CFE Finds Satisfaction in Bringing Order Out of Chaos

MEMBER PROFILE

Jaydra Perfetti, CFE
Founder
Paper Investigator Inc. 
Portland, Oregon

Jaydra Perfetti, CFE, founder of Paper Investigator Inc., discovered her passion for financial investigations and fraud detection as a tax compliance officer for the U.S. Internal Revenue Service (IRS). In this role, Perfetti led an investigative team to establish a case against an office of tax preparers who were preying on vulnerable communities in a scheme to defraud the federal government of more than $500,000. The civil penalty case she built against the lead tax preparer went through the appeals process where her findings were fully sustained. While working through this case and many others, she came to understand that, for her, investigation is as much art as it is science and as much intuition as it is technique.

What is one of the biggest lessons you have learned since becoming a CFE? 
Fraud is often preventable — as long as you’re paying attention. I used to feel resigned to the existence of fraud. I thought because criminals spend all day creating new ways to separate people from their money, there was no way for law enforcement to ever get ahead of it. I certainly felt, as a member of law enforcement, like I was always playing catch-up.

Then I joined the ACFE and discovered there are people in the world filling a critical third role. Not only are there criminals and crime fighters, there are also people actively fighting fraud before it happens. Thousands of people work day after day on prevention, setting up anti-fraud controls, educating people and organizations and creating fraud response plans. I knew prevention was important, but I hadn’t realized how massive the prevention effort really is or how many people dedicate their professional lives to it. This revelation gave me hope and continues to inspire my work every day.

What steps led you to starting your own private practice?
It started with the IRS, where I spent more than 13 years. The last 10 years there I spent doing tax audits, which included a lot of forensic accounting and fraud investigations. I have also spent the last 11 years volunteering for several nonprofits as a board treasurer.

A few years ago most of the government was put under a hiring freeze due to budget constraints, so opportunities to grow within my agency became nonexistent. I channeled my desire for new challenges and professional improvement through my volunteer work. I got to do wonderful things for some great organizations. Unfortunately, the federal budget continued to suffer, and fulfilling our mission became more and more challenging. I eventually concluded that in order to have the impact I really want on the world, I would have to go out on my own and create it.

Last year I studied for the CFE Exam and earned my credential in November. I got my private investigator license at the beginning of this year. After setting up my business, I left my job with the IRS to work for myself.

What is a memorable case or project that you have worked on, one that made you feel especially proud?
One of the projects I feel most proud about was an investigation I led into an office of tax preparers. The investigation started, like so many do, with a tip. My team and I followed the tip and audited a batch of tax returns all prepared by this office. We discovered a pattern — the same large credit was claimed by taxpayers who were clearly not eligible for it, and English was a second language for all the taxpayers.

Through our investigation, the scheme we uncovered was heart-wrenching. These tax preparers set up their business to target a particular ethnic minority group. They convinced their clients to file tax returns through them by promising it would look better on immigration forms. But the tax returns they filed included thousands of dollars of false credits, so these taxpayers received large refunds they were not entitled to. Since English was not their first language, these taxpayers could not see for themselves that what the preparers told them was on their tax return was not actually there.

The audits resulted in each family owing those false refunds back; an average balance due of $5,000 per year for three years. It was a devastating debt for families working hard and living from paycheck to paycheck. It was also a shocking betrayal by those they trusted. The tax preparers were members of the community as well as experts hired with the expectation to file a correct tax return.

The preparers collected their fees at the time the returns were prepared, so they were not affected by the balance their clients now owed for the refunds they should not have received. I successfully asserted a penalty for willful/reckless disregard of the tax law against the main preparer, and my findings were sustained on appeal. The penalty totaled $5,000 per year for every client. A clear and just consequence for someone holding themselves out as a trusted expert to a vulnerable demographic.

What activities or hobbies do you like to do outside of work?
I enjoy partner social dancing. My favorites are contra, swing, blues, waltz and tango. Dancing is how my partner, Noah, and I met, and it’s still one of our favorite activities we enjoy together.

I have also been training in a martial arts style called Mo Duk Pai for the last dozen years, which means “martial ethics method.” It’s a blended style with roots from a broad range of hard and soft styles focused on practical self-defense and developing the total martial artist (mind, body and spirit). I teach two days a week and enjoy sharing my passion with both youth and adult students.

Another of my passions is community building. I currently sit on the board of two nonprofits. I find it immensely satisfying to give back to my community and make positive changes for our members and those we serve.

