Depositions are grueling. Let’s say you’re an expert witness for the defense. As you walk into the conference room of the plaintiff’s counsel your heart rate ascends, your palms sweat and you reach for a glass of water as you sit at the table. You know what’s coming: incessant, pointed questions from attorneys as you give sworn testimony. You also know that all parties will use your words in court as evidence or as weapons to attack your inconsistencies.Read More
Before becoming president of the ACFE, James D. Ratley, CFE, worked with the Dallas, Texas Police Department, developing many important interviewing skills along the way. While working in internal affairs, he joined a joint task force assembled to investigate possible widespread fraud at the Dallas/Fort Worth Airport (DFW).
Looking back at that time he stated, “I didn’t know anything about white-collar crime, but I had to interview people suspected of committing it.” In this excerpt from Policing Fraud: My Journey from Street Cop to Anti-Fraud Leader, Ratley describes how he adapted and improved his interviewing skills to help him investigate white-collar crime through an understanding of the psychology of a fraudster.
“To match wits with a fraudster during an admission-seeking interview, I needed clear insight into why he or she stole and often kept stealing until caught. That would help me interpret what the suspect said or didn’t say, as well as understand how to persuade him to level with me.
On occasion, I read articles on why crooks committed a variety of crimes, and now my interest was surging. So I called the University of Texas in Dallas and asked for an appointment with Dr. Larry Redlinger, a highly regarded criminologist. When we met, he explained that although he didn’t specialize in white-collar crime, he knew of two books that might help me.
'Bring this over to the UT library,' he said while scribbling the titles and his signature. 'Tell them I’d appreciate it if they let you borrow them. The more important one is Dr. Donald R. Cressey’s Other People’s Money. It explains who embezzles and why.' He added that Cressey had co-authored the second book — Principles of Criminology — with Edwin H. Sutherland. 'It’s the standard text. Sutherland coined the term white-collar crime to describe this particular type of offense.' I thanked him and hurried to get those books before someone else did. That evening I began devouring both. They would eventually change my professional life.
… Over the next several nights, I immersed myself in Dr. Cressey’s discussions of why and how people steal from their employers and others who trust them. The key factors that he said cause and permit fraud — need, opportunity, and rationalization … Together these three elements formed what Cressey called the Fraud Triangle.
Now, thanks to him, I understood what really linked white-collar criminals, their schemes, and the businesses they defrauded.
… Reading Cressey revealed to me how rationalization stimulates and perpetuates fraud. I remember thinking to myself, 'You can’t judge these people by your standards. They don’t have your standards.' And that’s how it is. White-collar criminals often don’t feel like they’ve done anything wrong. Once I understood that, I changed my entire approach, tailoring my interviews to their rationalizations.
Before reading Cressey, I would have said to a suspect I had strong evidence against, “I know you took that money, so just tell me how you did it.” But it’s hard getting someone to admit he committed a crime; sometimes I’d be at it all day and wind up with nothing to show for my efforts. My new method was to ask the suspect how he felt about his job and the company. If he expressed resentment, I’d probe for specifics. That tended to induce the suspect to vent, for example, about working long hours and not getting a raise. Then I’d shift gears, no longer trying to get him to admit doing something wrong. 'All that extra work, and they didn’t give you anything for it?' I’d say. 'How did you manage to get the money they owed you?'
When I got a suspect to answer that question honestly, I knew I’d made real progress, far more than by being confrontational or accusatory. The next step was to get a written, signed statement from the suspect, as I’d done many times for nonfinancial crimes. In fraud cases, though, there’s no point in charging someone unless you can prove intent.
Some suspects admitted committing a fraudulent act, but said it was the result of an honest error or ignorance. To counter that, I’d appeal to the suspect’s vanity, encouraging him to explain how he’d cleverly managed to conceal his fraud. I’d also ask nonconsecutive questions about the specifics of the fraud, seeking contradictions in the suspect’s account that might lead him to tell lies I could disprove by comparing them to known facts or witness testimony. In this way, even when the suspect didn’t realize it, I’d obtain ample proof of his intent to commit fraud. And that gave me a solid case for the Dallas County D.A.”
