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THE
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Overachieving Fraud,
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In a perfect business world, every employee and third-party supplier would display model business behavior, and there
would be little need for anti-fraud programs. But, in the real business world, occupational fraud and abuse are prevalent.
So, businesses must implement anti-fraud programs to protect themselves from financial, legal and reputational harm.
Tips are the leading source of fraud detection and fraud hotlines are a leading source of tips. So, turn to EthicsLine,
the official hotline of the ACFE.
The EthicsLine package includes:
Hotline (telephone, web, mobile) for report intake
Case Management (web and mobile) for online
investigation management
Analytics for tracking and trending
Communications Campaign Materials to communicate
when and how to report observed business misconduct
COVER STORY
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FEATURED ARTICLES
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Digital Fingerprints
Anything You Say Can and
Will be Used Against You!
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12
58
Fraud EDge
FraudBasics
Check 21 Can Make Fraud Easier:
Be Alert to Changes in Technology
By Linda Lee Larson, DBA, CFE, CPA, CISA
16
By Jean-Franois Legault
Case in Point
60
62
ACFE News
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TRAINING
EVENTS
Register at ACFE.com/Training
Helen Pryor
Art Director
Cora Bullock
Assistant Editor
Aimee Jost
Circulation Manager
Katie Ford
Contributing Editor
January/February 2012
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Digital Fingerprints
A Closer Look at Technology and Fraud
By Jean-Franois
Legault
JOB POSTINGS
Before you continue reading this, look at your organizations job postings and ask, What are we telling the
competition about us?
Imagine a software company with a strong presence in
Asia Pacific that posts a public job offer for a sales manager
in North America. What are they telling the competition?
Think of the recruiting process in your organization and how
long it can take to staff a position. Is that enough time for the
competition to adjust to the arrival of this new sales manager?
Your competitors find or infer from your job postings
the technologies your organization uses, expansion into new
areas and territories, market growth, change in structure,
structural growth, etc.
What does this mean for fraud examiners? Make sure
you run proper background checks on potential hires! Why?
Because some job descriptions are so detailed that someone
wishing to be hired for fraudulent purposes can customize
his or her rsum. I just worked a case in which a candidate
Fraud-Magazine.com
Digital Fingerprints
A Closer Look at Technology and Fraud
Whatever you write, post and/or communicate may allow you to build eminence
as an expert. However, opposing counsel
could also use that public information to try
to disqualify you as an expert or to crossexamine you in court.
AS AN INVESTIGATOR
January/February 2012
WHAT TO DO
Using an Organizations
Credit to Commit Fraud
Part 1
account balance when the full amount due is not paid each
month. The primary responsibility for charges on these credit
cards rests with the organizations.
THE BUSINESS OF CREDIT CARDS
Fraud-Magazine.com
January/February 2012
scheme by scanning the citys disbursement files to determine other risks. I quickly noted that the city was making
its monthly credit card payments using only the statements.
There were very few purchase receipts available for review
and audit. For example, credit card purchases from a local
computer store were almost always missing from the files. I
contacted the citys computer consultant who was responsible for all information technology issues. However, he wasnt
aware of any official purchases from the computer store.
A computer store representative faxed documents to
me that showed Sarah had signed for a computer, monitor,
software and games on many occasions through the period of
this loss. City staff members conducted a search of city hall
but were unable to locate any of these assets.
Sarah had made all credit card payments on time, but
she had destroyed all the supporting documents that listed
the details of the purchases from the computer store. She
hoped that retaining only the monthly credit card statements
on file for the citys governing body and its external auditors
would be sufficient to conceal her irregular activities. She
was wrong. The governing body did not notice this irregularity, but her fraud did not escape the watchful eye of the
external auditors. In my experience dealing with fraud cases
in state agencies and local governments in the state of Washington, governing bodies rarely detect fraud in the transactions they are reviewing and approving, primarily because no
one took the time to properly train them for this task.
The clerk-treasurer demanded a trial to resolve the issues in this case. She hired a prominent regional lawyer for
her defense and agreed to a bench trial. (There was no jury.)
After all the evidence was heard during a week of testimony,
the judge rendered a guilty verdict in the case and ordered
Sarah to make restitution of the loss amount, plus audit
costs. He also sentenced her to three months in a workrelease program.
Case No. 2 Personal use of an unauthorized
general organization credit card
James, the chief of a small fire district in the state of Washington, obtained an unauthorized credit card in the districts
name. He circumvented the districts internal controls by
10
Fraud-Magazine.com
Fraud EDge
A Forum for Fraud-Fighting Faculty in Higher Ed
By Gerhard Barone, Ph.D.; Sara Melendy, Ph.D., CFE, CPA; and Gary
Weber, Ph.D. Edited by Richard Dick A. Riley, Ph.D., CFE, CPA
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Fraud-Magazine.com
Fraud EDge
A Forum for Fraud-Fighting Faculty in Higher Ed
Higher-education faculty are always searching for case studies with the richness of detail, ambiguity and issues that are
similar to those that students will encounter in their professional careers. Faculty and highly experienced CFEs jointly
produce the most detailed, complex cases.
Cindy Durtschi, Ph.D., associate professor at DePaul
University, invites CFEs to help in the classroom in several
ways. She recently had a full-time forensic accountant help
her judge student case presentations.
The students presented their work from the view of the
prosecution, and then the CFE showed them how someone working for the defense would have responded to their
cases, Durtschi says. It was a wonderfully enriching experience for the students.
Durtschi also had a local CFE help her with a fraud case
she developed. The CFE provided her with encouragement,
valuable feedback and suggestions that improved the case.
CFEs also frequently partner with faculty on forensic
accounting research papers. Frank Perri, J.D., CFE, CPA, has
co-authored several research papers with Rich Brody, Ph.D.,
CFE, an associate professor at the University of New Mexico.
They have written on topics ranging from the relationship
between workplace violence and fraud to identification of
organizational weaknesses at the Securities and Exchange
Commission. These partnerships between academics and
professionals foster balanced approaches to research and
ensure that publications are valuable not only for academics,
but also for practitioners who can use the results in the field.
COORDINATE FORENSIC ACCOUNTING INVESTIGATIONS
January/February 2012
13
Fraud EDge
A Forum for Fraud-Fighting Faculty in Higher Ed
She has taught three courses over the past two years and
has enjoyed the experience. She sees many benefits to having
professionals, like CFEs, in the classroom.
As a student, I always appreciated the professors who
had both real-world and research experience. CFEs are fortunate in that we have so many stories and experiences that
can help shape our future anti-fraud professionals.
CFEs considering this option should be aware that the
weekly time commitment is somewhat greater than the time
teaching in the classroom. Adjunct instructors also will spend
several hours each week planning lectures, grading student
work and answering emails from students. In addition, most
colleges expect adjunct instructors to be available on campus for an hour or two each week to meet with students and
answer questions.
CFEs who cannot commit to teach an entire course can
serve as guest speakers. This may involve preparing a short
case study or other relevant topical material and leading a
class in a discussion of the material. Departments and
instructors are generally receptive to such arrangements,
provided there is a good match between the course goals
and the proposed topic.
Guest speaking opportunities for CFEs are not limited to
forensic accounting courses. For example, CFEs could present
internal control cases to an accounting information systems
class. They also could discuss evidentiary or legal aspects of
CFE work in criminal justice or psychology classes. Given
the diversity and complexity of fraudulent activities and the
motivations of those who commit fraud, there are many other
disciplines in which CFEs could provide valuable insights
and enrich the classroom experience.
FOSTERING STUDENT INTEREST
The ACFE Handbook and Guidelines for Local Chapters encourages close relationships with schools and universities to
foster student interest in the fraud-fighting profession. CFEs
unique skill sets and training create multiple opportunities
across college campuses. We have described a number of
ways that CFEs have participated in higher education. Interested CFEs should contact program directors or chairpersons
at nearby colleges. Universities, and especially business
schools, are always looking for adjunct instructors and guest
speakers with practical experience. Students love to hear
from professionals who can describe their field experiences
and how they can pursue careers in specialty fields, such as
forensic accounting.