Read Jaydra's full interview in the ACFE Career Center on ACFE.com.

You’re a Victim of Tax Fraud — Now What?

GUEST BLOGGER

Sarah Hofmann
ACFE Public Relations Specialist

After finally buckling down and finishing your taxes, you may feel a sense of accomplishment and start thinking about how you will use your return. However, that feeling can turn into panic and confusion the minute you receive a notice from the Internal Revenue Service (IRS) that your filing has been rejected, as a return has already been filed using your social security number. You now realize that you’re a victim of tax fraud and identity theft.

Although the IRS has recently met with leaders of private sector firms, state auditors and major providers of electronic tax software in an effort to help prevent identity theft, they are fighting fraud of a formidable size. A report published in 2015 from the Government Accountability Office estimated that the IRS paid out $5.8 billion in 2013 for tax returns that were later determined to be fraudulent.

There are ways to prevent becoming a victim, such as filing your taxes as early as possible and using licensed software with strong anti-virus protection. If you are a victim, however, in spite of efforts to protect yourself, the biggest question is what to do next.

The IRS recommends that first and foremost, you immediately contact them by calling any number provided on the notice of rejection of your filing.  Next, you will need to complete IRS Form 14039, Identity Theft Affidavit. They will direct you to prove your identity, which you may do over the phone or by going to IDVerify.irs.gov. To make the process as smooth as possible, Turbo Tax suggests that you have your tax return from the prior year along with supporting documents such as W-2s or 1099s on hand. Once you've filed a complaint with the IRS, they warn that it usually takes an average of 180 days for the case to be resolved, however, most taxpayers should be able to receive their refund after that period of time.

You should receive a PIN from the IRS that can then be used for future reference to your case. As tax return fraud is also identity fraud, it is a good idea to also file a complaint with the Federal Trade Commission and to contact credit reporting agencies to place a freeze on your credit reports. It’s unfortunate, but now that you’re aware that someone has your personal identifiable information, you must be extra vigilant about your credit and accounts going forward. Identity thieves may choose to sit on your information before using it, or may sell it to a multitude of buyers who can continue to try and use it for years to come.

Although the IRS, private sector firms and U.S. Congress continue to try and develop tools and practices to thwart fraudsters, tax return fraud will likely remain a reality for millions of Americans each year and should be dealt with as swiftly as possible to prevent long-term damage to credit.

Martin Kenney on the Panama Papers

AUTHOR'S POST

Mandy Moody, CFE
ACFE Media Manager

Since the International Consortium of Investigative Journalists published the Panama Papers on Monday, the term "shell company" has taken on a life of its own. These entities have been around for years, but with the news of the data surrounding their use, it is almost assumed that where secrecy hides, fraud will also. 

The Associated of Certified Fraud Examiners' Fraud Examiner Manual states that "shell companies have become common tools for money laundering primarily because they have the ability to hide ownership and mask financial details, and because money launderers can create them with minimal public disclosure of personal information regarding controlling interests and ownership.” But, shell companies do have legitimate uses. The manual goes on to explain that shell companies can be used for "holding the stock or intellectual property rights of another business, facilitating domestic and cross-border currency and asset transfers, and fostering domestic or cross-border currency corporate mergers.” Just like with many other instances of fraud, the real trouble begins when a tool, a program, a database or an account is abused and used for an illegal or deceptive purpose.  

I thought we would share a recent op/ed from one of our guest bloggers and former keynote speakers about the data release in hopes of further explaining much of what you have been and will be hearing about for weeks to come.

