Character and Behavior: The Other Red Flags of Fraud

GUEST BLOGGER

Mary Breslin, CFE, CIA
President, Empower Audit

I sat in front of my boss, the general counsel for the organization I worked for, waiting for our meeting to begin. I was still searching for the right words to explain to him why I wanted to widen the scope of an audit in Zambia and conduct some specific fraud auditing techniques. I wasn’t sure whether or not I should admit that while my team had found some exceptions on day one of the audit, my real suspicions had arisen from the Zambia general manager’s personal behavior.

Two issues had been identified: First, a cash advance had been taken out by an employee on behalf of the general manager and given to an individual who was not an employee. After some careful questioning, it was revealed that the individual was the general manager’s mistress, who needed money to pay her rent while he was out of the country on a business trip. The advance had been repaid by the general manager immediately upon his return. As a part of that conversation, it was also revealed that he requested the cash advance because he didn’t want his wife to see a large cash withdrawal from his bank account. Okay, not a great guy, but nothing I hadn’t seen before. It was a clear policy violation for use of the funds, but it had been repaid.

The second issue came later that day during a payroll and benefits review. Apparently the general manager had added a new dependent that year to his benefits, and we assumed he and his wife had adopted a child while living in Africa. When I asked accounting, they introduced me to this “dependent” who happened to be in the office — his wife. And I mean his “other” wife. In many parts of Africa polygamy is still practiced, however this gentleman was from England and I knew he had a wife and two children — also his dependents — still in England. Add the mistress to this cozy arrangement and I was starting to get pretty concerned. Wouldn’t you?

After having dinner with the general manager and, I admit, a few beers later, he confessed his love for women, pretty much all women, and admitted there might be other wives. Wait, what?

I explained my concerns regarding the general manager’s character to my boss, and we dug a little deeper and crossed over into a true fraud audit. Based on what we found, that quickly turned into a fraud investigation.  

So what did we find? To start, we found four wives in four countries… and a couple of mistresses. We also found a company he owned with a wife in South Africa that was established strictly as a pass-through scheme for supplies. We found $18 million worth of tax payments that were misappropriated — not used to pay taxes. The tax authorities had actually been getting ready to take action against us. And there was more.  In addition to the obvious issues — all of the women — and the financial pressure those issues caused him, there were other red flags. The general manager was a micromanager and a control freak. He required his staff to bring him every file and document we requested for his review before they would give it to my team. I generally call that a “clue.” Luckily for the organization, this was a profitable location. By bringing in a skilled executive to control the money, the company was quickly able to get the location back on track. So what happened to the general manager? I’m not sure, maybe I could ask one of his wives. Actually, because he was such a profitable general manager, he was “counseled” and he kept his job. It happens.

ACFE Chapters Donate More Than $20,000 to ACFE Foundation

GUEST BLOGGER

Ashley Stone, CFE
ACFE Chapter Development Manager

I am continually impressed by the hard work and the dedication to the anti-fraud profession by ACFE’s local chapter leaders. In 2014, the ACFE issued a challenge to local chapters to raise funds to support the ACFE Foundation’s Ritchie-Jennings Memorial Scholarship program. As usual, chapter leaders selflessly rose to the occasion to help fund this important initiative. 

The 2014 Scholarship Fundraising Challenge wrapped up in December, resulting in more than $20,000 raised by local chapters to support future anti-fraud professionals. The results of the challenge are:

Platinum level (donations totaling more than $7,500):
•    Houston Area Chapter

Bronze level (donations totaling more than $1,000):
•    Pacific Northwest Chapter
•    Long Island Chapter
•    Las Vegas Chapter
•    Kentucky Chapter
•    Greater Chicago Chapter

Also participating in the challenge was the Rhode Island Chapter.

The mission of the ACFE Foundation is to increase the body of anti-fraud knowledge by supporting future anti-fraud professionals worldwide through the funding of the Ritchie-Jennings Memorial Scholarship Program. The scholarship program provides an opportunity for men and women of all ages, races, religions and income levels to advance their education. Many of these outstanding and deserving students go on to become CFEs.

The ACFE and the ACFE Foundation would like to thank all of the chapter leaders and chapter members whose support will provide educational opportunities for students with an interest in fraud examination.

Listen and Learn: 7 keys to an effective fraud-fighting career

FROM THE PRESIDENT

James D. Ratley, CFE
ACFE President and CEO

We begin our careers with optimistic plans. But as you move from position to position, you might find that success is eluding you. Maybe it's time to reevaluate and learn from a master fraud fighter.

Steve Albrecht, the author of the latest Fraud Magazine cover article, is an academic who has spent as much time in business offices as classrooms. He's consulted with numerous organizations, including Fortune 500 companies, major financial institutions, the United Nations and FBI, among many others.

Until July 2008, he was the associate dean of the Marriott School at Brigham Young University (BYU). And before that he was director of the BYU School of Accountancy.

Steve's research in fraud and accounting is renowned. When this association was in its gestation period, Dr. Joseph T. Wells, CFE, CPA, founder and Chairman of the ACFE, approached Steve for his counsel. Steve's professional DNA is woven into the fraud body of knowledge: the Fraud Examiners Manual, the Certified Fraud Examiner credential, plus our seminars and conferences.

