Diamond fraud: How It Can Be Used to Detect and Prevent Fraud

The diamond business is one of the most thrilling areas across the globe, which account for the increased scam practices surrounding this precious stone. Understanding how to recognize a real diamond is usually a tricky issue, thus a real specialist is vital when making diamond purchase. There are various approaches of identifying a real diamond and how to identify a lab generated diamond versus the actual diamond. They include; weighing a diamond, checking the certificate, diamond lighting tricks, checking from various grading agencies. This paper will focus on diamond fraud and how it can be utilized to detect and curb fraud.

Diamond weighing

When shopping for diamond, people should ensure they are dealing with a genuine dealer. A dealer who is not ready to weigh the diamond in front of the client is concealing something. Other dealers might be hires, thus they lack knowledge regarding weighing of the stone. Weighing is not merely enough when looking for the scale swindles. The general malpractice is when the jewelers advertise the “total carat weight” of diamonds contained in a ring, without indicating the individual mass of the centerpiece. This is vital since a huge diamond is valuable than several small ones equal in mass. When purchasing diamond, clients ought to ask for a written offer, which outlines the weight and quality of the centerpiece itself.

Diamond lighting tricks

The other common trick used by jewelry store is to place attractive lighting to make diamonds look brighter, or they can opt to spray the jewelry and stones with Windex to make them look shinny than normal. It is vital for the client to examine diamond in many aspects like under different lights or look at it outdoor. Additionally, a client should look at the diamond before it is placed in the ring. The other aspect is to wipe the diamond correctly before looking at it. The other trick used previously was “Blue Paint Culet” the blue color was painted at the culet (lowest tip) to make the diamond appear sparkling when reflected under a specific light. Currently the method is rampant since it was substituted by Windex approach.

Certified Vs. non-certified Diamonds

            Apart from lighting and weighing diamond, one crucial factor to look when purchasing a diamond is the certificate. The seller should provide the certificate or the diamond report provided by a credible independent gemological laboratory. The certificate includes the diamond’s weight, measurements as well as its grades for color, clarity and cut.

There are various agencies the conduct diamond grading and they include European Gemological Laboratory, American Gemological Society, or Gemological Institute of America. GIA is the most reputable institution when it comes to diamond business. However, certificate does not guarantee an actual diamond, thus it is vital to consider additional aspects.

Real diamonds Vs. Lab generated diamonds

There are jewelers who sell lab created or synthetic diamonds. These are man-made stones that are carbon atoms set in the feature diamond crystal construction. However, they are not attractive investment for various reasons. People will not insure it and also it has no resale value since manufactures will continue producing them making them loose value since they will saturate the market. Firms manufacturing synthetic diamonds began making excellent stones that are almost similar to the original ones. Thus, it is vital to have an autonomous certification for confirmation since it is tricky to spot the difference. Lab-created diamonds are cleaner as compared to original diamonds, while natural diamonds have little imperfections due to ‘inclusions.’

Evaluation of actual diamond

There are various aspects while selecting diamond. The great test is to balance the four C’s to come up with a perfect stone. They include:

Diamond’s color

Diamonds are graded on their color from D to Z, with D being apparent and white in outlook and having no color. As the scale approaches Z, the more brownish, grayish or yellow a diamond appears. Diamonds are outcomes of nature thus they undergo diverse formations and at times an element might get trapped in the carbon during the formation. This explains why there are pink diamonds, blue diamonds as well as very rare red diamonds. One grade change in diamond color can lead to 15% increase in its price.

Diamond’s Carat

The carat weight of diamond indicates its size, the more the weight the larger it is in size. As carat weight increases, the cost of the diamond will also increase.

Diamond’s clarity

Clarity is a crucial aspect to consider. Diamond should have inclusions that bother naked eyes. An original diamond had gemologically perfect clarity. Also, this aspect makes it hard for a client to purchase diamond online, since even with certificate, they will not get adequate information.