14
Fraud-Magazine.com
REGISTER NOW
Stephen Harrison
Chief Executive
National Fraud Authority
FraudBasics
By Linda Lee Larson,
DBA, CFE, CPA,
CISA
ob, an internal auditor for ABC Company, is conducting a routine cash receipts controls review.
The procedure calls for the days checks to be
deposited remotely in a company bank account
daily. Susan, the clerk who processes customer
checks, had gone home sick on Monday. Before she left, she
completed the remote deposit procedure, which involves
scanning each check and electronically sending those scans
to the bank. Then she put the checks she had just scanned in
her work-in-process file and went home, intending to properly file them away the next day. Unfortunately, when Betty
who had done Susans job years ago was assigned to cover
Susans desk on Tuesday, she came across the previous days
checks. Without asking anyone, Betty prepared a deposit
slip as she had done in the past and took the checks to
the nearby bank branch and made the deposit. When Susan
came in on Wednesday, she noticed that the stack of checks
she had processed on Monday were not where she had put
them and immediately asked Betty where they were. Oops ...
The checks had been deposited twice. They immediately contacted the bank. The bank manager explained that the banks
duplicate check detecting software had caught the error and
that all was well. If the bank had not had the duplicate check
software working properly or if Susan and Betty had conspired
to modify the original paper checks before re-depositing them,
the bank could have been liable for some big bucks. This fictitious example could easily have happened.
Banking industry experts report that check processing
is moving rapidly away from the traditional paper methods
and toward the processing of electronic images of checks. As
of August 2011, almost 70 percent of all institutions are now
receiving check images, according to CheckImage Central.
(See www.checkimagecentral.org.) With the implementation
in 2004 of the Check Clearing for the 21st Century Act, or
Check 21, auditors and CFEs cannot afford to ignore the new
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Fraud-Magazine.com
FraudBasics
technology for image processing. The underlying cause of
the delay has been the significant investment in the technology required to both create and process check images and
substitute checks. Sources in the banking world in 2004
estimated a cost of $1.5 billion to $2.5 billion to fully implement Check 21 technology in the U.S. [See The Domino
Effect of Check 21, by J.D. (Denny) Carreker, http://tinyurl.
com/7yuxjrc.] The Federal Reserve expects that the use of
substitute checks should decline as more banks have the
technological capability to process check images directly.
THE CRUX OF THE PROBLEM
January/February 2012
17
Fraud In
Houses Of Worship
What Believers
DO NOT
Want to
BELIEVE
By Robert M. Cornell, Ph.D., CMA, Educator Associate; Carol B. Johnson,
Ph.D., Educator Associate; and Janelle Rogers Hutchinson
Cara Bresette-Yates/iStockphoto
18
Fraud-Magazine.com
n accounting professor who teaches a fraud investigation class recently told a story about a student in her class who approached
her for help on a personal project. The students church had
asked the student to attempt to determine the dollar amount of damages
in a recent embezzlement. The perpetrator, a former church secretary, had
been defrauding the 200-member church for 18 months by writing herself
duplicate paychecks, stealing cash from donation deposits and taking out
credit card accounts in the church name, among other schemes.
The church discovered the fraud when the secretary was called away
for a family emergency, and the previously inattentive manager received
a phone call about an unpaid credit card bill. The manager did not know
the credit card existed. Because the church had not segregated employee
duties, the secretary had free rein over all aspects of church finances: she
kept the books, paid all the bills, handled cash receipts, managed the payroll, issued paychecks and reconciled the bank account. The sky was the
limit for her fraud. A simple search of public records would have revealed
that the secretary was in financial trouble a serious red flag for fraud.
But the church did not conduct that search until it was too late.
The professor was not surprised by such a common scheme. However,
she was taken aback when she opened the students work file to review
the case. She recognized the name of the perpetrator as a secretary in her
church and confirmed this identity by questioning the student investigator. Internal controls in the professors church were a bit better it had
segregated some accounting duties but were still insufficient. In fact,
internal controls were bad enough that no one could ever know if the
secretary stole from the professors church.
It was quite common for people to drop cash and checks by the
church office during the week and leave them with the secretary for use
in special funds, such as one to aid local homeless people. It would have
been easy for the secretary to simply pocket some of the funds, and no
one would have been the wiser. The secretary eventually resigned; it is
unknown if she stole from the professors church during her tenure there.
She was replaced with another secretary who had her own financial problems her home was in foreclosure within six months of taking the job.
The professor advised church officials that they needed to improve
internal controls, but the staff members believed that no one would ever
do such a thing here. Indeed, fraud examiners who deal with finances,
fraud and internal controls in houses of worship may be labeled overreacting conspiracy theorists when they tell church staffs they may have
fraudsters in their midst. However, fraud examiners know that houses of
January/February 2012
19
20
28%
7%
Over $1 million
$750,000 $1 million
12%
$500,000
$750,000
36%
$0 $250,000
17%
$250,000
$500,000
in their organizations within the previous five years. The estimated sizes of the frauds ranged from a few dollars to $35,000.
We suspect that the actual frequency and dollar amount of fraud
were seriously underreported for two reasons.
First, our interviews indicated that churches generally
lacked proper internal accounting controls, including segregation of duties, and that even if those controls were in place, the
churches did not consistently follow them. The reported levels
of controls in most of these institutions were so poor that they
probably harbored many undetected frauds. For example, most of
the churches we surveyed did not separate record keeping from as-
Fraud-Magazine.com
January/February 2012
20%
30%
40%
50%
60%
70%
80%
90%
100%
Auditors and fraud examiners do not tend to conclude that assets are safe unless they have assessed the quality of the controls
in place. The average Joe, however, suffers from a confirmation bias. In other words, Joe will rely too much on confirming evidence, such as we have never had a fraud before. At
the same time, he will dismiss contradictory arguments, such as
we do not have adequate controls in place. This bias increases
with the amount and strength of confirming evidence. It will
decrease with contradictory evidence but at a much slower rate.3
Walt Pavlo, the perpetrator of a multi-million dollar fraud
at MCI and WorldCom, expressed confirmation bias well. At the
Oklahoma State University 2008 Financial Reporting Conference,
he was asked where the auditors were while he was committing his
21
Fraud Occurred
in Last 5 Years
Not Vulnerable
Slightly
Vulnerable
Vulnerable
Very Vulnerable
Extremely
Vulnerable
Grand Total
Yes
24%
53%
17%
6%
0%
100%
No
25%
66%
6%
3%
0%
100%
Total
24%
64%
9%
3%
0%
100%
Table 1
crime, which involved overstatement of receivables. His response:
No one wants to question good news. In the for-profit world, the
evidence has shown that excessively high revenues are a much bigger red flag for fraud than excessively low revenues.
HOW TO HELP
Based on our survey findings and observations, we offer seven
steps fraud examiners can take to help churches avoid fraud:
1. Freely lend your expertise to small nonprofits and church
boards to help them understand and implement the concept
of separation of duties and independent checks.
2. Help them understand that checks are cash only more
vulnerable. You could explain this by saying, If someone
steals a $1 bill from you, the most they have stolen is $1. If
they steal a $1 check from you and then add a few zeroes,
they have stolen much more.
3. Combat overconfidence through education and training.
Church boards must understand that trust is never an effective internal control.
4. To achieve adequate perception of detection and consequences, encourage church boards to be open and forthcoming about problems and consequences and to prosecute
when appropriate. Such prosecutions could have prevented
the secretary in our opening story from moving to the next
church to possibly do the same thing.