Still need some last-minute gifts for your favorite fraud fighter? Read more about this book and the many other resources available in the latest ACFE Bookstore Catalog.
FROM THE PRESIDENT
James D. Ratley, CFE
I've met many whistleblowers in my time, and what’s always resonated with me is that they persist despite nearly impossible odds. Dr. Sam Foote, a physician with a genius mind and audacious spirit, persisted when he found himself facing Goliath: the Phoenix Veterans Affairs (VA) Health Care System. When scandal rocked the department in Arizona, he didn’t back down.
In 2011, Foote penned his first letter to the VA Office of the Inspector General (OIG) to report waste, fraud and abuse by Gabriel Perez, then-director of the Phoenix VA. Foote had heard rumors that Perez’s mismanagement of funds had put the hospital $12 million in the hole. The national inspector general for the VA investigated the allegations that same year and Perez retired while inquiries were underway.
Any whistleblower would sigh with relief at this point: The OIG listened, the alleged fraudster was ousted, and now Foote and the hospital could move on. However, during Perez’s tenure, seven physicians left the hospital, and he never replaced them, which left the hospital with a provider shortage.
In 2012, Sharon Helman, who’d previously served as director of the VA hospital in Hines, Illinois, joined as head of the Phoenix VA and nearly a year later was reporting a decrease in patient wait times. But in the next year, Foote discovered secret patient wait lists. “In April of 2013, they [Helman and senior staff] made two lists: They made one electronic list that they would take on and off about 150 names that they actually reported to central office,” says Foote in Fraud Magazine's latest cover article. “Then they had another electronic list that did not report to central office.” Helman and the other administrators were claiming bonuses for decreased wait times — and patients were dying while waiting for care.
Foote again brought his concerns to the attention of the VA OIG, but this time he faced some resistance. He then sent letters to several government officials, including Sen. John McCain, R-Ariz. Eventually, the office of then House Rep. Jeff Miller, R-Fla., the chairman of the Committee on Veterans’ Affairs, responded. Miller put Foote in touch with a CNN producer, and on April 23, 2014, CNN broadcast an interview with Foote, and the story went viral.
Thanks to Foote’s tenacious efforts, further investigations would reveal that 293 veterans died while waiting for care. Multiple high-ranking officials, including Helman, have been placed on administrative leave or fired. And Foote continues to speak out as the VA saga continues.
At the 28th Annual ACFE Global Fraud Conference in Nashville, Tennessee, this past June, Foote received the 2017 Cliff Robertson Sentinel Award “for choosing truth over self.” He might have taken on Goliath, but just like the result of that epic battle, Foote is taking down the giant.
FROM THE PRESIDENT
James D. Ratley, CFE
During my years in investigative work, I’ve often pondered why perpetrators commit their crimes. Working as a police officer in the Dallas Police Department, I witnessed just about every type of transgression from fraud to child abuse to murder. As fraud examiners, we use the Fraud Triangle — pressure, opportunity, rationalization — to begin analyzing wrongdoings. Regardless, we find it difficult to pry open a fraudster’s mind. But Eugene Soltes is trying.
Soltes, a Harvard Business School professor, wants to know why some C-suite executives appear to risk everything to commit fraud. Middle management and employees further down corporate ladders might do it because they’ve found a ready source of cash to ease their economic problems. However, top-flight business people seldom lack for anything; their organizations often reward them spectacularly. Why would they need to steal?
Beginning in 2008, Soltes began to write prison letters to several convicted white-collar criminals whom you know — Madoff, Fastow, Kozlowski, Stanford — and some you might not — Richards, Waskal, Drier, Hoffenberg. He asked them the first dozen questions that came to mind. What were the most significant pressures they faced? How did the way they were compensated influence their decision making? What were their intentions once they were released?
He combined the material from close to 50 fraudsters with his criminology research into the 2016 book, “Why They Do it: Inside the Mind of the White-Collar Criminal” (PublicAffairs). Soltes was a keynote speaker at the 28th Annual ACFE Global Fraud Conference, June 18-23.
