fluid global anti-fraud dark world of oil bad leaders yield worldwide legal medical identity

regulations P. 18 theft and fraud P. 32 increased fraud P. 40 systems P. 46 theft P. 52

VOL. 34 | NO. 4 | JULY/AUGUST 2019

Fraud-Magazine.com

FEAR NOT The Breach

Cybersecurity expert
THERESA PAYTON
says don’t wait until you’re
in the middle of a breach to
formulate plans.
Write your cybersecurity
playbook now.
 FROM THE PRESIDENT CONNECT WITH US
FM

Smarter tech necessitates Read more Fraud

Magazine content online
at Fraud-Magazine.com.

smarter fraud examiners

FM

M
odern technology advances quickly.
What’s innovative and fresh one day can Download the Fraud
Magazine app for
be quickly outdated and short-lived in just
iPhone or Android.
a few months.
As smart devices get smarter, business and
industry depend more heavily on them and the data
they store, which makes fraud examinations more
challenging and complex. Like the ACFE on
In college, I recall enduring one semester of Facebook for the latest
news, photos, videos and
BASIC language before I realized that there was noth- exclusive online content.
ing “basic” about it — at least for me. As CFEs, we
don’t necessarily need to be computer scientists to
operate in today’s tech society, but we do need to be
aware of the current methods that fraudsters are using
to steal from our companies and disrupt our lives. Follow @TheACFE
Cybercriminals will keep changing tactics to on Twitter and keep
informed on breaking
bypass security measures and attack our systems. We news and industry trends.
must stay vigilant in our protection and detection
efforts. Many cyberattacks are preventable through awareness, training and education. Even
something as simple as updating software can make all the difference.
Teresa Payton, former White House chief information officer and keynote speaker at the 30th
Annual ACFE Global Fraud Conference in Austin, delivers just such a message in the cover article. Make connections with
fellow fraud fighters in
“Cybercriminals change tactics daily,” Payton says. From sophisticated phishing schemes
the ACFE Community at
to ransomware attacks, these fraudsters exploit vulnerabilities within our information systems. Connect.ACFE.com.
Likewise, CFEs must also stay up to date on these nefarious trends if we want to fight fraud ef-
fectively and successfully in the 21st century.
But it’s not just a data or financial protection issue. The reputational risks we face from a
cyberfraud attack impact our organizations tremendously. Not only must we be watchful for the
attack, we also must have plans in place to remediate quickly should it happen. View stories and photos
on Instagram and never
“Awareness and education shouldn’t be one time a year and solely focused on compliance,” miss exclusive Fraud
Payton says. Amen. Just as proactive data monitoring increases the ability to detect and prevent Magazine content.
fraud, continuously updating your staff — all — your staff on these cyberfraud trends can be
very effective. As we implement anti-fraud training and education more and more in our work-
places, the median life of a fraud declines. The ACFE Report to the Nations proves just that.
Peyton warns us that we need a “[n]ew line of thinking” for our cyber training and to “prac- CONTRIBUTE
tice a digital disaster before you have a breach.” We can’t hide from technology — it’s here to
stay. But just as digital devices get smarter every year, so too must fraud examiners get smarter Share your expertise
and earn up to 10 CPE
by staying on top of the latest schemes and the ways to combat them. n FM
credits annually for your
published work. Visit
Bruce Dorris, J.D., CFE, CPA, is president and CEO of the ACFE. Contact him at Fraud-Magazine.com/
getpublished.
President@ACFE.com.

FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 3

 Contents Volume 34, No. 4, July/August 2019

COVER STORY

24
Fear not the breach!
Write your cybersecurity
playbook now
By Dick Carozza, CFE

Cybersecurity expert Theresa Payton

says don’t wait until you’re in the middle
of a breach to formulate plans. Develop
a playbook so everybody knows their
roles. Practice digital disasters. Line
up your external helpers. Devise your
24 an interview with Theresa Payton communication strategy. Then, if you’re
breached, cooler heads will prevail.

FEATURES

40 Bad Leaders? Increased Fraud

18 Global Anti-Fraud Regulations 32 Oil theft and fraud 44 GlobAL LEGAL SYSTEMS

Keep ahead of fluid global Bad leaders? Increased fraud

anti-fraud regulations Hidden consequences of poor leadership
By Mani Padmanabhan, CFE 18 By Donn LeVie Jr., CFE 40
Dark world of oil theft and fraud
By Anastasia Nazarova, CFE
32 Global fraud is the same —
legal systems aren’t
By Dr. Joseph T. Wells, CFE, CPA 46

4 FRAUD MAGAZINE JULY/AUGUST 2019 FRAUD-MAGAZINE.COM


FROM THE PRESIDENT AND CEO
Smarter tech necessitates
smarter fraud examiners
Bruce Dorris, J.D., CFE, CPA
FRAUD IN THE NEWS
Green-card marriage
scheme, ex-beer exec
found guilty and more.
Compiled by Randi Zimmer, CFE
CASE IN POINT
Practice makes imperfect
Charismatic fraudster drains
physicians’ practice
By Judy D. Wright, Ph.D., CFE; and
Jack L. Oliver, CFE, CPA
15 Romance fraud
TAKING BACK THE ID
2018 FTC numbers paint
worsening fraud picture
By Robert E. Holtfreter, Ph.D., CFE
GLOBAL FRAUD FOOTPRINT
Romance fraud, crypto-
currency risks and money
laundering in Asia Pacific
By Mason Wilder, CFE
Publisher John Gill, J.D., CFE
Editor-in-chief Dick Carozza, CFE
Associate Editor Emily Primeaux, CFE
Contributing Editors
Cora Bullock; Scott H. Patterson; Randi
AR Zimmer, CFE
Legal Editor Ron Cresswell, J.D., CFE
RX FOR FRAUD Contributing Writers
Robert Tie, CFE, CFP; Donn LeVie Jr., CFE
Medical identity theft
Art Director Becky Plante
growing exponentially
Circulation Manager Aimee Jost, CFE
3 By David A. Picard, CFE 52 Advertising Coordinator Travis Kolaja
Contact: (800) 245-3321 | tkolaja@ACFE.com
FRAUD SPOTLIGHT
Editorial Advisory Committee
Shutting the lid on Jonathan E. Turner, CFE, CII, chair; Emmanuel A. Ap-
piah, MBA, CPA, CFE; Johnnie R. Bejarano, DBA, CFE,
beverage container CPA, CGMA; Richard Brody, Ph.D., CFE, CPA; Jeimy
J. Cano, Ph.D., CFE, CAS; Courtney Castelino, CFE,
deposit fraud CPA, CA, CBV, CFF; Franklin Davenport, CFE; David J.
Clements, CFE; Peter D. Goldmann, CFE; Katya Hirose,
6 By L. Christopher Knight, CFE, CPA 56 J.D., CFE, CAMS; Robert Holtfreter, Ph.D., CFE; Robert
Kardell, CFE, CPA; Thomas Cheney Lawson, CFE, CIA;
Philip C. Levi, CFE, CPA, FCA; Robert Loh, CFE, CFCS,
STARTING OUT CIRA; Larry Marks, CFE, CISA, PMP, CISSP, CSTE; Jim-
my S. Pappas, CFE; Cecily Raiborn, Ph.D., CFE, CMA,
An intern’s front-row seat CPA (Texas); Dorothy Riggs, CFE; Daniel Semick, MPA,
CFE, CGFM; Rob E. Shaff, CFE; Katharina Shamai, CFE,
to fraud CIA, CA, IIA; Herbert Snyder, Ph.D., CFE; Stéphane
Vuille, CFE, PCI
By Bethany Faford 60
2019-2020 Board of Regents
Bruce Dorris, J.D., CFE, CVA, CPA; Eric R. Feldman, CFE;
8 I’M A CFE Ryan C. Hubbs, CFE, CIA, CCEP; Bethmara Kessler, CFE;
Jeanette LeVie, CFE; Tony Prior, MBA, CFE; Elizabeth
Deshietha Partee-Grier, CFE Simon, CFE, CPA; John Warren, J.D., CFE
By Emily Primeaux, CFE 64 Fraud Magazine (ISSN 1553-6645) is published bimonthly
by the Association of Certified Fraud Examiners, 716 West
Avenue, Austin, TX 78701-2727, USA. Periodical postage
paid at Austin, TX 78701 and at additional mailing offices.
Postmaster — Please send address changes to:
Fraud Magazine | ACFE Global Headquarters
716 West Avenue | Austin, TX 78701-2727, USA
(800) 245-3321 | +1 (512) 478-9000
Fax: +1 (512) 478-9297
Subscriptions
ACFE members: annual membership dues include
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electronic member subscription, and $15 for student,
and retired member subscriptions. Non-member
subscription rates are: $65 in the U.S.; $77 outside the
US. Membership information can be obtained by visit-
ing ACFE.com or by calling (800) 245-3321, or +1 (512)
478-9000. Change of address notices and subscriptions
64 Deshietha Partee-Grier, CFE should be directed to Fraud Magazine. Although Fraud
Magazine may be quoted with proper attribution, no
portion of this publication may be reproduced unless
written permission has been obtained from the editor.
The views expressed in Fraud Magazine are those of
12 ACFE NEWS 66 the authors and might not reflect the official policies
of the Association of Certified Fraud Examiners. The
editors assume no responsibility for unsolicited manu-
CPE QUIZ 72 scripts but will consider all submissions. Contributors’
guidelines are available at Fraud-Magazine.com. Fraud
Magazine is a double-blind, peer-reviewed publication.
To order reprints, visit Fraud-Magazine.com/reprint or
email reprints@fraud-magazine.com.
© 2019 Association of Certified Fraud Examiners, Inc. “ACFE,” “CFE,” “Certified
15 Fraud Examiner,” “CFE Exam Prep Course,” “Fraud Magazine,” “Association of
Certified Fraud Examiners,” “Report to the Nations,” the ACFE Seal, the ACFE
Logo and related trademarks, names and logos are the property of the Association
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countries around the world.
FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 5
 FRAUD in the news Read more news at Fraud-Magazine.com

Ex-beer exec
Green-card marriage scheme
found guilty
According to the May 15 ABC News article by Julia Jacobo,
“96 people charged in Texas marriage fraud scheme to get After nearly a decade of defraud-
ing one of the largest beer makers
Green Cards,” Houston fraudsters are responsible for grant-
in America, a former executive is
ing citizenship to Vietnamese nationals who paid hefty fees.
heading to jail. According to the
Police say ringleader Ashley Yen Nguyen operated a well- May 17 FOXBusiness article by
organized marriage scam — charging between $50,000 to Kathleen Joyce, “Ex-MillerCoors vice
$70,000 for a marriage license. As a result, nearly 150 people president sentenced to prison over
fraud charges,” David Colletti will
fraudulently obtained green cards to become permanent
spend 42 months in prison. Accord-
U.S. residents. ing to the article, Colletti falsified
The indictment remains sealed, but according to U.S. Im- marketing and promotional invoices
migration and Customs Enforcement (ICE), organizers of the he billed to his company MillerCoors
and pocketed more than $8.6 mil-
scam even created fake wedding
lion. Colletti claimed he was involved
photo albums to further the guise. in the billing scheme to “keep up
The 96 organizers are charged with with the rat race.”
various counts of mail fraud Read the full story at
tinyurl.com/y5hoff4p.
and stand to serve 20 years in
federal prison. Read more at
tinyurl.com/y2t6jfzg.

N.Y. mail scams steals $30 million from elderly

According to the May 15 Nassau Daily Voice article, “Mer-
rick Man Admits to Multi-Million Dollar Fraud Scheme,”
by Zak Failla, elderly victims were scammed out of $30
million throughout the U.S. in hopes of winning hand-
some cash prizes. According to the article,
Shaun Sullivan pleaded guilty in
federal court to conspiracy to
commit mail fraud. He obtained
consumer mailing lists of mostly elderly victims and sent
them notices claiming they won large cash prizes — all
in exchange for a small fee. However, no prizes were ever
granted.
Sullivan made more than $30 million off his
victims. He’s awaiting sentencing and faces
up to 20 years in prison. Read the full
story at tinyurl.com/y3vv4myd.

— Compiled by Randi Zimmer, CFE

6 FRAUD MAGAZINE JULY/AUGUST 2019 FRAUD-MAGAZINE.COM

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 CASE IN POINT Case history applications

Practice makes imperfect

Charismatic fraudster drains physicians’ practice
Everybody loved Dr. Brian. He appeared to be the perfect professional,
spouse, parent and friend. But he fooled everybody. At least for a while.
Here’s how he, as the lead administrative physician of a once-thriving
practice, skimmed and embezzled more than $25 million in 20 years.

Each of the 2,690 real cases of
occupational fraud reported in the
ACFE’s 2018 Report to the Nations
(ACFE.com/RTTN) has a unique
story behind it. Here’s one from
investigating CFEs. (See more at
tinyurl.com/y6p2ctbk.) — ed.
noticed they were losing money,
despite producing substantial rev-
enues. Some of the physicians became
suspicious that something was go-
ing on. Many were operating at a loss
month after month. Millions of dollars
seemed to simply disappear. Some of
the physicians believed many of the
expenses the practice charged to them
to hire outside help to pursue an audit or
take other action. 
Most physicians that Brian and his
buddies hired to replace those who left
weren’t concerned about the practice’s
finances because their spouses were suc-
cessful, they had family money, or they
were nonconfrontational. These new
physicians were perfect targets for fraud
schemes.

F
raudsters are often able to
deceive their victims for long
periods of time through gained
trust and personability. These
cases cut their victims the deepest
because they’ve not only lost money,
they’ve been personally betrayed. That
was the case with a medical practice
that housed a charismatic fraudster for
two decades.
Twelve practitioners established
Total Primary Care Pros with the
friendly Dr. Brian (names have been
changed) as the lead administrative
physician. Charismatic Brian was a
well-liked figure in the community.
He appeared to be the perfect profes-
sional, spouse, parent and friend —
the type of person you point to as an
example for others.
The practice buzzed with activity
for nearly 20 years, but the physicians
seemed exorbitant. Several of them left
the practice over the years. Eventually,
we discovered that more than $25 mil-
lion had been skimmed and embezzled
in the 20-year period.
Initially, the partners were involved
in making decisions on expansion of
the practice and general matters. But as
they increasingly were disturbed about
low revenues through the years, Brian
transferred decision-making to what
were “committees” in name only. He
and his closest allies ran the financial
committees.
Whenever a physician would call
for accountability, Brian and his friends
would begin to ostracize them from the
rest of the group and punish them with
a reduced schedule and inflated costs for
supplies and other expenses. It appeared
Brian levied these financial penalties to
reduce the dissatisfied physician’s ability
When the seventh physician, Ewan,
left the practice, he expected the prac-
tice to pay him approximately $50,000
in accounts receivable, but it only paid
him a little more than $2,000. He then
hired our firm to investigate, and we dis-
covered that Ewan’s accounts receivable
at the time of his resignation was closer
to $100,000.
I (Judy Wright) realized that Brian
was at least complicit in skimming
funds when I met with him to discuss
why he hadn’t pursued recall or col-
lections, which would’ve increased
revenues for all the physicians. He said
he was satisfied with things the way they
were. I was shocked because if the finan-
cial statements were true, any physician
would’ve jumped at the chance to use
these easy ways to increase revenues.
Brian’s body language screamed that he
didn’t want anyone rocking the boat. At

8 FRAUD MAGAZINE JULY/AUGUST 2019 FRAUD-MAGAZINE.COM

 the beginning of the interview, he was
relaxed but then physically withdrew,
and his tone of voice became threaten-
ing. This was a major turning point in
the investigation.
Purposefully confusing structure
When Brian first set up the practice in
1998, he implemented a confusing, over-
lapping financial records structure with
three different software systems, all of
which were now antiquated. With poor
record keeping and numerous individu-
als separately handling the incoming
revenue, no one except Brian knew how
much money was actually coming in to
the practice. Brian withheld financial
information from other physicians.
He devised the business as a cor-
poration instead of the normal limited
partnership, which would’ve avoided
COLUMNIST
JUDY D. WRIGHT,
PH.D., CFE
SENIOR PARTNER,
WESTMINSTER INVESTI-
GATIVE CONSULTANTS
COLUMNIST
JACK L. OLIVER,
CFE, CPA
SENIOR PARTNER,
WESTMINSTER INVESTI-
GATIVE CONSULTANTS;
OWNER, OLIVER AND
ASSOCIATES, CPAS
double taxation on revenues. We later
discovered that he did this to reduce
the practice’s liability if the fraud was
discovered because corporations can’t be
charged criminally, reported losses elim-
inated corporate taxes owed, and Brian
could plead ignorance. The practice
also went through a series of untrained,
unqualified and overpaid office manag-
ers and accountants, which appeared to
be by design.
Brian used all these tactics to cover
that he was skimming and embezzling
millions of dollars in revenue, which he
diverted into his 401K funds and used
to pay state and federal taxes on the
illicit funds. He’d meet with the office
manager every Friday at noon behind
closed doors and tell her how much
money to transfer to his 401Ks and how
much to pay on state and federal taxes
for himself.
He never made the bank statements
available to the other physicians. He’d un-
derestimate the income and overstate the
physicians’ expenses to conceal the fraud.
The practice paid physicians bi-
weekly, but they could choose to forego

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CASE IN POINT

salaries if their debt to the practice

became too much. Many often went
without a salary for months.
Brian also used company credit
cards for unauthorized purchases, such
BEST as Christmas dinners for his family at
SELLER! restaurants and personal travel. He un-
derreported revenues and grossly over-
inflated expenses to conceal his fraud.
Each year the corporation re-
ported losses when the skimmed profits
would’ve resulted in double taxation.
By fraudulently reporting corporate
losses as a result of the skimming, Brian
defrauded the federal and state govern-
ments of tax revenues on the corporate
income he had stolen in the 20-year
10 Infamous Fraud Cases period.

of the 21st Century Deeper than just lost revenue

for the physicians
Brian exploited the practice’s honest
physicians for two decades. He falsely
In this self-study course, learn from 10 infamous fraud required them to keep paying more and
cases to better protect your clients, employers and the more for expenses that didn’t exist while

general public from similar schemes. Fraud cases in-
clude the WorldCom scandal, Madoff’s Ponzi scheme
and the Fédération Internationale de Football Associa-
tion (FIFA) scandal.
KEY TAKEAWAYS:
• Introductions and background information
for all cases
• Insights into how each scheme was perpetrated
and detected
• Recommendations to prevent future frauds
• Lessons learned for each case
they stressed about being able to take
care of their families.
Ewan said that whenever any of the
physicians asked Brian why they weren’t
making enough money, he told them
to “work harder.” Of course, the harder
they worked, the more money Brian
stole from them. Many of the physicians
even took on part-time jobs to help sup-
port their families.
CPE Credit By the time we discovered the fraud,
4
Brian had taken total control of the
administrative and financial leadership
and was making all decisions. Ewan took
the results of our investigation straight
Course Level
Basic to Brian and asked him to reimburse him
for the losses. Brian used the practice’s
legal counsel to file a civil case against

$135.20 Members / $169 Non-Members

Ewan, which was eventually dismissed.
Prerequisite
None
Visit ACFE.com/TIFC to learn more.
10 FRAUD MAGAZINE JULY/AUGUST 2019 FRAUD-MAGAZINE.COM
 Civil and criminal charges are in
process against Brian, including criminal
tax fraud regarding the fraudulent losses
reported for the corporation and embez-
zlement. The cases are still pending. n FM
Judy D. Wright, Ph.D., CFE, is senior
partner at Westminster Investigative
Consultants. Her doctorate is in indus-
trial/organizational business psychology
— specializing in fraud behavior. She
also holds a master’s in business admin-
istration. Contact her at drjdwright@
outlook.com.
Jack L. Oliver, CFE, CPA, is senior
partner at Westminster Investigative
Consultants and owner of Oliver and
Associates, CPAs. He holds a master’s
in public accountancy. Contact him at
joliver@oandhcpas.com.
Lessons from the CFEs
We shouldn’t succumb to the charm
and charisma of individuals associated
with our investigations. This is more
difficult than it sounds because it’s hu-
man nature to want to trust someone
and have an internal confidant during
an investigation.
Just because the circumstances
of an organization have apparently
existed for a long time doesn’t mean
that it has nothing of importance to
investigate. You might assume that if
a fraud scheme had been going on for
20 years, somebody would’ve caught
it. This case proves that’s not true.
Most physicians, dentists and
other medical professionals aren’t
trained during medical or dental school
to handle the business side of their
practices. Thus, they become prime
targets for fraudsters.
Fraud against physicians, dentists
and small medical practices is rampant
because these professionals often
don’t have the means to hire qualified
financial administrators, the knowledge
to establish internal controls or the
skepticism to spot charismatic, yet
duplicitous, individuals.
We’ve repeatedly seen this
pattern at many medical and dental
practices. We investigated one case
in which the office manager’s control
of the financial data of the practice
crippled the physician’s ability to deal
with the fraud for fear of losing all his
medical records. So, he allowed the
office manager’s fraud to continue and
hoped for the best.
Always make your own financial
documents from outside sources rather
than relying on those provided inter-
nally. Assume nothing, take nothing for
granted and approach any investiga-
tion objectively.

JOIN THE
HFPP
Together we can identify and reduce fraud, waste, and abuse across the healthcare
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and cross-payer research studies.

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 TAKING BACK THE ID Identity theft prevention analysis

2018 FTC numbers paint

worsening fraud picture
Three million fraud complaints in 2018. That’s what the Federal Trade
Commission received — many of them for identity theft. When we look
at the stats since 2001, we see the fraud problem is worsening.

