RECAP: 2015 ACFE Canadian Fraud Conference

GUEST BLOGGER

Allan Bachman, CFE
ACFE Education Manager

Upon arriving for the first time in Ottawa, the capital of Canada, I was enchanted by the friendly and walkable city, as well as the pleasant weather. The 2015 ACFE Canadian Fraud Conference kicked off Sunday, August 30, with a Pre-Conference session led by ACFE faculty member Bethmara Kessler, CFE, CISA. The well-received session on building a culture of fraud prevention and detection discussed how companies can imbed anti-fraud approaches into the very culture of their organization, including approaches as to how to achieve that goal.

ACFE President and CEO Jim Ratley played to his strengths in Monday’s opening General Session and discussed aspects of interviewing techniques backed by video examples of how to interview witnesses and suspects in a fraud examination. Lynn Danis from the Canadian Anti-Fraud Centre discussed her organization and how they work with their call center and law enforcement throughout Canada to assist those in need of help with suspected fraud.

Tuesday morning was kicked off by best-selling author and editor Diane Francis, who holds dual citizenship in both Canada and the U.S. Francis was outspoken about her journalistic fraud experiences in both countries and shared the clear and present dangers facing fraud examiners in the world today. Deloitte’s Philip Fodchuk spoke during lunch on the current cyberthreats facing organizations, where they are coming and what can be done to prepare for them. He focused on developing an internal mechanism whereby companies can react quickly when a breach occurs and respond. A large part of his message was that it was too late for prevention.

Wednesday’s half-day session kicked off with keynote Paul Garside, CFE,  former RCMP officer, who spoke on investigations and financial crimes and Michel Juneau-Katsuya. Juneau-Katsuya gave an engaging and lively analysis of the current state of corporate espionage, which was very enlightening.

Among the new group breakout speakers who stood out this year were Simon Padgett’s “Profiling the Fraudster,” Brigeeta Richdale’s presentation on ethics and Keith Elliott’s session on using social media for surveillance. 

How a Clerk’s $250,000 Fraud Went Unnoticed for 4 Years

GUEST BLOGGER

Courtney Babin
ACFE Communications Coordinator

Between August 2010 and March 2014 an employee within the City of Ithaca’s Tompkins Consolidated Area Transit (TCAT) diverted cash out of TCAT accounts using a fraudulent check scheme. In total, the fraud cost the not-for-profit organization nearly $250,000 over a span of four years. The fraud kept growing in the years that it remained undetected: in 2010 they lost $1,600; in 2011, $43,000; in 2012, $69,000; and in 2013, a staggering $113,000.

In last month’s Fraud Talk podcast, John E. “Jack” Little, CFE, CPA, Senior Lecturer of Accounting at Cornell University, examines this fraudulent check scheme and discusses a three-part process that every anti-fraud program should implement.

The perpetrator was Pamela Johnson, an accounts assistant clerk, who managed the bills and the accounts payable system. According to The Ithaca Voice, she created a fictitious vendor, “JTD Enterprises,” which happened to reflect her husband’s company: Johnson Tool Design. Johnson then created fictitious invoices which she paid through the accounts payable system. She cut the checks, signed them with a signature stamp and then deposited them into a business account to which she had access.

The fraud was discovered March 2014, during the audit process of the 2013 year, by a staff accountant. The accountant asked Johnson to pull an invoice and when Johnson was uncooperative, the staff accountant went to the purchasing manager and asked them to look into the issue. “The purchasing manager, of course, had never heard of the vendor,” says Little. Ultimately, Johnson was interviewed, suspended and indicted for grand larceny in the second degree.

The fraud went unnoticed mostly because of the volume of TCAT’s $13 million budget. “When you have a $1,600 fraud amongst $13 million, it’s not apt to be discovered,” says Little. “Even in the next couple of years when it’s $40-$60,000, in the grand scheme, it’s perhaps not ‘material.’” By 2013, she had gotten a little bolder and was taking larger sums and more often. And at the same time the fraud became material, it was discovered.”

According to Little, it’s essential for all entities to have an anti-fraud program and it needs to be a 3-part process: deterrence, detection and response.

  • Deterrence: How companies set their top at the top. There need to be written policies that outline fraud prevention, internal controls and some sort of prevention program that is educational in nature. Organizations need to educate their board, management and staff.
  • Detection: Organizations need to know how to investigate fraud. Fraud can be prevented by simply having better controls. With detection, monitoring and auditing all of the procedures on how we deal with misconduct should be written down and summarized. There has to be a response policy implemented.
  • Response: What happens when an organization finds something? How do they investigate and report to when there is an alleged fraud. “It’s so important that these things get laid out and considered long before you have a problem,” says Little, “It shouldn’t be a reaction, it should be preventative in nature.”

Little’s advice to staff auditors is to be diligent in your work and follow through. Watch for unusual behaviors in your coworkers. Is there unusual behavior by coworkers at your organization that is going unnoticed; what about behavior that is evident? It’s easy to look the other way and press forward with the rest of your work but follow through with the rest of your items in question. But above all, says Little, “Be diligent.” 

Hear Little's full interview with the Fraud Talk at ACFE.com/podcast.

Untethered From the Office: How We Fight Fraud on the Go

LETTER FROM THE PRESIDENT

James D. Ratley, CFE
ACFE President and CEO

It was wonderful to see so many of you at the 26th Annual ACFE Global Fraud Conference. At the opening general session, I told attendees that ACFE founder and Chairman Joseph T. Wells, CFE, CPA, and I recently were discussing the future of fraud and what lies ahead for the profession.

I told them that when the ACFE was founded in 1988, the life of the Certified Fraud Examiner (CFE) wasn't nearly as complicated as it is today. However, technology has quickly changed our profession.

In the latest Fraud Magazine cover article, "Fighting fraud on the go: CFEs enter smart new world of mobile devices," by Robert Tie, we find that many fraud examiners now carry their offices in their pockets. We conduct our jobs with convenience and speed.

But because it's so easy to unobtrusively make audio and video recordings with smartphones and tablets, Tie writes, a critical question arises: Is it legal to secretly make those recordings during interviews or on surveillance assignments? "It's complicated," says David Wall, J.D., CFE, CPA, PI. (Wall is a director in the forensic and litigation practice of SingerLewak LLP, a regional public accounting firm.)

"State privacy laws comprise a jurisdiction-by-jurisdiction patchwork of sometimes conflicting rules," Wall says. "But they all agree on two key principles." The first is that private individuals — and in certain situations, public officials and celebrities — have the right to a reasonable expectation of privacy, he says in the article. The second principle, according to Wall, is that it's illegal to intrude upon anyone's privacy without first obtaining that person's informed consent.

Tie then gets practical and provides app recommendations. "My smartphone is an absolutely critical tool for staying in touch with people, information and activities," says Brian Willingham, CFE, PI, president of the Diligentia Group Inc. in Katonah, New York. He loads apps on his phone for organizing educational materials, case studies, articles and schedules; and coordinating real-time conversations about documents, spreadsheets and presentations shared through the cloud.

I remember when our first fax machine at the ACFE was the most marvelous bit of technology we'd ever seen. Instant communication! But we were still tethered to our desks. No more. However, as Spider-Man's Uncle Ben said, "With great power, comes great responsibility." Read about the implications of the brave new world.