5. While churches may be in the business of bringing the good
news, it is a good idea to remind them that at least when it
comes to financial affairs, they should always question news
that is too good to be true.
6. Church leaders are becoming aware of the need (and sometimes the legal requirement) to conduct background checks
to specifically find sex-related crimes. Help them understand
that they also can use criminal and credit checks to protect
the churchs financial assets and help ensure that donors
wishes are honored by applying donor funds to good deeds,
rather than using them to feather the fraudsters pockets.
7. While we have a psychological tendency to ignore base rates,
we tend to respond to stories. These stories help bring the
reality home; so share stories about church frauds. And if you
are feeling really brave, leave a few copies of Fraud Magazine
in the church library.
22
Sue Colvil/iStockphoto
Juslin, P., Winman, A., & Olsson, H. (2000). Naive empiricism and
dogmatism in confidence research: A critical examination of the hardeasy effect. Psychological Review, 107, 384-396.
Example 3
The pastor of a large Ohio church commingled funds, laundered
money, tampered with records, forged documents and sold 19
acres of church land to steal more than $1 million from his church
and cover his tracks. The proceeds were used to buy cars, a boat,
a pool and hair treatments in addition to funding private-school
tuition for his children. When a church employee reported that
funds were missing, it took two years to investigate the crime before
charges were led. (http://tinyurl.com/6dpnvch)
Example 4
The business manager of an Oklahoma church was accused of
embezzling $140,000 to pay her personal expenses. The alleged
theft was discovered when the bank notied the church of an overdrawn account. The suspect said she could not have stolen that
much money because the church was audited every year.
(http://tinyurl.com/6bpqblr)
January/February 2012
23
Jon Helgason/iStockphoto
Part of the difficulty in dealing with ticket sale frauds in college athletics is that the sheer volume of money invites theft.
According to most recent figures available from the National
Collegiate Athletic Association (NCAA) and compiled by
ESPN (The money that moves college sports, March 3, 2010,
by Paula Lavigne, http://tinyurl.com/yf5d9vw), the 120 schools
that comprise the Division I Football Bowl Subdivision generate more than $1.1 billion from ticket sales each year. Of these,
the top five schools raise between $30.6 million and $44.7 million. (By comparison, KU is large but not exceptional. During
the same period, the KU athletic programs spent more than $65
million and generated more than $17 million in ticket sales.)
College sports increasingly value winning over good
financial stewardship
26
Lack of access to information is a classic condition for facilitating fraud. The financial reporting that university athletic departments require varies widely in the amount and quality of
information that they make publicly available. The U.S. Equity
in Athletics Disclosure Act, for example, requires colleges to
Fraud-Magazine.com
Become a Certied
Fraud Examiner.
When you are able to set some time aside and take away all the distractions, its
amazing what you can learn. The CFE Exam Review Course offers you four days of
guidance from experienced instructors, giving you all the tools you need to
prepare for and pass the CFE Exam.
According to the 2010/2011 Compensation Guide for Anti-Fraud Professionals,
CFEs earn nearly 22% more than their non-certied colleagues.
Distinguish yourself as an expert in the eld by attending our CFE Exam Review Course.
UPCOMING COURSES:
January 30 February 2, 2012
Dallas, TX
NEW LOCATION!
See more information about the CFE Exam Review Course at ACFE.com/CFE-Exam
28
Brandon Laufenberg/iStockphoto
Fraud-Magazine.com
Public disclosure of an organizations finances is a powerful deterrent to numerous types of fraud. Although the U. S. Department of Education requires universities to report some data for
athletic programs, it is difficult to compare these disclosures
among institutions because the law requires reporting only in
very broad categories. The NCAA requires reporting with greater detail. However, the public rarely sees such data. Moreover,
the NCAA allows much leeway on the ways universities can
categorize such data.
A uniform system of accounts and reporting would promote
comparability and consistency among programs. To increase accuracy and reliability, information provided to external parties
should come from universities central financial administrations,
not directly from their athletic programs. A university internal audit function should be actively involved to enhance the
quality of reported information. The external agencies receiving these reports should post them on the Internet to promote
openness and transparency and so independent watchdogs can
scrutinize them for evidence of wrongdoing.
Oversight
As with any other organization, simply installing better antifraud controls is not sufficient to deter fraud. A standard of fraud
prevention is that controls are only as effective as the people
who use them. A lesson from the KU case is that athletic departments require independent oversight.
If it is true, as the Knight Report suggests, that university
presidents feel they are unable to do this directly, then universities must seek other bodies to provide the oversight. Potential
candidates include private university accrediting bodies, state
boards of higher education or a universitys board of governors.
Together with improved reporting standards, the move to independent review would remove the process from the more political
atmosphere of university presidents and their competing needs to
run their schools, raise funds and have winning athletic programs.
KU EPILOGUE
Since the scandal broke at KU, federal and state authorities
have continued their investigation, which as of press time has
thus far resulted in seven indictments and seven guilty pleas:
Jason Jeffries, assistant athletic director for ticket operations, pled guilty to one count of misprision and was sentenced
to two years of probation and $56,000 restitution.
Brandon Simmons, assistant athletic director for sales and
marketing, pled guilty to one count of misprision and was sentenced to two years of probation and $157,840 restitution.
January/February 2012
29
THE
he manager of a fast food restaurant calls the police late at night to report that an armed robber
had entered the restaurant while the manager was alone
in the office finishing some paperwork. The manager said
the gunman had stolen the entire days cash receipts
a little more than $4,000. The manager had reported a
similar robbery at the restaurant about six months earlier.
No other witnesses were present at either alleged robbery.
The restaurant owner learns from police investigators that
armed robbery is extremely unusual in the surrounding
neighborhood. Also, the owner knows that the managers
wages have been garnished for the last year for nonpayment of child support. The owner hires you, a CFE, to investigate whether the manager is filing false police reports
to cover his thefts. You begin your investigation by asking
the manager to write a description of the evenings events.
Detecting Anomalies
Linguistic text analysis involves studying the language,
grammar and syntax a subject uses to describe an event to
detect any anomalies. Experienced investigators are accustomed to studying interview subjects nonverbal behavior,
such as eye contact and hand movement. Text analysis,
on the other hand, considers only the subjects verbal behavior. Because text analysis evaluates only the subjects
words, investigators can apply it to written as well as oral
statements. In fact, many investigators prefer to analyze
suspects written statements for signs of deception before
conducting face-to-face interviews.
Text analysis is based on research originating in the
1970s. Psychologists and linguists studied the language and
word choices of subjects in controlled experiments and
found predictable differences between truthful and deceptive statements. Susan Adams, an instructor who taught
text analysis (which she called statement analysis) at the
FBI Academy for many years, described it as a two-part
process (Statement Analysis: What Do Suspects Words
Really Reveal? FBI Law Enforcement Journal, October
1996). First, investigators determine what is typical of a
truthful statement. Secondly, they look for deviations from
the norm.
The following section describes deviations that suggest a subject may be withholding, altering or fabricating information.
Ten Signs of Deception
1. Lack of self-reference
January/February 2012
31
Stephan Zabel/iStockphoto
a guy jumps out of the bushes and yells at me. I can see
he has a gun. He grabs the cash pouch and runs away.
The last I saw him he was headed south on Elm Street.
After he was gone, I called the police on my cell phone
and reported the theft.
The first three sentences describe the employees
drive to the bank in the past tense. But the next three
sentences describe the alleged theft in the present
tense. An alert investigator might suspect that the
employee stole the days cash receipts, then drove to
the bank and called the police from the bank parking
lot to report a phony theft. (See another example in
Antics with Semantics on page 35.)
3. Answering questions with questions
Even liars prefer not to lie. Outright lies carry the risk
of detection. Before answering a question with a lie, a deceptive
person will usually try to avoid answering the question at all.