Y ou start receiving col-

lection calls for a loan
you never opened —
much less defaulted on. Your
grandson’s lawyer calls from
Year Fraud
eports by type

Identity Theft Other

Network Data Book (CSNDB) at
tinyurl.com/yyvjozc8.
Forty data contributors —
including the Consumer Financial
Protection Bureau, the U.S. Internal
2001 137,336 86,250 101,963
another nation, saying that the Revenue Service, more than 20
grandson will go to jail unless 2002 241, 783 161,977 146,862 state attorneys general and all
you wire $15,000 immediately. 2003 331,336 215,240 167,051
North American Better Business
Later you find out the grandson Bureaus — contribute reports to the
hadn’t left the country in years. 2004 410,298 246,909 203,176 CSNDB. If your law enforcement
You click on a link in an email, 2005 487,585 255,687 216,042
agency isn’t currently contributing
later to find malware that’s data to the CSNDB, you’re strongly
hijacked your files unless you 2006 423,672 246,214 236,243 encouraged to become members by
pay thousands of dollars. The 2007 505,563 259,314 305,570
visiting FTC.gov/Sentinel.
IRS calls to threaten legal action Consumer data are unveri-
on incorrect returns unless you 2008 620,832 314,587 325,705 fied and classified into 29 different
wire money that same day. 2009 708,781 278,360 441,836
categories. Consumers can file a
As I’ve written in previous complaint report at tinyurl.com/
columns, these are common 2010 820,072 251,074 399,160 obp7mx3 or through the FTC’s call/
identity theft schemes. And 2011 1,041,517 279,191 577,835
response center at 877-FTC-HELP
the latest data indicates the (877-382-4537).
fraud is worsening. Since 1997, 2012 1,112,693 369,958 632,428
the Federal Trade Commission 2013 1,159,115 290,098 685,352
More, more, more
(FTC) has accumulated tens of Except for minor decreases in
millions of complaint data from 2014 1,526,365 332,545 762,021 2017 and 2018, the total complaint
consumers and law enforce- 2015 1,165,625 490,112 1,427,784
reports have shown a marked
ment agencies pertaining to increase from 325,519 in 2001 to
“fraud,” “identity theft” and 2016 1,226,402 398,952 1,423,823 2,994,483 in 2018. (See Table 1:
“other” consumer protection 2017 1,290,636 371,034 1,215,464
Complaints from 2001 through
problems. In 2018, close to 3 2018 at left.)
million complaints were re- 2018 1,427,563 444,602 1,125,354 The number of complaint
ported to the FTC. The data are reports for the “identity theft” type
Table 1: Complaints from 2001 through 2018
stored in the Consumer Sentinel increased from 86,250 to 444,622

12 FRAUD MAGAZINE JULY/AUGUST 2019 FRAUD-MAGAZINE.COM

over the 18-year period but we see no What’s more revealing is how fraudsters
discernable trend because of erratic in- COLUMNIST use the identities of victims to benefit
creases and decreases from year to year, ROBERT E. HOLT- themselves and commit fraudulent
especially from 2006 through 2018. FRETER, PH.D., CFE activity. (See Table 2: Identity theft types
DISTINGUISHED PRO- and related subtypes at left.)
Identity theft ranked third with FESSOR OF ACCOUNT-
444,602 reported complaints and ac- ING AND RESEARCH AT In Table 2, in the “credit card fraud”
counted for 14.85% of the total com-
CENTRAL WASHINGTON type, the most alarming statistics are in
UNIVERSITY
plaints reported in the 2018 CSNDB. the “new accounts” subtype category,
which ranks first and has in-
Change from creased 24% in 2018 compared
Theft Type Theft subtype Rank No. of reports
previous year to 2017. This indicates that
Credit card New accounts 1 130,928 +24% fraudsters have become more
fraud Existing accounts 5 32,329 -6% successful in stealing identi-
Employment Tax fraud 3 38,967 -38% ties and using them to obtain
or tax-related
fraud Employment or wage-related 6 30,592 +44% new credit cards in the victims’
Mobile telephone - new accounts 4 33,466 +28% names.
Utilities- new accounts 8 21,994 +0%
You can protect yourself
Phone or from becoming a new ac-
utilities Landline telephone - new accounts 17 7,838 +28%
fraud counts identity theft victim
Mobile telephone - existing accounts 23 4,983 +6%
by quickly collecting from
Landline telephone - existing accounts 27 1,423 +25%
your mailbox credit card
Utilities - existing accounts 28 1,322 +20%
solicitations — containing pre-
Debit cards, electronic transfer/ACH 7 23,219 +0%
approved applications — that
Bank fraud New accounts 10 19,639 +12%
fraudsters can steal and apply
Existing accounts 14 12,990 +2%
for new cards in your name.
Business/personal loan 9 20,328 +82% Also, learn to avoid phish-
Auto loan/lease 11 18,815 +89% ing schemes because they ac-
Loan or
lease Non-federal student loan 18 6,327 +78% count for 80% of the malicious
fraud Apartment or house rented 20 5,439 +50% malware that victims inadver-
Real estate loan 21 5,178 +17% tently download on personal
Federal student loan 22 5,082 +119% computers, which thieves use
Government benefits applied for/received 12 16,021 -10% to extract personally identi-
Government Other government documents issued 19 5,645 +5% fiable information (PII) for
documents or
benefits fraud Driver’s license issued/forged 24 4,493 +19% criminal purposes like (again)
Passport issued/forged 29 703 +35% applying for a credit card in
Other 2 87,675 +121% the victim’s name.
Medical Services 13 13,833 +103% What you can’t control,
of course, is theft of your PII
Online shopping or payment account 15 10,294 +18%
Other identity via internal or external data
theft Email or social media 16 9,439 +23%
breaches. For example, if you
Evading the law 24 4,439 +7%
use your credit card when
Insurance 25 3,675 +24%
shopping at a retail store, and
Securities accounts 26 1,837 +15%
the store experiences a data
Table 2: Identity theft types and related subtypes (The data in this table don’t add up to the total breach, then the fraudster can
identity theft complaints for 2018 because, according to the FTC, consumers can report multiple types use your credit card PII (once
of identity theft. In 2018, 17% of identity theft reports included more than one type of identity theft.) again) to apply for a new card.

FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 13

 TAKING BACK THE ID
In the “employment or tax-related
fraud” type, the “tax fraud” subtype
decreased 38% while the “employment
or wage related” subtype increased 44%.
Tax fraud probably decreased because
of the IRS’s recent efforts to curb income
tax refund fraud by vetting the validity
of those requesting refunds. Employ-
ment or wage-related identity theft
fraud could’ve increased because fraud-
sters might have used more victims’
names as ghost employees, among other
crimes.
The “mobile telephone new ac-
counts” subtype (ranked fourth in the
“phone or utilities fraud” type) and
“landline telephone new accounts” sub-
type (ranked 17th in the same category)
both increased 28%, which mirrors the
24% increase in the credit card “new ac-
counts” subtype. Based on the signifi-
cant increases in all the “new accounts”
subtypes, it’s obvious that fraudsters
are increasing their efforts to target
industries with weaker defenses. The
“landline telephone - existing accounts”
increased 25%, and the “utilities – exist-
ing accounts” increased 20%.
The only significant issue in the
“bank fraud” category is with the
subtype, “new accounts,” which ranked
tenth and increased 12%. A fraudster
might open a bank account in a vic-
tim’s name to launder money, among
other reasons. They typically use a wire
transfer to move the money out of the
account.
All the subtypes of “loan or lease
fraud” have increased significantly.
Fraudsters use victims’ identities to
14 FRAUD MAGAZINE JULY/AUGUST 2019
Identity theft prevention analysis
borrow money for auto, business, per-
sonal or student loans.
In the “government documents
or benefits fraud” category, the “driver
licenses issued/forged” and “passport
issued/forged” subtypes are ranked rela-
tively low — 24 and 29 respectively
th th
— but they’ve increased significantly at
19% and 25%.
Under the “other identity theft”
type, all the subtypes except “evading
the law” have increased significantly.
Fraudsters are using the identities of
others to obtain “medical services” (up a
whopping 103%), “insurance” (up 24%),
“online shopping or payment account”
Age group No. of complaint
reports
19 and under 14,251
20-29 76,760
30-39 107,367
40-49 84,165
50-59 63,229
60-69 42,704
70-79 16,462
80 and higher 5,989
Table 3 Identity theft by age
(up 18%) and for “email or social media”
purposes (up 23%).
As shown in Table 3 above, the 30
to 39 age group reported the highest
number of complaints, but we shouldn’t
conclude that this age group is having
relatively more problems with identity
theft than the others. Older-age groups
commonly are more susceptible to
identity theft and other frauds, but the
FRAUD-MAGAZINE.COM
data in Table 3 don’t reflect that. The FTC
would’ve more accurately shed light on
the group that’s experiencing the most
problems if it had determined the num-
ber of complaints per 100,000 individu-
als in each age group.
Share, share, share!
Please share this information with your
business associates, family, friends and
clients and include it in your outreach
programs. An important takeaway
from this column is that the number of
identity theft complaints reported to the
FTC has been on a study upward climb
for the past 18 years, and there’s reason
to believe that the trend will continue
unless we educate the public about
phishing and identity theft schemes.
Many of the identity theft subtypes have
increased significantly from 2017. You’ve
been forewarned, so tread with care!
Please contact me if you have any
identity theft or cyber-related issues that
you’d like me to research and possibly
include in future columns or as feature
articles, or if you have any questions. I
don’t have all the answers, but I’ll do my
best to help. Stay tuned! n FM
Robert E. Holtfreter, Ph.D., CFE, is
distinguished professor of accounting
and research at Central Washington
University in Ellensburg, Wash. He’s
also on the ACFE’s Advisory Council
and the Editorial Advisory Committee.
Holtfreter was the recipient of the Hub-
bard Award for the best Fraud Magazine
feature article in 2016. Contact him at
doctorh007@gmail.com.
 GLOBAL FRAUD FOOTPRINT Examining cross-border issues

Romance fraud, cryptocurrency risks

and money laundering in Asia Pacific
The Asia Pacific region has become a hotbed for cyber romance scams.
Hong Kong cybercrime alone has risen 565% since 2012. The region’s
global financial centers also face increasing concerns about cryptocurrency
and blockchain money laundering fueled by North Korean cybercrime.

H
e said he was an engineer from
Britain who wanted to establish
a relationship with a wealthy,
66-year-old Hong Kong busi-
nesswoman. What he really wanted to do
was rip her off. And he did — to the tune
of $23 million in four years. He claimed on
the online platform Lovestruck that he had
financial problems and repeatedly asked
the woman for money. She transferred
cash to bank accounts in Hong Kong,
mainland China, Malaysia, Japan, Taiwan,
Britain and Germany — in more than 200
transactions. This lonely-heart case set the
record for Hong Kong’s largest romance
scam. (See “Online romance scam record
for Hong Kong as Wan Chai business-
woman loses US$23 million to ‘British
engineer,’ ” by Clifford Lo, South China consisted of romance scams that cost vic-
COLUMNIST tims more than $57 million. (See “Overall
Morning Post, tinyurl.com/ybsh3k4o.)
law and order situation remained stable
According to the Hong Kong Com- CFE in 2018,” The Government of the Hong
puter Emergency Response Team, cyber- ACFE RESEARCH
Kong Special Administrative Region, Jan.
crime cost Hong Kong companies and SPECIALIST
29, 2019, tinyurl.com/y55xz9ln.)
residents more than $250 million in the
During a recent interview with Fraud
first nine months of 2018 (a 565% increase
Simone McCarthy, South China Morning Magazine, Parag Deodhar, CFE, Asia Pa-
from 2012) with businesses sustaining Post, Dec. 8, 2018, tinyurl.com/y5s24trz.) cific director for information security at a
more than 9,000 attacks (a 55% increase Hong Kong police recorded 8,372 multinational corporation, described the
from 2017). The true amount of attacks is cases of deception in 2018, up 18 percent romance fraud phenomenon. “Romance
likely much higher, which justifies Hong from 2017. Among the notable increases fraud is one of the major scams prevalent
Kong’s presence in a LexisNexis Risk were cases of social media deception in Hong Kong and Singapore,” Deodhar
Solutions list of the top five cyberattack (2,064 cases and a 94 percent increase), says. “Scammers target wealthy single
destinations. (See “With financial losses online business fraud (2,717 cases and a women. Similarly, con artists — posing as
of HK$2.2 billion and more than 9,000 36 percent increase), email scams (894 part-time sex workers — target men.”
cyberattacks so far this year, Hong Kong cases and a 29 percent increase). Almost  Though romance scams are com-
finds itself a top target of hackers,” by 600 of the social media deception cases mon in Hong Kong and Singapore, they

FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 15

 GLOBAL FRAUD FOOTPRINT
aren’t unique to the region, according
to Barry Tong, CFE, advisory partner at
Grant Thornton Hong Kong and president
of the ACFE Hong Kong chapter.
“These kinds of scams are often
cross-border frauds because many of the
fraudsters are targeting victims from
outside of Hong Kong,” says Tong.
In October 2018, authorities in Hong
Kong, Malaysia and Singapore launched a
joint operation targeting a romance scam
ring that led to the arrests of 52 suspects
who allegedly conned more than 140 vic-
tims out of $14 million. (See “Hong Kong,
Malaysian and Singaporean police bust
US$14 million online romance scam ring,”
by Clifford Lo, South China Morning Post,
Oct. 26, 2018, tinyurl.com/ybhaunww.)
Crypto risks
The Asia Pacific region also faces prevalent
risks associated with cryptocurrencies. A
cryptocurrency promoter staged a particu-
larly eye-catching stunt in December when
he threw thousands of Hong Kong dollars
off a rooftop. In an online video, he asked
onlookers if they “believe money will fall
from the sky” as the bills fluttered from
buildings. Within months, Hong Kong
police arrested the same man for allegedly
selling specialized machines that mined
his cryptocurrency, which wasn’t yet trade-
able. (See “Hong Kong cryptocurrency
promoter thought to be behind money-
tossing stunt arrested for fraud over sale of
digital coin ‘mining machines,’ ” by Danny
Mok, South China Morning Post, March 1,
tinyurl.com/y2mafbgl.)
In Singapore, authorities charged
two company directors for promoting
OneCoin, a fraudulent cryptocurrency, by
using a multi-level marketing scheme.
(See “Two Singaporean company directors
charged for promoting ‘fraudulent crypto-
currency,’ OneCoin,” by Ketaki Dixit, AMB
Crypto, April 11, tinyurl.com/yxz2pj5c.)
Security researchers linked attacks
on three South Korean cryptocurrency
exchanges to the Lazarus group, which
is believed to be a collective of hackers
sponsored by the Democratic People’s Re-
public of Korea (North Korea). They used
16 FRAUD MAGAZINE JULY/AUGUST 2019
Examining cross-border issues
spearphishing attacks with tax-themed
lures and then deployed malware linked to
previous attacks on financial institutions
including the Bangladesh bank heist that
I covered in a previous column. (See “Why
is North Korea So Interested in Bitcoin?”
by Luke McNamara, FireEye, Sept. 11, 2017,
tinyurl.com/yczoy5e5 and the “Global
Fraud Footprint” column, Fraud Magazine,
November/December 2018, tinyurl.com/
y2cf3xtk.)
According to a United Nations Secu-
rity Council panel of experts convened in
March, North Korea has amassed more
than $670 million through cybercrime by
using cryptocurrencies and blockchain
technology to launder the proceeds. The
panel singled out at least five successful at-
tacks on crypto exchanges in Asia between
January 2017 and September 2018, with
losses totaling $571 million. (See “North
Korea stole cryptocurrency via hacking:
UN panel,” by Kaori Yoshida, Nikkei Asian
Review, March 8, tinyurl.com/y5kvn5hc.)
The prospect of North Korea launder-
ing proceeds of crime in the region doesn’t
lack precedent. In November 2018, the
U.S. Department of Justice (DOJ) filed a
civil suit alleging that companies in Hong
Kong, Singapore and China helped launder
more than $3 million for sanctioned North
Korean banks. The Singaporean company
involved agreed to forfeit funds to the U.S.
government and claimed a Chinese money
remitter directed it to send payments to
North Korean companies when the Singa-
porean company sought discounted rates
for exchanging currency. (See “U.S. Files
Suit to Seize Assets Tied to Alleged North
Korean Money Laundering,” by Samuel
Rubenfeld, The Wall Street Journal, Nov.
29, 2018, tinyurl.com/y3k373nm.)
“The [North Korean] money launder-
ers in this case chose Hong Kong as the
destination probably because it is one of
the closest international financial centers
for North Korea,” Tong says.
According to the Global Financial
Centres Index, Hong Kong, Singapore and
Shanghai together are closing in on the
top two financial centers, New York City
FRAUD-MAGAZINE.COM
and London, rounding out the index’s top
five while making it 60 percent Asian.
(See “The Global Financial Centres Index
24,” Z/Yen, China Development Institute,
September 2018, tinyurl.com/y3guwo8w.)
In January 2018, well before the
UN panel met or the DOJ civil suit, U.S.
Treasury officials warned Hong Kong that
it needed to do more to combat North
Korean smuggling and money launder-
ing, including strengthening company
formation and registration rules. (See
“US official warns Hong Kong over North
Korea smuggling, money laundering,”
by Joshua Berlinger, CNN, Jan. 25, 2018,
tinyurl.com/yyzcg3eh.)
“The Hong Kong Monetary Authority
(HKMA) has been amending the anti-mon-
ey laundering/counter-terrorism financing
regime and guidelines to tackle the chang-
ing trends of money laundering,” Tong
says. Their efforts include incorporating
updates to government statutes.
“For example, the Anti-Money
Laundering Ordinance (AMLO) extended
the due diligence and record-keeping
requirements of financial institutions to
designated non-financial businesses and
professions (DNFBPs) in March 2018,” says
Tong. “We also notice that the SFC has
been launching more investigation cases
in 2017 and 2018 than in 2016 and before.”
More recently, a London-based think
tank issued a report pointing out South-
east Asia’s vulnerability to North Korea’s
sanction-evading activities, including
those enabled by cryptocurrencies, because
of North Korea’s proximity and the avail-
ability of sophisticated trade and finance
infrastructure, plus the wide variations in
the nature and scope of regulation from
country to country. (See “Closing the Crypto
Gap,” by David Carlisle and Kayla Izenman,
Royal United Services Institute for Defence
and Security Studies, April 2019, tinyurl.
com/y6t3lenh.)
“The governments in Asia have set up
task forces,” says Deodhar. “Financial regula-
tors, banks and the police are also doing
lot of public awareness campaigns. [Hong
Kong] police set up the Anti-Deception
Coordination Center (ADCC) and an anti- cryptocurrency risks, fraud examiners proceeds with negative repercussions
scam telephone helpline.” should be proactive in understanding on a global scale awaiting organiza-
Tong said ADCC’s goal “is to step up and combating these fraud risks rather tions that enable the activity. n FM
combat actions against deception and than waiting for new compliance
increase public awareness of various kinds requirements.
of scams.” Mason Wilder, CFE, is a research
• The region is uniquely positioned to
Additionally, the SFC will now oversee face increased risks of North Korean specialist with the ACFE. Contact him at
cryptocurrency exchanges, traders and other money laundering of cybercrime mwilder@ACFE.com.
related companies. The SFC also will require
investment funds with more than 10%
cryptocurrency assets to obtain a license and
only allow initial coin offerings for tokens
that have fulfilled SFC requirements, such as
existence of at least 12 months. (See “Hong
Kong to tighten cryptocurrency rules,” by
Takeshi Kihara, Nikkei Asian Review, Dec. 17,
2018, tinyurl.com/ya9szv8p.)
Authorities also took steps to curb illicit
crypto mining by making such operations
punishable by up to $500,000 fine or five
years in jail. (See “Hong Kong: Illicit Crypto
Mining Operations Are Punishable by Fine
or Imprisonment,” by Ana Berman, Cointele-
graph, April 4, tinyurl.com/y2zutbym.)
A little further to the west, Japan’s
Financial Services Agency will require stron-
ger internal oversight from cryptocurrency
exchanges on their offline “cold wallets”
used to store digital money after restricting
use of online “hot wallets” (where virtual
currencies are stored on platforms directly
connected to the internet) because of a series
of security lapses. (See “Japan to require
crypto exchanges to bolster internal
oversight: source,” by David Dolan and
Takahiko Wada, Reuters, April 16, tinyurl.
com/y6d2mt72.)

Takeaways for fraud examiners

• Increases in cybercrime across the Asia
Pacific region require fraud examiners
to maintain awareness of the threats
and schemes so they can help prevent
their organizations from becoming
victims.
• Although regional governments and
regulatory agencies are adapting to

FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 17

Keep ahead of

fluid GLOBAL
anti-fraud regulations

The compliance landscape forever shifted after the Enron and

WorldCom debacles, among others. Don’t let accelerating corporate
governance changes leave your organization and clients unprotected.
Here’s how anti-fraud regulations evolve in phases around the globe,
a review of compliance history plus practical action plans.

by
 K
umar is a business owner keen on expand-
ing his enterprise. He has his eye on acquiring
another company in his field, Previo Industries.
Kumar didn’t chance upon Previo — he’s already
familiar with it from his experience a few years
back when he worked for another company, Intra-
zio Inc., that also considered acquiring Previo. (All
names have been changed.) At that time, Intrazio
ran proper due diligence checks on Previo. Kumar
was privy to the process and results. In the end,
the company decided to change direction and
didn’t acquire Previo.

But now, Kumar is eager to bring Pre-
vio into his growing company. Because
he’s already familiar with Previo’s busi-
ness and its processes, Kumar tells his
analysts to bypass their regular scrutini-
zation to try to speed up the process and
grab Previo before his rivals do.
However, shortly after the acquisi-
tion, Kumar realizes he’s made a critical
mistake. His team takes a closer look at
Previo’s inner workings and discovers
that the company had been convicted
of some corruption violations, which
it hadn’t remediated. Of course, Kumar
hadn’t anticipated this, but he should’ve
known better. Laws, regulations, enforce-
ment measures and penalties are always
changing. Kumar shouldn’t have relied
on the due diligence Intrazio conducted a
few years earlier as a bulletproof indicator
of Previo’s present standing.
REGULATOR
Y EVOL
Kumar should’ve realized that the legal and
regulatory landscape for businesses world-
wide is increasingly fluid. He also should’ve
known that organizations’ compliance and
commitment to ethical standards can vary
over time.
At the turn of the century, high-profile
fraud cases like Enron, WorldCom and
Satyam, for example, shook the economic
world and caused a huge trust deficit for
corporations facing similar challenges of
balancing “profitability at all costs” with
ethical standards. The resulting clamp-
down in the U.S. was the Sarbanes-Oxley
Act of 2002, which mandated an indepen-
dent management certification of internal
controls over financial reporting.
More reforms and statutory changes
followed with the 2010 U.S. Dodd-Frank
Wall Street Reform and Consumer Protec-
tion Act. And that year, the U.K. Bribery
Act updated the nation’s anti-corruption
laws for the first time in a century. Other
countries also started legislating anti-brib-
ery and corruption laws and regulations.
Fraud examiners, in conjunction with
compliance managers, must continually
counsel their managers and clients on
the ever-changing corporate governance
landscape and best practices. The newest
generation of fraud examiners will benefit
from the history of corporate governance.
CORPORA
PRIMER
Let’s examine some of the major gover-
nance initiatives, laws and regulations
from the modern era.

FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 19

 Global anti-fraud regulations
• The U.S. was the first nation to crimi-
nalize the bribery of foreign public of-
ficials with the passage of the seminal
1977 U.S. Foreign Corrupt Practices
Act (FCPA).
• The Organisation for Economic Co-
operation and Development (OECD)
formed an ad hoc working group in
1986 to explore corruption in interna-
tional trade. It published the Recom-
mendation on Combating Bribery in
International Business in 1994. Since
then the OECD has published several
additional recommendations, includ-
ing the 2010 Good Practice Guidance on
Internal Controls, Ethics, and Compli-
ance (tinyurl.com/y3t7gtaj).
Fraud examiners, in conjunction with
compliance managers, must continually
counsel their managers and clients on the
ever-changing corporate
governance landscape and best practices.
• The United Nations Convention
Against Corruption (tinyurl.com/
y7r228yw), which went into force
in 2005, is considerably broader in
scope than the OECD convention. It
establishes a framework to combat all
forms of corruption, including bribery,
extortion, embezzlement, trading in
official influence and general abuses
of power. This further underscores
my earlier point that the governance
landscape is constantly changing.
20 FRAUD MAGAZINE JULY/AUGUST 2019
Meanwhile, the private sector has also
been working to raise standards and fight
fraud.
• The Committee of Sponsoring Organi-
zations of the Treadway Commission
(COSO), an independent private-sector
initiative, began in 1985 to study the
causal factors that can lead to fraudu-
lent financial reporting. In 1992, COSO
issued its initial Internal Control—In-
tegrated Framework, which quickly
became the best-practice road map for
designing, implementing and main-
taining a system of internal control.
COSO revised this original framework
in 2013 to include 17 additional prin-
ciples to assist in creating an effective
internal control system.
• In 2016, COSO partnered with
the ACFE to create the Fraud Risk
Management Guide (ACFE.com/
fraudrisktools).
• In 2017, COSO published Enterprise
Risk Management—Integrating with
Strategy and Performance to update its
original ERM framework and address
the evolving needs and landscape
related to risk management. (See
tinyurl.com/y2ovcdla.)
FRAUD-MAGAZINE.COM
All these regulations and standards
were designed to make corporations and
their leaders more responsible and ac-
countable to stakeholders. They raised
expectations for companies to act with
ethics and integrity, rather than just deliver
numbers at any cost. (See the online ACFE
Fraud Examiners Manual, Section 2: Law/
The Law Related to Fraud/International
Initiatives Against Fraud and Corruption
plus Section 4: Fraud Prevention and De-
terrence/Fraud Risk Management/Risk
Management Frameworks.)
Even with emerging laws and regulations,
some companies still resort to shortcuts
and unethical practices to achieve ambi-
tious growth numbers and targets. Let’s
examine how the regulatory governance
phases have evolved over the last few de-
cades from being merely compliant to
being completely committed. While I’m
writing about the phases from a largely
Indian ecosystem, the same would’ve been
true for many countries at some point.
Prescriptive phase of governance
In this first phase of governance, require-
ments are prescriptive, such as required
approvals (to set up factories, for example),
time frames and fees organizations need to
pay. In this procedure-driven compliance
phase, “permissions” from the government
are important. A typical governmental
body isn’t interested or even knowledge-
able about business norms and practices.
Compliance is largely binary in na-
ture: You either comply or you don’t. This
procedure-heavy bureaucratic phase can
spawn corruption and a “speed money”
culture (greased payments to hasten pro-
cesses and services).
While this aspect of governance is
important, it just fosters rules-based ad-
herence and doesn’t necessarily promote
 ethical compliance or even regulatory
controls.
Regulatory phase of governance
In the second phase of governance, regula-
tory arms of government become stron-
ger and become involved in the “how” of
business by mandating processes that or-
ganizations need to follow in the interests
of consumers. This phase has pros and
cons. Some view such governmental ac-
tions as meddlesome and invasive. How-
ever, most believe that, for example, the
central bank in India (RBI) has become a
good regulator and has protected Indian
currency from much financial turmoil in
Asia and even globally.
Developing countries are often
in this second phase, but this varies
from country to country. This phase
of governance brings a focus on cus-
tomer interests, compliance to stan-
dards and a fair degree of probity,
but it doesn’t mandate organizations
D O N ’ T J U S T A C C E P T I N N O VAT I O N .
Grant Thornton LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of,
and do not obligate, one another and are not liable for one another’s acts or omissions. Please see gt.com for further details. © 2019 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd
to be absolutely ethically upright.
Ethics and values phase
of governance
In probably the most evolved of the three
phases, governments expect business-
es to go beyond mere compliance and
demonstrate the highest levels of ethical
conduct as their core principles while
pursuing their goals and mission-driven
priorities. Stakeholder interests are vital
to businesses and are key to their sur-
vival. This isn’t to say that businesses
will become less competitive and inno-
vative. The cost of unethical practices is
so high that businesses can’t afford to
disregard the risks anymore. So, the best
way forward is to be innovative with their
products and processes to stay relevant
and competitive.
This phase underscores the sig-
nificance of staying ethical and morally
upright as an organization. Businesses
realize the existential challenges posed
Embrace it.
by unethical practices and the power
wielded by enforcement authorities.
We’ve seen numerous instances
in which businesses have paid huge
prices for unethical deeds. Mismatches
among differing governance standards
across countries and cultures often cause
these ethical violations. Most companies
operating in diverse markets face this
challenge.
Standards across the globe are fast
converging to the “ethics and value”
phase of governance.
T
CORPORA
In the ethics and values phase of gov-
ernance (the optimum phase in ethical
processes), corporations take a proactive
approach in devising processes to moni-
tor business, gauge ethical parameters,
identify instances of fraud or corruption,
A helping hand in the face of disruption.
Welcome to Status Go.™
gt.com/cio
 Global anti-fraud regulations
and implement corrective and preventive
actions, among other measures.
As fraud examiners, we know that an
organization must institute a comprehen-
sive program across all levels, so it’ll be-
come ingrained into the fabric of that or-
ganization. Governance processes should
embed values and principles into business
decision-making. It’s not about an overtly
“rules-based culture” where people just
follow regulations without considering
why; it’s about upholding values and prin-
ciples in all interactions, especially those
that involve ethical dilemmas.
Corporate leadership need to fully
own a good governance model. Man-
agement should apply its principles and
processes across the organization with
the goal of enthusiastic employee par-
ticipation. The model should have strong
oversight, written policies and standards,
training and development, open lines of
communication, and monitoring and
corrections.
Strong oversight
A governance model with strong oversight
doesn’t require a hierarchical structure.
An organization isn’t about one person;
company leaders must be responsible for
oversight of governance processes. A chief
compliance officer or a governance, risk
management and compliance head can
manage the program. But the ultimate
responsibility must be with the CEO and
board of directors, who have the author-
ity to review the governance framework
and suggest any needed changes or
corrections.
Written policies and standards
Organizations need written policies and
standards on ethical subjects such as brib-
ery and corruption, conflicts of interest,
22 FRAUD MAGAZINE JULY/AUGUST 2019
We’re living in the day of high regulatory
enforcements and standards.
gifts and hospitality, codes of conduct and
similar topics. Clearly written procedures
that set boundaries on what’s acceptable
and what’s not are a must. These policies
and procedures should define situations
involving ethical dilemmas and explain
the decision-making processes. An orga-
nization’s policies and procedures should
be based more on values than on rules
and should promote societal good.
Training and development
Organizations should have distinct
training and awareness campaigns for
all ethics and values aspects. Regardless
of employees’ functions, organizations
should educate them about subjects such
as bribery and corruption, sexual ha-
rassment and conflicts of interest. Such
training should focus on ethical decision
making, in particular.
Open lines of communication
According to the ACFE’s 2018 Report to
the Nations, the most common fraud de-
tection method is tips. (See ACFE.com/
RTTN.) An organization should foster
a culture of openness in which indi-
viduals can share their concerns with
management if they observe any actual
or perceived breaches of ethics without
retaliation. At many large organizations,
employees, vendors and other associates
FRAUD-MAGAZINE.COM
have access to hotlines through which
they can register their concerns and even
suggestions. The most effective report-
ing systems maintain the anonymity of
those reporting.
It’s management’s responsibility to
evaluate and resolve genuine concerns
that employees submit through the
reporting process. Ultimately, it’s the
board’s responsibility to ensure that
each concern is handled in a just and
fair manner and that management’s
response is unbiased and thoughtful.
It’s important to identify concerns
before they become complaints. A com-
plaint could refer to an incident that
has happened, while a concern can be
merely an indication that something is
amiss and needs further investigation.
Monitoring and corrections
A good monitoring process (including
internal audits, reviews, management
walkthroughs) measures the process
outcomes and offers evidence-based
suggestions for improvements and cor-
rections. The monitoring process should
highlight successes besides identifying
non-compliance, failures and gaps. Orga-
nizations then should identify corrective
measures and preventive steps and carry
out the necessary remediations.
 Response mechanism
Organizations need to be nimble and more
than just rules-driven; they should follow
their core values when they respond to any
kind of ethical issue. This is particularly
true if such issues can affect their reputa-
tions and ethical stances. They then must
follow corrective and preventive measures
discussed above in spirit and letter and
consider response strategies based on
sound judgment and deeply rooted in
their values.
We’re living in the day of high regulatory
enforcements and standards. Organiza-
tions must act ethically and not just legally.
On the plus side, we’ve seen countless
cases of companies doing the right thing
by going well beyond the law and making
ethically sound decisions based on their
core values and principles. For example,
some companies have taken strong ac-
tion in response to cases of harassment
when the incidents weren’t, technically,
criminal in the eyes of the law. However,
we’ve seen too many cases of corporations
still following a culture of “do it until you
are caught” philosophy. This dubious ap-
proach might have worked in the past, but
not any longer. Compliance professionals
and fraud examiners are laboring to make
sure of that. n FM
Mani Padmanabhan, CFE, is co-found-
er and CFO of Positive Shift Technolo-
gies in Hyderabad, India. Contact him at
iammani65@gmail.com.
Test your organization’s fraud
health with the ACFE’s free Fraud
Prevention Check-Up (tinyurl.com/
y4m94rfx), which includes the
video, “Fraud and the Tone at the
Top: Ethics in the Executive Suite.”
Check out the free-for-members
ACFE’s Fraud Risk Assessment
Tool (tinyurl.com/y6pnzwfq),
which consists of 15 modules that
help organizations zoom in on
areas of risk.
Read “Winning the risk game,” by
David L. Cotton, CFE, CPA, CGFM;
Sandra Johnigan, CFE, CPA/CFF;
and Leslye Givarz, CPA, Fraud
Magazine, January/February 2017,
tinyurl.com/y5394h65.

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criminal attacks targeting their clients. Visit our website to learn more about our Digital
Banking, Real-time Wire, ACH ODFI & RDFI, and Zelle P2P Real-time solutions.
 FEAR NOT

THE
BREACH
by Dick Carozza, CFE / Photos by Jason Miczek, AP Images

Write your cybersecurity playbook now

Cybersecurity expert

Theresa Payton says don’t wait until you’re

in the middle of a breach to formu l ate p lans .

Develop a playbook so everybody knows their roles. Practice digital disasters.

Line up your external helpers. Devise your communication strategy.
Then, if you’re breached, c o o l e r h e a d s w i l l p r e va i l .

In June 2015, the U.S. Office of Personnel Manage-

ment — the federal agency that manages the government’s
civilian workforce — reported that hackers had stolen
personally identifiable information (PII) of 21.5 million
individuals, including Social Security numbers, from its
background investigation databases.1 According to The
Washington Post, the Chinese government was responsible
for the OPM breach.2 Payton, a former chief information officer during the
“Organizations are doing a horrible job at cyberse- second President Bush Administration, was a keynote
curity and privacy protections,” says cybersecurity expert speaker at the 30th Annual ACFE Global Fraud Conference
Theresa Payton. “The security company, RSA, released in June. “We’ll never be able to build security that will
a Cyber Security Poverty Index that stated that 72% of stop all bad things from happening because we’ll always
large enterprises, which are the ones with the security have bad people in the world,” she says during a recent
budget and resources, are unprepared for all aspects of Fraud Magazine interview. “It would be a great day if
a data breach, including identifying the scope, recovery, cybercriminals hit a brick wall in trying to hack into a
and notification.”3 company and they said, ‘Wow, this is so hard. Maybe I
should go be a good person now and bake pies for the sick
and the elderly.’ They won’t do that. They’ll either move
on to the next victim and hope they’re more vulnerable, or they’ll find another way to
attack. The adversaries are engaging newer technologies such as artificial intelligence,
machine learning and big data to step up their own evasion capabilities,” says Payton,
the founder, president and CEO of a cybersecurity consulting firm.

FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 25

 Fear not the breach

“For example, we’re now seeing malware that’s designed to evade most
of today’s detection techniques. We see attacks hiding in encrypted com-
munications and traffic,” she says.
“There’s also a new playbook that Russia perfected during the 2016
U.S. presidential election, which nation states and cybercriminal groups
are using. That playbook is the evolution of hacking social sentiments and
using misinformation campaigns,” Payton says. “Russia used it to create
public unrest around the globe and provoke arguments on both sides of
issues. In the future, cybercriminals could use it to defame individuals,
industries and organizations.
“Cybercriminals change tactics daily. Most of them are dynamic and
evolve their tradecraft of tools, tactics
and procedures — TTPs — often to de-
velop new attack methods and to attempt
to remain undetected,” Payton says. “Ad-
ditionally, new technologies introduced
daily into the workplace add to the po- Theresa Payton
tential attack surface. Cybercriminals
use an ‘all of the above’ strategy. They BLAZES TRAILS in
deploy social-engineering emails with CYBERSECURITY
poisoned links and attachments. They
surf password databases and retry them
on company emails and networks. They
take advantage of software flaws to insert
themselves into technology processes.”
The situation might be dire but Theresa Payton was the first female to serve
not hopeless, Payton says. “We have to as White House chief information officer
continue to up our game, too. Defenders Payton: We do talk where she oversaw IT operations for the
must leverage emerging technologies to about the same cyber- second President Bush administration during
architect better and more security strate- security problems, and a period of unprecedented technological
gies while also removing more burden it’s maddening, isn’t change and escalating threats.
and friction on the user.” it? We keep focusing IFSEC Global ranked her fourth among
on the user being the the top 50 of the world’s cybersecurity profes-
FM: In many ways, we seem to be weakest link, and that’s sionals. Security Magazine has placed her in
talking about the same cyberse- the absolute wrong the top 25 Most Influential People in Security.
curity problems that have existed way to design an effec- Payton co-authored two books: “Pro-
for decades, such as user IDs and tive cybersecurity pro- tecting Your Internet Identity: Are You Naked
passwords, failure to patch systems, gram. The threat land- Online?” and “Privacy in the Age of Big Data:
lack of reliable backups and more. scape evolves as we add Recognizing Threats, Defending Your Rights,
But now in a much more sophisti- new technologies that and Protecting Your Family.” She’s been a
cated and complicated technology are incorporated into repeat guest on the “Today Show,” “Good
environment, what needs to change our transactions and Morning America,” Fox business shows, Fox
news shows, “CBS This Morning” and “CBS
to make our cybersecurity more how we interact with
Evening News,” BBC TV news and radio,
effective? What are some common the internet but also
CBSN, CNN, NBC News, MSNBC and NPR.
denominators of successful, innov- as we find ways to stop
Payton is the founder, president and CEO
tive cybersecurity programs? the adversary.
of the cybersecurity consulting company,
Fortalice Solutions, LLC, and co-founder of
Dark3, a cybersecurity product company.

26 FRAUD MAGAZINE JULY/AUGUST 2019 FRAUD-MAGAZINE.COM


A cybersecurity program should have the basics, such as benchmarking
against the industry best practices provided by the National Institute of Stan-
dards and Technology [NIST], but it also needs a focus on these questions: 1)
What are your top three most critical assets that if they were destroyed, held
for ransom or leaked would cause major disruption to your business? 2) Who
touches or accesses those assets and what safeguards are in place to make
sure the assets are safe? 3) What creative solutions are in place that can out-
think and outmaneuver the adversary? 4) Have we designed a multi-layered
strategy that incorporates a wide variety of solutions that can stop or detect
and recover from an issue?
The layers could be strict user-authorization controls for transactions
outside the norm, user-access controls appropriate to data sensitivity, regular
and emergency patching, conducting a red team — bringing in an independent
team to challenge your applications — and application whitelisting — telling
your network the list of what’s “trusted” — plus behavioral-based analytics
that look at logins, access, and data ingress and egress points.
FM: Can you give a brief list of mandatory responses when organiza-
tions find themselves in the middle of breaches?
Payton: When you’re in the middle of a breach, what you do will define your
reputation for years to come. The best approach is to practice a digital disaster
before you have a breach. You need to develop a playbook so that everyone
knows their roles and will highlight any gaps that exist in your cybersecurity
plans. Determine what role you want external helpers to play for incident re-
sponse, forensics, legal advice and cybersecurity fixes. Hopefully, you’ll never
need the playbook, but if you do, it should include your communication plan.
A communication plan needs to focus on when you need to disclose pub-
licly to your employees, board, third-party vendors, regulators and — most
importantly — your customers. Make sure you know how you’ll communicate.
For example, for employees, will it be an internal web portal or a phone blast?
For customers, will you post a notice on your website and in social media, or
do direct mailers? Know who your friendly press outlets might be. Have the
phone number handy for your local FBI cyber unit.
Here’s what your playbook should emphasize:
• Assemble: Now’s the time to pull together the trained incident response
team. Incident response requires co-locating the team even if via video con-
ferences. Discuss the disaster, review possible remedies, discuss how this
group will get alerts and how the escalation process and approval process
for ongoing internal and external communications will work.
• Transparency: Both internally and externally, communicate what you know,
what you don’t know and when future updates will occur.
• Dig deep into details: Provide details when and where possible. The where
and when might depend upon forensics and ongoing case work. Explain
how you plan to avoid similar issues in the future.
• Feedback loop: Design and implement an incident response [IR] feedback
loop. Tell customers how best to reach you — possibly via a toll-free number
or social media. Walk them through the best way to be heard.
FRAUD-MAGAZINE.COM
“When you’re in the middle of a breach, WHAT YOU DO WILL
DEFINE YOUR REPUTATION
FOR YEARS TO COME.”
FM: Employees, of course, aren’t automa-
tons. They can be thoughtful, emotional,
studious, lazy, loyal, cunning, brilliant and
dumb — sometimes all in one day. How do
fraud examiners and cybersecurity per-
sonnel treat employees as multi-faceted
humans when protecting organizations?
You’ve said that many organizations’
cybersecurity briefings sound similar: 1)
The sky is falling 2) Our data is at risk 3)
Attacks are worsening and 4) Users are
still the problem. How do organizations get
beyond these suppositions?
Payton: Have some fun with education. To most
employees, cybersecurity training is so boring.
They snooze, and you lose! Focus on the digital
assets and operations that matter most to the
organization. Talk to your employees about what
it would mean if those digital assets were under
attack and stolen. Then talk about tips to safe-
guard those assets.
Consider instituting contests, such as, “The
person who forwards the most spam messages to
our organization spam alert account wins a free
lunch this month.” Awareness and education
shouldn’t be one time a year and solely focused
on compliance. Consider a curriculum that lever-
ages many mediums throughout the year. Keep
most of the messaging short and focused on one
topic for easier retention.
Mediums you can use include delivering
in person, video conferences, posters and inter-
nal memos. You can train them on: 1) your most
important assets and how to safeguard them 2)
how to protect yourself and your loved ones from
online fraud (transferrable skills that will help
protect the organization) 3) local and federal
obligations if you have a breach 4) reminding
everyone that the security team is a small and
mighty team so security is everyone’s job 5) train,
explain, test and repeat!
JULY/AUGUST 2019 FRAUD MAGAZINE 27
 Fear not the breach
FM: What else can organizations do to train
their employees?
Payton: Cybercriminals can hack your employees’
devices — whether they belong to the individuals or
the organizations. All of them have open platforms
so they can upload operating system updates and
security patches. However, their devices are emi-
nently hackable. Their latest apps can spell trouble
for your organizations.
What are we doing wrong with these devices?
We provide very arcane rules for employees to fol-
low, such as having them devise 12-character pass-
words of non-repeating numbers or letters, etc.
The complicated passwords actually feel designed
to keep the owner of the account out because they
can’t remember them, and only the bad guy with a
password cracking tool can get in. We must work
harder to design security systems that act more as
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enablers and safety nets, rather than by rules that become restrictive
for people to gain access to do their jobs.
According to a recent Experian report, “Managing Insider Risk
Through Training and Culture Report,” [tinyurl.com/y4ux9pb2] security
and privacy training professionals stated that just over 65% of their
organizations’ employees are still the “weakest link” in cybersecurity.
I realized that wasn’t really true when I worked at the White House.
The pivotal moment for me was when I shifted the design of a
security strategy. We knew we had to address the hearts and minds
of the staff at 1600 Pennsylvania if we wanted to protect their privacy
and security. After all, if solving cybersecurity and privacy issues were
as simple as following security best practices, we’d all be safe. It’s not
that simple.
Two key questions came to me the first 90 days at the White House,
and I had to answer them, or we would have had a major calamity: 1)
Why, in spite of talented security teams and investments on security,
do breaches still happen? 2) Why is it, that despite hours and hours of
boring computer-based training and security campaigns, we still make
mistakes and click on links?
We need a new line of thinking. It’s the one that kills boring com-
puter-based training courses. It’s the path that bans buying the latest
fancy security tool if you haven’t used innovation to combat the hu-
man element. The new path is driven by a core principle: “Design for
the human.”
I compare this line of thinking to installing childproof or safety
items in your house for toddlers or pets. You still tell them, “don’t touch
a SURYS company
FRE
TRIAE
L
 Making and breaking rules
Theresa Payton says we should commit to break some cybersecurity
rules and write new ones.

this,” but just in case they do,

you designed safety into your
house for them in mind.
Design for your employ-
ees and for yourself. Just know
they’ll use free Wi-Fi, they’ll re-
cycle passwords, they’ll respond
to emails that are tricking them
into giving up information.
They’ll break all the security
rules because they aren’t secu-
rity employees. By the way, I am
going to let you in on a little se-
cret: Security employees break
the rules, too!
FM: Our members — fraud
examiners — work hard to
prevent and deter fraud in
all sectors. What’s the best
advice you can give them
as they fight daily in the
trenches?
New rules
1 Segmentation is key
Just as you segment client files from each
other or lock away valuables in a safe with-
in a room, segmentation is a strategy to
build a digital wall around your informa-
tion. You must design ways to segment
off your top two most-critical digital assets
to save them.
2 Install “kill switches”
Insist that your organization install these in
your technology so you can turn off seg-
ments to protect, but you still can function
without compromising security or privacy.
3 Security and technology innova-
tion will be on equal footing
The security team must be involved as
much as possible at the earliest stages of
technology purchases and designs.
Old rules to break
1 We can protect it all
No, you can’t. Cybercriminals will always
have time to be creative and break in.
Always.
2 Don’t integrate new tech; it’s
buggy and causes security problems
Not always true. New tech is your new
best friend forever. Big data, new tech-
nologies and the “internet of things“
don’t have to be the enemies of security.
Make them work for you not against you.
3
Not always true. Chances are you’ve
been breached or one of your third-party
vendors have.

Payton: First off, remember

that you picked a very noble
profession! You’re helping
fight fraud and reduce crime.
Be a student of your job and
keep up on the latest advancements that you can
deploy to help improve your organization’s anti-
fraud posture.
Your job is fascinating and interesting. Don’t
forget to use storytelling to help your customers
and clients know why you implement certain rules
or controls and how these rules and controls pro-
tect them.
See a longer version of this article, with
even more valuable information, at
Fraud-Magazine.com.
FM: Dr. Joseph T. Wells, CFE, CPA, began the ACFE in 1988 to
preach the message of detection, deterrence and prevention of
fraud. How do you see the association doing in its cybersecurity
deterrence and prevention efforts? What can the ACFE do to fur-
ther help its members in cybersecurity?
Payton: I love the work that the ACFE has done for decades now in the
detection, deterrence and prevention of fraud. I also love seeing the ACFE
focus on the intersection of fraud-fighting discussions with cybercrime-
fighting discussions. It would be great to see ACFE push the industry to
look for just-in-time methods to push fraud indicators to the cybercrime-
fighting side and vice versa. Additionally, how can we create new models
for fighting fraud when interactions are now machine-to-machine, and
how can we more quickly detect a rogue machine committing fraudulent
transactions? Actionable threat intelligence in real time is key to winning
the cybercrime war.

FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 29

 Fear not the breach
FM: For years, cybercriminals had tar-
geted financial institutions. Now they
seemed to have moved on to health
care. Why is that? How are health care
organizations ramping up their preven-
tion faculties?
Payton: Criminals go where the action is,
where victims are easy to find and where
there’s value. They focused heavily on the
financial services industry for decades. As
the financial service industry hardened their
defenses, cybercriminals looked for new tar-
gets and hit pay dirt by targeting food, retail
and healthcare.
When WannaCry hit, people heading
into U.K. hospitals who were scheduled for
surgery were told, “We can’t operate today
because we’re in the middle of a ransomware
attack.” This is where cybercrime gets real.
A ransomware attack could endanger lives.
Yet security protocols can’t stand in the way
of patient care. Health care institutions once
used old-school rules; you could develop
your firewall and hide the data behind it.
The devices that are part of the “internet of
everything” [IoE] or the “internet of things”
[IoT] have broken that rule. [See sidebar,
“Three tips for fighting fraud and cybercrime
at health care organizations” at right.]
FM: What are some of the best ways
for organizations to protect their IoT
devices?
Payton: The IoT and the IoE are upon us.
Businesses and the security industry were
struggling to beat cybercriminals before
these technologies were introduced, and
this just adds more new points of presence
to worry about. We love the convenience,
but the data the new technology creates and
the complexity it adds to the workplace is
creating a domino effect of security and
privacy issues.
This new technology doesn’t follow old-
school rules. Now is the time to break all the
security rules and try a different approach.
30 FRAUD MAGAZINE JULY/AUGUST 2019
Three tips for
health care
organizations
from Theresa Payton
Disconnect Social Security numbers
You often use it to open bank accounts, buy
homes and pay taxes. You’ve been carrying
around that nine-digit code since birth. And
that’s the problem. As an alternative, hospi-
tals could create unique, temporary patient
identifiers that they can use and retire.
Segment networks and then
trust but verify
When a “smart” thermostat can be an entry
way for hackers, segregating it from your
guest Wi-Fi just makes sense. And yet, I
can’t tell you how many times I’ve gone to
a health care organization, and they say,
“Yeah, we’ve got physical and logical sepa-
ration.” When we conduct our red-teaming
exercise, we often find that’s not the case.
The exercise — basically a white-hat hack
— exposes connections in “segregated”
networks. Will separating them be too ex-
pensive or cumbersome? If so, that’s where
your kill switches need to be.
Flip the “kill switch,”
save the world
Flipping a technology kill switch can be
the best way to cordon off contagion.
Imagine fighting off zombies by shutting a
steel door and then using that to buy time
to figure out how to survive. It’s the same
with a kill switch. If you design it correctly,
you can flip the switch during an attack or
suspected attack to make sure you have
limited functionality while preventing the
criminals from moving laterally through
your network. This is vital to allow your
health care systems to function to serve
practitioners and patients.
FRAUD-MAGAZINE.COM
The biggest risks aren’t so obvi-
ous. They hide in the least obvious
places. Like in “smart” light bulbs
installed for energy efficiency or
sensors installed under the chairs
at the workplace!
While the chatty IoT devices
talk to each other while creating
treasure troves of data every mil-
lisecond to save money, improve
safety, service and well-being,
that’s all new data that needs pro-
tection. And those chatty little sen-
sors seem innocent enough. What
harm could a seat or light sensor
do? But if you’re not careful in
design, the IoT could be the new
unlocked door spilling the keys to
your secret stash of what you be-
lieve to be secured digital assets.
FM: Switching gears, after
graduate school, what attract-
ed you to the cybersecurity
field?
Payton: I was fortunate to begin
my career at Barnett Bank — now
part of Bank of America — on the
cutting edge of technology and
customer delivery, which allowed
us to also be on the cutting edge of
the methods of fraudsters, money
launderers and more. I then be-
came a senior vice president at
Wachovia Bank in Charlotte, North
Carolina. After 9/11, U.S. agencies
came knocking on the bank’s door
asking for help finding terrorist
financing that could be hiding
among legitimate transactions.
That was a life-changing moment
for me. Having been raised in a
military family, married to a Na-
val Academy graduate and being
asked to help law enforcement
with something so monumental
was humbling. The on-the-job investigative experience
helped formulate my desire to focus the rest of my ca-
reer to protect nations, citizens and businesses, and to
combat fraud, cyberterrorism and cybercrime. I realized
that cybercriminals will use whatever means necessary
to achieve their goals. And I learned how much help
companies large and small need to defend against these
criminals.

