Hooked on Fraud Fighting: How I Found My Passion and How I Give Back Now

GUEST BLOGGER

Alexis C. Bell, MS, CFE, PI, ACFE Regent
International Antifraud Consultant
CEO, Fraud Doctor LLC

I am often asked, “How did you get into fraud?” Though it’s more accurate to say I’m in “anti-fraud” rather than fraud, I understand the question. What made me decide to go down this path?

I am reminded of the time in my life when I was the controller for an international textile firm. By then, I had 13 years of experience in management and nowhere to advance. This was a new company for me. As I settled in, I heard staff complain that what was in the “system” never matched what was out in the warehouse. Being a bean counter where accuracy was paramount, I asked when they last performed a physical inventory. After being met with the deer-in-the-headlights look and realizing they had never done a physical inventory, I announced everyone was coming in that weekend and we were going to straighten out the inventory situation.

Now that I have the privilege of serving on the Board of Regents for the ACFE, I have the honor of making a difference at the international level.

Alexis Bell, MS, CFE, PI, ACFE Regent

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As the least popular person in the building that Saturday morning, it was only a matter of hours before I grasped the full situation. There was a reason things were not lining up. We launched an internal investigation and identified a fraud scheme where the warehouse manager was selling directly to clients and pocketing the cash. We even found completely full hotel rooms floor-to-ceiling with products stolen from our warehouse. In that moment, I realized two things. One, how colossally bored I had been doing “regular” accounting where nothing ever changed but the volume of paperwork. And two, how much fun I had using my accounting skills to help with the investigation. That was it. I was hooked. I made the decision to transition to forensic accounting and never looked back.

After making the jump, I found my new home at the ACFE. It was here that I learned what I needed to about how to investigate fraud. Back then, there were no degree programs. You had to learn on the job. It was my self-study with ACFE training, books and materials that gave me the foundation to quickly understand what I was seeing in the field. I created structure for an environment that at that time had none. I was a sponge for knowledge, learning everything I could get my hands on. What I learned from those materials and mentors often made the difference between being successful during the investigation and not.

Fast forward many years, and I had the honor to give back to the beloved organization that helped me so much in the early years. I served on the local chapter board as the board secretary and then later as the board president. Together, we created outreach programs for our community and shaped the courses that were beginning to arrive in academia. We helped members locate related job openings and brought in truly outstanding speakers for thought leadership in training efforts.

After the ACFE Board of Regents election last year, I attended my first board meeting at the international headquarters in Austin, Texas. I had the opportunity to finally meet the ACFE staff who I had only spoken to on the phone or emailed in the past. I am grateful for the chance to individually meet and speak with every single employee. What struck me was how happy everyone was and how much they loved their job. It was a remarkable experience to meet the people who developed, published, disseminated and advocated the very same material that helped make me successful as an investigator over the course of my career. I was amazed at how much each person understood and appreciated their contribution to making the world a safer place from fraud. It endeared me to the ACFE all the more.

Now that I have the privilege of serving on the Board of Regents for the ACFE, I have the honor of making a difference at the international level. I find that having experience in different regions in the world means I bring a unique perspective to the role of the Regent. Other members bring perspectives from industries, government, academia and insight into what the future landscape holds. The two-year term is short in consideration for all of the ideas the board has for working with the staff and moving the ACFE into the next era. We can’t possibly get it all done within that timeframe. Some of it will have to be completed by the new Board of Regents members. They will bring a fresh perspective and even more possibilities with them. Time is running out to make your selection for the incoming board members. Cash in on your right to vote and make your voice heard.

Make a difference in an incredible organization that is changing how we protect companies from fraud. Vote now!

Preventing Account Takeover Fraud in Loyalty Programs

GUEST BLOGGER

Samantha M. Weeks, CFE

Financial institutions, retailers and the travel industry have made rewarding customers for brand loyalty a part of our everyday lives. From keychains to mobile apps, companies know their customers want to feel appreciated, and driving additional spend is a big bonus. According to a 2017 study performed by Colloquy, there are 3.8 billion individual loyalty memberships in the U.S. and 175 million verified loyalty memberships in Canada. We have even seen the value of these programs being priced above the core stream of revenue in both hotel and airline financial performance reviews.

As beneficial as these programs are to both organizations and customers, it’s important to understand the related fraud risks and establish continuous monitoring to ensure that your customers remain loyal. Not only is your customer lifetime value at stake, but breaking your customer’s confidence in your brand can make it difficult to gain new customers. The most common fraud perpetrated against loyalty programs is account takeover fraud. Designing effective monitoring helps reduce response times to customer alerts of fraud, and helps to identify and reverse theft before the customer contacts you. This will save you money and preserve the loyalty you’ve built with your membership.

Begin by quantifying the fraud in terms of customers impacted and the amount lost. If you make victim customers whole by replacing the stolen program currency (i.e. points or miles) be sure to include that in your valuations. Once velocity and impact can be communicated, the risk can be truly evaluated for priority and the need for further audit. Establish the pace in which these redemptions should be reviewed for fraud indicators and get ahead of the fulfillment of these redemptions. Create communications to educate your employees and customers on the need for unique passwords and make it clear that account takeover fraud is not a hack but a consequence of recycling passwords.

Continuous monitoring processes can be improved with tracking. Provide analytics to stakeholders regarding the fraud rate and impact to the company and customers. The largest value of this is in the information and the story that you can tell. If you are leaking revenue from your loyalty program and you don’t know how big the leak is, you could risk the very loyalty the program is building.