One common method of dodging questions is to respond with a
question of ones own. Investigators should be alert to responses
such as:
6. Euphemisms
7. Alluding to actions
4. Equivocation
Although deceptive subjects attempt to give interviewers as little useful information as possible, they try very hard to convince
interviewers that what they say is true. Deceptive subjects often use
mild oaths to try to make their statements sound more convincing.
Deceptive people are more likely than truthful people to sprinkle
their statements with expressions such as: I swear, on my honor,
as God is my witness, cross my heart. Truthful witnesses are more
confident that the facts will prove the veracity of their statements
and feel less need to back their statements with oaths.
32
Fraud-Magazine.com
A narrative consists of three parts: prologue, critical event and aftermath. The
prologue contains background information and describes events that took place
before the critical event. The critical
event is the most important occurrence
in the narrative. The aftermath describes
what happened after the critical event. In
a complete and truthful narrative, the balance will be approximately 20 percent to
25 percent prologue, 40 percent to 60 percent critical event and 25 percent to 35
percent aftermath. If one part of the narrative is significantly shorter than expected,
important information may have been
omitted. If one part of the narrative is
significantly longer than expected, it may
be padded with false information. The following statement, filed with an insurance
claim, is suspiciously out of balance:
I was driving east on Elm Street
at about 4:00 on Tuesday. I was on my
way home from the A&P supermarket.
The traffic light at the intersection of
Elm and Patterson was red, so I came to
a complete stop. After the light turned
green, I moved slowly into the intersection. All of a sudden, a car ran into me.
The other driver didnt stop, so I drove
home and called my insurance agent.
The subjects statement contains
four sentences of prologue, only one sentence describing the critical event, and
only one sentence of aftermath. The
prologue contains a credible amount of
detail: the day and time of the accident,
the drivers destination, and the location
January/February 2012
23rd ANNUAL
ACFE Fraud
Conference
and Exhibition
JUNE 17-22, 2012
ORLANDO, FL
Gaylord Palms Resort & Convention Center
33
NEW COURSE!
Using Data Analytics to Detect Fraud will introduce
students to the basics of using data analytics techniques to
uncover fraud. Taking a software-independent approach,
this one-day course provides attendees with numerous
data analytics tests that can be used to detect various
fraud schemes. Attendees will also discover how to
examine and interpret the results of those tests to identify
the red ags of fraud.
New York, NY
This event is held in conjunction with
Investigating on the Internet, March 20-21, 2012.
34
Fraud-Magazine.com
January/February 2012
purse. So Don asked her for the money, gave it to the clerk, the
clerk gave him the receipt, and we went to the back to pick up the
merchandise. In all the confusion, Don thought that Wanda had
the check, and Wanda thought that Don had it, and by this time
we had gotten to Dons house. So Don called ABC Company and
told the payroll dept. that his check was lost.
Bob Boone uses the present tense in three sentences:
So Wanda hands Don his check which in turn he gives it to
the layaway clerk.
So the clerk takes the check over to the manager, and we all
see the manager shake her head no.
By this time Don sees that he cant use his check, which
was a surprise to us because it was a payroll check instead of a
personal check.
It is remarkable that the switch to the present tense occurs at
key moments in the exchange: as the check is handed over, as the
manager refuses to accept the check and as Don becomes aware
he will not be able to use the payroll check. This indicates the
person is sensitive about those moments.
Often, people use the present tense for past events when they
are rehearsing the events in their mind. It is a device for keeping
things straight. Maybe the person is just being careful, or maybe
he is being deceptive.
As an investigator, you should note the switches to the present
tense, and the point of the narrative at which these occur. From
there, you will decide how to explore the issues further.
Excerpted and adapted from the ACFE Self-Study CPE
Course, Analyzing Written Statements for Deception and Fraud,
2009. This excerpt is by Don Rabon, CFE.
Further Reading
Analyzing Written Statements for Deception and Fraud,
ACFE Self-Study CPE Course, 2009 (ACFE.com/
products.aspx?id=2809).
Investigating Discourse Analysis, by Don Rabon, CFE
(Carolina Academic Press, 2003).
Identifying Lies in Disguise, by Wendell Rudacille
(Kendall/Hunt, 1994).
I Know You Are Lying, by Mark McClish (The Marpa
Group, 2001).
Statement Analysis: What Do Suspects Words Really
Reveal? by Susan H. Adams, FBI Law Enforcement
Journal (October 1996).
35
Fraud-Magazine.com
Much has been written, preached and practiced in the area of employee motivation, especially for those directly interacting with
customers. Management drives them to shatter sales and service
records, surpass customer satisfaction standards, hit key performance indicators, out-hustle the competition and find ways to
do more with less. We set goals and budgets, apply performance
metrics, and offer various bonuses and creative incentives.
Organizations monitor and evaluate employee performance,
and top achievers climb up corporate ladders. If you are passed
over too many times you are branded as stale, and you may lose
all hope to advance. Those who earn promotions then study the
playing fields and develop their strategies to move up the next
rungs of corporate ladders.
Capitalism through competition. So what is there to worry
about? Plenty. Let us take a deeper look into this activity.
Typically, CFEs, internal auditors, external auditors, and
risk and compliance managers will search for fraudulent employee activity by focusing on employee theft, embezzlement,
expense account fraud, larceny, fraudulent check writing or
cashing, vendor contracts and countless other schemes. They
follow the money and focus on financial transactions and reporting as sources for discovery. But significant fraudulent employee
activity can be occurring in the open, and we fail to recognize it
or the severity of the risks and potential losses.
January/February 2012
Juan Darien/iStockphoto
In this case, the use of data was essential to steer the investigation in the proper direction. Looking at the total payment
processed by the representatives in the group in Figure 1 (on
page 38), we see no significant variance. In fact, the highest producers of total payments are reps 112 and 117. However, drilling
into the number of debit card and credit card payments processed quickly reveals a statistical anomaly. Reps 114 and 118
clearly processed a disproportionately higher number of these
payments than the others in the group. Because the company
incents reps with bonuses and awards to obtain these payments,
Reps 114 and 118 benefitted.
This information caused us to review the details of payments
and customer accounts. We were alarmed to see that these reps
were breaking policy by processing payments as often as two
times per week on the same customer account to artificially inflate the number of payments and earn bonuses. The consumers
agreed to this practice when the reps told them it was necessary
37
38
Rep 223
6:54
4:38
3:59
4:31
6:21
4:28
4:08
4:11
4:28
3:57
4:21
2nd Contact
Inbound
Average
2:12
3:55
3:07
3:26
6:12
6:32
4:25
4:04
4:11
4:19
3:48
3:55
Total
1st Contact
1:41
3:59
2:41
3:12
6:26
3:57
3:35
3:58
7:02
8:24
Credit Card
Debit Card
Rep 224
Rep 225
Rep 226
Rep 227
Rep 228
Rep 229
Representative
and data, or the absence of these values from negative data that
could be used to improve the organization and its outcomes.
And finally, does the perpetrating employee receive gain?
This is where we make a critical mistake and overlook the obvious. Up to this point, we are dismissing these acts and omissions by employees as harmless, just seeking to look good to the
boss, avoid the consequences of missteps or failure, earn that
bonus or climb the ladder in the organization. Employees who
are evaluated by performance measurements, metrics, data,
etc. who manipulate these values are in essence causing their
performances to appear to be better/higher/more valuable to
Fraud-Magazine.com
Risk, cost and liability from damage to customer goodwill, brand and exposure
to regulatory actions may be signicant once the missteps are revealed.
mechanism that seeks to offer acceptable reasons to others, or
ourselves, for unacceptable behavior. As stated by ACFE founder and Chairman, Dr. Joseph T. Wells, CFE, CPA, in his Corporate Fraud Handbook, For the purpose of detecting and deterring occupational fraud, it does not matter whether employees
are actually justified, but whether they perceive that they are.