FM: How did you become part of the CBS program

“Hunted” team? What did you learn from that
experience that you use in your firm’s work (or
vice versa)?

Payton: Some of my amazing milestones in life are God

moments. Something happened that led me down a
path I didn’t know existed. “Hunted” was no different.
The show’s premise was that a bunch of everyday
people play fugitives on the run. Our command center
investigators worked with the boots on the ground, the
“Hunters.” Team members had backgrounds from the U.S.
Marshals, U.S. military, the White House, CIA, FBI and the
National Security Agency. Even though it was a contest,
we took the manhunting seriously as if we were tracking
child traffickers or deadly criminals. Each fugitive would
have their lives compiled into a “target package,” and we would mine the profiles of
their families, friends, coworkers and their online presences for clues. Everyone,
including organizations, leaves cyber footprints. How you interact with the internet “This is my gift — to
determines how public and how large that footprint is.
defend, protect and
FM: What’s your motivation in con- I am my brother’s keeper. This is my gift help victims seek
tinuing in the cybersecurity field? — to defend, protect and help victims
seek justice. If not me, then who? n FM justice.”
Payton: Righting the wrongs of the digital
age with our skills and creativity. Protect- 1
Office of Personnel Management, Cyber-
ing our nation and our allies. Protecting security Resource Center, tinyurl.com/
pfdfvjj
companies and helping them recover when 2
“The Daily 202: How the nature of cyber-
bad things happen. Helping individuals war is changing,” by James Hohmann, The
get their lives back. Doing pro bono work Washington Post, April 15, tinyurl.com/
yxdnhz2w
to end child trafficking and exploitation.
3
RSA Cybersecurity Poverty Index 2016,
tinyurl.com/y32m2ew6
Thanks to ACFE Faculty member
Walter Manning, CFE, president
Dick Carozza, CFE, is editor-in-chief of
of Techno-Crime Institute, for his
Fraud Magazine. Contact him at
input in this article. — ed.
dcarozza@ACFE.com.

FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 31

 BY ANASTASIA NAZAROVA, CFE

Oil theft and fraud affects everybody — not just

those in far-away nations — because it enables
everything from terrorist attacks to human traffick-
ing. The author outlines thieves’ techniques and
what countries are doing to battle this multibillion-
dollar scourge.

It starts with the donkeys. Unaccompanied once they reach

a border, they carry their loads of oil from Algeria to Morocco
and Tunisia and return with empty containers. They make their
journey twice a day — every day — to power an estimated 660,000
cars on illegal fuel.1
According to a report presented by the Nigeria Natural Re-
source Charter (NNRC), Nigeria lost about $4.4 billion in 2016 and
$2.8 billion in 2017 to crude oil theft. This translates to a loss of
about $8.9 million daily and a combined loss of $7.2 billion over
the two-year period.2
In Mexico, fuel thieves drilled 2,274 illegal taps in the com-
pany’s pipelines during the first two months of 2018 — 38% more
than during the same period in 2017 and 352% more than were
discovered in the first two months of 2014.3

FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 33

 Oil theft and fraud
Ernst and Young estimates that
thieves steal, adulterate or defraud about
$133 billion worth of fuels from legitimate
oil and gas enterprises. The Eurocontrol
4
Technics Group noted that these num-
bers are likely to be understated because
of corruption, government involvement
and the nature of the crime, which is hard
to detect.5
Oil theft is a widespread problem that
harms countries around the world. The
scale of the issue, however, remains widely
unknown. When we hear about oil theft,
we tend to think about Nigeria or Mexico,
but it goes far beyond these countries.
Oil theft could also involve various
illicit activities, including smuggling,
adulteration, fueling terrorist groups and
drug cartels, tax avoidance and money
laundering.
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Tackling these crimes is particularly
difficult when stakeholders, whose intent
should be to fight crime, become criminals
themselves.
I.R. Consilium, a research and analy-
sis firm in maritime security, oil and fuel
crimes, international law and the blue
economy, conducted the first compre-
hensive study of refined oil products theft
in 2016, which the Atlantic Council pub-
lished in 2017.6 The study continues with
another report expected later this year.
The report provides insights into modali-
ties and trends in oil theft plus respon-
sible parties, affected stakeholders and
recommendations that could change the
dynamics of the issue.
THE SCALE OF THE PROBLEM
According to Dr. Ian Ralby, founder and
CEO of I.R. Consilium, downstream oil
September 25-27, 2019
MARINA BAY SANDS | SINGAPORE
criminal activity is a global phenomenon.
During an interview I had with Ralby, he
said oil theft happens everywhere, so sin-
gling out key countries can be misleading.
However, certain states are hotbeds for
fuel theft.
Mexico experiences widespread and
rampant fuel theft. The profits are large
and growing (even the most conservative
estimates suggest criminals stole $3 billion
of fuel in just the last two years), and gangs
and organized-crime groups are the main
perpetrators.7
Mexico transports large amounts of
refined product throughout thousands of
miles of pipelines in areas that are difficult
to monitor. Pipeline tapping, or “milking”
as it’s known there, is a major enterprise.
In some ways it’s more profitable than traf-
ficking drugs because oil theft involves less
risk. According to Reuters data, thieves are
stealing roughly one-fifth of total national
gasoline consumption (about 150,000 bar-
rels per day) from pipelines.8 They hijack
tanker trucks or steal directly from the
country’s refineries, too, with the willing
or coerced collusion of petroleum com-
pany employees, though it’s much easier
to steal oil via taps than tankers.
Mexico’s current government recent-
ly implemented new reforms to combat
fuel theft, including using tankers instead
of pipelines to move fuel and shutting
down the most heavily targeted pipelines.
However, these new initiatives have led
to shortages at gas stations across several
states.9 Less than four months later, the
government had announced that the oil
theft was down by 95%, but many
suspect that this sudden change
is temporary and won’t last
long.10 As Ralby said, chang-
ing the mode of moving fuel
will only change the method of
stealing it unless entities address
the underlying dynamics.
Nigeria also experiences oil theft
on a large scale. This has been a problem
for years, mainly because of widespread
corruption and the direct involvement of
security forces, terminal workers, regula-
tory authorities and government officials.
Despite efforts to combat oil theft, the
problem continues unabated at consis-
tently high levels. The U.S. deputy am-
bassador for the United Nations, Michele
Sison, said that Nigeria loses $1.5 billion
in revenues every month because of the
extensive nature of the oil-laundering
game across the nation. 11
Nigerian crude, which is among
the lightest and sweetest in the world,
is physically stolen in a variety of ways.
(Light and sweet oil is the most valuable
oil because it’s easier and less expensive
into refine to products. Light oil also has a
higher percentage of light hydrocarbons,
which results in less processing and refin-
ing.) The main categories are:
1. LARGE-SCALE THEFT
in which thieves pump stolen oil —
often tapped from pipelines or taken
from storage facilities — into barges,
boats and ships and export it, either
under the guise of legitimacy or mixed
with legitimate product.
2. SMALL-SCALE THEFT
in which stolen oil is either sold back
into the supply chain or refined and
then sold on the streets as fuel.
3. THEFT AT EXPORT TERMINALS
via the manipulation of meters and the
forging of bills of lading; bills of lading
FRAUD-MAGAZINE.COM
are legal documents issued by a carrier
to a shipper that details the type, quan-
tity and destination of the goods being
carried.
4. HIJACKING OF TANKER TRUCKS
with or without collusion of the driver.
5. PIRACY AND ARMED ROBBERY OF
SEAGOING TANKERS.12
The U.S. government investigated
and broke the story that thieves routinely
mixed stolen Nigerian crude with Gha-
naian crude at an offshore facility before
exporting it into the supply chain as legiti-
mate oil.13 According to the I.R. Consilium
report, a major concern involves crooks
laundering and releasing ship-to-ship
transfers of stolen crude into the global
market.
Also, according to the I.R. Consilium
report, apart from the extensive array of
upstream oil theft, Nigeria also suffers
from massive downstream crimi-
nality, mostly involving thieves
misdirecting and smuggling im-
ported fuel into neighboring coun-
tries. Perpetrators smuggle about 80
percent of Benin’s fuel, for instance,
from Nigeria. It’s believed that culprits
pay the majority of the proceeds of this
smuggling activity to members of the
Nigerian political elite.
ASIA, LIBYA AND THE
EUROPEAN MARKET
Fuel theft is also rampant in Southeast
Asia. Last year, investigations revealed
that thieves siphoned and smuggled
thousands of tons of fuel out of a major
Singapore refinery. The working routes
in this region formed a triangle between
Thailand, Vietnam and Singapore, and
also included oil facilities in Malaysia.
Smugglers took advantage of the dif-
ficult-to-patrol sea (difficult because of
JULY/AUGUST 2019 FRAUD MAGAZINE 35
 Oil theft and fraud
the vastness of the Thailand and Vietnam
coasts) and attractive black-market prices.
Also, pricing differentials that arise from
some countries’ fuel subsidies drive a re-
gional dynamic. For example, Malaysia,
Indonesia and Bangladesh are particularly
vulnerable to losses because of their low
fuel prices.14
According to the I.R. Consilium re-
port, Libya, a destabilized state struggling
to control its prime source of revenue, also
suffers from fuel theft. The nation faces
coordinated criminality from militias,
corrupt officials and transnational crimi-
nal organizations out of Italy, Malta and
other locales. Recent U.N. investigations
have discovered that crooks routinely fer-
ried huge quantities of stolen fuel from
coastal facilities to waiting tankers affili-
ated with Malta-based companies. The
criminals then offloaded the fuel at the
Augusta refinery in Sicily, sold it at below-
market rates, mixed it with existing stock
and distributed it in Italy, France and Spain
by various companies, including an Italian
trading firm.
Libya illustrates one way smuggled
fuel enters the European market, but there
36 FRAUD MAGAZINE JULY/AUGUST 2019
are others.15 Smugglers transport Russian
fuel into the EU by a few routes, including
Kaliningrad and Belarus; Poland, for in-
6
stance, is one of the main sources of fuel
for smugglers into the U.K. and Ireland.16
Other examples from around the
world include Ecuador, the Philippines,
Turkey, Morocco and Azerbaijan, among
many others.
According to the I.R. Consilium re-
port, the most concerning aspect of this
large-scale problem is that profits from
downstream fuel end up in the hands of
transnational criminal organizations, ter-
Illegal bunkering
Tapping pipelines
Ship-to-ship transfers
Piracy and armed
robbery at sea
Bribing corrupt officials
rorist groups and insurgent outfits, all of
whom use those profits to finance even
more nefarious activities.
HOW OIL THEFT HAPPENS
Here’s a list of the most common ways
criminals steal oil and refined petroleum
products.17
ILLEGAL BUNKERING
While the term “bunkering” describes the
process of loading oil onto a ship, it’s be-
come synonymous with oil theft. Illegal
bunkering means illicit removal of oil from
a pipeline or other distribution system
FRAUD-MAGAZINE.COM
(including ships). Thieves then transport
the oil elsewhere to be sold or refined.
TAPPING PIPELINES
“Hot tapping” or “pressure tapping” is the
most common method of oil theft in plac-
es with extensive pipeline networks. The
method involves accessing a high-pres-
sure operational pipeline and diverting a
percentage of the oil flow. This allows the
theft to remain undetected as the pipeline
continues to operate at full functionality.
The complexity of the hot-tapping meth-
od usually means that it often requires
technical support from former or current
petroleum company
employees, who can
also advise on securi-
ty patrols and inspec-
tion schedules.
Smuggling
Illicit networks
also employ “cold
Laundering
tapping” to pilfer
crude oil by cutting
Adulteration or even blowing up
and stretching
a section of pipeline,
which disables the
White-collar theft
pipeline for several
weeks. During this
time, offenders set
up an underground
tap to divert a continuous supply of oil to
their storage facilities. After workers fix
the pipeline, the constant flow of oil into
the illegal pipeline won’t cause any fluc-
tuation in overall pressure, and therefore
no one will likely detect the tap.
SHIP-TO-SHIP TRANSFERS
Thieves transfer illegal fuel from their
vessels to more reputable ships, i.e.,
those from well-known companies.
This way, they can pass off the illegal
fuel as legitimate and sell it on an open
market. Often traders use purpose-built
ships, some disguised as fishing trawl-
ers, to take in and distribute illegal fuel
without drawing too much attention
during the process.
PIRACY AND ARMED ROBBERY AT SEA
Piracy is an attack against a vessel commit-
ted outside a territorial sea; armed robbery
at sea is an attack against a vessel inside a
territorial sea. In both cases, the culprits
board the ship with the intent to commit
theft by using force. Dealing with pirates
often requires an international, coordi-
nated effort involving nearby countries.
BRIBING CORRUPT OFFICIALS
Criminals often bribe politicians, security
forces, militants, oil-industry staff, oil trad-
ers and members of local communities, so
they can continue to steal oil without any
interruption.
SMUGGLING
Thieves smuggle oil products into another
country to obtain profit through arbitrage
because of price differences.
LAUNDERING
Laundering involves moving stolen or il-
licit oil or fuel through mechanisms that
appear legitimate in an effort to hide the
criminal origin of the product. Such opera-
tions often involve counterfeit certificates
of origin and layering intermediary com-
panies between suppli-
ers and final purchasers.
ADULTERATION AND HOW TO STOP IT?
STRETCHING
Perpetrators add un-
wanted chemicals to fuel-marking
programs
petroleum products but
sell them at the full price
of a pure product. Adul- pipeline
monitoring
terated products often
cause engines of cars or
Installation of meters at
vessels to develop vari-
oil wells, export terminals
ous faults or even break
and oil-tank farms
down completely.
WHITE-COLLAR THEFT
Various forms of corrupt and fraudulent
behavior can — at a high level — make a
range of oil and fuel products disappear via
forged documents. This usually involves
crooks funneling huge amounts of money
to individuals and entities even when no
fuel or oil is produced, traded or provided.
HOW TO STOP IT?
According to Ralby, the first and most
pivotal step in tackling the problem of
downstream oil theft is to recognize how
pervasive and pernicious the problem
is. It’s important to develop and imple-
ment a mix of concrete countermeasures
to reduce the scale of this issue. These
countermeasures involve collecting data
from a range of sources and coordinat-
ing action within and among states and
international bodies. They also include
more extensive, sophisticated and reliable
metering and monitoring along the sup-
ply chain, GPS tracking of tanker trucks,
automatic identification system (AIS) and
other vessel-tracking measures, digitized
documentation and molecular marking. I
describe these below.
FUEL-MARKING PROGRAMS
gps monitioring of
tanker trucks, ais
tracking of vessels
focus on supply-
chain integrity
FRAUD-MAGAZINE.COM
While dye markers have proved largely in-
effective because criminals launder them
out, entities have successfully started us-
ing molecular markers — unique chemi-
cals that don’t affect the oil but are im-
possible to remove — to mark legitimate
fuel and assist in detecting any attempts
to adulterate or commingle fuel.
For example, Albania’s fuel-marking
program has yielded $100 million in re-
claimed governmental revenues for sever-
al consecutive years. Similarly, in Tanzania,
the government saw a $143 million benefit
its first year of using molecular markers.18
And in Uganda, the rate of adulteration
dropped from around 30 percent to less
than 1 percent in six months.6
PIPELINE MONITORING
The most widely used methods for pipe-
line monitoring are foot and car patrols
and aerial surveillance using helicopters
or light aircraft. However, these methods
have several limitations and are expen-
sive. Many companies are now looking
for more cost-effective solutions, such as
drones or aerostat balloons. For example,
Brazil has recently started using aerostat
balloons that provide video and thermal
surveillance of their pipelines, which pre-
viously have been susceptible to tapping.
JULY/AUGUST 2019 FRAUD MAGAZINE 37
 Oil theft and fraud

Importantly, the company providing the
technology also worked to make sure that
their data could be admitted in court to aid
prosecutions by equipping their balloons
with high-sensitivity thermal cameras
with zoom capability.19
Other electronic forms of monitoring
pipelines have also proved effective but do
come with the risk of being susceptible to
cyberattacks.
INSTALLATION OF METERS AT OIL WELLS,
EXPORT TERMINALS AND OIL-TANK FARMS
Accurate metering makes a big difference.
It’s more common to install meters at the
export terminals and oil tank farms but
not at the oil wells. This is because com-
panies mix oil collected at the produc-
tion fields with water, sand and other
residual matters, which makes it difficult
to determine the volume of oil accurately.
However, this practice is often necessary,
because thieves steal oil at production
sites, too. For example, Nigeria lost about
$64 million between 2015 and the first
quarter of 2017 to poor metering of its
oil wells.20
GPS TRACKING OF TANKER TRUCKS, AIS
TRACKING OF VESSELS
Tracking vessels and vehicles promotes
safety and security. These solutions pro-
vide a real-time picture of the vessel or
tanker truck movements, and companies
can use the data in legal cases, investiga-
tions and negotiations.
FOCUS ON SUPPLY-CHAIN INTEGRITY
Transparency in the supply chain ensures
accurate and consistent information on
petroleum products from production to
consumption, thus reducing the possibil-
ity of fraud along the way. Partnering with
counter-parties to share data and good
practices could aid in developing effec-
tive strategies.
NOT JUST LOST DOLLARS
Governments and companies are in-
creasingly aware of the extent of oil and
fuel crimes around the world and their
worrying implications. While the eco-
nomic losses are huge, it’s also critical to
understand the connection between il-
licit hydrocarbons activities and a serious
array of security problems. “We all need
fuel, and we all want it at a discount,”
Ralby says. “But we can’t allow that de-
sire for less expensive fuel to cause us to
turn a blind eye to this global problem.
We’re all stakeholders in this issue, so
we must all be stakeholders in resolving
it.” n FM
Anastasia Nazarova, CFE, is a cor-
porate auditor at Chevron Products
UK Limited in London. Contact her at
anastasia_wish@yahoo.com.

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 1
“Algeria turns off tap on Morocco’s smug-
gled petrol trade,” by Isabelle Mandraud,
The Guardian, tinyurl.com/y2vg7f4u, Oct.
15, 2013
2
“Nigeria loses N2.6trn to crude oil theft
in 2 years – NNRC,” by Michael Eboh, Van-
guard, Aug. 1, 2018, tinyurl.com/yyjgu4sf
3
“Mexico’s oil company is losing more
than a billion dollars a year to cartels - and
its own employees are helping them out,”
by Christopher Woody, Business Insider,
April 13, 2018, tinyurl.com/yyryc7yw
4
“Fuel theft is a big problem,” by Jeff
Desjardins, Business Insider, May 7, 2017,
tinyurl.com/y66nldcw
5
“Fuel Theft — The Costs & Effects,” West-
ern Global, June 11, 2018, tinyurl.com/
y34lcmpq
6
“Downstream Oil Theft,” by Ian M. Ralby,
Atlantic Council, Jan. 6, 2017, tinyurl.com/
yxv57g6g
7
“Explainer: Mexico’s fuel woes rooted
in chronic theft, troubled refineries,” by
David Alire Garcia and Marianna Par-
raga, Reuters, Jan. 20, 2019, tinyurl.com/
y58r2ao5
Integrated Risk Management Solutions
Software Capabilities
Internal Audit
Incident Management
Cyber Threat Intelligence
Vendor Risk
GDPR/Data Privacy
Operational Risk
Compliance & Regulatory Risk
Contact SAI Global
Tel: +971 4 5687941 | info.emea@saiglobal.com
www.saiglobal.com/risk
8
“Fuel Theft — The Costs & Effects,” West-
ern Global, June 11, 2018, tinyurl.com/
y34lcmpq
9
“Mexican oil theft even reached drilling
rigs, president says,” by Adriana Barrera
and Michael O’Boyle Reuters, Jan. 15, 2019,
tinyurl.com/ybk6w5cb
10
“Mexico Declares Victory Over Fuel
Thieves. But Is It Lasting?” by Kirk Sem-
ple, The New York Times, May 5, tinyurl.
com/y577omd3
“Massive Oil Theft By Pirates Costs
11
Nigeria $1.5 Billion Every Month,” by Irina
Slav, Oil Price, April 27, 2016, tinyurl.com/
y3ad8n6z
12
“Nigeria’s Oil Theft Epidemic,” by
Shadow Governance Intel, Oil Price, June
6, 2017, tinyurl.com/y24xvcfh
13
“Oil Theft Around the World: Cartels
And Exploding Donkeys,” by Zainab Cal-
cuttawala, May 31, 2017, Huffington Post,
tinyurl.com/y3rwo5nv
14
“Shady triangle: Southeast Asia’s il-
legal fuel market,” by Henning Gloystein
and John Geddie, Reuters, Jan. 18, 2018,
tinyurl.com/y6mvxqyr
eLearning
Financial Crime
Anti-money Laundering
GDPR/Data Privacy
Code of Conduct
Competition Law
15
“Malta ‘fuelling Libya instability’ by
failing to tackle oil smuggling,” by Carlo
Bonini, Giuliano Foschini, Fabio Tonacci,
Giulio Rubino, Cecilia Anesi and Lorenzo
Bagnoli, May 9, 2018, The Guardian,
tinyurl.com/y36jjouc
“Launderers turn to fuel smuggling after
16
diesel marker stumps them,” by Deborah
McAleese, Belfast Telegraph, March 28,
2016, tinyurl.com/y6pe8bsl
17
“Fuel theft is a big problem,” by Jeff
Desjardins, Business Insider, May 7, 2017,
tinyurl.com/y66nldcw
18
Source for both Albania and Tanzania is
a presentation by Gadi Gonen of SICPA at
the conference “Technology for Maritime
Security, Governance and Development
in the Gulf of Guinea,” Freetown, Sierra
Leone, Nov. 16, 2018
19
“Balloons for Internet access,” by Yuri
Vasconcelos, Pesquisa FAPESP, July 2017,
tinyurl.com/y4ymm29l
20
“How Nigeria ‘lost N2 trillion to poor
metering of oil wells’ in two years,” by Ed-
iri Ejoh, Vanguard, May 14, 2017, tinyurl.
com/yysnogd8
 Bad
leaders?