Diamond’s Cut

There are two elements of diamond cutting. First, the intended shape since for every shape, the jeweler have to understand how it is ought to be done. The modern technology will help greatly in the measurement of proportions of diamond. When cutting the diamond, it is vital to consider balancing the carat weight as well as the quality of the cut.

Forms of diamond cuts

  1. Asscher cut diamond
  2. Pear cut diamond
  3. Heart cut diamond
  4. Marquise cut diamond
  5. Round cut diamond
  6. Oval cut diamond
  7. Princess cut diamond
  8. Radiant cut diamond
  9. Cushion cut diamond
  10. Emerald cut diamond

As indicated above, various aspects influence the value and quality in diamonds. However, an individual does not have to be a diamond expert or apprehension when purchasing jewelry. What is required is the awareness of the probability of misrepresentation or fraud in the jewelry business.

The features that make diamonds to be attractive to many people are the same characteristics that make the appealing to fraudsters (Santoso & Surenggono, 2017).

  • Diamonds are highly-desired and high-value commodities
  • Diamonds do not depreciate, indeed they have propensity to gain value

Other more crucial aspects to fraudsters include:

  • The fraudsters can easily turn diamonds into cash without great discounting from the retail cost
  • Diamonds holds great worth in a minute footprint, making them effortless to warehouse

The worldwide jewelry market is about 4-5% and accounted for about $10 billion in year 2016. The online jewelry market share is projected to double to 10% by 2020 pushing the yearly jewelry revenues to about $30 billion. It is a common trend that where there is increased online revenue, there is increased online scam. 5 percent scam rate for online jewelers surpass by 5 times the ecommerce dealings generally. The market has experienced 13% increase in ecommerce fraud in jewelry arena in 2016. In general, card-not-present (CNP) persists to escalate swiftly with researchers predicting increase in losses to $7.2 billion by 2020 as the EMV authorization forces scammers from physical card counterfeiting to ecommerce sphere.

Moreover, it is easy for fraudsters to perpetuate diamond and other jewelry fraud since most jewelers starts in the customary or brick-and-mortar sphere prior to shifting to online market. Also, generating an advanced in-house ecommerce scam prevention tool is incredibly time-consuming and expensive. Criminals and fraudsters constantly evolve and adapts their techniques and tactics making it thorny for any jeweler to initiate the applicable investments to sustain the pace. It calls for maintained investment in systems, people, technology, research as well as updated diligence to sustain their pace.

Jewelers Security Alliance is greatly concerned with the increased fraud in jewel industry. The fraudsters use fake identities to have high-end orders like diamond being shipped. There are diverse forms with the following distinct aspects:

  • The fraudster asks for a particular high-end commodity to be shipped quickly. The intention of the fraudster is eventually to divert the item shipped by UPS, FedEx or any other shipper from the address in their initial order from the store to a distinct address of their preference.
  • A ceiminal calls a supplier or retail store and understands quite a lot about the firm he is purportedly calling from, and a more of the firm he is contacting. This information encompasses the details of the shipping procedure, staff members, as well as records on hand obtained via the company’s website and even sku numbers.
  • A different aspect of the fraud is when the fraudster impersonating a staff from a retail store calls a supplier asking for a high end commodity to be shipped to the retail store. At times the store contains an actual account with the supplier or it lacks at times. Also, the intention of the fraudster is to shift the shipped goods to a distinct address.
  • Sometimes a branch of a manifold location retail store will get a call purportedly from a store manager or another worker of another branch asking for a particular high end product to be sent immediately, at times to the store, or to a client or non-store address. The individual making a call understands the procedures, names and the sku numbers, and at times will play to be the real manager, shipping person or sales person working with the requesting subdivision. When the brand is unable to send the requested item to the intended address, they will later call UPS or FedEx and make efforts to have the consignment from the “requesting branch” to another branch of choice.