Now that we have seen that frontline employee conduct
may be an undetected area primed for fraud, we need to assess
the risk to the enterprise. According to the International Association of Risk and Compliance Management Professionals,
the risk and harm sustained by an organization are not limited to
the losses from employees who work the system to advance and
earn more money. Risk, cost and liability from damage to customer goodwill, brand and exposure to regulatory actions may
be significant once the missteps are revealed. When company
management is unable to obtain valid data from operations, the
impact can be devastating.
HELP THE COMPANY HELP THEMSELVES
January/February 2012
39
BREAKING BREACH
SECRECY, Part 3
PN_Photo/iStockphoto
PRCH describes itself as a nonprofit consumer education and advocacy project whose purpose is to advocate for consumers privacy rights in public policy
proceedings. From Jan. 1, 2005, through press time,
it has tracked, analyzed and classified 2,752 data
breaches and more than 542 million compromised
records for inclusion in its Chronology of Data
Breaches, which is updated daily (www.privacyrights.org/data-breach) from these sources:
The Open Security Foundations DATALOSSdb.
(www.datalossdb.org)
Databreaches.net, a spinoff from www.PogoWasRight.org, has compiled a wide range of breach
reports since January 2009.
Personal Health Information Privacy (www.
phiprivacy.net/), affiliated with Databreaches.
net, is a database that compiles only medical
data breaches. Many of these are obtained from
41
For the past six years, the Verizon Business Risk Team, in conjunction with the U.S. Secret Service (since 2009) and the
Dutch National High Tech Crime Unit (starting in 2010), has
prepared the annual Data Breach Investigations Report (http://
tinyurl.com/3votjlj) based on its analysis of more than 900 data
breaches representing more than 900 million compromised records. The Verizon study classifies the breach types as from external agents, insiders, business partners and multiple parties.
Identity Theft Resource Center
The Identity Theft Resource Center (ITRC) (www.idtheftcenter.org) describes itself as a nonprofit, nationally respected
organization dedicated exclusively to the understanding and
prevention of identity theft.
The ITRC list is a compilation of data breaches confirmed
by various media sources and/or notification lists from state
governmental agencies. The group updates the list weekly. To
qualify for the list, breaches must include PII that could lead
to identity theft, especially SSNs. Since Jan. 1, 2005, and up
to press time, the ITRC has tracked and analyzed 2,852 data
breaches and more than 496 million compromised records.
The ITRC classifies its types of data breaches as from: data
on the move, accidental exposure, insider theft, subcontractors
and hacking.
42
Gualtiero Boffi/iStockphoto
Fraud-Magazine.com
44
13%
Internal Sum
86%
External Sum
8%
External-XTNF
Internal-ITF
4%
Internal-IL
3%
Internal-IIPD
2%
External-XTF
18%
External-XP
59%
External-XH
0%: Internal-IH
0%: Internal-ITNF
0%: Non-traceable
Bear with us on the detailed results. Getting through these statistics will pay off. Figure 1, Record Breach Sum (above), shows
the percentage of the 581,289,000 compromised records for the
six-year period. As shown, approximately 13 percent were traced
to the internal category, 86 percent to external and 1 percent
to non-traceable. Most individuals believe that the majority of
compromised records and related breaches are externally driven
an opinion probably shaped by media outlets, which tend
to focus their reporting on data breaches of large organizations.
Figure 2, Record Breach Types (above), shows the percentages of the total compromised records traced to each of the
five internal (IIPD, ITF, ITNF, IH, IL), four external (XP, XTF,
XTNF, XH) and non-traceable (NA) subtype categories.
In the internal subtype categories, IIPD or the improper
protection or disposal of data, accounted for approximately 3
percent of the total compromised records; ITF or theft of data
by a current or former employee with absolute or high probability of fraudulent intent, accounted for about 6 percent; IH
or hacking or unauthorized intrusion of network by a current/
former employee, was about 1 percent; IL or loss of data, was
about 4 percent, and ITNF or theft of data by an employee
with low or no probability of fraudulent intent theft, was about
Fraud-Magazine.com
39%
Internal Sum
56%
External Sum
7%
External-XP
7%
5%
Internal-IL
5%
Non-traceable
External-XTF
2%
Internal-IH
8%
Internal-ITF
24%
External-XTNF
18%
External-XH
24%
Internal-IIPD
0%: Internal-ITNF
January/February 2012
45
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percent of the total data breaches but only 2 percent of the total
compromised records. Lastly, XTNF, or the theft of data by a
non-employee with low or no probability of fraudulent intent,
accounted for only 8 percent of the total compromised records
but an amazing 24 percent of the total data breaches.
Analysis? Numerous Data Compromises Without Controls
The results strongly indicate that the organizations experiencing these data breaches lack strong comprehensive data
protection programs. As a result, the personal data that organizations should control and safeguard more easily is being
compromised in many ways.
For example, 26 percent of the total breaches result from
the internal improper protection and disposal of data. Examples include posting data online including SSNs on mailing
labels giving documents or hard drives to recyclers that include personal information (how about destroying them internally?) and leaving documents containing personal data unattended in the workplace.
Do we know if any of the compromised records in this category of data breaches were used for identity theft purposes? No,
but the opportunity exists. As we know, closing the door on opportunity is one of the best methods for fraud prevention.
The protection and disposal of data category is also directly linked to two other internal data breach and three external
subtype categories. For example, if companies properly protected and/or disposed data by securing physical facilities, software
and hardware, then less data, such as employee SSNs, would be
lost or misplaced. And employees or non-employees would be
stealing less internal and external data, such as customer debit
card numbers and other personal data. Also, as we wrote earlier,
organizations could better control internal and external hacking
and resulting identity theft if they were required to encrypt all
sensitive data with the use of the 128-bit encryption standard.
SELF-REGULATION NOT WORKING
It is obvious that many organizations need guidance in developing comprehensive data protection programs. Self-regulation has
not worked; maybe federal rules might help. Because of recent national exposure on data breaches, the U.S. Congress is considering
legislation on this topic. But do not hold your breath because they
have been considering legislation on notification of data breaches
for the past three sessions and have not passed any law. (The 2007
U.S. Red Flags Rule does require many business and organizations to implement a written identity theft prevention program
designed to detect the warning signs of identity theft in their daily
operations. See http://tinyurl.com/d6de4y.)
The state of Massachusetts, on the other hand, has recently passed a comprehensive data protection law (201 CMR
17.00) containing standards and requirements directly related
to the types of internal and external data breaches described
and analyzed in this article.
48
Ivelin Radkov/iStockphoto
Fraud-Magazine.com
January/February 2012
49
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with this new course from the ACFE Bookstore
RESTORING TRUST
50
ACFE.com/EthicalIssues
Fraud-Magazine.com
Case in Point
By Roger W. Stone,
CFE
ankruptcy fraud, which is a form of financial statement fraud, is perpetrated by concealing assets
through misappropriation and/or a misclassification of accounts. In the following case, we will
show how delayed bankruptcy schedule filings,
inaccurate bankruptcy schedules and incorrect monthly
operation reports can create an opportunity for a dishonest
debtor to misappropriate assets of a bankruptcy estate.
The consequences of this particular bankruptcy fraud
case resulted in $1.5 million in misappropriated assets, negligence action against the attorney and the convicted debtor
receiving a 10-year prison sentence.
The wayward debtor in this case, a dairy farmer (we will call
him Stan), was suspected of gambling away the majority of
the misappropriated $1,528,502 from the estate at casinos.
Eight months prior to filing bankruptcy, Stan submitted
a signed personal financial statement showing $5,582,103 of
assets and $4,842,505 of liabilities, which set his net worth
at $739,598.Three months prior to filing bankruptcy, Stan
submitted a signed personal financial statement showing
$11,607,450 of assets and $4,981,100 of liabilities, which
then made his net worth $6,626,350.