I ncre a sed fraud

By Donn LeVie Jr., CFE

40 FRAUD MAGAZINE JULY/AUGUST 2019 FRAUD-MAGAZINE.COM

R
ebecca is frustrated. She’s
been a fraud examiner and
internal auditor in a large
corporation for four years.
Rebecca enjoys every aspect
of the evidence hunt, includ-
ing working with sources, re-
sponse teams and counsel; interviews; ana-
lyzing documents; data analysis and digital
forensics. She abhors only one part of her
job: collaborating with her boss, Jennifer,
the vice president of accounting. Jennifer
can be — alternatively — overcautious,
obstinate, dismissive and overbearing.
Rebecca feels that Jennifer often inappro-
priately puts the brakes on Rebecca’s fraud
examinations, which often wastes her time
and occasionally allows fraud to acceler-
ate unabated. Rebecca is losing interest
and creeping toward job disengagement.
The corporation is losing out because of
Jennifer’s poor leadership skills.
• is widespread and costly
Forget about lost job productivity because
of solar eclipse day, Super Bowl Monday,
March Madness, Black Friday or the World
Cup. Worry instead about the daily rev-
enue leakage from disengagement and lost
productivity that’s costing U.S. companies
$350 billion annually in lost revenue be-
cause of ongoing ineffective leadership
(See “2018 Gallup State of the American
Workplace Report,” tinyurl.com/y5agsedb.)
We’ve all worked for people with dif-
fering leadership styles: from the autocrat
(“do it my way”) or the bureaucrat (“this is
the policy”) to the laissez-faire proponent
(“let them do it”) and every other style in
between. Regardless of the dominant lead-
ership style, ineffective leaders — those
who are abusive or incompetent on several
levels — are a financial and intellectual
capital drain for companies everywhere.
That can translate into botched fraud ex-
aminations and more opportunities to
commit fraud.
Employee disengagement
Far too many organizations suffer from
poor or ineffective leadership, which
the Gallup organization cites as a major
contributor of employee disengagement
and lost productivity. Gallup, through ex-
tensive research documented in its “State
of the American Workplace Report,” found
that, on average, 17.2% of an organization’s
workforce is actively disengaged — they’ve
unplugged and checked out. Gallup also
found that an actively disengaged employ-
ee costs an organization $3,400 for every
$10,000 of salary, or 34% of pay.
According to that Gallup report:
• Two-thirds of U.S. employees admit to
not being engaged in their work and
workplace, whereas 18% are “actively
disengaged,” and could be impeding
not only their own performance but
also the work of colleagues.
• Only one-fifth state that their perfor-
mance is managed in a way that moti-
vates them to do outstanding work.
• 78% of employees strongly do not agree
with the statement: “Leadership has a
clear direction for the organization.”
• 85% of employees strongly do not agree
with the statement: “Leadership of the

Hidden consequences of poor leadership

DO YOU WANT TO MAKE SURE YOU HAVE

MORE FRAUD IN YOUR ORGANIZATION?
Then hire bad leaders and poorly train them
with outdated methods. Here’s how to avoid
employee disengagement by changing atti-
tudes and behaviors.

FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 41

 Bad leaders? Increased fraud
2/3
of U.S. employees admit to
not being engaged in their
work and workplace.
organization makes them enthusiastic
about the future.”
• 87% of employees strongly do not
agree with the statement: “Leader-
ship of their organization communi-
cates effectively with the rest of the
organization.”
What does employee
disengagement look like?
Disengaged employees (doing just about
anything other than real work) are those
whose performance, attitudes and perhaps
behavior have decreased to levels less than
42 FRAUD MAGAZINE JULY/AUGUST 2019
acceptable for success. They might lack
challenging work, suffer from boredom,
work long hours or just lack any personal
initiative. When left unchecked, these ele-
ments can cascade through the workforce
like an epidemic. It becomes difficult to
shield those not yet influenced by such
widespread detachment.
Let’s take employee disengagement
one step further. This workplace detach-
ment can reveal itself in more costly issues
over months and years, leading to:
• Lost market share (competitors gain-
ing market share).
• Revenue loss.
• Higher overall employee turnover.
• Higher incidence of on-the-job safety
problems.
• Lost shareholder value (lower stock
price, lower analyst expectations/
forecasts).
• Loss of key employees.
• Quality and customer service issues.
• Internal fraud and abuse.
• Higher absenteeism (legitimate and
otherwise; poor leadership affects
workplace stress and can lead to
depression and cardiovascular health
issues for employees. See “Workplace
bullying and the risk of cardiovascular
disease and depression,” by M. Kivi-
maki et. al., Sept. 22, 2003, tinyurl.
com/y4wplfjd).
In extreme cases of disengagement,
employees can sabotage financial records
and capital equipment or even become
violent. These dangerous scenarios are
bigger issues than poor leadership; they
now become a corporate culture problem.
Losses from employee disengage-
ment tempt organizations to implement
programs for boosting employee morale,
motivation, communication, team build-
ing, etc. Such programs designed to correct
disengagement and productivity issues
FRAUD-MAGAZINE.COM
focus on strategies, tactics and analytical
approaches for employees. But disengaged
employees are a symptom of poor, inef-
fective leadership. That’s focusing on the
wrong end of the problem! To quote a line
from the movie, “Indiana Jones and the
Raiders of the Lost Ark”: “They’re digging
in the wrong place.” To work on the cause,
we must look further upstream.
Two subtle but significant conse-
quences of ineffective leadership
Organizations need to change attitudes,
behaviors and — sometimes — people
in leadership positions well before they
contribute to the creation of a toxic work
environment. These interventions require
an understanding of two subtle — and rare-
ly addressed — influential psychological
factors: how poor leadership contributes
to the psychological depletion of “shared
resources” (financial resources, inventory,
human skills, production resources, and
information technology and natural re-
sources) and how it destroys workplace
“psychological empowerment” (emotional
belief that leaders fully empower their
workforces to apply their talents and ex-
perience to accomplish the objectives of
the organization).
Psychological depletion of shared
resources by poor leadership
In 1968, evolutionary biologist Garrett
Hardin coined the phrase, “tragedy of the
commons,” to explain various types of en-
vironmental over-exploitation. Examples
include the ocean garbage “gyres” (See “The
Great Pacific Garbage Patch,” by the Ocean
Cleanup Group, tinyurl.com/yc3q4o9l),
overfishing of cod in the Grand Banks (see
“Cod: A Biography of the Fish that Changed
the World,” by Mark Kurlansky, tinyurl.
com/y56yphya), demise of passenger pi-
geons (see “Why the Passenger Pigeon
Went Extinct,” by Barry Yeoman, Audubon

magazine, May/June 2014, tinyurl.com/
zul64so) and the Gulf of Mexico dead zone
(see “Gulf of Mexico Dead Zone is Largest
Ever Measured,” in NOAA blog post, Aug.
2, 2017, tinyurl.com/ycugwofq).
Any shared resource in a population
is subject to the same pressures of self-in-
terest, unconstrained consumption and
exploitation that ultimately lead to scar-
city, depletion, destruction or extinction
— even with shared values and corporate
culture attitudes within company walls.
Poor leadership is a contaminant orig-
inating upstream in the work environment.
Its effects can quickly pollute downstream
in hallways, break rooms and conference
rooms. It can create a type of psychological
depletion of shared resources, such as the
adoption of common corporate values, cul-
ture and mission, which eventually leads
to a “tragedy of the corporate commons.”
Poor or ineffective leadership creates these
and other hidden consequences that erode
the shared workforce bonds that company
values (integrity) and company cultures
create.
Don’t discount the value a culture
of integrity provides to shareholders and
employees. Corporate culture integrity
has a positive correlation with financial
performance and appeal of job openings.
(See “The Value of Corporate Culture” by
Luigi Guiso et. al, September 2013, tinyurl.
com/y283l4w3.)
The end result manifests as employee
disengagement and
lost productivi ty, in
Many “soft skill” leadership training
which the needs of programs are misdirected to stimulate
the neocortex where hard skills of
the one or the few logic, analytics and reasoning arise.
become a higher pri-
ority over the needs
of the many — to
paraphrase and flip
a quote attributed to
Charles Dickens. It’s a
loss of that collective,
unified commitment
Four dimensions
OF WORKPLACE PSYCHOLOGICAL EMPOWERMENT
The four dimensions of workplace psychological empowerment — competence,
self-determination, meaning and impact — help drive employee engagement
and productivity, especially when employees believe they have the freedom
to fully deploy their expertise and value in the work environment. When poor
or ineffective leaders invoke behaviors, attitudes or policies that threaten that
employees’ beliefs in any of the empowerment dimensions, they can create an
atmosphere that’s ripe for the negative cascading effects of disengagement and
productivity issues. (See “Psychological Empowerment in the Workplace: Dimen-
sions, Measurement, and Validation,” by Gretchen M. Spreitzer, The Academy of
Management Journal, October 1995, tinyurl.com/y24ja3tu.)
Self-determination is tied to a person’s
Competence is connected to an
belief about being given the freedom
employee’s belief that they have the
to make decisions about project work,
freedom to perform job-related ac-
related processes and effort needed
tivities with their acquired expertise.
for success.
SELF-
COMPETENCE DETERMINATION
IMPACT MEANING
Impact is the belief about having the Meaning is related to someone’s belief
authority, accountability to impact about having the freedom to perform
higher-level strategic direction and work that complements one’s beliefs,
operational results for the organization. behaviors and worth.
Figure 1: Four dimensions of psychological workplace empowerment
Much of the training aimed at leadership development targets the part of the
brain (the neocortex) that’s responsible for more “hard skill” expertise, such as logic,
analytics, reasoning and technical abilities. Daniel Goleman’s research has shown
that when training takes a neocortex approach, it can have a negative impact on
job performance. Goleman co-directs the Consortium for Research on Emotional
Intelligence in Organizations at Rutgers University.
To effect positive change, Goleman says, old behavioral habits must be ex-
changed for new ones, which takes more time than conventional training, and
that training should be individualized. (See “What
Makes a Leader,” Harvard Business Review, January
2004, by Daniel Goleman, tinyurl.com/kxdnfql.) This
type of training would include personal individual
coaching, periodic hands-on reinforcement and
Human brain
frequent feedback.
Logic/abstract thought
Figure 2: Illustration shows the brain’s executive
Limbic System
Mammalian control (neocortex) and the fight-or-flight control
Emotions/empathy/parental center (limbic system). Daniel Golman (“What Makes
a Leader,” Harvard Business Review, January 2004,
tinyurl.com/kxdnfql) writes that leadership training is
Leadership soft skills, such as presence and misdirected to the neocortex when it should focus on
emotional intelligence, arise in the limbic
the limbic system for emotional intelligence. (Brain
system. Leadership training aproaches must
activate the limbic system. illustration modified from tinyurl.com/y52c9ndy.)
FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 43
 Bad leaders? Increased fraud
to company goals and objectives and to
the tasks at hand that’s replaced with in-
dividual self-interest.
Poor leadership destroys work-
place psychological empowerment
When we think about our jobs, they’re more
than positions that deliver a specific func-
tion; they also provide emotional, social and
political currency — the invisible capital
— that we exchange in workplaces every-
where. Because of these different value as-
pects that jobs provide, employees are more
than job titles, job descriptions or promoters
of products and services.
We can further explain this invis-
ible capital that leaders and employees
exchange, or workplace psychological em-
powerment, via four related dimensions:
competence (or, as I say, aptitude), meaning
(or value), impact (or influence) and self-de-
termination (or autonomy). (See the sidebar,
“Four dimensions of workplace psychologi-
cal empowerment” on page 43 for details.)
Early signs of ineffective leadership
often appear as fractures in any of these four
dimensions because workplace psychological
empowerment is at its fullest when employees
believe that their leaders have given them com-
plete freedom to do their jobs. Of course, I’m
not saying that means that employees aren’t
accountable, but they have the autonomy to
use and grow their skills to meet and exceed
their work goals.
When people believe they no longer
have the freedom to engage these four psy-
chological empowerment components, they
might feel threatened and begin disengag-
ing. Often negative changes in a manag-
er’s dominant leadership style (embracing
a more autocratic style, for example) or
even abruptly switching senior executives
can cause employees’ disengagement and
corresponding productivity losses as they
adjust to uncertainty.
Because work relationships and
processes are complex, effective leaders
know that merely following defined roles
44 FRAUD MAGAZINE JULY/AUGUST 2019
or procedures can produce frustrated em-
ployees. Indefatigable leaders also embrace
initiative, risk assessment and working with
uncertainty. (See “Psychological Empower-
ment in the Workplace: Dimensions, Mea-
surement, and Validation,” by Gretchen M.
Spreitzer, The Academy of Management Jour-
nal, October 1995, tinyurl.com/y24ja3tu.)
Leadership programs fail because
they focus on the wrong part of
the brain
According to the Harvard Business Review:
“American companies spend enormous
amounts of money on employee training
and education—$160 billion in the United
States and close to $356 billion globally
in 2015 alone—but they are not getting
a good return on their investment. For
the most part, the learning doesn’t lead
to better organizational performance, be-
cause people soon revert to their old ways
of doing things.” (From “Why Leadership
Training Fails – and What to Do About It,”
by Michael Beer et. al, paid subscription,
Harvard Business Review, October 2016, ti-
nyurl.com/z8j8kmc.)
Organizations often unwittingly pre-
vent leadership training from taking root
by thinking that employee events, such as
one-day workshops or seminars, will suf-
fice instead of slowly building long-term,
continuous-reinforcement processes. And
there’s another major problem.
“Unfortunately, far too many training
programs that intend to build leadership
skills – including emotional intelligence
– are a waste of time and money,” writes
Daniel Goleman, who co-directs the Con-
sortium for Research on Emotional Intel-
ligence in Organizations (eiconsortium.
org) at Rutgers University. “The problem
is simple: They focus on the wrong part of
the brain.” (See “What Makes a Leader,” in
Harvard Business Review, January 2004, by
Daniel Goleman, tinyurl.com/kxdnfql.)
According to Goleman, most of these
failed, wrong-part-of-the-brain leadership
FRAUD-MAGAZINE.COM
programs teach techniques that appeal to
the neocortex where logic, reasoning, ana-
lytics and concepts thrive. However, emo-
tional intelligence (the ability to be aware
of, control, and express one’s emotions,
and to address interpersonal relationships
thoughtfully and compassionately) arises
in the neurotransmitters of the brain’s lim-
bic system, which directs feelings, impulses
and emotions. (See the sidebar on page 43
for details.)
Emotional intelligence (EI) training
focuses on developing strategies in five
major areas: empathy, self-management,
relationship management, social aware-
ness and self-awareness. EI training is not
“one and done” but requires frequent re-
inforcement of key learning components,
individual and small-group activities and
role playing, and individual coaching over
many months. EI training is more about
changing old habits and attitudes and re-
placing them with new ones that enhance
employees’ soft-skill inventories.
What of the psychological depletion
of shared resources and workplace psy-
chological empowerment? At first glance,
they seem to lend themselves to neocortex
processing, but it’s the emotion tied to the
belief of having the freedom to be fully and
completely engaged, contributing and add-
ing value in a work role that directs limbic
processing.
Leadership presence, ‘engage-
mentality’ and ‘connectworking’
Organizations want their future C-suite
leaders to have presence more than any
other soft skill. They want them to have
the ability to naturally and comfortably
engage others, establish personal connec-
tions and build trust, confidently position
their leadership expertise as offering value
for others, and interject wise influence to
gain acceptance or cooperation of ideas
and initiatives. The strength of their pres-
ence is a catalyst for mentoring others or
serving in advocate-protégé arrangements.
 If poor, ineffective leadership is a direct
cause for employee disengagement and lost
productivity, we hear a clarion call for lead-
ership presence that prioritizes the power of
emotional intelligence. Organizations can
teach and reinforce it through proper train-
ing, coaching, and follow-up that’s not just
repackaged, repurposed, retitled relics from
decades past.
“Engagementality,” the attitude of al-
ways being ready to engage others in a man-
ner that demonstrates interest, becomes a
mandatory commodity for leaders. Rather
than traditional networking, which assumes
a strong quid pro quo relationship, leaders
engage in “connectworking,” to further build
relationships for unifying effort, direction
and purpose. People don’t follow leaders
without becoming familiar with them,
then trust them, and finally believe in their
expertise, experience and knowledge that
accompanies that authority.
Engagementality and connectworking
will help lay the groundwork (through train-
ing, coaching and follow-up reinforcement)
for making leadership presence in your
anti-fraud organization a practice that can
turn into a competitive advantage. Presence-
driven leadership isn’t just for executives
in the corner office because being a “leader
with presence” isn’t a job title; it’s a powerful
skill set anyone can master.
Ineffective leaders and unproductive
practices ultimately lead to revenue leaks
through a variety of channels, not the least
of which are the psychological depletion of
shared corporate resources and the absence
of psychological workplace empowerment.
In extreme cases, disengagement can de-
volve into destructive actions or behaviors
that can threaten the safety of work environ-
ments and enable fraud.
The most effective approaches groom
high-potential professionals early in
the leadership development process and
throughout their advancement into senior
and executive positions, which helps pre-
vent “attitudinal sclerosis” — hardening of
the attitudes.
Workplace empowerment doesn’t
mean overloading employees with addition-
al responsibility and challenges that place
them in high-stress mode. Psychological
empowerment is the emotional belief that
a person has the authority, freedom, support
and confidence of leadership to accomplish
objectives under their charge. Employees
who embrace this type of empowerment
from leaders in the work environment have
stronger job performance, greater job satis-
faction and a deeper commitment to orga-
nizations’ objectives. n FM
Donn LeVie Jr., CFE, a Fraud Magazine
staff writer, has been a presenter and a
positioning/ influence strategist at ACFE
Annual Global Fraud Conferences since
2010. LeVie says his corporate programs
help companies plug revenue leaks
because of poor leadership. Visit his
website at donnleviejrstrategies.com.
Contact him at: donn@donnleviejrstrat-
egies.com.

SAVE
November 7, 2019 | Washington, D.C.
Join us for the can’t-miss anti-fraud training event
for law enforcement and government professionals.

THE
DATE
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October 7 to
SAVE
Visit ACFE.com/LEGAsummit to learn more. $150!
FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 45
 GLOBAL
FRAUD
is the same -
LEGAL SYSTEMS
aren’t

By Dr. Joseph T. Wells, CFE, CPA

Fraud examiners are increasingly tackling complicated

cases that simultaneously involve several nations.
We must look for legal guidance for our organizations’
cross-border operations. Here’s a start.
 onsider this scenario. You
work as a fraud examiner
for a U.S. multinational cor-
poration. You have strong
evidence that a longtime company pro-
curement director, Max, has been tak-
ing kickbacks from a vendor. But you’re
scratching your head. Max works for a new
subsidiary of your corporation in Germany.
The vendor is based in Belgium, but Max
accepted the kickbacks from the vendor’s
rep in the Netherlands. And, on top of all
that, Max is a citizen of France. What do
you do? Don’t waste any time — quickly
consult reputable legal counsel who are
familiar with laws in all these countries.
Like it or not, globalism is increasing.
Many fraud examiners are finding that the
corporations they work for are acquiring
businesses in many countries. These con-
glomerates are inheriting not just firms’
assets but also their monetary and legal
liabilities. CFEs need to know how to trans-
late nations’ laws and regulations to help
keep their employers above water.
Here we visit basic and more advanced
concepts of the law related to fraud from
around the world, including types of legal
systems, forms of evidence, investigations
in private actions and more.
This article is excerpted and adapt-
ed from the “International Fraud
Handbook,” edited by Dr. Joseph T.
Wells, CFE, CPA, published by John
Wiley & Sons Inc. ©2018 Used with
permission.  issues a ruling regarding government
judicial precedence, or they utilize it in a
TYPES OF LEGAL SYSTEMS
more limited manner than common-law
At a basic level, legal systems around
jurisdictions. This means that civil-law
the world can be divided into several
courts don’t shape the law to the same ex-
categories.
tent as their counterparts in common law
countries. Civil law has its roots in ancient
Religious and secular systems
Roman law and is by far the most common
Religious systems derive their laws from basis for legal systems worldwide.
interpretations of religious texts and treat
them as divine mandates. However, today
Adversarial and inquisitorial
few countries rely exclusively on religious proceedings
law. Instead, it’s often used in conjunc-
A further distinction between common-
tion with secular law. For example, some
law and civil-law systems is the process
countries that use religious law restrict
used to settle legal disputes. Most com-
its application to issues such as divorce,
mon-law countries use adversarial proceed-
inheritance and child custody, while using
ings, in which a presiding judge essentially
secular law to govern criminal and com-
acts as a referee between the two parties
mercial law.
to the dispute. Each party presents its case
The majority of legal systems are
and has the opportunity to challenge or
secular systems. This means they aren’t
rebut arguments advanced by the oppos-
based on any particular religion. Instead,
ing side. Then, a judge, group of judges or
relevant governmental authorities design
a jury issues a decision based on the facts
and implement them.
presented.
Common law and civil law In contrast, civil-law countries fre-
systems quently use inquisitorial proceedings (some-
times referred to as nonadversarial proceed-
Most legal systems also fall under the
ings) to settle legal disputes. Judges play
umbrella of one of two legal “families”:
much more active roles in inquisitorial
common law systems and civil law sys-
systems, in which they’re generally tasked
tems. Common law refers to judge-made
with actively investigating the case. For
law. Countries that incorporate common
example, in adversarial systems the par-
law into their legal systems generally rec-
ties involved in the dispute are generally
ognize the extensive application of judicial
tasked with collecting evidence and ques-
precedent. In the legal context, precedent
tioning witnesses at trial. In countries that
refers to an earlier court ruling that applies
use an inquisitorial system the presiding
to a particular dispute. For example, if the
judge might question witnesses and super-
highest court in a particular jurisdiction
vise the gathering of evidence. After the
completion of an investigation the judge,
searches, lower courts within that juris-
a group of judges or a jury will decide the
diction are obligated to follow that ruling
outcome of the case.
whenever the relevant issue arises.
In contrast, judges play less crucial
roles in civil law systems. In these sys-
Hybrid systems
tems, judge-made law is either a minor There’s significant crossover between
aspect or completely absent. Instead, civil- common-law and civil-law systems, and
law countries formally codify their laws. many countries use hybrid systems that
Civil-law countries often don’t recognize incorporate aspects of both. For example,
FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 47
 Global fraud and legal systems

most countries that use common law don’t

rely exclusively on judicial decisions as
the source of law. Generally, these coun-
tries have legislatures that draft and enact
laws. However, the judiciary generally has
the power to shape those laws (or to strike
them down as unconstitutional) if they
arise during a legal dispute. Additionally,
countries that predominantly use adver-
Rules of evidence affect every aspect of a legal
sarial systems might task judges with more
active responsibilities in certain kinds of case — from filing the complaint to the presentation
cases (e.g., minor traffic violations, admin- of witnesses and exhibits.
istrative decisions).