The fraudsters employ ‘social engineering’ where they have studied the details of the personnel, online inventory and procedures of the aimed victim firm and the organization they are purporting to be. They utilize social media, phone calls , Facebook, and websites to acquire information before the fraud attempt. They will call various times if necessary to investigate the name of the individual liable for shipping or the salesperson names or even the manager’s name as well as the available high end commodities (Turvey, 2013). They will make use of the information at hand to make an order, then contact UPS or any other shipping firm to shift a commodity being shipped to a legitimate store address to another address of their preference.

Many famous firms have gone through significant frauds. These scams have had severe impacts to the global economy as well to a contributing unwarranted ailing and increased unemployment for the middle and low class. The expensive frauds across the globe have escalated worldwide concerns regarding fraud, stealing billions of dollars of members value and resulted to erosion of public and investor confidence in the financial markets. Many researchers have discussed fraud-linked concerns and the general outlook is that fraud deterrence ought to be the major focus. It is less costly and more effective to deter scam from occurring than to discover if after occurring. By the time a fraud is identified, it is almost impossible to trace or recover the full amount of funds lost. Also, it is time consuming and expensive affair to examine fraud particularly those that involve huge multinational transactions. However, if the concentration is on fraud deterrence all the money losses, effort and time to restructure fraudulent dealings, recover missing funds, and track down fraudsters can be saved. Prior to making any attempts to manage or minimize the risks proactively, it is vital for the firms to comprehend the aspects resulting to fraudulent conduct by comprehending who are the perpetrators, why and when the scams are conducted. Various theories have been developed to explain the causes of scam and the most rampant cited models are the Fraud Diamond Theory by Wolfe and Hermanson and Fraud Triangle Theory by Cressey. The two models highlight the aspects that make fraudsters to commit the scam. This research will focus on Fraud Diamond Theory since Wolfe and Hermanson believed that Fraud Triangle Theory require to be enhanced in order to advance fraud detection and prevention by considering another factor apart from the three mentioned in the model. The authors considered adding capability as the forth aspect (“Fraud Triangle Becomes the Fraud Diamond: A Journey through the Theory,” 2015). They argues that scam cannot effectively be hidden unless the perpetrator has the capability; personal abilities and traits that holds crucial function in whether a scam might happen with the presence of the three aspects.


Scam has increased drastically over the last years and there is increasing tendency for well established firms to consider employing experts like forensic accountants to minimize the potential and pressure of occupational scams. Association of Certified Fraud Examiners defines fraud as the utilization of an individual’s profession for personal gains via the deliberate misapplication or misuse of the employing company’s assets or resources (Padgett, 2015). Regardless of the industry, an assortment of swindles, employee trust violations and crimes fall under the group of fraud.

Fraud can also be regarded as negligence, storage or misrepresentation of truth for the objective of altering the financial statement to hurt the organization or company, which also encompasses theft, embezzlement of any effort to unlawfully obtain or steal, harm or abuse assets of a firm.



Diamond switching happen frequently and can be exceptionally disturbing since the loss of worth and the distress for making false allegations. For a long time, some jewelers have taken advantage of clients who does not take careful consideration of their diamonds. The client might take their original diamond for repair, but they end up getting fake diamond in return. The diamond might appear similar to the initial one for the innocent client. The following are some of the aspects that clients can take into consideration to avoid diamond switch:

  1. The client should understand their diamond. They ought to note the clarity features, type of girdle, color as well as their locations. A certificate is crucial documents since it indicates all the major quality features.
  2. The client should request the store if they can take a photograph or diagram of diamond to act as the fair representation.
  3. The client should clean their diamond before taking it for evaluation or repair. It is easy to recognize diamond by appraising it in similar status.
  4. The client should record descriptive traits on the store’s receipt for every diamond they leave.
  5. The client should take caution of jewelers who do appraisals or repairs at very cheap prices.
  6. Clients should also try to create rapport with jewelers that they consider trustworthy.


