpatrick, Feb. 20, 20137. Description of MS-13 & Goldman Sachs, Wikipedia8. Chevrolet Camaro, chevrolet,com9. Predictive Behavior quote, Linkedin discussion, March 23, 2013