Have you ever been a victim of financial fraud? If not, maybe you know someone who has.

In today’s digital-everything world, it’s hard not to hear about someone, somewhere, getting ripped off. But the image fraud conjures, that of a Bernie Madoff type of crook or a mustache-twirling villain, may not represent most perpetrators in the real world.

According to a new book, “Fool Me Once: Scams, Stories, and Secrets from the Trillion Dollar Fraud Industry,” the world of fraud is complex and much larger than many of us think. Kelly Richmond Pope, professor of accounting at DePaul University in Chicago and author of “Fool Me Once,” spoke with “Marketplace Morning Report” host David Brancaccio about her findings.

The following is an edited transcript of their conversation.

David Brancaccio: Kelly, I’m not sure I want to live a family life and a work life where I can’t really trust anyone. But what would you say? I need to get over that and not be a chump?

Kelly Richmond Pope: Absolutely. You’re living it, you have to get over it because that is the life that you are involved in every single day.

Brancaccio: I don’t know, it’s part of the kind of currency of social relations that at some point, you have to trust some people, but you sure can’t trust all people in an organization. And you’ve sat down with a lot of people who’ve really betrayed that trust.

Richmond Pope: I have. And what’s interesting is, what I’ve learned when sitting down with people is we all sort of push the envelope and push that trust envelope in the organizations that we work in. We just don’t always think of ourselves as doing that.

Brancaccio: We push the envelope, we trust where we shouldn’t?

Richmond Pope: We trust where we shouldn’t, but we sometimes make decisions even on our own that we’re sort of looking over our own shoulders and saying, “Oh, goodness, I hope I don’t get caught doing this.” And that’s what I think is the interesting part of the book, is I wanted it to be self-reflective. I wanted people to stop saying that is “them” and start saying, “Well, you know, maybe it could be a little bit of me too.”

Different types of perpetrators

Brancaccio: Well, that’s interesting because, I mean, let’s talk about that. I like how you divide up people who play roles in what I’ll call the fraud-industrial complex. First, there are the scheming fraudsters who have an almost or actual sociopathic mindset, who set out to plan about how they’re going to rip someone else off. But then, as you’ve already alluded to, then there are people who, what, stumble across a possible opportunity to do the wrong thing and then do the wrong thing?

Richmond Pope: Well, yeah. So I’ll admit, I am a true-crime lover, right? And a lot of those shows that we watch are about a category that I call in the book called intentional perpetrators. But there are these other categories that are also mentioned. Those are the accidental perpetrators and the righteous perpetrators— any one of us could be those. And so, say for instance, your boss or supervisor asked you to make a transaction, book a transaction, sorta turn a blind eye to something, and you do it because you trust your boss, you trust the organization. Now, you know it’s not right, but you do it and hope that it’ll clear up later. Those are us too. And so they’re not the career conmen, career conwomen, but they are just the regular, average, everyday employee that could find themselves mixed up in a fraud. And so those are the other two categories that I wanted to bring up and force people to think about that. Maybe you could be like those people.

Brancaccio: Well, you have a story in the book about — it’s from a bank, and then there’s some cash missing, they figure it out, but the Brink’s truck, I think it was, arrived. And then this one employee remembers that the bag from the Brink’s truck is still, like, in a closet or something. And the employee says, “Oh, look at that cash, that was from that other day.” And what happens?

Richmond Pope: I love that story. I’m glad you brought that up because it’s a great question that we all need to ask ourselves: What would you do if you found a bag of money sitting somewhere and you knew where the money should go, but would you take it or would you turn it in? So the story you’re talking about is a teller that found a bag of money that was under a cabinet. And he had to think about, “What am I going to do?” Now when I’ve asked my students to think about this, really what I’m alluding to is my documentary, “All the Queen’s Horses,” which chronicles a woman that embezzled $53.7 million from a small town. And so I ask my students, “What would you do if there was just a bag of money in the classroom? Would you turn it in or would you take it?” and question them and ask them, “Well, tell me the first couple of things you think.” They asked, “How old am I? Is there a camera in the room? How much money do you think is in the bag?” And so what I forced them to think about is they’re rationalizing, “Is it OK to take the money?” So the case in the book that — Tom Hughes is the person you’re referring to — he decided he was going to take the money. And he had a good time spending the money, but he had this, “Do I take or do I tell?” decision-making process that he had to go through to decide, “Well, I’m actually going to take this money, and hopefully I won’t get caught and no one will find out.”

Brancaccio: So help us with some signs to watch out for in an organization. I guess, like, the person who has their fingers on the purse strings at the company who never, ever takes a vacation, right? They’re afraid someone else will sub for them and find something wrong?

Richmond Pope: Well, there’s some general signs, and I think the first main one is a disregard for compliance training and ethics training. If no one really cares, no one pays attention, it’s just sort of like a check-the-box activity, I think that’s a sign because it leads to the type of culture that you might be working in. A second sign is if there are no internal controls around anybody, and I think we have to remember that internal controls were put in place to protect us all, no matter where we work. So if there are no internal controls, and I think you saw, or we’re seeing with the FTX scandal, there were no internal controls there. That should be a red flag. If you, if you’re working in an organization like that, be careful.