Just as switching diamond is straightforward theft and fraud, misrepresentation is also dishonest. According to Federal Trade Commission, diamond should have one color and clarity grade of how it is sold as. This makes jewelers to “bump” the grade. The jeweler might purchase a diamond as SI1-H and bump it then sells it as VS2-G. When the buyer purchases it as VS2-G and later evaluated as SI1-H, the dealer will be lawfully covered as they sold it within one grade as it was initially. This has been a common vice among jewelers who “exaggerate” diamond’s clarity and color by two grading extents. The discrepancy is tricky to discover with inexperienced eye and the jeweler took advantage of the environment and circumstance. The jewelers are ready to document the stone and even give a full “evaluation.” However, such vices usually go unnoticed since clients assume when jewelers are ready to document the stones, they are appropriately representing the stone. Most clients are not concerned to get verification of the facts. Clients should be worried of sellers who are not ready to document the features in writing, but are willing to allow the client take the diamond for evaluation, before the sale. This can be fraud since the client assumes that everything is okay if they are even allowed to visit appraisal from appraiser of their choice. Thus, they fall in the trap of misrepresentation.

Fake Diamonds

The other basic fraud scheme is the creation of exceedingly stunning copies. These copies are likely to dupe almost everyone including diamond professionals. Colorless glass, synthetic spinel, synthetic diamonds and Cubic Zirconia are all over the market with stones that imitate original diamonds in various aspects. Inventors have successfully created new diamond copy (silicon carbide) that is currently approaching jewelry market. It has currently been a heated issue since it has duped almost every electronic appraiser since it indicates “diamond” when tested. Luckily, the imitation is lighter when compared to real diamond hence it is easy to separate the two by weighing. The copies are not awful, but the issue crop up when they are sold or represented as actual diamond with cost being way too high than their actual worth. There are assortments of tests to verify actual diamond, though the appropriate assurance is to buy a certified diamond then check whether it meets the certification features.

Clarity Treated Diamonds

Modern technologies for treating diamonds have created another sphere of fraud. Laser drilled diamonds and fracture-filled diamond are treated diamonds to improve their supposed quality and beauty. While being legal treatments to come up with a magnificent stone at a cheap cost, the issue arises when the treatments are concealed to the client who then presumes that the stones are not treated. The best solution is to purchase a certified diamond that meets the criteria as contained in the certificate.

Radiation Color Treatment

Jewelers can expose off-color diamonds like brownish or yellowish-tinted diamonds to particular radiation to get excellently colored stones. The radiation treatment creates rich greens, blues and yellows as well as enriching salability since the colors are very attractive. The treatment is not bad since it makes fancy looking stones for people who cannot afford real diamond. The issue crops up when the information about radiation treatment is concealed to the client. Treated diamonds should be indicated as “treated stones” and also sold at appropriate price.

Flaw Concealment

Where applicable, flaws are cover up according to their settings. A good jeweler will make efforts to set a diamond in a manner such that it will hide the noticeable imperfections. Settings might completely conceal a flaw making it a scam if the stone is sold to a client with bad representation. This makes it significant to view and purchase diamonds when loose.

An inexperienced client searching for an already set diamond is likely to experience difficulty to notice aspects that can drastically impact the price. Many jewelers set their huge desirable diamonds in custom mountings hoping that clients will like the mounting.

Altering Certificates

Owing to the great discrepancy in price that can emanate from a grading fault in ring-quality diamonds, it is prudent to purchase diamonds that meet the certificate criteria. Unluckily, the self-reliance of the people in stones together with certificates has resulted to vice of counterfeiting and altering them. While a client can be guaranteed that certified stones from trustworthy organizations are real, there are jewel dealers who take advantage to scam unsuspecting clients.

Telemarketing Scam

Clients are contacted by telephone solicitors who apply cunning tactics to sell their gemstones. They claim that diamonds are set below wholesale costs and that their firm will at all times purchase the stone back for selling price. Then the telemarketing firm asks for certified fund or cashier’s check for COD payment. The shipping firm delivers diamond and accepts the check.