From The Globe and Mail:
Martin Kenney, Managing Partner of Martin Kenney & Co., Solicitors of the British Virgin Islands, a specialist investigative and asset recovery practice focused on multi–jurisdictional fraud and grand corruption cases
The Panama Papers leak has been described as the biggest dump of confidential offshore company ownership data ever: 2.6 terabytes of electronic data; 11.5 million documents; 200,000-plus offshore companies. That’s 10 per cent of the world’s population of two million active offshore companies.
The offshore industry is complex in nature. Most commentators struggle to understand and accurately describe its purpose. As a result, many observers latch onto the word “secrecy” and spin that to mean something suspicious and corrupt. This is not the case. Only a small proportion of offshore entities are vehicles used for money laundering, fraudulent asset concealment or tax evasion.
Yes, there will always be skulduggery. Criminals will seek to manipulate the system to gain advantage. And I understand those who express moral outrage against large corporations or wealthy individuals who use offshore companies to avoid tax. But tax avoidance is entirely legal.
Of course, there is an ethical consideration when a multinational company appears to have paid less tax than the average person on the street. But it’s a public-policy issue, not a legal one, unless aggressive tax planning crosses the line from avoidance to evasion.
These so-called fat cats (as the media loves to call them) employ vast numbers of the working population. Without them, their countries’ unemployment figures would be depressing and their economies would suffer. Mudslinging at successful entrepreneurs will only drive them away into the waiting arms of another country.
The tax systems of developed countries have their derivation in the 1970s. The issue now is that we now have a global economy and our tax laws need to reflect this scenario more accurately. This is why large coffee-shop chains, for example, have been able to avoid taxation – legally.
Still, the aforementioned skulduggery is manifest across the globe. It includes the rapidly growing offshore services provided by Scotland. Added to this list are jurisdictions that fraud investigators see as black holes – the U.S. states of Nevada and Delaware. No investigative material is collected regarding the ownership or control of Nevada or Delaware companies, unlike offshore jurisdictions, where regulations require this material to be collected and housed. It can very quickly be seen that dodgy dealing is a worldwide problem, not limited to, say, the British Overseas Territories.

Continue reading Martin's full op/ed in The Globe and Mail.

Resolve to Protect Yourself From Fraud in 2016

GUEST BLOGGER

Sarah Hofmann
ACFE Public Relations Specialist

At the beginning of a New Year, many people set goals to embark on a healthier lifestyle. But while you promise to exercise more, or eat less junk food, it is wise to take some time to think about how healthy you are in regards to fraud. All consumers are susceptible to fraud, but many don’t know simple steps they can take to protect themselves. Here are a few simple things you can do in 2016 to protect yourself:

Pay attention to the features of your credit card
On October 1, 2015 all major credit cards in the U.S. were supposed to be switched from using a magnetic strip for authentication to using an embedded EMV chip. In theory, this change is supposed to add an extra layer of security as the embedded EMV chip would create a unique code for each transaction as opposed to just imparting the full credit card data. However, according to a creditcard.com survey, more than 40 percent of consumers had yet to receive EMV cards by the October 1 deadline. In addition to card issuers not sending the new cards, many Americans mistook mail containing the new cards as junk mail and threw them out.

Since transactions using chip cards are harder to hack, fraudsters will no doubt focus much more heavily on stealing data from transactions using only magnetic strip technology. If you have not received an EMV chip card from your card issuer, or if you believe you might have accidentally disposed of the card, it is important to contact the card provider right away and request that a new copy be sent. Also, if possible, try and shop in stores that have working chip-readers integrated into their point-of-sale system. The technology is not fool-proof, but it will be more likely to protect against avoidable data theft.

Be more careful about what you post on social media
It seems like everyone is now using some form of social media on a daily basis, whether it be Facebook, Twitter or LinkedIn. While these can serve as good tools to keep abreast of the lives of friends and family, or to maintain professional connections, they can also help hackers who are trying to steal identities. Something as simple as putting your full birthdate on any social media can allow fraudsters to hack into your important financial accounts. 

Some important rules to abide by include never posting your full birthdate, primary email address, hometown, driver’s license number or social security number on any public forum. It is also a good idea to have one constant answer to security questions that is not a logical answer (for example, answering “porcupine” to every question, regardless if it asks what city you were born in, mother’s maiden name etc.) Changing passwords frequently can help, as well as avoiding common password themes such as the names of pets, children or spouses. Another tip is to avoid installing or using applications made available through social media, as they often do not have the same level of security as the social media platform and create an easy back door for hackers to get through.

Protect your tax refund
Every year, hundreds of thousands of Americans request their tax refund and are told it has already been claimed. This is not a new scam, but unfortunately it continues to happen despite what controls are in place at the IRS. ACFE Guardian Award winner Brian Krebs suggests that tax payers file their taxes as early as possible in order to beat would-be thieves to the punch. Another way to prevent refund fraud is to closely monitor your credit score. Consumers can get a free credit report once every year from three different bureaus, so your best bet is to request your credit score from one bureau every four months to see if there is fraudulent activity.

If your tax refund is stolen, you can contact the IRS and fill out forms to officially alert them that the fraud has occurred. That alert can be crucial to helping law enforcement eventually catch the fraudsters responsible for the theft.

While these steps cannot guarantee total immunity from fraudsters, they are simple things that can help you make 2016 a year without fraud.

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.