I normally don't extoll the high points of a person's résumé, but I'm emphasizing that you should listen to this man. He knows what he's talking about.

"Fraud fighting is an exciting career," Steve writes in the cover article. "However, not all fraud-fighting professionals are equally successful. Whether you work for a company, are an independent consultant, an expert witness or perform other fraud-fighting and forensic accounting work, here are seven of the most critical things you can do to further your career and success."

Here are Steve's lessons:

• You must make a business case for your services.
• You must help others understand that there are no small frauds; just large frauds that are caught early.
• If you want to build a successful fraud-fighting business, you have to make yourself visible and build a good reputation.
• Always deliver a high-value and helpful product to your client.
• You must understand business concepts to become an effective fraud fighter.
• You must always perform high-quality work that has higher value than your competitors.
• Be a good listener.

I like all of Steve's points, but that last one is probably the most important lesson. "As a fraud-fighting professional, you're always working for someone else — perhaps an employer, a law firm or a large corporation," he writes. "You must listen carefully to understand expected outcomes and what they expect you to do — don't assume anything. Don't just hear the words but understand and connect."

Listen to this man. And learn.

You're Never Too Young for Your First Fraud

GUEST BLOGGER

Laura Hymes, CFE
ACFE Managing Editor

Start ’em young, right? If a child wants to be a ballet dancer, pianist, scientist, or maybe even a CFE, standard practice is to start exposing him or her to the trade early in life. Ballerinas, for example, usually begin dance classes by the age of four or five. Budding astronomers probably ask their parents for a telescope at a young age. Future CFEs might enjoy having the Fraud Examiners Manual read to them at bedtime. But what about aspiring fraudsters? Are they just supposed to learn on the job once they reach adulthood?

A few young criminals in training seemed to think that was an unfair approach and took it upon themselves to start practicing early. Two teenagers and one 12-year-old are facing criminal charges for operating a charity fraud in Dunwoody, Georgia. The three created flyers highlighting fake fundraising efforts for their fake basketball team, the Panthers, and handed them out in a local shopping center. The flyers displayed that the young players were seeking donations for new uniforms and equipment, as well as the costs of traveling to Florida for upcoming championship playoffs. There was even a fake email address if donors wanted to contact the fake team mom.

Local police say they encounter this sort of scheme­—run by children—about once a month. The shopping center is a popular target because it is busy during lunchtime with shoppers and diners who often give before they question the validity of the charity or fundraiser. And whether they know it or not, children can often elicit more sympathy from their adult targets, resulting in a more profitable scheme. Local police are encouraging residents to call the authorities if they suspect a charity fraud, and potential donors should treat anyone asking for money, no matter how young and innocent they appear, with proper due diligence before opening their wallets.

I’d love to hear thoughts from our anti-fraud community on this story. Do you think 12 years old is too young for criminal charges, or does this action send a strong deterrent message to other would-be fraudsters? How do you think you would have responded if a child approached you with this flyer while you were grabbing a quick lunch one day? 

Fraud Examiners Have a Personal Stake in Fighting Government Fraud

GUEST BLOGGER

Mark Scott, J.D., CFE
ACFE Research Specialist

As fraud examiners, we operate as professionals committed to the prevention, detection and deterrence of fraud, but as citizens and taxpayers, we are also victims of fraud perpetrated against our governing authorities. 

Combating government fraud is an essential component of effective government, and because it touches us all, we all have a stake in it. As citizens, we pay taxes, we must obey laws and regulations, and in return, we receive benefits, such as the use of public capital (e.g., roads and airports), as well as functioning legal and financial systems.

Yet, government institutions are among the most common targets of fraud, and they lose billions of dollars to fraud each year.

In fact, government institutions are victims of every conceivable kind of fraud, and everyone — including government authorities and their employees, taxpayers and beneficiaries of government programs — pays for these frauds in direct and indirect ways.

Government fraud reduces the public funds that a government entity has available, and therefore, it can affect a government’s spending power and lead to a reduction of public services.

Moreover, government fraud can result in a loss of public confidence, and it can cause reputational damage to government officials. And while reputational damage can affect any organization, virtually all government organizations are uniquely exposed to it because they depend on public funds to operate.

Yet, as victims of government fraud, we are not defenseless. Indeed, there are plenty of measures that members of the public, the government and organizations can take to help prevent this form of fraud. Prevention starts with being well informed; the more a person or entity knows about fraud, the less likely they are to be duped.

To help create a more informed public, the ACFE’s new workbook, Fighting Fraud in the Government, provides a comprehensive overview of government fraud and also addresses how Certified Fraud Examiners can help prevent and detect the various schemes that target government institutions. The workbook covers a broad range of schemes — including fraud by government employees, corruption, procurement schemes, and false claims and statements — as well as measures to prevent, detect and investigate such crimes.

Whether an anti-fraud professional works for a government organization, a government-affiliated entity or simply an organization that has dealings with the government, he or she can take away many lessons from this workbook. The fraud schemes are discussed in a government setting, but they occur in virtually every industry. The prevention and detection tips and strategies provide specific actions that fraud examiners can immediately implement in their work. We cover traditional and online investigations and discuss practical resources that are openly available to all fraud examiners.

Consequently, Fighting Fraud in the Government is a valuable addition to any fraud examiner’s resource library.