At the end, the client gets diamonds worth just a portion of the purchase price. The fake stones (gemstones) arrive sealed in a defensive case indicating that buy-back policy is voided if the seal is broken. When the client removes the seal and takes the stone for independent evaluation, the telemarketing firm claims that the client has exchanged the stones. Also, if the client leaves the seal untouched they will only realize when reselling regarding the fraud later since they did not test the value and quality of the stones. These forms of fraudulent telemarketing firms have a technique of altering phone numbers, mailing addresses and names frequently making it tricky to track down their operations. To avoid this scam clients are advised to collaborate with expert appraiser and reach reputable diamond dealer who has low operating cost and will in operation when required.


While most people focus on key scam subjects, there are various minor frauds that take place every day in jewel stores across the globe. While the incidents might not make news highlights, when they occur to an individual they are factual and develop a huge downbeat of what ought to be precious moments. The following are frequent mistakes and scams that are reported by clients. They are detailed and will increase awareness and help clients make critical decisions.


This occurs when a jewelry store markets a diamond at high price, but it’s already sold by the time the client reaches the store to purchase it. Then they give the client a much valuable offer. Though this fraud is prohibited by Federal trade Commission, some dealers still practices it. While there are slim chances that the diamond was sold, the dealer should compensate the client by finding them a diamond that is comparable to that in the advert.

Carat Total Weight (ctw)

Various jewelry stores indicate diamonds set in rings with merely the total carat weight (tcw) or carat total weight (ctw), without indicating the weight of the center stone differently. It is hard to contrast the price of the rings if the weight of the main diamond is not indicated. In this circumstance the client is not purchasing a certified diamond and thus the dealer has possibly exaggerated the features. The carat weight of every stone matters in the value of a ring since in some cases some smaller diamonds are cheap compared to large diamonds. The client ought to stress on the carat weight since a client should discern what they are purchasing.

Special Lighting

Diamond appears desirable under high intensity lights. Jewelry stores apply exceptional bulbs that have sturdy blue element that makes yellow diamonds appear whiter. Additional bulbs have brawny ultraviolet wavelengths thus make any diamond with fluorescence appear whiter. There is increased customer complaints regarding diamond purchases where they feel cheated since the diamond appears different than they were purchasing it from the store. Clients should request to check the diamond away from the special lighting before they make their purchase.

Diamond District

There is common notion that key diamond trading center in America is situated on 47th Street in New York. The clients have a false impression that since diamonds are sold there, someway the diamonds on street jewelry stores will be a good purchase. The wholesalers and cutters are located in highly guarded offices above the streets. The jewelry stores are nothing else but tourist traps with cunning salesmen who are excellent in duping making client realize way later after it has already occurred. The client should exercise caution especially if the prices are low than normal since it indicates poor quality.

There are no genuine deals in the Diamond District streets since there are reported cases of the clients who were duped while purchasing diamond there.

Tourist Traps

While travelling or during vacation many people seem to have lost logical reasoning. This is particularly during purchase of jewelry when they come across low priced shops that claim they also sell diamond. If the client was settled they could have time to compare prices online. Unfortunately, they have inadequate time to make their purchase decision. They generate a notion that they will regret later in life if they pass the “lifetime deal.” The clients realize that they were scammed and they have slim chances of getting refunds. To avoid such scams, clients are advised to buy diamonds from trustworthy local diamond dealers

Deposit Scheme

Some jewelers insist that the client should leave deposit if they have to take diamond for evaluations by appraisers of their choice. This makes logic for security purposes, but the issue arises when the refund is asked in case the stone did not attain the desired features. The retailers claim that the deposit is non refundable or only possible for credit for another diamond. This is total scam since no client will have faith with a dealer who misrepresented the first diamond. To avoid this form of scam the client should ask for proper documentation for the diamond to be purchased.

High List Prices 

The most prevailing scams in retail shops is the fraud of offering huge discount from an exaggerated list price. The “compare at” price or “list” prices among others are insignificant for diamond business. What only holds water is what the client is paying for the diamond.