DEFINITION OF EVIDENCE

These rules often govern not just what counts

In the most general sense, evidence is any-
thing that tends to prove or disprove some
claim or assertion. In the legal sense, evi-
dence refers to the testimony, documents,
exhibits and other tangible objects offered
to prove or disprove the existence of an al-
leged fact during court proceedings.
Most legal systems have intricate sets
of principles that govern the admission of
evidence. The purpose of these principles
is to ensure only relevant and probative
evidence is admitted in court proceedings
and irrelevant, unreliable and prejudicial
evidence is excluded so that cases can be
decided fairly and expeditiously.
Rules of evidence affect every aspect
of a legal case — from filing the complaint
to the presentation of witnesses and exhib-
its. These rules often govern not just what
counts as evidence but also how that evi-
dence is gathered, handled and presented.
Of course, the rules of evidence vary
significantly among countries and legal
systems. Some countries maintain ex-
tensive rules that regulate the admission
of evidence. For example, in Canada, the
Canada Evidence Act regulates the rules
of evidence in federal cases. Similarly, the
Federal Rules of Evidence (FRE) govern evi-
dence in U.S. federal courts.
as evidence but also how that evidence is
gathered, handled and presented.
In contrast, many countries (particu-
larly those with civil law legal systems)
don’t have explicit evidentiary rules or
have less detailed rules. As a result, judg-
es in these countries are often afforded
greater discretion regarding the admission
of evidence.
The rules of evidence in a particular
jurisdiction are often complex and can
involve not only explicit rules but judi-
cial interpretations of those rules. As a
result, fraud examiners should consult
legal counsel if an important question of
evidence arises during a fraud investiga-
tion. Additionally, rules of evidence vary by
jurisdiction, even within the same coun-
try. For example, in the U.S., state courts
maintain their own evidentiary rules that
might differ from the Federal Rules of Evi-
dence. Likewise, each province of Canada
maintains its own evidence act for provin-
cial proceedings.
Three basic forms of evidence
There are three basic forms that evi-
dence can take: testimonial, real and
demonstrative.
Testimonial evidence
Testimonial evidence refers to the oral or
written statements made by witnesses un-
der oath. In general, there are two types
of testimonial witnesses: lay witnesses
and expert witnesses. A lay witness (or fact
witness) is a nonexpert witness who must
testify from personal knowledge about a
matter at issue. An expert witness is a per-
son who, by reason of education, training,
skill or experience, has the requisite quali-
fications to render an opinion or otherwise

48 FRAUD MAGAZINE JULY/AUGUST 2019 FRAUD-MAGAZINE.COM

testify in areas relevant to resolution of a
legal dispute.
Real evidence
Real evidence refers to physical objects that
played a part in the issue(s) being litigated.
The term includes both documentary evi-
dence such as bank statements, invoices,
ledgers and letters, as well as other types of
physical evidence (e.g., fingerprints, fibers,
tire tracks). Therefore, a printer in a case
involving questioned documents is clearly
real evidence as is an audio recording since
members of the court can experience the
sounds firsthand.
Demonstrative Evidence
Demonstrative evidence is a tangible item
that illustrates some material proposi-
tion (e.g., a map, a chart or a summary).
Demonstrative evidence differs from real
evidence because it wasn’t part of the un-
derlying event; it was created specifically
for the legal proceeding. For example, a
computer-generated video might be used
to show how a car accident likely occurred.
The purpose of demonstrative evidence is
to provide a visual aid for the fact finder.
As long as it meets the relevant evidentiary
standards, demonstrative evidence can
be introduced to assist the fact finder in
reaching a verdict.
Direct versus circumstantial
evidence
There are also two basic types, as distin-
guished from forms, of admissible evi-
dence: direct evidence and circumstantial
evidence. Direct evidence is evidence that
tends to prove or disprove a fact in issue
directly, such as eyewitness testimony or
a confession. Circumstantial evidence is
evidence that tends to prove or disprove
facts in issue indirectly, by inference. Many
fraud cases are proven entirely by circum-
stantial evidence or by a combination of
circumstantial and direct evidence but
seldom by direct evidence alone. The most
difficult element to prove in many fraud
cases — fraudulent intent — is usually
proved circumstantially, and necessarily
so, because direct proof of the defendant’s
state of mind, absent a confession or the
testimony of a co-conspirator, is often
impossible.
INVESTIGATIONS
IN PRIVATE ACTIONS
The right for businesses and organizations
to investigate, examine or audit for fraud
is implicit in most countries. Of course,
investigations in private actions are sub-
ject to certain legal limitations, some of
which — such as the laws prohibiting
unauthorized electronic surveillance —
are enforced with criminal as well as civil
penalties. Overzealous or imprudent acts
by private parties (even if technically legal)
can result in civil suits, complaints and
other issues that can delay, disrupt or even
completely derail an otherwise meritorious
case. Thus, fraud examiners must keep in
mind the rights of those involved in any
private investigation.
The following is a brief discussion
of some legal issues that might arise as
a result of an investigation, particularly
one conducted in an irresponsible man-
ner, carried out without predication, or
conducted in a way that blatantly violates
the rights of those involved. These issues
are avoidable if fraud examiners employ
common sense and professional standards
to accomplish legitimate objectives. Fraud
examiners should always pursue facts, not
people; should ask rather than accuse; and
should seek to prove rather than allege.
Defamation
Many countries have defamation laws that
provide redress against harm to reputa-
tion. Generally speaking, defamation refers
to the unprivileged publication of false
FRAUD-MAGAZINE.COM
statements about a person that harm that
person’s reputation.
Defamation can be a crime or a civil
violation, depending on the particular ju-
risdiction where the alleged offense oc-
curred. Additionally, some jurisdictions
treat certain kinds of defamation as civil
violations and other types as crimes pun-
ishable by incarceration.
In most common-law jurisdictions,
the law of defamation comes in two forms:
libel and slander. Libel refers to defama-
tory statements in writing, and slander
refers to spoken statements, although
the distinction often is unclear in cases
involving electronic media. Thus, the key
difference between libel and slander is the
form in which an individual made the
defamatory statement. However, not all
jurisdictions make a distinction between
libel and slander.
The threat of a defamation lawsuit is
always present when there are allegations
of wrongdoing made against employees.
For example, a claim of defamation might
arise in the context of an interview if the in-
terviewer makes unfounded accusations or
statements in the presence of a third party.
If a plaintiff (i.e., the party who initi-
ates a legal action) is successful in a claim
for defamation, that party may recover
economic damages (e.g., lost business, lost
earning potential), noneconomic damages
(e.g., pain and suffering, emotional dis-
tress), and punitive damages, which can
be substantial. The types of damages avail-
able vary across jurisdictions and depend
on the nature of the case.
Elements of defamation
While the treatment of defamation (wheth-
er it’s libel or slander) varies by jurisdic-
tion, the following are the most common
elements necessary to support a claim:
• The defendant made an untrue state-
ment of fact.
JULY/AUGUST 2019 FRAUD MAGAZINE 49
 Global fraud and legal systems
• The statement was communicated
(published) to third parties.
• The statement was made on an un-
privileged occasion.
• The statement caused injury to the
subject.
Untrue statement of fact
To be defamatory, a statement must
be a statement of fact (not opin-
ion) and be untrue. Thus, truth is
an absolute defense to defamation.
Communicated to third parties
To be defamatory, a statement must be
conveyed, either orally or in writing, to
one or more third parties. Defamation
doesn’t occur when one accuses another
directly and in the presence of no other
parties; to be defamatory, a statement
must be heard or read by a third party.
Unprivileged occasion
For a statement to qualify as defamatory,
the occasion in which the statement is
made must be an unprivileged one. Many
jurisdictions recognize that there are
some circumstances in which the need
to share information is so important that
people should be free to make mistakes
without having to worry about being sued
for defamation. Statements made in these
circumstances are said to be privileged.
Assuming that an employee can
establish that an individual made and
communicated defamatory statements
about the employee to a third party, some
of the most common recognized privi-
leges include:
• Statements made during a judicial
proceeding.
50 FRAUD MAGAZINE JULY/AUGUST 2019
• Statements made in preparation of
judicial proceedings.
• Statements made between a legal
professional (e.g., solicitor or attor-
ney) and client.
• Good faith statements made to
protect a legitimate interest of the
speaker or recipient, such as a com-
munication between an employee
and employer regarding an impor-
tant business matter or the results of
an examination into suspected fraud.
Accordingly, in many jurisdictions,
a number of privileges protect prudent
fraud examiners from defamation claims.
Injury
Additionally, to be considered defama-
tory, a statement must cause some kind
of injury. This often takes the form of
damage to reputations. For example, a
plaintiff might argue that he lost busi-
ness opportunities and income because
the statement damaged his professional
reputation.
JUST THE BEGINNING
The information in this article is a start
in learning what you need as you conduct
fraud examinations that cross global ju-
risdictions. See chapter 2 in my “Inter-
national Fraud Handbook,” and the rest
of the book, to learn from CFE nationals
around the world about the legal specif-
ics of their countries. (See the sidebar at
right.) And, of course, consult with your
legal counsel before tackling any fraud
investigations outside your borders. n FM
Dr. Joseph T. Wells, CFE, CPA, is the
founder and Chairman of the ACFE.
Contact him at jwells@ACFE.com.
FRAUD-MAGAZINE.COM
Australia
COU RT R ECORDS
Generally, civil and criminal court re-
cords aren’t available to the public.
However, some civil court records
are available via the Australasian
Legal Information Institute’s online
database (austlii.edu.au). Criminal
records and convictions generally
can’t be accessed without the sub-
ject’s consent, but court schedules
and attendance lists might be avail-
able online and can contain useful
information. Court transcripts can
sometimes be obtained by making a
freedom of information request.
MAJOR DATA PRIVACY LAWS
• Australian Privacy Act 1988.
• Local laws governing surveillance
devices, workplace surveillance
or similar issues.
OF F RAU D- RELATED
L EGISL A
Criminal Code Act 1995 and the
criminal laws in states and territories
that prohibit fraud.
-
A -
TORS FROM OUTSIDE AUSTRA-
LIA SHOULD BE AWARE
Generally, any person who conducts
investigations (including surveil-
lance) in any state or territory of
Australia must hold an Investigator
or Inquiry Agent License. Australia’s
National Privacy Principles govern
the collection, use, disclosure and
storage of personal information.
Anti-fraud professionals from around
the world contributed this informa-
tion, contained in the 2018 “Interna-
tional Fraud Handbook,” on some
legal topics in just four dissimilar
countries. It’s just a taste. The book
contains much more material from
many more regions and nations.
Consult with your legal counsel
when working in other countries.
Legal information about fighting fraud in four disparate countries
China
CO URT RE C O RD S
For civil cases, most national-, provin-
cial- and municipal-level court records
are available online, but they’re usu-
ally incomplete. Criminal records aren’t
available to be searched, but they’re
frequently published in the media.
MA JO R D ATA P R IVA C Y L AW S
China’s Cybersecurity Law, which took ef-
fect on June 1, 2017, is now the country’s
primary data privacy law. Before this law,
the legal protection of personal data was
spread among a vast number of laws and
regulations relating to different types of
personal data, such as real estate owner-
ship records, business information, tele-
communications data, and data concern-
ing personal identity and cross-border
movements. These laws and regulations
are still in force, but some of their provi-
sions have been subsumed by the Cy-
bersecurity Law when data is obtained or
stored by electronic means. (See pages
219 – 220 of the “International Fraud
Handbook” for a more complete list of
major data privacy laws in China. – ed.)
F RAU D- RE LAT E D LE G I SL A
• Criminal law.
• Anti-unfair competition law.
• Anti-money laundering law.
• Contract law.
• Law on tendering and bidding.
• Securities law.
TORS FROM
AWARE
Because of the ongoing anti-corruption
campaign in China, sources might be re-
luctant to accept interviews, and it might
be necessary to explain that the investi-
gation is not being conducted on behalf
of any government body. Interviewees
might be more comfortable working with
investigators who can speak Chinese.
Czech Republic
C O U RT RECO RDS
Criminal records are maintained at the
Criminal Records Office in Prague, which
is part of the Ministry of Justice. Individu-
als can request copies of their criminal
records from the Penal Register. Corpo-
rate criminal records are accessible by
the general public. The decisions of the
Constitutional Court, Supreme Court
and Supreme Administrative Court are
published periodically in official reports.
These decisions are also available for
free on each court’s website, but most of
them aren’t available in English.
M A J OR DATA PRIVAC Y LAW S
Until May 25, 2018, EU Directive 95/46/
EC and Czech Act No. 101/2000 Coll., on
the Protection of Personal Data, restrict-
ed the collection and transfer of personal
information. Now the more restrictive
EU General Data Protection Regulation
replaced them.
F R A UD- REL ATED LEGI SL A
Investigators conduct investigations into
alleged breaches of, among others, the
Civil and Criminal Codes; Codes of Crimi-
nal, Civil, and Administrative Procedure;
Labor Law; Intellectual Property Law;
Act on Criminal Liability of Legal Entities
and Their Prosecution; Tax Law; bank
regulations under the Czech Anti-Money
Laundering Act; Act on Capital Markets;
and Public Procurement Act.
TORS FROM
OUTSIDE THE CZECH REPUBLIC
SHOULD BE AWARE
Private fraud investigators don’t need a
license or special training in the Czech
Republic. The CFE designation can be an
advantage in some cases. Data privacy
laws restrict the transmission of personal
data outside the country.
United Arab Emirates
COU RT RECORDS
Not all court records are available to the
public. Lawyers and legal professionals
must make official requests to the court
for access to particular records. There’s
no central database for all cases in the
United Arab Emirates. To determine
whether there’s current litigation against
an individual, an investigator must
proceed through a law firm or public
prosecution. In some cases, local influ-
ence with the police or an immigration
department can help. The collection/re-
covery departments of banks often have
strong influence.
MA JOR DATA PR IVA C Y LAW S
There’s no general data protection law.
However, Article 378 of the Penal Code
(Federal Law3 of 1987) prohibits the pub-
lication of any personal data that relates
to an individual’s private or family life.
Disclosing secrets relating to someone’s
private life without that person’s consent
can result in liability. Similarly, disclosure
of confidential information, such as infor-
mation belonging to an employer, can
result in liability. Federal Decree Law No.
5 of 2012 on Combatting Cybercrimes
(Cybercrime Law) prohibits the invasion
of an individual’s privacy by means of a
computer network, electronic informa-
tion system, or information technology
without the individual’s consent.
FR AU D- RELAT ED L EGI SLA
• Federal Law No. 3 of 1987.
• Federal Law No. 19 of 2016.
Enforcement of established anti-corrup-
tion laws received a boost with the Abu
Dhabi Executive Council announcing the
establishment of an Anti-Corruption Unit
in May 2015. The decision to establish
a specialized department to combat
corruption is considered one of the
main cornerstones that will assist in the
continuing development of the country,
limiting the chances of corrupt individu-
als hindering such growth. The anti-cor-
ruption unit is established with the Abu
Dhabi Accountability Authority.
 RX FOR FRAUD Heath care fraud issues
Medical identity theft
growing exponentially
Medical identity theft is the fastest-growing form of identity fraud.
Crooks use a myriad of ways to defraud federal governments and vulnerable
patients. Here are the schemes and ways to avoid becoming a victim.
B
abubhai Bhurabhai Rathod, of
Okemos, Michigan, said he was
addicted to drugs. But he was
lying. He was really addicted to
medical identity theft.
In 2013, Rathod was sentenced to
four years in prison after a conviction of
paying practitioners illegal kickbacks
in exchange for patient referrals to his
health care companies, according to the
U.S. Department of Justice (DOJ). And he
was further excluded from participating
in Medicare and Medicaid.
Apparently, he had no desire to
reform. While in prison, Rathod faked a
drug and alcohol use disorder to qualify
for admission into the Residential Drug
Abuse Program (RDAP). Rathod com-
pleted the RDAP and was released early
from custody. Within days of his release
in 2016, he began violating his exclusion
and supervised release conditions by op-
erating four health care providers across
the State of Michigan.
To conceal his ownership of these
providers from Medicare and Medicaid,
Rathod used a variety of aliases, straw
owners and shell holding companies that
were registered to other people. Rathod’s
scheme netted nearly a million dollars in
Medicare and Medicaid reimbursements
to which his providers weren’t entitled.
52 FRAUD MAGAZINE JULY/AUGUST 2019
COLUMNIST
DAVID A. PICARD, CFE
INVESTIGATIONS MAN-
AGER, NC DEPARTMENT OF
HEALTH & HUMAN
SERVICES, DIVISION OF
HEALTH BENEFITS,
NC MEDICAID
In 2016, there were nine
times more medical
than financial records
breached — 27 million.
As part of his scheme, Rathod used
the name, address, date of birth, Social
Security number (SSN) and driver’s
license of a physician colleague to obtain
working capital loans for one of Rathod’s
businesses, Advanced Medical Services.
Rathod also used the physician’s identity,
without the physician’s knowledge, to
personally guarantee those loans. When
Advanced Medical Services defaulted on
one of these loans, a state-court judg-
ment was entered against the physician
— without the physician’s knowledge
FRAUD-MAGAZINE.COM
— and the physician’s bank account was
frozen.
Rathod was sentenced to 10 years in
prison for health care fraud and an addi-
tional two years for aggravated identity
theft. He pleaded guilty to both charges
in August 2018. U.S. District Judge
Janet T. Neff also ordered Rathod to pay
$939,795.89 in restitution to Medicare
and Medicaid.1
Medical identity theft
compounded by breaches
Medical identity theft is derivative of
identity theft. The number of medical
identity theft victims has increased from
an estimated 1.42 million in 2010 to 1.85
million in 2012 to 2.32 million in 2014 with
500,000 more victims in 2014 alone.2
The estimated economic impact of
medical identity theft has increased from
$30.9 billion in 2011 to $41.3 billion in
2012, which makes medical identity theft
the fastest-growing form of identity theft
in the world.3
Compounding the threat of medical
identity fraud are the increased numbers
of data breaches of health care provider
and insurance company medical records
such as the Anthem Health Care data
breach in 2015, which exposed 78 mil-
lion member’s personally identifiable
information (PII).4 In 2015, the U.S. De-
partment of Health and Human Services
reported 253 health care breaches, which
affected 500 individuals or more with a
combined loss of more than 112 million
records in 2015. According to Bitglass, one
in three Americans were affected by health
care breaches in 2015.5
Fraudsters sell stolen health records
on the underground black market, known
as the dark web. In 2016, there were nine
times more medical than financial records
breached — 27 million, which represents
nearly 10% of the U.S. population alone.6
Medical identity theft can have
devastating effects for patients, providers,
insurance companies and governmental
programs. Medical identity theft generates
losses to the health care industry of more
than $30 billion each year, and patients on
the average pay $13,500 to resolve issues.
Providers also incur significant costs to
clear their names, and if their data is sto-
len they have a high risk of a malpractice
claims when erroneous information has
been added to patient charts. The costs
for patients aren’t just monetary but often
result in delays of treatment, misdiagnosis
and inappropriate care for patients. 7
Let’s define it
Medical identity theft occurs when some-
one steals or uses a person’s name and
sometimes other parts of their identity
such as Social Security or Medicare or
Medicaid numbers plus insurance infor-
mation without the person’s knowledge
or consent to obtain medical treatment,
services and/or goods. It frequently results
in erroneous entries into existing medi-
cal records and can involve the creation
of false medical records in the victim’s
name.8
Perpetrators also include hackers who
use social engineering to obtain SSNs
and health insurance information from
unsuspecting medical providers and
patients.9
Health care providers also lose pri-
vate patient information from employee
theft and loss of laptops, flash drives and
other data sources.10
Warning signs
Medical identity victims:
• Receive paperwork about medical proce-
dures or services they haven’t received.
• Find incorrect information in medical
records.
• Discover their medical benefits on
private insurance and/or government
programs have been maxed out.
• Are contacted by debt collectors about
bogus medical debt.
• See that their credit reports show collec-
tion notices and/or other debt activities.
• Are denied insurance coverage because
of incorrect information in medical
records.11
How to protect yourself
• Review the Explanations of Benefits
(EOB) statement or Medicare/Medicaid
Summary Notice that your health plan
sends after your treatment.
• Annually request a listing of benefits
from your health insurers and review
them for accuracy.
• Request and review copies of current
medical files from all health care pro-
viders. Monitor your credit report for
inaccuracies.12
• Check with your medical providers to
ensure your records are accurate.
• Don’t share your medical and/or insur-
ance information with others.
• Read the privacy policies on health care
websites before providing personal
health information or other PII.
FRAUD-MAGAZINE.COM
• Don’t provide personal health informa-
tion or other PII to those who might
be posing as your health care provider.
Contact your provider to verify.13
• Be cautious of free health services or
products that require PII.
• Don’t provide personal health infor-
mation or other PII to someone who
contacts you about a “recent breach.”
• Don’t be afraid to ask questions of your
health provider as to how they protect
personal health information or other
PII.
• Don’t post health personal health infor-
mation or other PII on social networks.
• Treat and protect your health care
identities as you would your financial
information.14
How providers can prevent
medical identity fraud
Health care providers can take proac-
tive steps by integrating their health
care organizations’ broader information
security and privacy programs and a com-
prehensive incident response plans for PII
compromises.
Here are some important parts of a
health care provider security program for
medical identity information:
• Background checks, including criminal
and credit histories on any provider
employees with access to private health
care information.
• Employee training on importance of
security and protection of private health
care PII.
• Latest encryption technology to secure
all IT resources, including laptops and
mobile devices. Where employees are
allowed to bring their devices to work,
maintain remote data wiping capability.
• Policies and procedures for protec-
tion of personal healthcare PII that
include access to information on a strict
JULY/AUGUST 2019 FRAUD MAGAZINE 53
 RX FOR FRAUD Health care fraud issues
need-to-know basis, robust password
management and guidance in the use of
cloud technology.
• Formal protocol to manage all vendors
with access to organizations network
that include security reviews, U.S.
Health Insurance Portability and
Global medical identity theft is active and growing.
Health care providers, private insurance companies,
government health benefit beneficiary programs
and individual consumers should be taking proactive
steps to prevent fraud.
Accountability Act/U.S. Health In-
formation Technology for Economic
and Clinical Health Act compliance
requirements and contractual protec-
tions, including maintenance of cyber
insurance.
• Incident response plan, including
management responsibility for reported
breaches and the identification of legal,
forensic and other technical resources
that are equipped to respond in a timely
and professional manner.15
What to do if you’re a victim
• File a police report with your local law
enforcement agency. You might need
to provide a police report to collection
agencies, health care providers, and
government and private insurance
providers.
• Correct erroneous and false information
in medical payment files with health
providers.
• Contact one of the three credit bureaus
to place a fraud alert on your account:
Experian (tinyurl.com/yl6hk84),
54 FRAUD MAGAZINE JULY/AUGUST 2019
Equifax (tinyurl.com/ychfpnvx) or Tran-
sunion (tinyurl.com/y6a3jaxp).
• File a complaint with the Federal Trade
Commission (FTC) about medical
identity theft at tinyurl.com/jlzpfqh.
FTC identity Theft Toll Free Hotline:
877-IDTHEFT (877-438-4338).
• If you’re a victim of Medicare fraud, call
800-MEDICARE (800-633-4227).
• If you’re a victim of Medicaid fraud,
call 800-HHS-TIPS (800-447-8477).
• Report private insurance fraud to your
company hotline.16
An ever-present
and growing danger
Global medical identity theft is active
and growing. Health care providers, pri-
vate insurance companies, government
health benefit beneficiary programs
and individual consumers should be
taking proactive steps to prevent fraud.
If they’re victimized they should take
corrective actions and report incidents
to authorities. n FM
David A. Picard, CFE, is investigations
manager, NC Department of Health &
Human Services, Division of Health
Benefits, NC Medicaid. Contact him at
David.Picard@dhhs.nc.gov.
1
“Excluded Felon Sentenced to Twelve
Years For Health Care Fraud And
FRAUD-MAGAZINE.COM
The contents of this article repre-
sent the opinion and views of the
author and not of any other entity or
organization.
Aggravated Identity Theft,” U.S. Attor-
ney’s Office, Western District of Michigan,
March 28, 2019, tinyurl.com/yxb97v3k
2
“A Call to Action,” Medical Identity Fraud
Alliance, tinyurl.com/yy8arlt9
3
“The Real Threat of identity Theft Is in
Your Medical Records, Not Credit Cards,”
by Robert Lord, Dec. 15, 2017, Forbes,
tinyurl.com/y5wb7smw
4
“Judge Approves Anthem’s $115M Data
Breach Settlement,” by Julie Spitzer,
Becker’s Hospital Review, Aug. 20, 2018,
tinyurl.com/y2ql9582
5
“Medical ID theft,” Fraud.Org, National
Consumers League, tinyurl.com/y3qafrqu
6
Forbes et al., 2017
7
“Medical Identity Theft: Problems and
Prevention,” Healthcare IT News, Feb. 20,
2017, tinyurl.com/y2ro4ex2
8
“Medical Identity Theft,” U.S. Department
of Health and Human Services Office of
Inspector General, tinyurl.com/ppzag9n
9
“6th Annual HIMSS Security Survey,” 2014,
Healthcare Information and Management
Systems Society, tinyurl.com/y6p966ot
10
“6th Annual HIMSS Security Survey”
“Medical ID theft,” Fraud.Org National
11
Consumers League, tinyurl.com/y3qafrqu
“Medical Identity Theft,” World Privacy
12
Forum, https://tinyurl.com/y3ev64d2
“Medical identity theft,” Coalition
13
Against Insurance Fraud, tinyurl.com/
y4zzsmvg
“The Rise of Medical Identity Theft,” by
14
Michelle Andrews, Consumer Reports, Aug.
25, 2016, tinyurl.com/yclnvpj4
15
“Medical Identity Theft: Fighting and
Epidemic,” by Brad Gow, Sompro Interna-
tional, 2018, tinyurl.com/y3e6tmdz
16
“Recovering from Identity Theft,” Fed-
eral Trade Commission, September 2018,
tinyurl.com/jlzpfqh
 Sharpen your skills with world-
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Development and become a Certified Fraud
Examiner.

