On Fraud, Ethics & Whistleblowing: A Conversation with Dr Kelly Richmond Pope

On Fraud, Ethics & Whistleblowing: A Conversation with Dr Kelly Richmond Pope

Have you ever wondered why Bernie Madoff thought he could brazenly steal his clients’ money? Or why investors were so easily duped by Elizabeth Holmes? Or how courageous people like Jeffrey Wigand are willing to become whistleblowers and put their careers on the line? Fraud is everywhere, from Nigerian “princes,” embezzlers, and Ponzi schemers to corporate giants like Enron and Volkswagen. And fraud is costly. Each year, consumers, small businesses, governments, and corporations lose trillions of dollars to financial crime. 

Dr. Kelly Richmond Pope is a renowned expert in forensic accounting, risk, and white-collar crime research. She is the Dr. Barry Jay Epstein Endowed Professor of Forensic Accounting at DePaul University and has won several awards for her contributions to education and documentary filmmaking. Her expertise lies in identifying financial fraud risk and assessing corporate culture and compliance systems. Dr. Pope’s research on executive misconduct resulted in the award-winning documentary, All the Queen’s Horses, which explores the largest municipal fraud in U.S. history. She is also known for her TED Talk, “How Whistle-blowers Shape History,” which has been translated into 20 languages and viewed over 1.6 million times. Her new book Fool Me Once talks about the scams, stories and secrets from the trillion-dollar fraud industry.  

In this interview, I speak to Dr. Kelly Richmond Pope about the types of fraud and ethical missteps that leaders will encounter, the importance of governance and process, common holes in most companies that make them open to fraud and ethics issues, and how we can protect ourselves and our businesses.  

Q: How do we differentiate between the types of fraudsters and ethics breaches we may encounter?  

[Kelly Richmond Pope]: There have been numerous instances during my presentations when I’ve noticed a common refrain: “Look at those fraudsters, there they are.” However, my primary aim is to encourage a deeper dialogue. The conversation I want us to have is, “This could be any one of us.” 

Frequently, when we point out “them”, we’re referring to the corporate, narcissistic, aggressive, high-achievers, often the deliberate culprits. Their stories pervade our movies and crime podcasts, enabling us to distance ourselves because we can’t necessarily identify with their actions. 

My goal was to introduce two other categories that may resonate more closely with our own experiences: the accidental perpetrator and the righteous perpetrator. 

The accidental perpetrator is a team player. Their involvement in misconduct isn’t driven by personal greed, but could result from simply following orders from higher-ups, a commitment to their team, or an unwavering loyalty to a CEO or CFO. Their objective? To contribute positively and ensure the organization’s success. Sounds like a commendable individual, right? 

However, such blind obedience could inadvertently lead to involvement in fraudulent activities. This doesn’t imply they’re on par with Bernard Madoff, but they could be guilty of not resisting an unethical leader strongly enough. Many of us fall into this category; we often fail to challenge authority. When an order comes, we merely hope we won’t get caught or that our paper trail won’t be discovered. 

Q: How do the most egregious fraudsters get away with it? 

[Kelly Richmond Pope]: There are individuals within organizations who seem untouchable, be they extraordinarily successful salespeople or powerhouse CEOs. These individuals often appear to be above the rules, even above the law. They’re given latitude due to the exceptional value they bring to the organization, and because they typically wield considerable power or persuasion. 

There may be an unspoken agreement to allow these individuals to operate as they please, as their contributions are perceived as too valuable to disrupt. Additionally, there might be a hint of personal gain influencing this leniency. 

Consider the example of Bernie Madoff. He was a powerful figure who amassed considerable wealth for a select few—if they were fortunate and early enough in his scheme. Despite the exorbitant returns that should have raised eyebrows, those benefitting often turned a blind eye, choosing not to question the source of their profits. 

Yes, there were individuals who asked probing questions, but Madoff had crafted such an aura of invulnerability around himself that any questioning was met with swift exclusion from his investment circle. He was effectively untouchable. 

This suggests how some individuals manage to circumvent accountability and persuade others to comply: they achieve a superstar status that makes others willing to overlook potential transgressions. 

Q: What is an example of a red flag in how companies operate? 