When he finally filed, the assets of the farmers bankruptcy estate consisted of farmland, farm equipment, buildings, dairy cows, growing crops and crops in storage. The
bankruptcy schedules showed real property of $1,116,000 and
personal property of $574,370, for total assets of $1,690,370.
The farmers liabilities consisted of secured creditors and priority creditors holding claims of $4,661,866, and unsecured
creditors holding claims of $293,202. This brought the total
claims to $4,955,068.
COURSE OF THE BANKRUPTCY
This bankruptcy was extremely adversarial from the beginning. The bankruptcy estate attorney imposed several delays
52
Fraud-Magazine.com
Case in Point
established the value of the farmland at $2,926,000, which
differed from the initial $1,116,000 valuation on the schedules.
The farmland eventually sold for more than $3 million.
The risk to the creditors was not the farmlands decreased value on the schedules, because the farmland itself
was not a liquid asset. The real risk was Stans misappropriation of assets (i.e., dairy cows, farm equipment, etc.) when
he sold those assets outside the normal course of business
without first obtaining the courts permission. He used the
funds from those sales for his personal gain.
The creditors attempted to deter the debtors liquidation
of assets by taking inventories and by taking court action.
However, the court action was slow and the inventory results
were disputed. Without cooperation from the estate attorney,
the creditors did not accomplish much in trying to thwart
the debtor from liquidating his assets.
The debtor misappropriated the following assets for
these amounts:
Dairy cows ..............................................................$638,925
Grain sales not deposited to estate.........................$308,895
Withdrawals of cash ...............................................$221,775
Farm equipment and vehicles ................................$167,500
Direct payment to debtors........................................$75,000
Accounts receivables not disclosed on schedules ....$43,341
Preference payments.................................................$62,230
Miscellaneous ...........................................................$10,836
Total ....................................................................$1,528,502
HOW THE ASSETS WERE LIQUIDATED
January/February 2012
53
Case in Point
Without adequate supervision and controls, Stan wrote checks to cash totaling
$221,775 out of the bankruptcy estate.
At the pre-filing conference, the estate
attorney counseled the debtor to hoard cash
to prepare for footing the bankruptcy expenses. What the attorney probably meant
was to not pay creditors, lessors and other
accounts payable prior to filing for bankruptcy and the automatic stay (an injunction
that halts the bankruptcys courts actions).
The goal was to keep as much money as possible in the bankruptcy checking account so
the debtor could continue to operate amidst
the business disruptions associated with
filing for bankruptcy. However, the debtor,
who had dishonest intentions, interpreted
this advice as keeping as much actual cash
in the house as possible and to not report it.
It is suspected that the debtor had in excess
of $100,000 cash on hand at various times
during the course of the bankruptcy.
THE INEXPERIENCED ACCOUNTANT
54
accountant made several errors. When preparing the monthly reports of operation, he:
Did not have copies of checks or deposits.
Did not have a check register.
Relied on descriptions of checks and
deposits provided by Stan.
Did not question Stan about the
appropriateness of deposits made or
checks written.
Did not consider it his responsibility to
question unusual expenses or deposits.
Did not know that Stan was not allowed
to have personal bank accounts other
than the debtor in possession accounts.
If the accountant had been more
experienced or properly instructed prior to
performing his court-appointed duties, it is
reasonable to expect that Stan would have
been deterred. As it stood, Stan was allowed
to liquidate assets and pocket the proceeds.
Two-and-a-half years after the initial
filing, the court finally appointed a Chapter
7 trustee to liquidate the estate. One month
later, the original attorney for the bankruptcy estate resigned.
WHAT THE CREDITORS COULD HAVE DONE
Fraud-Magazine.com
Case in Point
the judge; the court could have appointed a more experienced accountant, etc.
PROFESSIONALS ROLES
January/February 2012
55
usie Duke was a fanatic when it came to technology. She had all the latest hardware, including a
smartphone, a laptop, an iPad and a Blackberry
all of which she used to communicate with friends
and business associates. However, she was not
sophisticated about protecting herself from fraud in a tech
environment. She ended up falling for a telephone collection
scam related to purported delinquent payday loans.
Payday loans have become more common over the
past few years because of the declining economy. The loans
are short-term fixes, usually for two-week periods, to allow
individuals to cover their expenses until the loans become
due the next payday. A recipient normally is required to write
a check for the cash amount of the loan plus the loan fee,
which often is extremely high ranging from 15 percent to
30 percent of the loan. The lender normally deposits the check
in his account when the payday date arrives. If the loan recipient does not repay the loan, the lender usually extends it at the
same interest rate. The real cost of these loans can easily reach
from 300 percent to 1,000 percent of the loan if the recipient
does not cover it in a reasonable time period.
Susie would occasionally get behind in paying her bills,
so she would go online and apply for a payday loan to tide her
over until she received her next payroll check. She recently
had begun receiveing telephone calls purportedly from a FBI
representative who said he was collecting debts for a cash
advance company. Susie was very upset and confused because
she always paid off her payday loans when they became due.
This fraudster had already obtained Susies personal information, including her Social Security, drivers license and bank
account numbers, from an unknown source and was attempting to use it to bilk her out of money. In the next two weeks,
he harassed her with numerous calls, and he threatened her
with legal action if she did not immediately pay off her debt
of $2,000 by placing that amount on a prepaid Visa gift card
and mail it to him. Susie became confused and overwhelmed
and finally gave in and paid the fraudster.
56
Fraud-Magazine.com
they are well trained to listen for victims cues and respond
accordingly to complete sales.
The U.S. Fair Debt Collection Practices Act provides
consumer protection from illegal and unethical debt collection practices. According to Lawyers.com, the act does not
allow bill collectors to:
Tell people they will be arrested if they do not pay.
Repeatedly call the person to harass or annoy him.
Issue threats of violence or harm.
Falsely claim to be attorneys.
Falsely claim that the person committed a crime.
The website also advises consumers to do the following
if they receive suspicious phone calls about a debt:
Ask the caller to send the loan information in writing.
Refuse to verify any bank account, credit card or personal
information over the phone.
Report any telephone harassment or threats to the FTC,
which enforces the Fair Debt Collection Practices Act.
File a Better Business Bureau complaint to help let others
know about the scam.
Contact the state attorney generals office to find out
about state debt collection and consumer protection
laws that might apply.
In addition, the IC3 says to do the following:
Contact your banking institutions.
Contact one of the three major credit bureaus and request
that an alert be put on your file.
Contact your law enforcement agencies if you feel you are
in immediate danger.
File a complaint at www.IC3.gov.
SCAMS USING LINKEDIN
January/February 2012
million members worldwide, and as of June 30, its membership included executives from all 2011 Fortune 500 companies. LinkedIn members share personal information on
the site, including their names, titles and places of business,
which allows them to create opportunities for themselves
and others. LinkedIn can be a great resource for identifying and networking with key people at other companies.
However, some join LinkedIn to gather information on other
members and perpetrate fraud. Many of them will email
spear-phishing messages to LinkedIn members.
Spear Phishing
57
ccording to a June 5 article, China foreign listings dogged by scandal, by Robert Cookson
in the Financial Times, a spate of scandals at
Chinese companies listed in New York, Hong
Kong and Toronto is unsettling investors.
It seems to have bubbled into a hysteria and creates an
unfortunate overhang over all Chinese companies seeking to
raise capital in the U.S. markets, said William McGovern,
Hong Kong-based partner at Kobre & Kim and former enforcer at the U.S. Securities and Exchange Commission. It
has become hard for investors to separate fact from fiction.
(http://tinyurl.com/5udkgk3)
And a May 26 article in The New York Times, The
Audacity of Chinese Frauds, by Floyd Norris, explains
how Deloitte Touche Tohmatsu exposed fraud at one of its
long-time clients, the Chinese financial software company
Longtop Financial Technologies. Apparently, the company
fooled some smart people into buying devalued stock. (http://
tinyurl.com/6axc5ll)
Are these stock scandals legitimate frauds aided by
backdoor investment listings and outsourced by auditing firms?