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Opportunities events and online communities.

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FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 55
 FRAUD SPOTLIGHT Analyses of lesser-known frauds
Shutting the lid on beverage
container deposit fraud
Container deposit fraud is more than just buddies transporting some
empty soda bottles across state lines. We’re talking about
multimillion-dollar tax fraud schemes. Here’s how to prevent them.
A
s a grade-school-aged boy
growing up in southwest
lower-Michigan, I remember
helping load up the car with
emptied glass pop bottles that we’d take
to our neighborhood grocery store in ex-
change for a few dollars. In the Midwest
U.S., “pop” is the vernacular term for soft
drinks made by such producers as Coca-
Cola, PepsiCo, Dr Pepper and National
Beverage. If you’re from the Northeast
U.S., it’s simply “soda.” Southerners
often call them all “Coke” even if they’re
not brown. I still remember the clinking
and clanking of those bottles in the car
as we drove to the grocery store.
Michigan passed a bottle bill, or
beverage container deposit law, in 1976.
Even though it wasn’t the first state to
do so (Oregon passed the first in 1971)
at the time Michigan had the highest
deposit — ten cents on airtight contain-
ers under one gallon composed of metal,
glass, paper or plastic. Today, 10 states
and one U.S. territory have container
deposit laws.
Like any well-intentioned laws,
some fraudsters will exploit them for
nefarious purposes. Here I’ll explore the
general mechanics of beverage contain-
er deposit laws, perpetrators’ fraudulent
schemes and the greatest risk factors
associated with these programs.
56 FRAUD MAGAZINE JULY/AUGUST 2019
COLUMNIST
L. CHRISTOPHER
, CFE, CPA
FORENSIC ACCOUNTANT
IN INDIANAPOLIS, INDIANA,
AND ADJUNCT FACULTY
MEMBER AT INDIANA UNI-
VERSITY’S KELLEY SCHOOL
OF BUSINESS AND INDIANA
UNIVERSITY-EAST
Purpose of beverage
container deposit laws
The primary purpose for beverage
container deposit laws is to prevent
littering. Requiring deposits provides
an economic incentive for consumers
to properly dispose of containers for
recycling rather than dispose of them in
trash receptacles that will then end up in
a landfill or, worse, dumped on the side
of roads to pollute the environment.
Beverage container deposit
refund scenario
Here’s how most common beverage
container deposit law processes work. A
distributor sells beverage products to a
retailer. As part of this transaction, the
distributor collects a deposit payment for
each beverage container — let’s say 10
cents for each container. For example, a
distributor sells 5,000 container units at
$1 each for a total of $5,000. The distribu-
tor will also charge a 10-cent deposit on
FRAUD-MAGAZINE.COM
the 5,000 container units totaling an ad-
ditional $500. So, the total payment the
retailer pays to the distributor is $5,500.
The retailer then passes along the
10-cent deposit on top of the retail mark-
up to each end customer. For example,
the retail will charge each end customer
a retail price of $1.50 for each container
unit purchased plus 10 cents per contain-
er unit for a total of $1.60. The customer
can then return the empty container to a
collection center — typically a retailer —
for redemption and retrieve their 10-cent
deposit. Finally, the retailer will ship the
empty container to the distributor for
their return of the 10-cent deposit. This
is how it should work every time in a
perfect world.
However, we must consider what
happens when a customer doesn’t re-
deem their container deposit but throws
it in the trash or on the side of the road,
or takes it to an alternate recycling center.
Depending on state law, the distributor
will keep that ten-cent deposit, return it
to the state authority or a hybrid of both.
(See “General flow-chart of beverage con-
tainer deposit process” on page 57.)
Even though the underlying process
seems simple, the flow of transactions as-
sociated with the return of containers and
deposits can become complex. Further
adding to the complexity is that states
regulate beverage container deposit laws.
Each jurisdiction has unique program im-
plementation and accounting regulations,
so it’s important to research states’ specific
requirements. (See “Unwrapping the Pros
and Cons of a Bottle Deposit Program,”
The Abell Report, March 2012, Volume 25,
Number 2, tinyurl.com/y5dcd77g.)
‘The Bottle Deposit’ episode
on ‘Seinfeld’
This column’s title might conjure up
images of a famous two-part “Seinfeld”
episode. The story arc tells the saga of
Kramer and Newman conspiring to col-
lect beverage containers in New York,
transport them to Michigan and collect
the 10-cent refunds.
Newman performs a thorough cost/
benefit analysis to determine how to best
transport the containers interstate — by
far the greatest cost associated with the
scheme. Newman, a U.S. mail postal
carrier, learns of the extra Mother’s
Day mail that has to be shipped from
New York to Michigan for sorting. He
excitedly volunteers to take the delivery
route. They can’t complete the scheme
because of other shenanigans that occur
on the drive to Michigan. While their
machinations are indeed fraudulent,
they pale in comparison to some of the
more organized schemes.
container deposit from certified redemp-
tion centers. Under state regulation, these
redemption centers are responsible for
ensuring that only eligible beverage con-
tainers sold in California where the CRV
deposits were paid can be redeemed.
In this case, the state alleged that
the defendants received out-of-state
material from various recycling centers
and engaged in illegal activity to claim
CRV refunds to the tune of $80.3 million.
They perpetrated the scheme by submit-
ting CRV claims containing fraudulent
information. The collected documentary
evidence collected included inaccurate,
altered and falsified weight ticket claims.
Various players would’ve been
involved in collecting, transporting and
dropping off of containers at the redemp-
tion center; falsifying of documents;
submission of false claims; and collection
of CRV refunds.
Container and deposit
cost passed to retailer
Distributor
Beverage container purchase cycle (downstream)
$4.3 million settlement
On May 24, 2018, New York State At-
torney General Barbara D. Underwood
and Rockland County District Attorney
Thomas Zugibe announced a $4.3 million
settlement with Oak Beverages Inc. for
falsely inflating the number of empty bev-
erage container returns it received, which
resulted in the company’s failure to turn
over approximately $1,859,000 in unpaid
deposits to New York State — a violation
of New York’s bottle bill. (See the New
York state release, tinyurl.com/y4bouc9f.)
Per the New York state beverage
container deposit program, distributors
each quarter must turn over 80% of any
unredeemed deposits to the state, which
Oak Beverages failed to do. Distributors
are allowed to keep the remaining 20%
of any unredeemed deposits.
Oak Beverages systematically and
falsely inflated the amount of empty
containers it received and reported those
falsely inflated numbers in quarterly
Container and deposit
cost passed to consumer
Retailer Consumer

$80.3 million recycling fraud

On April 19, 2018, California Attorney
Container and deposit Container and deposit
General Xavier Becerra announced return passed back to return passed back to
criminal charges against five individuals distributor retailer
for defrauding the state’s beverage con-
tainer recycling program. (See the state
release, tinyurl.com/y6dyplcr.) Distributor Retailer Consumer
The 166-count indictment alleges
that the defendants conspired to manu-
Greatest Fraud Risks:
facture fraudulent weight tickets (printed
1. Unredeemed deposits not being remitted back to state
records of large amounts of bottles for through falsified records
redemption) through a certified redemp-
.

2. Underreporting of actual beverage containers received

tion center to obtain California Redemp- State authority in order to not remit deposits back to state authorities
tion Value (CRV) refunds. In California,
consumers can redeem their beverage Beverage container return cycle (upstream)

FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 57

 FRAUD SPOTLIGHT Analyses of lesser-known frauds

reports to the state. The company’s general
manager, who initiated and directed the
scheme, would modify customer invoices
from drivers’ daily route records to exag-
gerate the number of empty containers
they collected.
In one instance, the general man-
ager indicated on an invoice that a store
in Queens returned 80 bags of assorted
empty cans and bottles — although drivers
hadn’t picked up any empty containers.
Oak Beverages retained the $1,264.80 ad-
justment to the invoice. The general man-
ager also instructed lower-level employees
to modify sales records to reflect these
alterations and not inform anyone else at
the company about the adjustments.
Greatest risk factor: self-reporting
An audit of the state of Hawaii’s deposit
beverage container program has analyzed
the risks of self-reporting. (See tinyurl.
com/yyb4md2k.) The primary audit find-
ings center around the program’s reliance
on self-reported data from distributors and
certified redemption centers and lack of
adequate controls to monitor the accuracy
and completeness of the information they
provide.
They simply file inaccurate informa-
tion to receive increased refunds or not
remit taxes due similar to how individu-
als or organizations might evade other
tax payments. Distributors and certified
redemption centers committing beverage
container deposit frauds might file false
or fictitious documentation with state
regulatory authorities to receive increased
container deposit refunds. Or they might
understate the amount of unreturned
containers to reduce deposits they pay to
state coffers.
The greatest risk for malfeasance ex-
ists at the distributor’s stage because they
might have the incentive to under-report
sales/distributions of deposit beverage
containers to retailers plus collected con-
tainer deposit refunds from retailers and
not remit them to state authorities by
falsifying paperwork.
Bottling up these fraudsters
Beverage container deposit fraud is a real
concern within jurisdictions that require
such programs. The cases here involve
more than just a couple of buddies haul-
ing a garbage bag of containers over state
lines. The most logical answer to this issue
is for state authorities to develop vigor-
ous enforcement components to ensure
compliance with beverage container
deposit programs policies and procedures.
This might be a tall task for officials to
implement because of state jurisdictions
facing shrinking revenues and cost-cutting
budgets. The overall integrity and future of
beverage container deposit programs could
be in jeopardy because of fraud. n FM
L. Christopher Knight, CFE, CPA,
is a forensic accountant in Indianapolis,
Indiana, and an adjunct faculty member at
Indiana University’s Kelley School of Busi-
ness in Bloomington and Indiana Universi-
ty-East in Richmond. The views expressed
in this article are his own. Contact him at
lchristopherknight@yahoo.com.

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 STARTING OUT By and for budding fraud examiners

An intern’s front-row
seat to fraud
This former intern learned firsthand about fraud when her boss and
mentor, the senior accountant, was arrested for embezzlement and
credit card fraud. The author helped discover the crimes at the nonprofit
business.

“Starting Out,” a periodic column

written by and for budding fraud
examiners, provides lessons and
encouragement inside and outside
the classroom. — ed.

O n March 5, 2018, I walked

into my office at a nonprofit
company expecting a normal
day. I wasn’t prepared for what would
transpire. I’d arrived at a crime scene
and saw my coworkers shedding tears
of anger and betrayal. I learned my
supervisor, the senior accountant, had
been committing fraud for more than
four years.
I had been with this nonprofit
In 2012, the company hired Sarah ound checks
since April 2017. My official job title was
Sharp (not her real name). She began When the temporary staffing agency
“junior accountant,” but I really was just
in a temporary accounting position placed Sharp at the nonprofit, it wasn’t
the intern as I completed my account-
through a staffing agency. However, in aware of her record. The organization
ing and criminal justice studies. My didn’t require that temporary employ-
job responsibilities included reviewing one previous job she’d stolen $14,000
ees undergo background checks and
journal entries and small-business cash from one client and in another job
normally relied on a staffing agency to
receipts, and reconciling the company’s misappropriated funds with that
screen its clients. However, when the
credit card monthly. I reported directly company’s credit card. So, why did the human resources department eventually
to the senior accountant whom I consid- company hire her? This is where the issued mandatory “CORI-checks,” we
ered my mentor. story really begins. uncovered serious red flags in Sharp’s

60 FRAUD MAGAZINE JULY/AUGUST 2019 FRAUD-MAGAZINE.COM

background. (Massachusetts, the state in
which the organization resides, com-
piles Criminal Offender Record Informa-
tion — CORI — a record of all criminal
court appearances in the state, including
arrests, convictions, dismissals and seri-
ous violations.)
The company discovered Sharp had
larceny charges of more than $250 in
both 2010 and 2012 at other businesses.
The staffing agency never ran back-
ground checks on her, so it didn’t know
about these infractions. The business
was faced with a decision: Let her go, or
give her a second chance. As a non-
profit company built on second chances,
it decided to keep her as the senior
accountant.
Sharp had major responsibili-
ties at the company. She managed the
payroll and four company credit cards,
reconciled balance sheets and journal
entries, performed human resources
tasks and was the No. 1 go-to person for
all payroll-related questions. Although
Sharp reviewed other employees’ work,
no one reviewed hers. She signed off
on her statements and posted them to
the accounting database. Her son even
helped file away the paperwork. No one
questioned anything she did.
Despite the company’s lack of
controls with its financial statements,
it didn’t allow Sharp access to the ac-
counting safe that contained petty cash
and cash deposits. But she found other
creative ways to steal from the company.
Getting around the
credit card system
Sharp had the sole responsibility of
managing credit card statements. No
one else saw what was on those state-
ments or what was getting paid. When
the accounts payable supervisor would
ask to look at the statements, Sharp
would get very defensive and not allow
COLUMNIST
AFORD
STAFF ACCOUNTANT
AT AAFCPAs AND
GRADUATE STUDENT
AT NICHOLS COLLEGE
Our business was faced
with a decision: let her
go or give her a second
chance. As a nonprofit
company built on sec-
ond chances, it decided
to keep her as the
senior accountant.
her to see them. The company later
discovered that Sharp had been mak-
ing personal charges on its cards for a
Hulu account, a snowblower, an Xbox
One, her cable and Verizon phone bills,
Intuit payroll for a private company she
was forming, and family vacations to the
Great Wolf Lodge and Hampton Beach,
among others. She even purchased a
book on the company card to help her
study for the CPA exam. Sharp didn’t
make large one-time purchases to avoid
red flags but instead used cash advance-
ments on the cards to pay for things
such as her monthly car payment. In the
end, we discovered almost $45,000 total
worth of charges on company cards.
When auditors performed the
year-end audits, they never looked at the
credit card statements. They also never
matched up the charges to receipts that
the company had signed and filed away.
So, Sharp was able to get away with
these charges for four years.
FRAUD-MAGAZINE.COM
All charges on credit card state-
ments had to be entered into the
accounting software so the company
could write manual check payments to
pay those bills. It didn’t enter charges
into the system unless it had signed
physical copies. Sharp would bypass this
process by entering the charges into the
system and allocating them to different
accounts. She also entered the receipts
under wrong vendors, so if anyone
checked up on the accounts, they’d be
sent through a tailspin of erroneous
accounts.
Only Sharp reconciled the credit
card accounts, and then her son would
immediately file them away. No one else
signed off on her reconciliations. She’d
hide the charges by debiting the credit
card clearing account and crediting
cash. They’d appear wrongly on the sub-
ledger, and the accounts never balanced.
But that didn’t matter because no one
ever checked them.
Because Sharp was always covering
her tracks, she never filed the payroll
taxes. The company owed more than
$20,000 just in taxes alone during the
three years she was in charge.
Sharp should never
have gotten sick
The company eventually caught Sharp
when she went on medical leave. In her
absence, the company appointed the
accounts payable department and me
to be responsible for all credit card ac-
counts. When we discovered the alarm-
ing charges for Hulu, Verizon and her
cable company — among others — we
notified our supervisors, and they began
investigating.
The accounts payable clerk also
noticed some weird receipts in Sharp’s
mailbox, such as one for a GEICO state-
ment. The company didn’t use this
insurance company. Because she was
JULY/AUGUST 2019 FRAUD MAGAZINE 61
 STARTING OUT By and for budding fraud examiners
on medical leave, she couldn’t intercept
the fraudulent receipts before they got
into the hands of the other company
accountants.
About three weeks after the compa-
ny discovered the red flags it fired Sharp.
And the next day, March 6, 2018, police
and the assistant COO showed up at
her door to recover any documents she
had brought home from the company.
During the investigation, the company
discovered its errors. The biggest mis-
take, of course, was the lack of internal
controls and supervision. No one saw
the obvious red flags. “Talk about red
flags? It’s more like we’re sending up
flares!” the accounts payable clerk said.
As of press time, the investigation
was ongoing. The company filed charges
against Sharp, but no court date was
set. I hope justice will be served. As an
intern, I learned that fraud can happen
anywhere, and the guilty party could
be anyone. Organizations of all types
— especially small businesses — heed
the mistakes. I’ve now learned lessons
outside of the classroom that I’ll carry
with me throughout my career.
Bethany Faford is a staff accountant
at AAFCPAs in Westborough, Massa-
chusetts, and a Master’s of Science in
Accounting student at Nichols College
in Dudley, Massachusetts. Contact her at
bethany.faford@nichols.edu.
A version of this column was
published in the Feb. 14 edition of
Accounting Today.— ed.
62 FRAUD MAGAZINE JULY/AUGUST 2019
Personal purchases with company funds
Dishonest employees often use
company accounts to buy items
for employees, their businesses or
themselves, such as Sarah Sharp,
the head accountant of the Mas-
sachusetts nonprofit business.
The heart of a fraudulent
billing scheme isn’t the theft of
the items but rather the purchase
of them. The perpetrator causes
the victim company to purchase
something it didn’t actually need, but controls prevent
so the damage to the company is them from initiating purchase
the money lost in purchasing the requests. Unfortunately, those
item. with authority to approve pur-
chases often have a good deal of
Personal purchases through
control over their subordinates and
false invoicing
can force them to assist in purchas-
Employees who undertake pur-
ing schemes.
chases schemes might run fraudu-
lent invoices through the accounts
Personal purchases on credits cards
payable system. The perpetrator
or other company accounts
buys an item and submits the bill to
As we saw in Sarah Sharp’s case,
their employer because it seemed
prior approval for credit card pur-
to represent a legitimate company
expense. chases isn’t required. An employee
with a company credit card can buy
The fraudster as authorizer an item merely by signing their
of invoices name (or forging another name) at
The person who engages in a per- the time of purchase. Many high-
sonal purchases scheme is often the level employees approve their credit
very person in the company whose card expenses.
duties include authorizing purchas-
es. Fraud arises in part because of a Adapted from the online ACFE Fraud Examin-
ers Manual, Section 1: Financial Transactions
perceived opportunity.
and Fraud Schemes/Asset Misappropriation:
Sometimes the perpetrator is Fraudulent Disbursements/Billing Schemes,
authorized to approve purchases, tinyurl.com/yxgwgmm5.
FRAUD-MAGAZINE.COM
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 I’M A CFE

Deshietha Partee-Grier, CFE

Assistant Vice President -

Financial Crime Investigations
Unit at Deutsche Bank

Deshietha Partee-Grier, CFE,

says she lives by an Eleanor
Roosevelt quote: “Great minds
discuss ideas. Average minds
discuss events. Small minds
discuss people.” Deshietha
loves discussing ideas and the
interplay among her colleagues
as they fight money launder-
ing and other types of financial
crime. But work isn’t sufficient
for her. She mentors high school
girls when she’s not nurturing
her five children with her hus-
band and working on an MBA.

Interview by Emily Primeaux, CFE

Photo by Treymane Grier/Trey Grier
Signature Media

I was born in Chicago, Illinois,

and raised in Columbus, Ohio.
Growing up I enjoyed drawing,
playing sports — basketball, vol-
leyball and track — acting, writing
plays and poetry, and volunteer-
ing for youth programs. I wanted
to be a mathematician, I also
wanted to start my own school
and own a business.
I started my undergraduate
studies at Spelman College in
Atlanta, Georgia, and went on
to finish my degree in econom-
ics at The Ohio State University.
Spelman College embodied a
sisterhood as an all-female HBCU
[Historically Black College and
Universities]. I developed strong
relationships and an understand-
ing of my obligation to be an
intellectual, creative and ethical
leader. At The Ohio State Uni-
versity there was a strong sense
of community and diversity that
I loved as well. The school spirit
brings everyone together regard-
less of differences.

