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A Different Kind of Knowing and Fraud

The ways that friends know things about one another, the ways that teenagers know the unspoken aspirations and concealed intentions of others, the ways that young children know languages, the ways that skilled psychoanalysts know of patients’ ills, etc. – these are different from the proofs offered by prosecutors and developed by investigators in fraud cases. There is an important set of unwritten rules at play here. Demonstrating that the person of interest knew of the wrongfulness of his/her actions, that he/she knew of the key data and evidence weighing against the asserted honesty of his/her intentions, that he/she knew of the laws and regulations governing the transaction(s) at issue, etc. – these circumstances of the person of interest may be known by those in his/her immediate peer group and those that have frequent contact with the person of interest in the same way that students know their teachers, teenagers know their parents, faculty members know their colleagues, etc. This explains in part why the quanta of fraud developed and proven by investigators and prosecutors are dwarfed by the quanta of fraud occurring under their jurisdictions. Often, the experts’ means of knowing for forensic purposes is deficient to capture many frauds, especially those insulated under numerous layers of review and approval.

Training and education in fraud examination are necessary, but they are not sufficient. The highly educated and refined individual may fit in well with marketing and business development; he/she may be expert in the preparation of spreadsheets and use of reports from databases; he/she may be savvy in executing earnings calls and fielding the usual questions from the media, but these individuals may have buried over and lost use of the ways of knowing honed in the informal brainstorming that occurs routinely in growing up, choosing whom to be friends with, etc. More importantly, the gatekeepers may also have misplaced these means and methods.

As in money laundering – there are the deposit, layering, and integration processes in fraud development and execution. Often, the fraudulently inspired effects commingle with the legitimate effects such that the investigator and prosecutor cannot separate out these components any longer. This is why sometimes individuals imaginatively steeped in the meaning of Andersen’s ‘New Clothes’ may know more about fraud than individuals overly trained in Andersen’s ‘Financial Auditing.’ Sometimes, you have to be pretty smart in the old ways just to see what’s in front of you, hidden by the fog and smog.

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