The Fraud Examiner

The Perils of Bias in Fraud Examination

By Scott Patterson, CFE

January 2015

Bias can affect a fraud examiner in a number of ways. It shapes our perception of the facts. It can cause an auditor to look past red flags of fraud or compel an overeager investigator to see malfeasance where none exists. In short, it is a natural enemy of fraud examiners, who must be aware of the risk posed by their own bias and how it could hamper their objectivity and effectiveness.  

Allen F. Brown, CFE, CPA, is a former legislative auditor who discussed overcoming investigation bias in a recent interview with the ACFE. Brown said that biases are formed by our experiences and relationships that we have had, or those that have been communicated to us.

In the latter case, "they very well may not be true,” Allen said. “In other words, we’re listening to someone else, relying on someone else’s opinion to taint how we think.”

At that point, our human nature takes over … and our objectivity is compromised.

“What ‘biased’ means to me is that you have a pre-conceived notion.  You’ve already made a decision,” Brown said. “And you allow that pre-conceived notion to then color all the decisions you make.”

Science: The Evidence is Stacked Against Us

ACFE Board of Regents member Gerard Zack, CFE, CPA, CIA, Managing Director – Global Forensics for BDO Consulting, wrote at length on the subject of bias in the October 2013 edition of The Fraud Examiner. In “Your Dog is the Worst Dog. Ever,” Zack notes that several scientific studies have reinforced the idea that “no matter how much we try to be unbiased, some degree of bias is virtually always present.”

One of them, a group study, examined participants as they made comparisons among three-dimensional objects, and conformed to the observations from others. While this in itself was not unexpected, the surprising thing, Zach writes, is what happened inside their brains during the process:

All participants performed their comparisons while they were in a functional magnetic resonance Imaging (fMRI) brain scanner. Researchers wanted to determine whether when participants conformed to the incorrect conclusions drawn by other participants the part of the brain most active was the area dealing with conscious decision-making (the prefrontal cortex).

But what they found was that other regions of the brain were the dominant activity centers when conforming behaviors took place – regions associated with perception rather than decision-making. Participants actually saw what their fellow participants saw, rather than evaluating information and making the same decision.

Think of this now in terms of how an investigator responds to an allegation of fraud or a whistleblower call aimed at a particular person. The implications are significant. Knowing what someone (a whistleblower, for instance) has concluded may inherently establish a bias on the part of the investigator. Add to that all of the training in finding fraud, and a job responsibility that includes finding fraud, and one can quickly see that an investigator may commence an investigation determined to find fraud, rather than to conduct a fair and thorough investigation.  

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