Color Coating

There are jewel stores that continue with the act of painting the bottom tip of the diamond. This act interferes with clarity such that the client will not be able to evaluate the diamond accordingly. The end result is that the diamond with innate yellow tint appears whiter than normal. This is a common trick which necessitates clients to purchase diamond with GIA certificate.


 The most rampant fraud is when jewelry stores offer misinformation regarding diamond features. Because most stores are making efforts to sell diamonds desperately even if it fails to meet required criteria, they will sugar coat their description to fit client needs.


Regardless of serious endeavors to kick out misappropriation of funds, fraudulent financial reporting and corruption, it seems that scam in its multifaceted nature is an issue that is increasing in severity and frequency.  According to survey findings by KPMG Fraud Survey in 2003, reported an increase in general scam levels since its survey in 1998; with employee scam being the frequent form of scam. The 2003 findings also reported more than double instances of fraudulent financial reporting since 1998. The tendency is matching the unprecedented current spate of huge accounting scams, in addition to the increased figures of SEC enforcement and accounting restatements actions in current years.

To counter fraud concern, regulatory authorities and the congress have implemented strict policies and increased enforcements proceedings. Firms are also implementing boarder oversight and stringent controls. The auditing discipline has incorporated more stern auditing procedures and principles, and software developers are including unremitting evaluation aspects to back-office arrangements. However, it is not assured that these measures are adequate to deal with fraud instances. A great deal of studies proposes that fraud is more prone to occur while an individual has an enticement to perpetuate scam, oversight or weak controls offer an opening for the individual to perpetuate scam, and the individual can downsize the fraudulent conduct. The three-pronged structure, generally regarded as “fraud triangle,” has been helpful for quite a long time for CPAs looking to comprehend and control scam risks. The structure has been previously incorporated by the auditing discipline as fraction of SAS 99.

A Distinct Approach to Think About Hoax Risks

The writers hold a notion that the hoax triangle could be improved through fraud detection and prevention by taking into account an additional aspect. Apart from tackling opportunity, rationalization and incentive, the writers’ four-faced “Fraud diamond” also reflects on individual’s capability: personal abilities and traits that hold a chief function in whether scam will essentially happen even with the presence of the additional three aspects (Abayomi & Abayomi, 2016).

Various scams, particularly those involving multibillion-dollar ones, would not take place in absence of appropriate individual with the correct capabilities set in place. Opportunity creates opening for fraud, and while rationalization and incentive will attract individuals to perpetuate it. However, the individual must possess the capability to identify the opening as an opportunity and also pass through it severally. Also, the logical question is “who could identify the fraud and turn it to reality?”

Applying the 4 element scam diamond, a criminal’s though procedure can occur as follows:

  1. Incentive: the person wants to, or has the need to perpetuate fraud.
  2. Opportunity: there is a loophole in the structure that the appropriate individual could utilize. Scam is achievable.
  3. Rationalization: the individual his already convinced that the deceitful conduct is worth risking.
  4. Capability: the individual feels that they have the appropriate features and capacity to be the appropriate person to perpetuate it. They have identified the specific scam loophole and are willing to execute their plan.

Though the four aspects definitely overlap, the basic contribution of the fraud diamond is that the abilities to perpetuate scam are separately and explicitly considered in the evaluation of scam risk. This makes the diamond fraud move past looking at fraud opening hugely as situational or environmental aspects, as has been the practice under previous and current auditing principles.

For instance, an instance where a firm where internal controls permits the likelihood those revenues might be documented hastily by manipulating sakes agreement dates in the sales structure. An opening for scam prevails, given that the appropriate individual is set to identity and executes it (Wolfe, Hermanson, & Hermanson, 2004). The opportunity for scam turns to be more severe if the firm’s CEO faces demands to increase sales, has technical expertise to comprehend that the control loopholes prevails, can coerce the CFO and sales executive to alter the sales agreement dates, and can constantly lie to board members and analysts regarding the firm’s growth. In nonexistence of such CEO, scam likelihood could never materialize, despite there being the 4 aspects of diamond scam triangle. Therefore, the CEO’s capabilities are crucial aspect in deciding whether the control loophole will eventually result to scam.