64 FRAUD MAGAZINE JULY/AUGUST 2019 FRAUD-MAGAZINE.COM

In my position at Deutsche Bank,
I lead a team of anti-money
laundering analysts and associ-
ates in conducting investigations of
international correspondent bank-
ing transactions — those between
banks globally.
I was seeking an opportunity
within banking that would have
a greater impact on the business
and our clients, after working in
the mortgage line of business,
when I discovered an excellent,
intriguing opportunity in Bank
Secrecy Act/anti-money launder-
ing [AML] regulatory review for U.S.
Bank. I championed a variety of
business-critical initiatives for the
prepaid cards’ business line while
leading a team of fraud and AML
analysts in Jacksonville, Florida,
and Minneapolis, Minnesota. The
impact that we had on fighting
fraud and protecting the business,
our clients and external victims of
crime was more than fulfilling — it
was truly rewarding. What we were
doing in our investigations helped
to fight negative macroeconomic
impacts on our society, terrorist
financing and human trafficking.
From there, I was locked in to
fighting fraud for life. I went on
to lead teams in fighting fraud at
VyStar Credit Union and now within
financial crime investigations at
Deutsche Bank.
When I started working in the
industry, I immediately sought re-
sources that would help me build
onto my knowledge about how
When I started working in the industry,
I immediately sought resources that
would help me build onto my knowledge
about how to detect and mitigate fraud
in banking. The ACFE was the first
resource that I found.
to detect and mitigate fraud in learn industry trends and tech-
banking. The ACFE was the first re- niques to fight fraud and help other
source that I found. Once I learned fraud-fighting professionals do
about the resources that the ACFE the same. Educated professionals
offered, including the CFE creden- provide prevention and protection
tial, I knew I needed to study to for our communities. I love observ-
become a CFE to have the neces- ing the sparks in our members’ eyes
sary knowledge to do the best job during our training sessions when
possible in fighting fraud. they learn new information and they
become excited about putting what
The CFE credential has allowed they have learned into action.
me to be identified as someone
who takes fighting fraud seriously I remain very passionate about
and has the appropriate knowledge youth and the community. I
to lead others in the fight. mentor young high school ladies
through two programs: Take Stock
If you’re a budding fraud exam- in Children and The United Way.
iner — and even if you’re not One of my mentees graduated as
— join your local ACFE chapter the valedictorian of her class, and
to gain up-to-date knowledge and another was the first in her family to
training in the industry. You’ll also attend college after graduation. All
have the opportunity to network of my remaining time is dedicated
with professionals who’ll help you to my lovely husband and our exu-
get off to a great start. Plan to berant five children — all of whom
obtain your CFE credential early on are my greatest rewards in life and
and stay current on industry trends who I continue to strive to be the
and techniques.
best for. n FM
Being the president of, and being
Emily Primeaux, CFE, is assistant
involved with, the Jacksonville editor of Fraud Magazine. Her email ad-
Chapter of the ACFE helps me dress is: eprimeaux@ACFE.com.
FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 65
 ACFE NEWS
ACFE Foundation awards scholarships in 25th year
of Ritchie-Jennings Memorial Scholarship Program
The ACFE Foundation has awarded $55,000
to college and university students through
the Ritchie-Jennings Memorial Scholarship
Program for the 2019-2020 school year.
Each recipient also will receive a one-year
ACFE student membership.
The ACFE Foundation, a nonprofit
entity, raises funds to support the schol-
arship program for the education of
students worldwide who have an interest
in pursuing a career in fraud examina-
tion or similar fields. Candidates must be
enrolled in accounting, business adminis-
tration, finance or criminal justice higher-
education programs. ACFE chapters and
ACFE members also help underwrite the
scholarships with donations. Also, royal-
ties from books written by ACFE founder
and Chairman Dr. Joseph T. Wells, CFE,
CPA, help fund the scholarships.
An independent board of direc-
tors manages the ACFE Foundation. Its
members include: Vincent Walden, CFE,
CPA, chairman; Charles Washington, CFE,
CICA, CPP, vice chairman; Vice President
and General Counsel John Warren, J.D.,
CFE, secretary; ACFE Controller Jeannie
Kwong, CFE, CPA, treasurer; and Vice Pres-
ident and Chief Operating Officer Jeanette
LeVie, CFE, assistant treasurer.
The ACFE Scholarship Committee
reviews scholarship applications and rec-
ommends recipients to the ACFE Founda-
tion Board of Directors.
“We’re glad that the Ritchie-Jennings
Memorial Scholarship Program has been
so helpful to scores of students in the last
quarter century,” says Ryan Schwoebel,
CFE, chair of the ACFE Scholarship Com-
mittee at the time of the judging. “Our ap-
plicant pool was outstanding. The future
of the profession is bright.
66 FRAUD MAGAZINE JULY/AUGUST 2019
“Thanks to my fellow committee
members for their hard work in consider-
ing all the applicants — Sharad Kumar,
CFE, CQA; Mark F. Lukens, CFE, CFI; Nata-
sha Novikov, CFE, CPA, CFF; and Robert N.
Sinclair, CFE.
“And I thank Dinora Soto, the ACFE’s
higher education program coordinator,”
says Schwoebel. “We couldn’t have done
our work without her great organizational
skills.”
ACFE President and CEO Bruce Dor-
ris, J.D., CFE, CPA, says the ACFE Foun-
dation is grateful to the members and
generous ACFE chapters who contribute
to the scholarship program. “As we enter
our 26th year of this amazing scholarship
program, we’re so thankful to our gener-
ous members and chapters who want to
make sure that we support budding fraud
examiners for decades to come. Dur-
ing that time, contributions from ACFE
members have enabled the Foundation
to distribute approximately $800,000 to
nearly 600 deserving students.
“Dr. Joseph T. Wells, CFE, CPA, the
ACFE’s founder and Chairman, knew the
ACFE and its members had to heartily
support prospective CFEs to ensure the
profession would thrive. So, he began
the Foundation and the Ritchie-Jennings
Memorial Scholarship to not only help
replace retiring CFEs but multiply their
numbers. Communities around the world
have been the benefactors,” Dorris says.
The ACFE’s Board of Regents voted
to name the scholarship program the
Ritchie-Jennings Memorial Scholarship
in 1998. Tracy Ritchie, CFE, and Larry Jen-
nings, CFE, CPA, were killed Nov. 12, 1997,
in Karachi, Pakistan, when terrorists fired
on their vehicle during a business trip.
FRAUD-MAGAZINE.COM
For more information about the
Ritchie-Jennings Memorial Scholarship
Program, visit ACFE.com/scholarship.
Students may apply for the 2020-2021
academic year in September of this year.
The ACFE presented these students
with the top seven awards:
$10,000:
Yelesina
Hernandez,
University of
Houston
Yelesina Hernan-
dez’s passion to
pursue a career
in fraud exami-
nation began,
she says, when she attended a workshop
hosted by the CIA that discussed the im-
portance of forensic accounting and fraud
examination in many CIA assignments.
Since the workshop, Hernandez has
worked hard to find opportunities to learn
about fraud examination from profession-
als in the field.
She co-founded the University of
Houston (UH) ACFE student chapter (of
which she is the IT and communications
officer), has attended Houston ACFE
Chapter luncheons and volunteered at the
chapter’s annual convention.
Hernandez maintains a 4.0 GPA as
she earns bachelor’s and master’s degrees
in the UH Professional Program in Ac-
countancy. She’s active in the Hispanic
Business Student Association at UH. Fol-
lowing her studies, Hernandez says she’s
interested in pursuing opportunities in
Ernst and Young’s Forensic and Integrity
Services group. She then would like to
move into a position at CIA headquarters
fighting fraud as a forensic accountant.
Hernandez’s recommendations for the
Ritchie-Jennings scholarship laud her
initiative, leadership, advocacy and
commitment.
 A network of
$5,000: Marie Rice, CFE,
West Virginia University
Marie Rice maintains a 3.77 GPA
industry peers,
as she pursues her doctorate in
accounting. Her participation
training their teams to
at Gonzaga University’s Justice
for Fraud Victims Project (JFVP)
influenced her decision to earn a Ph.D. and teach
future anti-fraud professionals in higher education.
fight fraud.
Rice received multiple awards for her work with the
JFVP, including the Chief’s Citizen Award from the CollaboratinG
Spokane Police Department.
She was a 2010 recipient of the ACFE’s Out-
with each other to share
standing Achievement in Outreach/Community
Service Award. Rice also helped form the ACFE
Spokane chapter.
best practiceS.
B u i l d i n g s o l u t i o n s.
T o g e t h e r.
$5,000: Daniel Luna, George
Mason University
Daniel Luna says he’s had a
strong interest in accounting
long before college, where he’s
earning a master’s degree in the
field. He maintains a 3.93 GPA
while also volunteering as a student member of the
Virginia Society of CPAs (VSCPA). He’s also a mem-
ber of Tau Sigma National Honor Society.
After graduation, Luna says wants to earn the
CFE credential and CPA license and work in forensic
accounting with a public accounting firm.

$5,000: Ethan Howard,

University of Tennessee at
Chattanooga
Ethan Howard says he’s been
interested in fraud fighting and
forensics since he was 15. His
involvement in the Sumner
County Teen Court during high school helped nur-
Group Membership.
ture and cultivate his interest to learn more about Discounted Anti-Fraud Training.
the legal system and pursue an anti-fraud career, he Executive Roundtables.
says. He’s a junior with a major in accounting and

ACFE.COM/CORPORATE
FRAUD-MAGAZINE.COM JULY/AUGUST 2019 FRAUD MAGAZINE 67
 ACFE NEWS
a minor in criminal justice. A mid-size
public accounting firm has offered him
a litigation support/fraud and forensics
internship.
Howard is a crime analyst intern with
the Chattanooga Police Department. He
says he’s developed connections within
law enforcement and the legal system
while learning about various crimes.
Howard says his ultimate career goal
is to work for the FBI as a forensic accoun-
tant and eventually become the FBI direc-
tor. After graduation, he says he plans to
work in public accounting in the forensics
field or go straight to the FBI while obtain-
ing his CPA license and CFE credential.
$5,000: Hannah
Algasem, Boston
University
Hannah Algasem’s
academic background
is in criminology, but
she says she’s always
SAVE
THE
DATE
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been interested in how financial institu-
tions help prevent or end illicit activities,
such as human trafficking.
She works as a financial intelligence
analyst with Lone Star National Bank in
Texas along the southwest border. Her
role requires her to do extensive research
on high-risk accounts to identify any
questionable patterns or trends that could
point to illegal activity.
Algasem has interned with the
U.S. federal probation office where she
assisted in writing pre-sentence investiga-
tion reports and follow-up evaluations on
offenders who committed offenses rang-
ing from white-collar crimes to sexual
assault. Her investigative training during
her internship, she says, helped her obtain
her current position as a financial intelli-
gence analyst and set her on a career path
in white-collar crime and cybersecurity.
$2,500: Steven Shannon,
University of Wisconsin-
Platteville
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Steven Shannon works as a special agent
with the U.S. Secret Service and maintains
a 3.98 GPA as he pursues a master’s degree
in criminal justice at the University of
Wisconsin-Platteville. At the Secret Ser-
vice, Shannon has investigated complex
wire, bank and credit card fraud cases. He
previously worked as a municipal police
officer for more than a decade.
Shannon says he derives professional
fulfillment from ensuring justice for ev-
eryday citizens and businesses. His duties
are split between investigative work and
protective duties. He says his goal is to
become a CFE and pursue a full-time fraud
investigation position. Shannon says he’d
also like to teach future law enforcement
professionals part time.
$2,500: Alison Parker, Met-
ropolitan State University
Alison Parker says a former
professor’s “contagious”
passion for fighting fraud led to her anti-
fraud career interests. She’s pursuing a
master’s degree in accounting and is a stu-
dent member of the ACFE and the ACFE
Colorado Chapter. Parker maintains a 3.69
GPA and has received awards, including
the National Engaged Leader Award from
the National Society of Leadership &
Success.
After graduation, Parker says she
plans to pursue the CFE credential in the
fall of 2021. Her career goal, she says, is to
work as a forensic accountant with Colo-
rado’s Office of the Attorney General.
$2,500: Matthew Mitchell,
Old Dominion University
Matthew Mitchell maintains
a 3.63 GPA as he pursues a
master’s degree in accounting. He was
an audit intern with BDO in Norfolk, Vir-
ginia, which hired him as an audit associ-
ate. He’s a member of the ACFE Hampton
Roads Chapter and the IIA Tidewater
Chapter.
Mitchell also served as the vice
president of the Managerial Auditing
and Accounting Club, plus the ACFE
and IIA student chapters. He’s pursuing
the CFE credential, CPA license and CIA
designation.
$2,500: Emily Taylor,
Embry-Riddle Aeronautical
University
Emily Taylor’s job as a U.S.
Army intelligence analyst inspired
her to pursue forensic accounting and
fraud examination. She’s studying
accounting and has maintained a 3.58
GPA. Taylor’s goal is to be an internal
auditor for a major corporation such as
Amazon or Google. After graduation,
Taylor wants to earn an MBA, the CFE
crednetial and the CPA license. She’s a
member of the ACFE and the student
chapter at Embry-Riddle.
The ACFE presented each of these
students with a $1,000 scholarship:
Samantha Brooks,
ork University
Samantha Brooks is pursuing
a master’s degree in accounting. She’s
interned for the FBI and is interning this
summer for PricewaterhouseCoopers as
a forensic consultant. Brooks maintains
a 3.57 GPA. She says her ultimate goal is
to be a forensic accountant for the U.S.
federal government.
Stafford Baum,
Georgia Southern University
Stafford Baum is pursuing bach-
elor’s and master’s degrees in accounting.
He’s an officer for his university’s ACFE
student chapter. He maintains a 3.51 GPA.
He says he hopes to work at a local CPA
firm with a forensic accounting practice.
Annissa Steiner, Embry-Riddle
Aeronautical University
Annissa Steiner is studying fo-
rensic accounting and fraud examination.
She says she plans to pursue a master’s in
accounting, the CFE credential and CPA
license, and then a career in internal audit
in the aeronautical industry. Steiner has a
4.0 GPA.
Rashae Hart,
St. Mary’s University
Rashae Hart is pursuing a
bachelor’s degree in commerce with an
intended declared major in finance. She
says she intends to pursue a master’s de-
gree in either forensic accounting or fraud
examination. She has a 4.0 GPA and has
made the dean’s list.
Jaron Patterson, University of
Tennessee at Chattanooga
Jaron Patterson, CFE, is earning
an MBA. He has a 4.0 GPA. Patterson
works in the University of Tennessee
Police Department’s FBI Cyber Task Force.
He says his goal is to be an FBI special agent.
FRAUD-MAGAZINE.COM
Stephen Cox, Texas A&M
University-Corpus Christi
Stephen Cox works as a detective
with the narcotics division of a municipal
police department. He maintains a 4.0
GPA as he pursues a master’s degree in
accounting. He says he’s planning to retire
from police work and transition to a career
in private-industry forensic accounting or
fraud investigation.
Colin Haynes, Western Gover-
Colin Haynes is pursuing a
bachelor’s degree in accounting. He’s
worked for the Las Vegas Metropolitan
Police Department as a senior finan-
cial intelligence analyst. He says he’ll
be earning his CPA license. He has a
3.0 GPA.
Claudia Munoz, Florida Atlantic
University
Claudia Munoz is studying
forensic accounting and business valua-
tion with a 3.94 GPA. She says she plans
to earn the CFE credential and the CPA
license, become a forensic accountant in
the private sector and eventually open a
public accounting and fraud examination
practice.
Trent Williams, Penn State
University
Trent Williams is earning a mas-
ter’s degree in accounting and maintains
a 3.9 GPA. He interned for the Office
of the County Controller of Schuylkill
County, where he worked on internal
audits, the first “simple pension” form
report and the 2017 “friendly understand-
able financial statement.” Williams is a
member of the Beta Gamma Sigma Honor
Society and treasurer of Penn State Uni-
versity’s Corporate Control and Analysis
Club. He says he plans to earn the CFE
credential and the CPA license, and work
for a government agency.
JULY/AUGUST 2019 FRAUD MAGAZINE 69
 BOOKS AND MANUALS
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 CPE QUIZ No. 145 (July/August 2019, Vol. 34, No. 4)
The Fraud Magazine CPE quizzes are now available
online only. Please visit ACFE.com/FMQuiz or view
the CPE Quiz form on the next page for more
information on how to earn your 10 CPE.
1. According to the opening case in the article, “Keep ahead
of fluid global anti-fraud regulations,” Kumar:
A. Successfully completed his due diligence and acquired Pre-
vio Industries with no problems.
B. Acquired Previo Industries and commenced to devise an
embezzlement plan.
C. Shouldn’t have relied on the due diligence Intrazio conduct-
ed a few years earlier as a bulletproof indicator of Previo’s
present standing.
D. Didn’t acquire Previo Industries because he discovered
numerous red flags.
2. According to the article, “Keep ahead of fluid global anti-
fraud regulations,” standards across the globe are fast
converging to the “ethics and value” phase of governance.
A. True.
B. False.
3. According to the article, “Fear not the breach!” Theresa
Payton said:
A. “Organizations aren’t bulletproof. They have to assume
that cybercriminals will breach them.”
B. “As CIO at the White House, I had to protect data on
multiple fronts.”
C. “Here’s the challenge: lock down gaps in your organization
but don’t devalue your employees.”
D. “When you’re in the middle of a breach, what you do will
define your reputation for years to come.”
4. According to the article, “Fear not the breach!” Theresa
Payton said:
A. “A communication plan needs to focus on when you need to
disclose publicly to your employees, board, third-party ven-
dors, regulators and — most importantly — your customers.”
B. “Your cybersecurity playbook is only as good as the latest
ransomware fix this week.”
C. “You have to maintain close daily relationships with your
IT crew.”
D. “Devise a breach response team now and make sure it
meets weekly with a robust agenda.”
DO NOT SUBMIT THIS FORM. Log in to your My Transactions page after purchasing the Fraud Magazine Quiz
! set to submit your answers or record your answers on the answer sheet and submit online when you are ready.
72 FRAUD MAGAZINE JULY/AUGUST 2019 FRAUD-MAGAZINE.COM
5. According to the article, “Dark world of oil theft and fraud”:
A. “Oil theft is a widespread problem that harms countries
around the world. The scale of the issue, however, remains
widely unknown.”
B. “Oil fraudsters commit their crimes primarily in South
Africa.”
C. “Most oil theft results from bribery of officials.”
D. “Oil fraud and theft decreases world GDP by $22 billion
each year.”
6. According to the article, “Dark world of oil theft and fraud,”
the first and most pivotal step in tackling the problem of
downstream oil theft is to recognize how pervasive and
pernicious the problem is.
A. True.
B. False.
7. According to the article, “Bad leaders? Increased fraud,”
workplace detachment can lead to:
A. Lost market share.
B. Revenue loss.
C. Higher overall employee turnover.
D. All of the above.
8. According to the article, “Bad leaders? Increased fraud”:
A. A Workplace Foundation survey reports an 18% increase in
organization pilfering in 2018.
B. Bad Tone at the Top alone can’t explain workplace dis-
sonance.
C. Poor leadership is a contaminant originating upstream in
the work environment.
D. Emotional intelligence arises in the neocortex.
9. According to the article, “Global fraud is the same — legal
systems aren’t”:
A. The majority of legal systems aren’t secular systems.
B. Common law has its roots in ancient Roman law.
C. Most common-law countries use adversarial proceedings.
D. Judges play extremely crucial roles in civil law systems.
10. According to the article, “Global fraud is the same — legal
systems aren’t,” evidence is anything that tends to prove or
disprove some claim or assertion.
A. True.
B. False.
 CPE QUIZ

Kylie Ting, University of Texas at Austin The Fraud Magazine CPE Quiz has moved to an online self-
Kylie Ting plans to graduate with bachelor’s study format, making it easier for CFEs to earn 10 ACFE
and master’s degrees in accounting and earn- (non-NASBA) CPE. CFEs can earn 10 CPE by taking quizzes
ing the CFE credential and the CPA license. She has a online after reading featured articles in Fraud Magazine.
3.84 GPA. Ting says she wants to be a forensic auditor
with the U.S. Government Accountability Office.
Michael Gillen, Villanova University
Michael Gillen is a finance and accounting
Visit ACFE.com/FMQuiz and follow the steps below:
double major with a 3.8 GPA. He says anti-
fraud professionals, including professors and his fa- 1. Select the Online Fraud Magazine CPE Quizzes by year
ther, have influenced him. He serves on the executive from the dropdown*.
board and is an ambassador at the Villanova School
of Business, and is an active member of the Villanova 2. Click the “Add to Cart” button and complete the
Mergers and Acquisitions Society. Gillen says he plans checkout process.
on pursuing the CFE credential, the CPA license and
the Certified Financial Planner certification. 3. Read featured articles in Fraud Magazine that corre-
Haley West, Wake Forest Business School spond to the year of the quiz set you purchased.
Haley West is pursuing an MBA and main-
tains a 3.7 GPA. She says she plans to focus on 4. Access your quiz set by logging into your ACFE.com
developing business theory as it relates to organiza- account, clicking on the “My Transactions” tab and
tional psychology and its effects on employee fraud. clicking on the quiz set you purchased.
West is a member of SynerG, a young professional’s
group; the ACFE; AICPA; and the North Carolina Asso- 5. Pass 5 of 6 quizzes with a score of 70% or higher and
ciation of CPAs. West says she’d like to earn a doctor- receive your CPE certificate instantly via email.
ate in a management program and work for the FBI.
Claire O’Brien,
The Catholic University of America
For more information, please review the “CPE Info”
Claire O’Brien is pursuing a bachelor’s in
accounting with a minor in finance. After graduation, and “FAQs” tabs or contact a representative:
she says she plans on earning the CPA license, becom-
MemberServices@ACFE.com
ing a forensic accountant and working at one of the
Big Four accounting firms. O’Brien has a 3.41 GPA. (800) 245-3321 / +1 (512) 478-9000
Eric Ingwerson, Montana State University Secure online chat service
Eric Ingwerson is studying accounting. He
says he plans to pursue a career in internal
audit, a master’s degree in professional accounting,
the CFE credential and the Certified Internal Auditor
*Quizzes will be added to the current year’s set as issues of Fraud Magazine are published.
certification. Eric has a 3.15 GPA. CPE can only be obtained from the current year’s quizzes after the fifth quiz is made available
Crystal Balderas, in September.

Texas A&M University-Kingsville
Crystal Balderas is studying accounting. She
says she wants to pursue the CPA license and be an
FBI special agent. After college, Balderas says she
plans on working at a bank. She has a 3.03 GPA. n FM
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 is not registered with the
National Association of State Board of Accountancy (NASBA).
The ACFE collects and stores your personal data in the U.S. to provide member services and
fulfill transactions requested by you. For a full explanation of your rights regarding how we
store and use your data, visit ACFE.com/privacy-policy.aspx.
Calendar of Events

ADVANCE YOUR CAREER WITH

TRAINING FROM THE GLOBAL LEADER
IN ANTI-FRAUD EDUCATION.
ACFE.COM/TRAINING

JULY 2019 AUG CFE EXAM REVIEW COURSE SEP CFE EXAM REVIEW COURSE
5 San Francisco, CA 16 Washington, D.C.
JUL DETECTING FRAUD WITH DATA August 5-8 | CPE: 32 September 16-19 | CPE: 32
22 ANALYTICS WORKSHOP
Minneapolis, MN BRIBERY AND CORRUPTION
AUG CFE EXAM REVIEW COURSE SEP
July 22-24 | CPE: 24
19 Chicago, IL 19 London, U.K.
August 19-22 | CPE: 32 September 19-20 | CPE: 16
+ COMBO COURSE
JUL BUILDING YOUR FRAUD FRAUD RISK MANAGEMENT
SEP
29 EXAMINATION PRACTICE 23 Los Angeles, CA
Philadelphia, PA September 23-24 | CPE: 16
July 29 | CPE: 8

SEP
2019 ACFE FRAUD CONFERENCE
CONTROLLING THE RISK OF
JUL + COMBO COURSE 25 ASIA-PACIFIC
30 ASSET MISAPPROPRIATION
DETECTING FRAUD THROUGH Singapore
Philadelphia, PA AUG
September 25-27 | CPE: 4-20
July 30-31 | CPE: 16 26 VENDOR AUDITS
Washington, D.C.
August 26 | CPE: 8
JUL CFE EXAM REVIEW COURSE
29 Denver, CO AUG UNCOVERING FRAUD WITH
July 29-August 1 | CPE: 32 27 FINANCIAL AND RATIO ANALYSIS
Washington, D.C.
August 27-28 | CPE: 16
AUGUST 2019 OCTOBER 2019
AUG CONDUCTING INTERNAL + COMBO COURSE
1 INVESTIGATIONS SEPTEMBER 2019
OCT UNDERSTANDING THE MINDSET
Columbia, SC + COMBO COURSE 2 OF A FRAUDSTER
August 1-2 | CPE: 16 CONTRACT AND PROCUREMENT
SEP Tampa, FL
9 FRAUD October 2 | CPE: 8
+ COMBO COURSE Chicago, IL
AUG DETECTING FRAUD THROUGH September 9-10 | CPE: 16 OCT TRACING AND RECOVERING
5 VENDOR AUDITS 3 FRAUD LOSSES
New York, NY SEP CONTRACT AND PROCUREMENT Tampa, FL
August 5 | CPE: 8 11 FRAUD WORKSHOP October 3-4 | CPE: 16
Chicago, IL
AUG BRIBERY AND CORRUPTION September 11 | CPE: 8
6 New York, NY
August 6-7 | CPE: 16

For information or to register, visit ACFE.com/training

 2019 ACFE FRAUD CONFERENCE CANADA
October 20-23, 2019 | Montreal, QC

Join more then 250 leading anti-fraud professionals for the 2019 ACFE Fraud
Conference Canada taking place in Montreal, October 20-23.

Register by September 20 to SAVE CAD 150!

FraudConference.com/Canada

OCT FRAUD RISK MANAGEMENT + COMBO COURSE NOV BRIBERY AND CORRUPTION
7 Cleveland, OH OCT LEGAL ELEMENTS OF FRAUD 21 Sacramento, CA
October 7-8 | CPE: 16 30 EXAMINATION November 21-22 | CPE: 16
Baltimore, MD
+ COMBO COURSE October 30 | CPE: 8
OCT INFLUENTIAL AND PERSUASIVE
16 PRESENTATION TECHNIQUES OCT PROFESSIONAL INTERVIEWING
Dallas, TX 31 SKILLS
October 16 | CPE: 8 Baltimore, MD
October 31-November 1 | CPE: 16
OCT AUDITING FOR INTERNAL FRAUD DECEMBER 2019
17 Dallas, TX
October 17-18 | CPE: 16 + COMBO COURSE
NOVEMBER 2019 DEC INVESTIGATING CONFLICTS OF
OCT FRAUD RISK MANAGEMENT NOV CFE EXAM REVIEW COURSE 9 INTEREST
17 SUMMIT 4 Austin, TX Las Vegas, NV
New York, NY November 4-7 | CPE: 32 December 9 | CPE: 8
October 17 | CPE: 8
NOV 2019 ACFE LAW ENFORCEMENT DEC CYBERFRAUD AND DATA
7 AND GOVERNMENT ANTI-FRAUD 10 BREACHES
SUMMIT Las Vegas, NV
Washington, D.C. December 10-11 | CPE: 16
November 7 | CPE: 8
DEC ADVANCED FRAUD EXAMINATION
OCT 2019 ACFE FRAUD CONFERENCE NOV CONDUCTING INTERNAL 9 TECHNIQUES
20 CANADA 7 INVESTIGATIONS Austin, TX
Amsterdam, Netherlands December 9-11 | CPE: 24
Montreal, QC
October 20-23 | CPE: 4-24 November 7-8 | CPE: 16

CFE EXAM REVIEW COURSE

+ COMBO COURSE
OCT
21 New York, NY NOV CONTRACT AND PROCUREMENT
October 21-24 | CPE: 32 18 FRAUD
Nashville, TN
OCT INVESTIGATING ON THE INTERNET November 18-19 | CPE: 16
28 Seattle, WA
October 28-29 | CPE: 16 NOV CONTRACT AND PROCUREMENT
20 FRAUD WORKSHOP
Nashville, TN
November 20 | CPE: 8

+ COMBO COURSE Register for both events and SAVE!

For information or to register, visit ACFE.com/training

BACK COVER