Soltes says he realized after interviewing these white-collar criminals that they failed to see the personal and professional consequences of their choices because they never deeply felt that their decisions were harmful to themselves or others. (The ACFE commonly calls that “diffusion of harm.”)
He says that stealing money from a victim’s wallet involves a high degree of intimacy. But executives who manipulate corporate conduct never need to get close — physically or psychologically — to their victims. Modern “arms’ length” transactions, Soltes says, have made it perilously easy to wander into that “gray zone” between right and wrong.
Soltes doesn’t condone the fraudulent behavior, but he says that studying these men (and they were all men) with the scarlet “F” on their chests changed him
“I became a lot less confident about how I’d respond to every difficult situation,” Soltes writes. “I think I’m more humble now that I’ve realized I have limitations much like anyone else, and I need to be diligent to watch those. Moral hubris is a remarkably easy trait to acquire and not realize when one actually has it.”
You can read more about Soltes in the cover article in the latest Fraud Magazine.
Mandy Moody, CFE
ACFE Content Manager
I have had the honor of working for and with ACFE President James D. Ratley, CFE, or as many of us know him, Jim, for almost seven years. (His mama calls him Jimmy Don, but don't tell him I told you that). I still remember the first time I met him. It was July of 2010 and "hot as all get out" (one of his quotes) in Austin, Texas. We were preparing for the 21st Annual ACFE Global Fraud Conference and we had just had a meeting to go over everyone's duties. Jim came up to me at my desk and told me the first of many (tall) tales. He said, "I am the janitor here, so any time you need anything removed or taken out, you just let me know." I knew of his photo from the website, but I was still left speechless because I didn't know what to say. Did I remember his name and face wrong? Was he really the janitor? Do places even have a 24-hour janitor? So many questions ran through my mind in the 30 seconds it took for him to reveal a big grin and a somewhat shy cackle.
I have been listening to his stories ever since, and I am excited to share this exclusive look at his recently released autobiography, Policing Fraud: My Journey from Street Cop to Anti-Fraud Leader. Here is just a small taste of the many stories that make up Jim Ratley:
"When I worked in Internal Affairs, I often wondered how police officers could commit frauds that jeopardized their careers, livelihood, and ability to support a family. In some ways, it’s an unanswerable question. We all are, to a large extent, mysteries to ourselves and each other. But this much I knew: Because actions matter more than intentions, there could be no justification for betraying those who rely on you. So my actions at home and on the job were going to be as good as I could make them. I was no saint, and still am not, as you’ll learn in the following pages. But I try to learn from my mistakes, and when I make a commitment to my family, my friends, my colleagues, or my employer, I honor it.
It was therefore a shock and a deep disappointment to me that DPD [Dallas Police Department] did little about the time-card fraud that a couple dozen officers in the motorcycle and street patrol units had committed. A few of the officers involved were transferred to other units; most of the offenders, however, were reprimanded but not disciplined or penalized.
A cynic would have said the results were predictable. But you didn’t have to be a starry-eyed optimist to think the department would enforce its own regulations. These requirements supposedly were equivalent to the word of God, and they spelled out everything from when to draw your weapon and how to file arrest warrants and expense reports to what meritorious citation ribbons you could wear above your badge. Although these rules numbered in the hundreds, if you didn’t adhere to them, you’d be cited for noncompliance, which would negatively affect your pay, chances for promotion, duty station, assignments, working partners, and days off—in short, your entire professional life. So I followed these sensible rules and expected the department to enforce them fairly without exception.
But for the dozens of officers implicated in the time-card frauds, there was safety in numbers. Prosecuting so many of them would have severely tarnished the department’s public image and was therefore politically unacceptable to the top brass. So, despite my lieutenant’s and my protests, the case was hushed up and forgotten as quickly as possible. But it was clear to me—and to any crook in DPD—that the bigger the fraud, the smaller the punishment would be."
Read more stories from Ratley's life as a fraud fighter and get your copy today at ACFE.com.