The Person with Capability

Owing to the writer’s experiences in fraud investigation for about 15 years, there are various vital features for perpetuating scam, particularly for huge sums or long duration. First, the individual’s function or position in a firm might facilitate the capacity to generate or utilize an opening for scam not accessible to others. For instance, a divisional director or CEO has the positional command to influence when deals or agreements take effect, thus impacting the expense recognition or timing of revenue. According to research on Fraudulent Financial Reporting between 1987 to 1997 on evaluation of U.S. public firms, revealed that business CEOs were associated in more than 70 percent of public-company accounting scams, revealing that firms do not execute adequate checks and balances to curb the CEO’s capabilities to impact and perpetuate scam (Puat Nelson, 2011). Also, when individuals assume a given responsibility repeatedly, like creating vendor accounts or bank reconciliations, their capability to perpetuate scam increases as their acquaintance of the function’s controls and processes augments over time.

Secondly, the appropriate individual to perpetuate scam is wise enough identify and execute internal control loopholes and to utilize function, authorized access, or position to greatest advantage. Many of the modern huge scams are perpetuated by experienced, creative and intelligent people, with a strong knowledge of firm’s vulnerabilities and controls. This acquaintance is utilized to influence the individual’s over or authorized access to assets or systems. Statistics from the Association of certified Fraud Examiners indicate that 51% of the fraudsters of occupational scam possessed at least a bachelor’s degree, and 49% of the fraudsters were above 40 years. Also, 46 percent of the scams of all the investigated scams by the Association were perpetuated by executives and managers.

Third, the appropriate individual had sturdy ego and substantial confidence that they will not be discovered, or the individual has a notion that they could effortlessly find their way out of the mess. Such arrogance or confidence can impact an individual’s cost-benefit evaluation of engaging in scam; the more self-assured the individual, the lower the perceived cost of scam will be. According to the article “The Human face of Fraud” by CA Magazine in 2003, the writer proposes that one of the basic personality forms among criminals is the “egoist” or individuals who are pushed to succeed at all costs, narcissistic, self-confident and self-absorbed” (CA Magazine, May 2003). Also, Duffield and Grabosky (The Psychology of Fraud,” Trends & Issues in Crime and Criminal Justice, March 2001) indicate that, apart from financial strain, another element of motivation that can be incorporated to the aspects of fraud is power/ego. The writers also cited Stotland (“White Collar Criminals,” Journal of Social Issues, 1977) about ego: “As criminals found themselves thriving at this crime, they started to acquire some secondary pleasure in the acquaintance that they are deceiving the globe, that they are revealing their dominance to others.”

Fourth, a triumphant fraudster can persuade others to conceal or perpetuate scam. An individual with a very coercive trait has capacity to convince others to continue with the scam or walk away. Also, Allan indicates that a basic personality aspect amongst swindlers is the “bully,”  who “ makes significant and unusual requests of those who work for them, facilitates fear instead of respect….. and as a result evades being subject to similar procedures and rules like others.” Various financial reporting scams are perpetuated by subordinates reacting to an pronouncement from the executive to “increase sales at all cost or else be expelled.”

Fifth, a successful swindler lies consistently and effectively. To curb being discovered, they must look at the investors, auditors, and other stakeholders in the eye and lie persuasively.  They also have the skill to maintain record of lies in such a manner the plot of the story is flowing. For instance, in the Phar-Mor scam the auditors purported that Phar-Mor had created a “Fraud group” of managers and previous auditors who “consistently worked to conceal facts” regarding the fraud from them (“PHAR MOR STUDY-CASE,” 2011). The auditors purported that the fraud group “forged documents, lied, and rubbed everything the auditors saw to conceal any facts of malfeasance.”