Or are they works of fabrication initiated by short sellers reaping profits selling on stock price declines either by allegations
or innuendo? The reality is that there is probably a mixture of
everything from fact and fraud to analysis and anxiety within
the perceived red-hot Chinese stock market.
Would-be investors should be aware of the potential
for fraud in any investment no matter its national origin.
The U.S. Public Company Accounting Oversight Board
(PCAOB) released a report on March 14 on the Activity Summary and Audit Implications for Reverse Mergers
Involving Companies from the China Region (the China
region refers to the Peoples Republic of China, Hong Kong
Special Administrative Region and Taiwan) from Jan. 1,
2007, through March 31, 2010 (Research Note #2011-P1).
58
Fraud-Magazine.com
January/February 2012
59
COUNTRY LIFE
Ashly was born in the East Texas town of Groves, but immediately moved to La Grange, where she grew up. Her family
includes little sister April, with whom she is extremely close,
and brother David, who is six years younger. Her mother,
Brenda, worked as a seamstress when the kids were young. She
then went on to work for the grocery store chain H-E-B, first
as a bookkeeper, later as a customer service representative. Her
father, David, was a petro-chemical draftsman when Ashly was
little, then returned to school to earn a certificate in computer
technology. He now is a computer technician with the
Lower Colorado River Authority.
Ashly grew up in the country. She lived off a dirt road, and
they raised Barbado sheep, pigs and cattle. The family had a
stock tank for fishing. But Ashly, who calls herself pretty girly,
avoided all of that and stayed inside with her mother, who
taught her to sew and cook. Ashly still takes scraps of fabric and
hand sews dresses. She loved to play dress-up: I remember reading Gone With the Wind really young and then pretending I
was Scarlett in the backyard, she said. I also thought math was
Ashly was the good kid and rarely got into trouble, but she
did love to sing, which could be a blessing or a curse, she said,
because she was constantly singing. My parents regretted buying me The Little Mermaid, she said, laughing. She made
excellent grades and took a lot of dance classes. During high
school, she also sang lead vocals for her churchs praise and
worship band. She was a member of the drill team and business
club, acted in plays and sang in musicals. As if she was not busy
Fraud-Magazine.com
enough, she also took classes her last two years of high school to
become a licensed cosmetologist, which is how she paid her way
through college.
Ashly graduated from high school in 2003 and attended
Texas State University in San Marcos, 30 minutes south of
Austin. It took her a while to figure out her major. She initially
decided on accounting, because she is good at math, but then
Ashly took a speech class, which she loved so much that she
majored in mass communication. She also loves to counsel
people, so she minored in psychology.
Working full time as a hairdresser and attending school full
time meant she took a little longer to earn her Bachelor of Arts
in Mass Communication, which she did in 2009.
SERVING OUR MEMBERS
After she graduated, she was perusing craigslist and saw the
ACFEs posting for a member services representative. She
started in May 2010 and began managing the Fraud Magazine
CPE quiz in January of 2011.
I love to be able to listen to our members and make them
happy and solve their problems, even when they dont know
what their problems are, said Ashly. She might one day return
to school to become a counselor. Despite being a communications major, I like to listen to people, and over the years, Ive
honed my listening skills.
LEADING A FULL LIFE
January/February 2012
Ashly Worsham
ADVERTISERS INDEX
61
ACFE News
MCFADYEN REVEALS TULSA CHAPTERS SECRETS
OF RITCHIE-JENNINGS SCHOLARSHIP SUCCESS
62
Fraud-Magazine.com
January/February 2012
63
ACFE News
show. The credential has helped his career, and the program has
tested his resolve.
I wanted the opportunity to experience the worlds most
entertaining and challenging obstacle course while appearing
on prime-time TV, said Kennedy, the supervising management
analyst for the San Diego Public Utilities Department.
You have probably seen this wildly popular show when
channel surfing: Contestants move through a course of twirling and thrusting padded plastic wheels, giant balls, platforms
and mazes as they are shot with water cannons, pummeled with
exploding airbags and often ungracefully fly into pools of water.
From my couch, being on the show looked like it would be
fun, exciting and easy, Kennedy said. After all he was young,
had played college and semi-pro football and was still relatively
fit. It was one of the most physically exhausting things I have
ever done in my life!
He auditioned in four casting calls over 1 years, but he
was ready when he got the call. More than 75,000 applied for
season four, and he finally was in the 1 percent that made the
cut. Now ironically nicknamed Sewer Rat by the shows producers he is a self-described germophobe who helps secure
funding for San Diegos water and wastewater projects he
worked out frenetically for three months before the shows taping in May of last year. He ran, biked, swam, jumped rope and
lifted weights. Still, after completing the qualifying run, it must
have taken almost an hour before my heavy breathing stopped!
During the taped competition, Kennedy fought his way to
the top six of 24 contestants in the semifinals, but he just missed
the final push for the $50,000 prize.
Throughout the ordeal, his family, friends and co-workers
cheered him on. Many of them, including members of his
churchs youth ministry, gathered at a pizza parlor to watch the
show last summer. He had told the church kids during his auditions that he would buy a flat-screen TV, an Xbox and a Wipeout
video game for each of the three youth classrooms if he won.
Although I didnt win, I didnt have the heart to not get
them anything after they had been looking forward to celebrating with me for almost two years, Kennedy said. So at the end
of the viewing party he presented all those fun items for one of
the three classrooms. Then daughter Zaria, 11, Kennedys biggest fan, led her Pop Warner cheerleading squad in a cheer.
He is not ready to retire from the punishment. He wants
to appear on future all-star shows with other contestants who
also did not quite make it to the finals. Kennedy definitely is
not wiped out.
Dick Carozza
64
In Memoriam
Major Karl J. Flusche, CFE,
USAF, Ret., passed away on
Nov. 16. He was director
and manager of all electronic evidence collection
activities for Fios Inc.
ACFE President and
CEO James D. Ratley, CFE,
said, Karl was a true professional. He personified what
we wanted in a CFE.
Flusche was a federal
agent for the Air Force Office of Special Investigations
for 25 years, specializing in
computer systems analysis,
Karl J. Flusche, CFE
computer crime investigations and forensic analysis of computer systems and associated
storage media. He pioneered innovative ways for conducting
forensic analysis of computer-related evidence and was credited
in 1984 with finding the first-ever use of a computer to hide a
Fraud-Magazine.com
January/February 2012
65
ACFE News
If a fraud examiner engages in the typical activities
of investigative work, a private investigators license
Private Investigator Licensing in Canada and the United States
might be required. This is because many jurisdictions
have laws that define investigative work broadly to
include the activities involved in fraud examinations.
Thus, if a CFE conducts fraud examinations or investigations (separate, but similar activities), then this falls
under the purview of investigative work. It does not
matter if the investigations are of a criminal nature
or not; what matters is that the licensing jurisdiction
views them as investigative work.
But even if you engage in investigative work, it is
not definite that you are required to obtain a private
investigator license. Again, these statutes generally leave
free of regulation those employees acting on behalf of
their employers.
PI License Required:
Yes
No
You likely will need a private investigators license
if you are an independent CFE (not a paid employee of a
corporation, organization, agency or any other entity).
An example of how an independent CFE could be
involved in investigative work is when a prospective client contacts him or her about a possible case of occupational fraud. If the CFE speaks with the client, obtains
some cursory evidence that points to a particular employee, and investigator licensing laws as long as the investigations are in
then decides to interview the employee and his co-workers, this the performance of their official duties.
