Casting a Net(work) to Crack Down on Corruption

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Jeremy Clopton, CFE, CPA, ACDA
Senior Managing Consultant, Forensics and Valuation Services, BKD, LLP

In nearly every industry in the 2014 Report to the Nations, corruption was the most common fraud scheme. And while this means there is likely plenty of attention given to corruption, it remains one of the more difficult types of fraud to detect and try to prevent. Much of the basis of corruption is power and influence, neither of which typically show up in the financial aspects of an organization. However, we do have something in our organizations we can use to take a more aggressive approach to detecting corruption — data.

Data Types
We have more data in our organizations now than we have ever had. Organizations continue to generate more data each day — data with great variety. It is the variety of data that provides us a means by which to take a more aggressive approach to addressing corruption. We need to analyze all of the data we have in our organizations, both structured and unstructured. Structured data comes in columns and rows, neatly organized. This is the data traditionally analyzed in examinations. Unstructured data is everything else, which in many organizations accounts for 80 percent of the data. This has typically been left to the digital forensics specialists for analysis.

Analysis Methods
When it comes to analyzing data sets to address corruption, it takes more than just structured data. That said, the structured data is a great place to start. An analysis of attributes of vendors, customers, employees and others an organization is doing business with can provide insights into potential relationships and conflicts of interest. The results of the attribute analysis becomes the foundation for further analysis that includes unstructured data. 

Incorporating all of the available unstructured data is a critical next step when addressing corruption in an organization. One of the key data sets for expanding the relationship network related to individuals in your organization is communications data. Email, phone logs, text messages and other means of electronic communication provide context around the relationships between individuals inside and outside the organization. Not only the entities and individuals in the email, but the actual content of the messages and nature (tone) of the communications.

In addition to communications data, other useful information includes social media postings, business documents and information regarding an individual’s role in a particular business process (such as purchasing/contracts). Using this information, coupled with the communications data and relationships from attributes, allows you to build an enhanced relationship network that provides insights not otherwise available in the normal course of business. This network may provide the information you need to identify signs of corruption in your organization.

Additional Information
To learn more about this topic, head over to Fraud-Magazine.com and check out the Fraud EDge column. A colleague and I recently wrote a six-article series on the topic of integrating data analytics and digital forensics for more effective analysis of all data in an organization. If you’re attending the upcoming ACFE Global Fraud Conference, I will be presenting on this very topic. I hope to see you there!

What Really Causes Corruption? It may surprise you.

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Mary Breslin, CFE, CIA
President, Empower Audit

I was recently asked to write a book on global corruption from an audit perspective. I am thrilled at the opportunity to share my global experience with other auditors, however while developing the outline I have been spending much time considering the difference between government corruption and corporate corruption. The more I think about it, the clearer the answer becomes: there is no difference. While I have spent the vast majority of my career in large corporations and have only a sprinkling of government in my background, almost all of the corruption I have encountered around the world involved a government official or entity.

If we look at Transparency International’s latest Corruption Perceptions Index, more of the world is labeled as “highly corrupt” than not. So how does an American company abide by the anti-corruption rules and regulations when trying to conduct business globally? 

First, I think we need to better understand the problem. And we need to define “corruption” globally. What Americans, and the Western world define as corruption is not necessarily seen as corruption in other countries. Americans often see corruption in black and white. An act is either allowed (legal) or not (illegal). But what if our lack of understanding, our ignorance of other cultural norms, is causing our belief system to be in complete contrast to those in other countries?

When I first began traveling internationally as an auditor, I saw everything as black and white too. Then I started gaining experience. Consider these scenarios:

1. A division of a company pays $10,000 per month to a local drug cartel for protection at a manufacturing plant.

2. A border location between two African countries pays a “passage fee” to the border agents for every delivery between sites on opposite sides of the border.

3. A government inspector in an Asian country is paid a “fee” to come inspect a site in order to continue production.

In the early years of my career I would have said all these examples are corruption and the company needs to stop participating immediately. But let’s consider some additional information:

1. This plant is in a Brazilian favela (slums) in which a war is raging between two drug cartels. When Brazil cleaned up Rio for the Olympics and World Cup, they cleared out the favelas nearest the tourist areas, pushing the people and the gangs into other favelas. The gang that originally “ran” the favela, a favela’s kind of law and order,has offered to protect our site from the invading gang. We pay, but we also institute a 5 p.m. curfew and immediately begin plans to relocate the production plant. We self-disclose our actions to the SEC and proceed to build the new plant as quickly as possible. What would you do?  Close the plant and fire 500 people who have little chance of finding new jobs? Not pay and put the welfare of every employee at risk?