Finally, a successful swindler is able to handle stress. Perpetuating scam and managing it for a long period might be exceedingly stressful. There is the peril of being discovered, with its personal implications, as well as consistent need to hide the scam every day. Richard Scrushy, former HealthSouth CEO is currently facing various criminal charges for purportedly plotting a long-running plan to inflate the firm’s revenues during the serving of diverse CFOs. Regardless of the persistent push, Scrushy has remained firm during the course of the investigation, even coming out for one hour to announce his innocence. On the other hand during Scrushy’s sentencing, Emery Harris, former HealthSouth Assistant Controller who was enticed to participate in the scam, narrated to the judge how he was relieved when the federal agents raided the company for investigation, since he thought he was off the hook.

Dealing with Capability

Appreciating the significance of capability as the fourth aspect of fraud is merely fraction of the confrontation. The other part is to tackle capability when evaluating fraud risk, and to utilize acquaintance regarding fraud capability to curb or discover fraud. Beyond considering rationalization, opportunity and incentive, the following phases will contribute some points on capability.

  • Explicitly assess the capabilities of top executives and key personnel.  In order to focus on capability, organizations and their auditors should comprehend their employees’ personal abilities and traits. The corporate accountant, audit committee member or auditor ought to focus on personality skills and traits of management and others liable for high-risk spheres when evaluating scam risk or seeking to detect and curb fraud. Habitual background checks on new workers can discover previous fraudulent convictions.

In evaluating people’s abilities and traits, various techniques of collecting data might be useful. First, there is no alternative for spending time with the individual. Continuous contact under an assortment of circumstances, both social and business, can offer a significant depiction of the individual’s capabilities. Second, search for signs in the “insignificant things.” If a person avoids small issues or constantly reveals complete refusal to fail or lose, regardless what the cost or issue, this can hint similar conduct on larger issues. Lastly, concentrate on what other people say regarding an individual. Consistent claims regarding particular tendencies or traits is data that can complement more direct observations.

  • If there are concerns regarding capability, act accordingly. If a person’s capabilities reveal a key risk aspect, act with sturdy controls or enhanced audit testing. Also, execute a sporadic rotation of schedule, but crucial, functions among staff can reduce the openings for scam gained from enduring acquaintance of the occupation and its controls. The crucial to prevention of fraud is concentrating special attention on circumstances offering, in addition to rationalization and incentive, the combination of capability and opportunity.
  • Reassess the capabilities of the key personnel and executive board. Evaluating capability and acting to issues should not be considered as one-time incident. Constant updating of capability evaluation is required for two reasons. First, individuals can build up new capabilities with time, as they grow professionally or climbing up the ladder. The capability to perpetuate scam might increase and extra scrutiny and controls might be called for.

Secondly, organizational procedures, circumstances and controls changes with time. Consequently, individuals might be favored to perpetuate scam in a new setting, even if they were unable in previous settings. The new system might disadvantage those employees who are not used to technology while it might favor those who have solid IT skills, to commit scam. It is vital to consider the new capabilities and put in place suitable responses.


In conclusion, increased enforcement, broader controls, modern legislation, advanced monitoring technology and improved auditing standards are all aspects in the good direction and will participate in prevention and detection of scam. It is good to consider factors beyond the standards since it might not be adequate to limit the endeavors to the prevailing practices and standards. Aligning to this outlook, the 2004 Miller GAAS Guide highlights the fraud triangle aspects stipulated in SAS 99 and indicates that “it is apparent that the Auditing Standards Board is facing difficulty with the vast subject of how to discover fraud ….auditors ought to pay close attention regarding pursuing applicable professional standards and holding a notion of self-assurance that fraud does not occur in specific engagement. Consequently, if capability have a role in impacting or magnifying the additional fraud aspects, other checks and balances or discovery structures should be executed,  or an auditor should spread out audit scope, testing and procedures for probable scam.


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