[Kelly Richmond Pope]:  The phenomenon of the “star syndrome,” where we ease control measures due to our admiration for a particular individual, should be recognized as an immediate personal red flag. For instance, if an expense limit of $10,000 typically requires five signatures and three approvals, but you find yourself bypassing these safeguards for someone due to their exceptional performance in a certain area, take note. If you’re loosening the controls you’ve established simply because this person’s exceptional skills or accomplishments bring you pleasure, you’re encountering your first significant red flag. It’s a major one that shouldn’t be ignored. 

Often you’ll see companies where nobody pushes back on the founder… after all who would ‘dare’ push back on them! 

Q: What are some of the common holes in business that enable fraud? 

[Kelly Richmond Pope]:  That’s an excellent question, and I believe one of the most significant issues I’ve encountered is the ‘check-the-box’ mentality towards compliance and ethics training. We often find ourselves asking, did you sign the annual compliance report? Did you review and sign off on the code of conduct? If that’s all we’re looking for, we’re missing the point. If the tone at the top doesn’t take these matters seriously, the execution throughout the organization will likely mirror that indifference. 

Remember, no one views themselves as unethical. This is why it’s crucial to construct categories that people can identify with. We’ve discussed the intentional and accidental perpetrators, but not yet the righteous perpetrator, a category that also appeared on our initial list. Interestingly, I categorize Elizabeth Holmes as a righteous perpetrator. While Bernard Madoff may fit the intentional category, Holmes falls under the righteous. 

Despite being a perpetrator, Holmes began with a noble objective: to create a technology that would benefit society. We’re well aware that her venture veered off course, but her initial intention was rooted in altruism. Perhaps the adage “fake it ’til you make it” took on a life of its own in her case. 

The righteous perpetrator is an individual who holds power or privilege within an organization and employs that power to aid someone outside of the organization. The aim is to enable individuals to identify with a perpetrator category. If we, as organizations, continue to treat ethics and compliance training as a mere box to be checked off, individuals will never see themselves in these scenarios. 

We need to grab their attention and make them think through potential ethical missteps, such as slightly exaggerating an expense report, adding a couple of dollars to a missing receipt, or taking their family on a conference trip without actually attending the conference. It’s these small lapses that can lead to larger ethical breaches. 

Q: What are your views on culture of compliance? 

[Kelly Richmond Pope]:  While I don’t aim to eliminate formal policy, I do aspire to enhance it. I advocate for scenario-based training as a tool to generate the tension that individuals must confront. If you’ve got a moment, I’d like to share something with you. <shares this link> 

<talks to the game in the link> It’s a game I’ve designed and employed in my training sessions with executives and managers, and it’s inspired by the book. I’d like to show you what I mean. Please click on the link in the chat to get a sense of what I’m referring to. If you follow the instructions, you’ll find it presents ten potential fraud events. 

For instance, it might say, “You’ve approved closing loan documents without any due diligence.” My objective here is to simulate real-life situations that individuals encounter. Many might think, “I know this client, I know this customer, I don’t need to go through all the formalities because I’m familiar with them.” This mindset bypasses the necessary due diligence, which raises the question: why did you do it? 

That’s choice A. Choice B is I did it because the start up mortgage company needs the boost in sales, and I can help them. No-one will get hurt. And option C, I did it because the loan was essential to prevent my clients’ 20 employees from losing their jobs. So which one are you going to pick, why did you do it? 

Vikas: I’m going to pick A. 

[Kelly Richmond Pope]:  So, what this is leaning towards, and just based on your answers it’s going to tell you at the end what type of perpetrator would you be if you were ever to be one. Would you be intentional, accidental or righteous. 

I think I have about 5000 users at the moment, I’m trying to get 10,000 but what the trend is showing is most professional audiences are accidental and righteous perpetrators, which is good because you can change, you can fix that by giving them proper training, by giving them scenarios to talk to and think through. So this to me is ethics training 2.0. You really have to give people situations that they do. That they actually do.  

Q: What is the role of governance and controls in preventing fraud and ethical missteps? 

[Kelly Richmond Pope]:  We often overlook how minor ethical transgressions can snowball into major problems, and we fail to connect the dots between these smaller issues and the larger challenges companies encounter. In my opinion, the responsibility of governance and enforcement is to comprehend the decision-making processes of our employees. To do this, we must provide a simple means of understanding the root cause of the problem. 