Let’s look at the next one:

2. This is the only crossing for 350 miles. The border crossing guards carry guns. They know you carry valuable cargo. You need to make this trip three times a week to provide supplies to 500 employees at a remote site who rely on your deliveries, as they have no other option. The alternate route, which would be a 500-mile trip to go 30 miles, is filled with ruthless militants and bandits. The border control guards actually keep the “bad” guys at bay, making this route reasonably safe. So do you pay the guards who ask just a small fee or take your chances on the dangerous un-policed road known to have violent criminals monitoring it?

Or how about the last one:

3. It turns out that in this nation, these government positions are appointed without salary. The inspector is expected to generate his own salary through the “fees” he collects from those he inspects. The inspector and his colleagues are also extremely understaffed and overwhelmed with work due to rapid economic growth in this geographic area. The only way to obtain the legally required inspection is to pay the inspector a fee that we all know goes straight into his pocket. In order to get the inspector there in a timely manner, to obtain the permit necessary, it is necessary to pay him more than everyone else pays him so he makes you a priority. The inspector is a father of three and lives a very modest life. The inspection itself is a fair and honest inspection. Go figure.

The situation is almost always more complicated than is initially assumed. What causes corruption to be so high in some countries? You may have already reached your own conclusion, but let’s look again at the Corruption Perceptions Index. Many of the most corrupt countries are very poor developing nations or have large poverty-stricken populations. Some of these countries do not have the national infrastructure to support solid processes like in the U.S. Without formal government systems to bill and collect funds and then redistribute to employees (inspectors, border guards, etc.), the process becomes streamlined — payment goes straight to the person performing the work. That looks like a lot like corruption, and creates ample opportunity for fraud. When you take into consideration the root causes for some of acts, things become a lot less black and white and a lot more grey. These causes are certainly things to consider and try to understand when working to protect your organization from corruption. I do not have the answers, as this is a large global issue, however I do believe that knowledge is power and understanding corruption and its causes will go a long way in fighting it.  

3 Ways Introverts Can Survive Networking Events

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Courtney Babin
ACFE Communications Coordinator

In Carl Jung’s Theory of Psychological Types there are two attitudes that humans use to adapt to the world: extraversion and introversion. You’ve probably heard of these attitude-classifications and, if so, you know which side your nature “prefers” (as no one is purely extroverted or introverted). Recently I realized that I tend to veer towards introversion.

Unlike extroverts, who are outgoing and draw energy from other people, introverts tend to pull their energy from themselves. It’s easy for us to get lost in our own thoughts, and we overthink before we speak. Rather than accumulating many friends, we have a few close friends; rather than being socially daring, we tend to sit back and observe others in social settings.

As professionals, we know the importance of networking, especially at events like the upcoming 26th ACFE Annual Global Fraud Conference. Networking is all about getting to know people. Who you know could be the way you break your next case or get your next position. According to CareerKey, “65 to 80 percent of all jobs are found through networking.” For introverts, networking can be draining and even exhausting. Here are a few tips on how introverts can network successfully.

Tip #1: Engage and Listen
Introverts are natural listeners, and because of our habit to think before we speak, we are usually perfect one-on-one conversationalists. When faced with a networking opportunity, try to find an extrovert. I know, it sounds crazy, but it works! Extroverts love meeting new people; they will talk to you about their lives and try to include you in the conversation. As a journalism student I learned how to keep someone talking by asking the right questions. If you are able to ask a peer open-ended questions you will help stir the conversation and might learn an interesting story about their career that could eventually help you in yours.

Tip #2: Appreciate Introversion
Learn to appreciate the way that your mind works and how networking works for you. I am at my best with one-on-one conversations rather than in large groups. In large groups I tend to observe rather than speak, which brings me back to this point: introverts are planners in conversation. We mull things over before we speak. Look at this as a wonderful thing — no one wants to be the person who speaks before they think. Well-formed thoughts and ideas are more powerful, especially when networking about your profession.

Tip #3: Take Time for Yourself
Introverts draw energy from within themselves so we need time to re-energize mentally after interactions with peers, especially intense networking events. If you’re at an event and are scheduled to go to a networking happy hour, take time for yourself before you attend. If you find time here and there for yourself you will feel more relaxed and balanced. As an introvert I know that networking can drain you, mentally and physically. If you can take a few minutes after the training and get a coffee alone or take a walk outside, then take that time for yourself. Remember that when you are relaxed, you are at your best.

It all comes down to the fact that introverts and extroverts have different needs. As an introvert, your energy comes from within, and we need to make sure that while networking we are conscious about our personal needs. Everyone deals with networking differently; it demands interaction and is a skill that professionals need to develop to survive in a business setting. 

