The Human Impact of Fraud

SPECIAL TO THE WEB

Annette Simmons-Brown, CFE

When you work in criminal justice, the endless examples of man's inhumanity might not desensitize you, but they certainly will acclimate you. The report that makes your jaw drop in week two can make you yawn at week 202. This is true for those who work on non-violent financial crimes or violent physical crimes. For the former, the shock-and-awe value of the case is usually driven by the dollar amount of the theft. However, it's easy to lose sight of the horrific damage that financial crime can inflict on individuals and businesses even when the loss doesn't reach Bernie Madoff proportions.

But then you meet these individuals face-to-face as part of the investigation of crimes, preparation for criminal trials, testimony in sentencing hearings and research for a restitution memorandum. Then victims' anguish becomes all too real — even for the most seasoned criminal justice professionals. Sometimes, hearing their stories and looking into their eyes is almost too painful to bear.

Here I highlight this impact of fraud beyond the statistics in these six financial-crime victims' stories from criminal prosecutions I assisted as a paralegal CFE.

We're all are aware of the sweeping damage that mortgage fraud has inflicted on the U.S. and global economies. My office, one of many worldwide, has dedicated significant energy to the prosecution of mortgage fraud. As part of that effort, I met with numerous individuals who suffered from fraudulent mortgage transactions. Though the lenders in these cases were identified as victims, these individuals suffered nonetheless.

A DYING HUSBAND'S WISH

Leticia Watkins lived in north Minneapolis — an area ravaged by real estate fraudsters of all stripes. She and her husband, both modest earners, had managed to cultivate a nest egg of about $100,000 by the time their children were grown. Watkins' husband fell terminally ill, and had a few serious talks with her. When I met with her, she said her husband told her, "Tish, if you're careful, this money will take care of you until Jesus comes for you, even if he's walking real slow."

After his death, Watkins decided to refinance her house's mortgage. She was referred to M.P., a corrupt mortgage broker who was part of the scourge of the north side. Instead of simply finding Watkins a good refinance vehicle, he quickly persuaded her to become a real estate "investor." She purchased four homes at inflated prices with kickbacks built in to each. These kickbacks included money from the purchase price, were more than M.P.'s normal fees, were undisclosed to the lender and would illegally go to M.P.; however, he promised to use these amounts to make the monthly mortgage payments. He told her that given how quickly housing prices were rising, she could sell within a year and make a profit of her own, or she could easily rent the homes to tenants and receive Section 8 housing assistance.

Well, M.P. didn't pay a dime of the monthly payments, none of the houses rented, the market started to tank and Leticia was left with four stiff monthly mortgage payments which quickly drained her nest egg.  When she met with us to prepare for her testimony in the criminal trial against M.P., she was living with her adult son and thought she'd have to do so for the rest of her life. She shook her head, and said more than once, "I let everyone down. I was so stupid. I let everyone down, especially my husband. He warned me. He warned me."

TRUCKER LOSES NEST EGG

Jerome Peters, like Watkins, was a hard worker of modest income. He was a long-distance trucker who also had carefully amassed a nest egg that he hoped would carry him and his wife through retirement. He too had the misfortune of meeting a mortgage fraudster who advertised for amateur real estate "investors" to buy properties, rent them out and sell at a profit in an endlessly rising market. Just as in Watkins' case, kickbacks were built into these purchase prices, the mortgage broker promised to make monthly payments and then broke that promise. Peters couldn't sell the houses, and his nest egg was drained as he and his wife fought off foreclosures. They lost their fight, and soon after went broke.

I met with Peters and the prosecutor to prepare for his testimony in the ensuing criminal trial. He was somber, remote and sat in his chair with his entire torso curved inward as if to protect himself. He had to confirm every detail of his previous statements and identify all the loan documents that spelled his financial doom. I remember what our office's investigator, another CFE, told me about his interview with Peters: "At the end I asked him if he had anything to add. He was quiet for a minute, and then said, ‘I . . . just . . . wish . . .  I'd never met this man.' And then he hung his head and sobbed." 

Read two more examples of the toll fraud can take on its victims on FraudMagazine.com.