Most CPAs are also exempt, as long as the work they do for
is the beginning of a formal investigation. If the CFE completes
their
clients does not extend beyond the services traditionally
the interviews, takes statements and collects further evidence,
offered by CPAs and into activities within the scope of tradihe or she is now well into an investigation, which may lead to
tional investigative work. In many jurisdictions, once someone
the employees termination and possible arrest. And the CFE
leaves straight accounting and begins forensic accounting, a PI
may then testify in court.
license may be required. This is most often the case when someIn short, if you are paid as an independent CFE (not
one begins interviewing victims, witnesses and suspects. The
employed by an entity) to investigate a crime, you interview
person is no longer just reviewing data or evidence but is conpeople, and you collect evidence, which may be used before a
ducting a private investigation, as determined by law. Although
court, you will likely be required to obtain a PI license.
some CPA activities could fall within the broad definitions in
Dr. Joseph T. Wells, CFE, CPA, founder and chairman of
state private investigator licensing laws, the AICPA maintains
the ACFE Board of Directors expresses his own opinion succinctly. If there is any chance at all that a state licensing board that CPAs should be exempt from state private investigator licensing laws.2 Regardless of what the AICPA maintains,
could view you as holding out as an investigator, do yourself
though, jurisditional laws always take precedence.
a favor and get licensed, Wells said. Many of these state
boards are self-funding and actively look for anyone that can
Lawyers are also usually exempt from PI license requirebe construed to be unlicensed because it adds to their coffers.
ments if they are acting in their capacities as attorneys. For
Moreover, if courts or opposing counsel can brand you as an un- example, Nevada provides that [e]xcept as to polygraphic
licensed investigator, your case will likely suffer severe damage. examiners and interns, this chapter does not apply [t]o an attorney at law in performing his duties as such. Nev. Rev. Stat.
FINER POINTS
section 648.018.
Public employees conducting investigations on behalf of their
If a lawyer decides to help another lawyer investigate
governmental organizations are exempt from state private
fraud who is not in his or her firm, then the exception might
Note: Hawaii, Puerto Rico and the
District of Columbia require PI licenses,
but Guam and the U.S. Virgin Islands do not.
66
Fraud-Magazine.com
NOW AVAILABLE
January/February 2012
67
ACFE News
KEEP IT LEGAL
This definition was taken from the Revised Code of (the state of )
Washington 18.165.10, the law regulating Private Investigators. Some
state statutes contain language that is more vague and open-ended. For
example under Nebraksas statute (Neb. Rev. Stat. 71-3201), a private
investigator is one who engages in the secret service or private policing
business, which shall mean and include: general investigative work,
non-uniformed security services, surveillance services, location of missing persons and background checks.
2
American Institute of CPAs. (2011). Digest of State Issues: For the CPA
Accounting Profession 2011. Retrieved from http://tinyurl.com/89bkarb.
ACFE Asia-Pacific
Conference a Hit
The first-ever ACFE Asia-Pacific Conference held Oct. 23-25
in Singapore was a great success, with more than 200 attendees.
Speaker highlights included Aedit Bin Abdullah,
chief prosecutor of both the Criminal Justice Division and the
Attorney-Generals Chambers in Singapore; ACFE President
and CEO James D. Ratley, CFE; and Mark Steward, executive
director, Enforcement Division, of the Securities and Futures
Commission of Hong Kong. Attendees participated in educational workshops and lively panel discussions covering such
topics as anti-bribery efforts and corruption enforcement.
The ACFE Asia Pacific Fraud Conference in Singapore
was a real eye opener for me, said Kevin Taparauskas, CFE,
ACFEs director of events and marketing, who also attended.
I knew that the ACFE had loyal members in the region. But I
was extremely impressed with the enthusiasm of our attendees
and dedication to truly growing the profession that I witnessed.
I now understand why this has been our fastest-growing region
in the world for the last several years.
For our part, the ACFE intends to fully support and help
facilitate ongoing growth in the Asia Pacific, he continued.
I announced at the conclusion of the conference that the
ACFE would be holding our first CFE Exam Review Course
in the area March 26-29, 2012. In addition, we are working
on a regional call center, based in Singapore, that will greatly
improve support all of our members in the Asia-Pacific region
and beyond.
68
Fraud-Magazine.com
FCPA Compliance:
TAKING BACK THE ID
cont. from page 57
the name of the student; up came 25
individuals with the same name, along
with their profiles. I contacted the
student and asked him for an explanation. He said he never contacted me via
LinkedIn, but he had used his Gmail
account to email me throughout the
course. The only explanation I have is
that the hacker stole his Gmail account
from the LinkedIn website and used it
to capture a contact list, which included
my email address.
The fifth suspect email included
a message, with an embedded link,
that read, Your LinkedIn account was
blocked due to inactivity. Please follow
this link to learn more. Thank you for
using LinkedIn! The LinkedIn Team.
I do not have a LinkedIn account,
so I can only assume it was another
fraudsters attempt to install the ZenuS
malware on my computer. If you receive
a similar message, do not click on the
embedded link. If you know the individual, contact that person to see if he
or she sent it, and if they did not, alert
LinkedIn. I am sure that LinkedIn is
doing an excellent job trying to prevent
this type of fraud. However, its website is
a gold mine of personal information for
fraudsters to exploit with their schemes.
MORE FOR THE COMMUNITY
January/February 2012
69
CPE QUIZ
1. According to the opening case in the article, Fraud in Houses
of Worship, the perpetrator:
b. False.
9. According to the article, Breaking Breach Secrecy, Part 3:
d. For the past seven years, the Verizon Business Risk Team has
prepared the Data Breach Summary Research Report.
a. True.
b. False.
Circle the correct answers and mail to the ACFE with four other completed quizzes
published within the last 24 months and the CPE Quiz Payment Form (see next page).
Name
ACFE Member No.
EASY
STEPS:
PLEASE NOTE: The Fraud Magazine CPE Service CPE credits apply only
to the CFE status and not to any other professional designations. Fraud
Magazine CPE Service is not registered with the National Association of
State Board of Accountancy (NASBA).
1
2
3
Once youve passed all ve quizzes (with a score of 70% or better on each quiz), the ACFE will e-mail you a certicate
of completion. You will receive 10 of the 20 hours of CPE credit required annually to maintain your CFE credential.
T YES! I want to register for the Fraud Magazine CPE Service to earn 10 hours of CPE for only $69. I have enclosed
payment along with my ve quizzes.
Name, rst and last (TDr. TMr. TMrs. TMs.)
Company
Title
City
State/Province
Zip/Postal Code
Country
Local Chapter
METHOD OF PAYMENT
Name on Card
Card Number
Billing Address
City
State
Zip/Postal Code
Country
Signature
TCheck or money order enclosed (made payable to the Association of Certied Fraud Examiners).
mon
23
tues
24
wed
25
thurs
fri
sat
26
27
28
Investigating
Conicts of
Interest:
February
29
30
31
Los Angeles, CA
Los Angeles, CA
10
11
12
13
14
15
16
17
18
March
26
27
28
Legal Elements
of Fraud
Examination:
29
Fraud
Prevention:
Baltimore, MD
Charlotte, NC
Fraud Related
Compliance:
Healthcare Fraud:
Louisville, KY
Louisville, KY
11
12
18
25
10
13
14
15
16
17
19
20
21
22
23
24
Data Analytics:
New York, NY
New York, NY
26
27
29
30
31
28
April
15
16
17
18
19
25
21
Three ways
to save!
22
23
24
25
26
27
28
May
29
30
10
11
12
San Diego, CA
Chicago, IL
June
17
18
19
20
21
22
23
July
23
24
25
26
27
28
August
5
12
Fraud Related
Compliance:
New York, NY
New York, NY
13
14
10
11
15
16
17
19
29
30
31
26
27
28
Group Savings
22
Mortgage Fraud:
Digital Forensics Tools & Techniques:
Early Registration
Savings
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