Self-Reporting: 'Fess Up and Move On

FROM THE PRESIDENT

James D. Ratley, CFE
ACFE President and CEO

When we were kids, we always knew we had choices. When we fibbed to our parents, we could wait for the truth to emerge, or we could quickly go back to them and come clean with all the details. Our choices: harsh punishment or a possible lighter sentence.

Large U.S. conglomerates have a similar problem. As they acquire companies around the globe and transform them into subsidiaries, they often have to reconfigure them to conform to U.S. laws and regulations such as the Foreign Corrupt Practices Act and the Sarbanes-Oxley Act. Now, that's not necessarily the hardest part. Policing those subsidiaries is much more difficult.

Let's say that years later a whistleblower from one of the subsidiaries reports to the company widespread corruption — a resurrected remnant of long-followed practices. What does the conglomerate do? Manage its risks, keep the infractions under wraps and work to clean up the mess? Or report the problems immediately to the U.S. Department of Justice?

In our latest Fraud Magazine cover article, Leslie R. Caldwell, assistant U.S. attorney general for the DOJ's Criminal Division, in essence, says go for the second option: 'Fess up and make amends — quickly.

"We encourage companies, particularly public companies, if they discover a significant compliance problem that also is a significant criminal issue to self-report to the Department of Justice," Caldwell says during a recent Fraud Magazine interview. Caldwell will be a keynote speaker at the 26th Annual ACFE Global Fraud Conference, June 14-19 in Baltimore, Maryland. 

"We encourage them to cooperate with us in our investigation," Caldwell says. "And they should be prepared to give us the relevant facts, documents and evidence in a timely fashion. They should include who is responsible for what went wrong and what these individuals did in the form of facts, not in the form of opinions or privileged attorney-client information. It's very important for companies to understand that they tell us which employees did what — even if it's senior executives."

Of course, a corporation's first responsibility is to avoid a situation in which it has to self-report. But if it finds itself in a legal bind, it should lace up its running shoes and race to the DOJ.

6 Small Things that Can Have a Big Impact On Your Career

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Kathy Lavinder, CFE
Owner and Executive Director of Security & Investigative Placement Consultants

When it comes to the job hunt, sometimes it’s the small things that have the biggest impact. After 15 years recruiting anti-fraud specialists I’ve seen countless instances when attention to detail and good manners have carried a candidate over the finish line. Here are some small things that you should not overlook when searching for a job:

Be responsive: When a recruiter, an associate, a professional contact, or a hiring manager calls or emails about a position, respond in a timely fashion. It’s shocking how many candidates take days or even weeks to reply after an initial contact. That’s a surefire way to miss out on what could be a great opportunity. It’s equally shocking how many people have voicemail boxes that are full and won’t accept messages. Opportunity may not come knocking twice, so be ready.

But don’t be too hasty: If you’re responding to an overture in writing, thoughtfully compose your reply. Make sure to avoid grammatical or spelling mistakes. Don’t expect anyone to overlook issues just because the reply is sent from a smart phone. Attention to detail is important in even the most basic of communications. Also, avoid jumping to conclusions about the role you’ve been contacted about. Make an informed decision once you’ve learned more, as opposed to a knee-jerk response.

Be on time: Just to state the obvious, being late for any interview – phone or in-person – is unacceptable and almost always a deal breaker. Strong organizational and time management skills are essential for all fraud fighters and job seekers.

Be a good listener: Anti-fraud practitioners should have well developed listening skills, so make sure those are on display during any conversations about a potential career opportunity. Avoid asking questions that can be answered by a careful reading of the position description. The hallmark of a good listener is in the quality of follow-up questions he or she poses. Not only will you glean valuable information, but you’ll impress the interviewer when your questions reveal thoughtfulness and an insightful understanding.

Dress the part: Your clothing, makeup, and grooming choices all communicate things about you.  Polished shoes, trimmed nails and hair, ironed clothing and business-appropriate attire are expected. Candidates who miss the mark on any of these will be at a disadvantage should their skills and experience be comparable to other candidates who are suitably turned out.

Good manners rule: The use of social niceties, such as please and thank you, is expected. Good manners reflect a respect for others and indicate not only an awareness of social norms, but the likelihood of being a good team player. A carefully crafted thank you note, either hand-written or via email, is essential after any interview. It not only communicates your appreciation for the other person’s time and attention, but is a great way to reiterate your interest in the role. Even if you have decided not to pursue the opportunity further, remember to say thank you. 

Hiring decisions are based on multiple factors and calculations, but any job seeker would be wise to get the little things right. They can only help your chances of getting hired.