Fraud made easier before the pandemic

Brancaccio: In the year before the pandemic, it’s 2019 of course, right? The Securities and Exchange Commission, what do you write, it made it easier for would-be fraudsters?

Richmond Pope: Well, there was some rules around the Sarbanes-Oxley Act that [were] relaxed. So it made it easier for anyone to engage in fraud. So when you brought up the pandemic, I think what was really interesting about the pandemic is it also relaxed some rules in order to help people, help small businesses, help medium-sized businesses, all businesses. And so relaxing those rules made it much easier for people to not only think about fraud, but engage in fraud. So the schemes are pretty much the same. But what you noticed were the type of people that were engaging in them. Now, I’ve been reading and studying fraud for years, never have I seen the amount of entrepreneurs, pharmacists, doctors, nurses, you know, just the everyday person that you would think would never engage in fraud, engaging in, like, [Paycheck Protection Program] loan fraud because so many of the rules were relaxed. And I think a lot of people thought, “Hmm, I’m just gonna try this. And the likelihood of me getting caught probably is low. So I’m just going to try it, I’m going to risk it, it’s worth the risk.” And so I think that just seeing the relaxation of some of the laws around [the] Sarbanes-Oxley Act, some of the normal laws around how government aid works, created this whole new profile of what we consider a fraudster. But now, you would never think that the entrepreneur that has a pizzeria in a strip mall would be engaging in PPP loan fraud. You would never think that the chiropractor who has an office in the strip mall would lie about the number of employees that they have so they can receive millions and millions of dollars from the government. So you started to see the profile shift a whole lot. And I thought that was pretty fascinating.

Brancaccio: I have had business school professors, not just at one institution, but more than one, remark to me that they thought that some MBA programs select for sociopaths, people who are so disinclined to abide by the rules that they think business is the career for them and business leadership. Do you think at any level that American business, how it’s practiced, is one of the reasons that we have so much fraud in America?

Richmond Pope: Well, you know, that’s interesting. I sort of snickered when you said it. But you know, when you think about it, we reward aggressive risk-taking behavior from people. So I think there may be some truth to that because to be an entrepreneur, or to be a CEO, I mean, there’s a little bit of crazy that you have to have in order to think that you can survive it or manage large groups of people. So there may be some truth to what your professor said. It may be an environment that does attract a certain type of personality. But what field doesn’t? Think about the presidency. You have to have a certain makeup to think that you are smart enough, strong enough to run the United States. So I think just like any other field of business could attract a certain type of personality, and those personalities could have some positives and some negatives about themselves.

Brancaccio: And so back to your conversations with fraudsters. To what extent when they actually do get caught do they understand that they got the risk-reward ratio wrong? Or once a fraudster, always a fraudster?

Richmond Pope: Well, and this is where the categories matter. Because I think when I have done my interviews with intentional perpetrators, they tend to be very forthright, like, “Yep, this is what I was doing. I knew the system, I knew it was wrong, didn’t think I was gonna get caught. And I did.” And so they’re a little bit more forthright in those interviews. It’s the accidental perpetrators and the righteous perpetrators, where they’re explaining their situations a little bit different because the risk-reward ratio is not as clear. Because I just did a session with a company and we brought the book to life, we had one of the offenders come, and we did a session and read a chapter of the book, and then they were there sharing their story. And what was interesting is to watch the executives in the room agree with her. They understood the dilemma that she was placed in because it was a regular business dilemma. They all could relate to it. And what was interesting on my end is to see when you have a righteous perpetrator or an accidental perpetrator, people get it, they see themselves in those stories. And so I think that risk ratio is a little bit different because they are risking something to help their organization or they are risking something to help a friend outside of their organization and they think they can help someone. So the risk-reward ratio is a little bit different for those two categories than I would say for the intentional perpetrator category.

Brancaccio: When the fraudster came to talk to the company, that was an accounting fraud?

Richmond Pope: Well, so now, you know, I’m an accounting professor. So I think everything is an accounting fraud, right? That’s just sort of what I believe. But because all roads lead back to money, so no matter what industry it is, it all came back to how things were accounted for and how things were recorded in those financial statements, ultimately, but this particular person was an attorney at a big law firm on Wall Street in New York. And she was involved in a very large embezzlement. And so at the end of the day, everything comes back to how missing money, how things are reported in your financial statements, which is why I always believe everyone needs to take an accounting class to understand how to read a basic financial statement. Because when fraud happens and there’s money missing, the good old accounting equation: assets equals liabilities plus stockholders’ equity means that something’s out of balance, so you have to make it balance. So there’s fraud sort of in several places in order to disguise when something is missing.

Brancaccio: That’s a very practical suggestion that everybody should do some math in their lives. Everyone should know something about personal finance. And you can say it one more time. Everybody should …

Richmond Pope: … take an accounting class [laughter].