According to Accenture, 77% of loyalty program participants admit they will withdraw their loyalty more quickly than they would have three years ago and 43% of participants admitted to doing so because they lost trust in the company (e.g., weak personal data security). Also, customers will tell an average of 24 people, mainly through social media and review websites, about their negative experience. (Connexions Loyalty/lpsos survey data). By continuously monitoring your program and being proactive in fraud detection, you can ensure that your customers remain as loyal as you strive for them to be.

Breaching a Fraudster's Defenses: Psychology in Interviews

ACFE STAFF

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.

You Found Fraud, Now What? 5 Steps to Immediately Take After Suspecting Fraud in Your Company

GUEST BLOGGER

Kelly Todd, CFE
Managing member & member in charge of forensic investigations
Forensic Strategic Solutions, LLC

Despite efforts to prevent fraud, the unfortunate reality is that it still happens — in fact, according to the ACFE's 2016 Report to the Nations, it is estimated that companies lose 5% of revenue each year to fraud. If you suspect fraud has occurred at your organization, take these immediate action steps:

1. Safeguard potential evidence. Preservation of evidence is key. Secure any and all potential evidence — but by all means, avoid the temptation to examine the evidence on your own. Electronic evidence is fragile and easily altered. Did you know that simply turning a computer off or on can alter potential evidence? Secure computers, cellphones and external electronic media sources such as thumb drives. Maintaining the evidence will help your forensic accounting team identify what occurred, who committed the fraud and why.

2. Gather a team. Enlist a forensic accountant and computer forensic specialist to help you collect, analyze and store the data. It would be wise to hire an outside financial investigator who is familiar with and experienced in fraud investigations — using an in-house accountant is not appropriate, as they are not as objective as an outside source. In fact, someone on the accounting team may be part of the problem. Retain an employment lawyer to ensure you stay on the right side of the law regarding the rights of the suspected employee.

3. Deal with the suspected employee. Don’t fire the suspected employee immediately — it could make gathering evidence much more difficult. Instead, restrict their access to company data. Do not let them remove their computer or any other company items and documents from their office.

4. Notify your insurance provider. A crucial fact for employers to know is that you must notify your insurance provider within 30 to 60 days, depending on your policy. Failure to do so could cause a loss of coverage.

5. File proof of loss. You will need to document any losses with your insurance provider in a specified time frame. Documenting a claim with an insurance provider takes time to ensure it is properly recorded. It is possible to file an extension should you need one, but be sure not to miss any deadlines or you risk forfeiting coverage.

The best way to mitigate fraud risks is to have internal controls and external resources available to prevent them from happening in the first place. Should fraud occur, the initial steps you take in addressing suspected fraud can hinder or greatly help your efforts — don’t make the mistake of collecting evidence and acting without the assistance of a team of forensic specialists and legal professionals.

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3 Psychological Tools That Will Help You Elicit Confessions

GUEST BLOGGER

Sarah Hofmann
ACFE Public Information Officer

On a Thursday evening your doorbell rings. You open the door to find a 9 year-old child on your threshold who says, “Hi. I’m selling candy bars for my school. Do you want to buy one?” Would you buy one? Or would you politely decline? What if the child instead said to you, “Hello. Do you think children should be reading more?” If you respond affirmatively, they follow up with, “Do you mind buying a candy bar to support our library?” Chances are that you are much more likely to buy that candy bar after agreeing with the child that children should read because you now feel compelled to back up your previous affirmative statement. That scenario is more than a clever sales pitch for a child — it is a perfect example of the social contract compelling you to act.

In his session, “Social-Psychological Behaviors: An Underused Tool for Fraud Investigators,” Bret Hood, CFE, will share that story and more at the upcoming 2017 ACFE Law Enforcement and Government Summit in Washington, D.C., October 30. The child in question was his daughter and after slumping candy fundraising numbers, he taught her to use a two-prong question method to increase the likelihood of people buying the bars. He says that fraud examiners can use a number of psychological tactics like two-prong questioning to interview and elicit confessions from suspected fraudsters. A few other tools Hood will discuss are:

Social Contract. If you force someone into a situation where they use cognitive dissonance to lie to themselves, they are more easily exposed. He says that if you lie to a stranger, you won’t have as much trouble changing your story later, or denying what you said previously. However, if you lie to someone you know, or if you write down the lie, you’re more likely to stick to that story, no matter how outlandish it might be. 

Reciprocity. Humans are naturally inclined to reciprocate what they perceive to be kind gestures from others. Hood suggests some seemingly minor tricks to use in an in-person interview with a suspect — like offering them a can of soda or a more comfortable chair. The same concept can even be applied to interviews over the phone. Starting a thought with an implication of camaraderie or collusion — like saying, “I normally don’t share this with people, but…” — can make the target of the interview feel that they must give you a piece of information equally special.

Priming. Simply softening an interrogation about embezzling to a line of questions about “misplaced” money can elicit more honest responses from suspects, or even unwitting pawns. When people feel like they are safe and understood, they’re more likely to share information. Priming your words to make them feel understood is an easy way to achieve that truth.

There are many ways that anti-fraud professionals can build a case against fraudsters, but much of the work that requests for documents, subpoenas and audits do can also be accomplished by tapping into the most basic aspects of the human psyche. 

You can hear Hood speak about this topic, and hear about the latest fraud techniques unique to law enforcement and government professionals in Washington, D.C. next month. Visit ACFE.com/fraudsummit and register by September 29 to save an extra $95!