For instance, consider the example we just discussed of not conducting due diligence. It may appear insignificant, but in reality, it could lead to multi-million dollar deals with numerous employees engaging in similar behavior. Over time, these lapses can accumulate into millions and millions of dollars in losses. To combat this, we must comprehend the sentiment surrounding such lapses. By understanding this, we can gain insights into how individuals rationalize their fraudulent behavior. 

We must approach reprimand with care, as it can’t simply mean termination. Instead, it should be an opportunity to improve training and development. When we reprimand, we need to assess whether the mistake was a genuine error or intentional misconduct. We also need to identify any unrealistic corporate pressure that may be prompting employees to engage in unethical behavior. 

It’s essential to be cautious with reprimands, as the aim should be to identify and rectify problems, rather than to punish or terminate individuals. Therefore, we need to adopt a nuanced approach that focuses on resolving issues and creating opportunities for growth and development. 

Q: What are your views on whistleblowing? 

[Kelly Richmond Pope]: Whistleblowing is a complex issue, and its negative connotations stem from the perception of vigilante whistleblowers. However, it’s important to recognize that there are different categories of whistleblowers, including accidental and noble whistleblowers, who don’t identify as whistleblowers because they’re merely doing their job. 

Organizations need all types of whistleblowers, and it’s crucial to create an environment where vigilant whistleblowers can play a positive role. While we don’t want an excessive number of whistleblowers, having someone who reads every policy and knows it inside-out is valuable. It’s worth noting that whistleblowing isn’t limited to the financial sector. We should encourage whistleblowers to speak up in all areas, especially in safety and food. For instance, we want safety engineers on airplanes and automobile engineers to speak up if they notice something is wrong. 

It’s essential to recognize that negative connotations surrounding whistleblowing vary depending on the industry. When it comes to protecting public safety, we support whistleblowers. But if there’s a potential financial loss, we often want the whistleblower fired. This inconsistency underscores the complexity of whistleblowing and the need for organizations to navigate this issue with care. 

Q: Do leaders have enough ethics training? 

 [Kelly Richmond Pope]: I believe that we need more training on how to approach difficult conversations respectfully and effectively. It’s essential to find the right language when addressing leaders, as the term “ethics” can be off-putting to some. For instance, we could use words like resilience training or conflict resolution, which aren’t commonly assumed skills. These skills are necessary because approaching a problem can be uncomfortable for anyone, and it’s vital to help our leaders feel more comfortable in these situations. 

When we practice uncomfortable conversations, it’s like exercising a muscle that needs to be strengthened. Unfortunately, we don’t get enough practice, and this is where training comes in. For instance, if I needed to cancel our meeting five minutes before, it would feel uncomfortable for me to do so. Therefore, it’s essential to help our leaders get more comfortable making tough decisions and having difficult conversations. We need to practice these skills more often and provide the necessary training to help our leaders build their confidence in these areas. 

Q: What fascinated you about this area? 

[Kelly Richmond Pope]:  I believe the issue is simple yet complex because everyone assumes they’re above fraud and unethical behavior. However, in reality, many people engage in small-scale fraudulent or scamming activities daily. These could range from minor actions, such as taking one’s family on a business trip and not completing the required work, to more significant and serious infractions. 

What fascinates me is how some people believe they’re exceptional when, in fact, they’re not. The complexity arises from our collective perceptions of what constitutes fraud and unethical behavior. Many people only associate such behavior with egregious offenses, which enables them to overlook the smaller, more frequent infractions that occur. 

Ultimately, addressing the issue requires a shift in mindset, acknowledging that even small-scale fraudulent activities are unacceptable. We need to recognize that everyone has room for improvement and that training and education are necessary to build a culture of ethical behavior. 

Thought Economics

About the Author

Vikas Shah MBE DL is an entrepreneur, investor & philanthropist. He is CEO of Swiscot Group alongside being a venture-investor in a number of businesses internationally. He is a Non-Executive Board Member of the UK Government’s Department for Business, Energy & Industrial Strategy and a Non-Executive Director of the Solicitors Regulation Authority. Vikas was awarded an MBE for Services to Business and the Economy in Her Majesty the Queen’s 2018 New Year’s Honours List and in 2021 became a Deputy Lieutenant of the Greater Manchester Lieutenancy. He is an Honorary Professor of Business at The Alliance Business School, University of Manchester and Visiting Professors at the MIT Sloan Lisbon MBA.