Keeping Everyone Honest: Financial Statement Fraud Schemes and IFRS

GUEST BLOGGER

Misty Carter, CFE
ACFE Research Specialist

The International Financial Reporting Standards (IFRS) are becoming familiar to many in the accounting and auditing world, especially those who perform work internationally. For those who are not familiar with the term, IFRS are a set of accounting standards developed to drive consistency in how publicly traded companies prepare financial statements. In other words, its purpose is to ensure that companies that transact business internationally are on the same page when reporting financials. I like to refer to it as a way of “keeping everyone honest.” Personally, I think that the idea of having one global standard for how companies prepare and report their financial statements is a good one. In fact, approximately 120 nations either permit or require IFRS. The European Union (EU) has fully conformed to IFRS and requires companies whose securities are listed on the EU-regulated stock exchange to prepare their financial statements in accordance with IFRS.

If someone were to ask my opinion on the biggest impacts the IFRS have on financial statements, I would have to say it would be related to how a company recognizes its revenue and values its assets. Why? Because these are the two areas in which fraudsters most commonly manipulate or falsify financials. When it comes to committing financial statement fraud schemes, falsifying revenue and overstating or even understating assets is a common theme — a theme that is not limited to any one specific accounting standard used in any particular country. I believe that it is vital for all companies, regardless of where they operate, to be aware of financial statement fraud schemes so they can be proactive in detecting red flags and identifying ways to prevent these schemes.

For those of you interested in learning more about IFRS and common financial statement fraud schemes, I encourage you to check out the new online self-study course, International Financial Reporting Standards for Financial Statement Fraud. This course provides an overview of IFRS with an emphasis on revenue recognition and the fair value of assets. It also covers the basics of financial statement fraud schemes, including red flags and methods to detect these schemes.

With so many companies operating globally, it is vital that everyone be aware of new and emerging changes in the financial world. One way to stay abreast of these changes is by becoming familiar with IFRS and its impact on financial statements. It is also essential that all companies take the necessary steps to prevent and detect financial statement fraud schemes.

Spread the Word: Fraud Week is Nov. 16-22

GUEST BLOGGER

Scott Patterson, CFE
ACFE Senior Media Relations Specialist

Fraud is a problem facing companies of all sizes and employees in all departments. But in contrast to days past when companies only reacted to fraud after the fact, organizations are now being more proactive in addressing risk and compliance issues head-on. Organizations like USAA, Lowe’s, Wyndham Resorts, the U.S. Department of Labor, Barclays, IBM and more have signed up to support the upcoming International Fraud Awareness Week, November 16-22. They have stepped forward at a time when entities lose an estimated 5 percent of their revenues to fraud (according the ACFE’s 2014 Report to the Nations on Occupational Fraud and Abuse). Known as “Fraud Week,” this important movement has come a long way since its humble beginning back in 2000. In fact, there are now more than 1,000 organizations registered as Official Supporters, including large corporations, small businesses, government agencies, boutique accounting firms, nonprofit organizations and ACFE chapters worldwide.

One of the best things about Fraud Week is that it presents a unique opportunity to share free anti-fraud resources and best practices with organizations that want to raise awareness among their employees, clients and even the general public.

Available in the resources section of FraudWeek.com, our new “Cost of Complacency” infographic helps anyone visualize the heightened impact of fraud when it is not detected early and through proactive measures. The infographic makes a great feature for company websites, employee newsletters and to send to the media with a personalized message from an Official Supporter of Fraud Week.

Also new this year is a printable handout, “5 Fraud Tips Every Business Leader Should Act On,” perfect for sharing with colleagues and clients or handing out at presentations. The one-pager encourages common-sense measures such as establishing formal hiring procedures and implementing a fraud hotline.

We have also updated the downloadable Fraud Week logo and customizable press release to help you publicize your proactive stance against fraud. These items and more are available in the Featured Resources section on FraudWeek.com.

During (and around) the week of November 16-22, Official Supporters will host fraud awareness trainings for employees, conduct employee surveys to assess levels of fraud preparedness, post articles on company websites, newsletters and social media, and team with local news sources to promote fraud prevention and detection.

It’s only a few weeks away. What do you have planned for Fraud Week?