Insight Into The Mind of a Fraudster

LIVE FROM THE 2015 ACFE ASIA-PACIFIC FRAUD CONFERENCE

By Emily Primeaux
Assistant Editor, Fraud Magazine

“You can follow all the rules and still commit fraud and that’s what I did at Enron,” said Andrew Fastow, former Enron CFO and convicted fraudster*, at the 2015 ACFE Asia-Pacific Fraud Conference. “I followed the rules — but undermined the principle of the rule by finding the loophole.”

Fastow told a packed room of attendees that he became the master at gaming the system, explaining that his title at Enron should have been “chief loophole officer.” By creating structured financing transactions that kept debts off-the-balance sheets, Fastow made the company appear healthier than it actually was.

Holding up his trophy for CFO of the Year in 2000 and then subsequently showing his prison ID, Fastow said, “I got this trophy and this prison ID for doing the same deals.” He explained that a CFO can fundamentally change how a company looks, but that doesn’t change the economic standings of the company, which is incredibly misleading.

But his message went beyond the Enron scandal. Fastow explained that what he did is still being done today, and in a bigger way. Referring to it as the “grey area” of accounting, he stated that “there are over $1 trillion off-the-balance-sheet operating leases in the U.S.” — and banks are some of the largest culprits. While these entities might be following the rules, are they considering the ethical implications of each deal? 

“If your role today as fraud examiners is to make sure companies are following the rules, you’re not detecting fraud,” said Fastow. “It’s not just the rules, it’s the principles too. I focused just on the rules and that was my mistake.”

Ultimately, Fastow’s mistake caused irrepreparable damage at Enron. “What I did was wrong and it was illegal and for that I’m very sorry, very remorseful. I wish I could undo it,” he said. “But I’m trying to explain how someone who didn’t necessarily set out to commit fraud or do harm could come to do that and on such a grand scale.”

Other Speakers Cover Money Laundering, the FIFA Scandal and More

While Fastow’s presentation allowed attendees to look into the mind of a fraudster, other featured keynoters and breakout sessions provided tools and techniques to help anti-fraud professionals enhance their fraud-fighting skills.

Jonathan Davison, Chief Executive Officer of Forensic Interview Solutions, kicked the conference off in his Pre-Conference session, Managing Internal Investigations. He asked attendees to look at their investigation as a product and took them through the stages of an internal investigation, from planning, to evidence collection and analysis, and finally to effective report writing.

On day two, James D. Ratley, CFE, President and CEO of the ACFE, opened the main conference by welcoming attendees and speaking about the state of the ACFE and the anti-fraud profession. Ratley encouraged attendees to embrace technology and data analytics. “When the ACFE was founded in 1988, the life of the Certified Fraud Examiner was not as complicated as it is today,” said Ratley. “The computer was still in limited use, and we were just beginning to hear a new term: ‘the Internet’. There was also a new device sitting on people’s desk called the fax machine. Little did we know how technology was about to change our profession.” In order to embrace the changes of the future, he stressed the importance of continuing education and to always remember that knowledge is power.

In one of the first breakout sessions of the day, Jarrod Baker, ACA, Senior Managing Director at FTI Consulting, discussed the recent arrests of numerous FIFA officials for racketeering, fraud and money laundering, and the subsequent resignation of FIFA president Sepp Blatter. Baker then covered lessons anti-fraud professionals could take from the FIFA scandal, including:

• A company cannot use the pretense of charitable contributions as a way to funnel bribes
• Bribery laws can be breached even if the purpose of the payment is not achieved
• You can be subject to international laws based on your conduct, and there is increasing cooperation between international authorities

During lunch, Gunawan Husin, MBCI, CBCP, CAMS, Principal Consultant at Continuum Asia PTE Ltd, spoke to attendees about fraud as a predicate act to money laundering and terrorist financing. “I’m going to mainly be talking about money laundering today, but I don’t want to downplay fraud prevention,” said Husin. “Fraud is key. You need to look at the bigger picture.”

Husin then showed a video that highlighted how money changes hands from institutions to criminals and back again and asked attendees, “Are we doing the right thing as a sector? Are we doing what we are supposed to do to safeguard our institution and community?” He asked people to raise their hands if they’d like to do business with criminals. Not a single hand shot up. “No one wants to do business with criminals? Well what do the statistics say?” he continued. “We’re still doing business with bad guys. They’re still abusing your systems.”

A spirited panel discussion moderated by Roger Darvall-Stevens, CFE, Partner, National Head of Forensic Services, RSM, closed out the final day of the conference. Panelists included Tony Prior, CFE, CAMS, Director, Ernst & Young LLP; Rachael Mah, CA, CPA, PMIIA, Managing Director, AusAsia Training Institute Pty Ltd; and Simon Goddard, CFE, Managing Director, Global Insight Ltd. These international anti-fraud professionals discussed best practices to use when a fraud extends beyond a country’s borders and how to keep on the right side of the law while conducting fraud investigations.

"A pragmatic approach to cross-border or international interactions is necessary as there are many pitfalls of which to be aware to make your fraud examination a success," said Darvall-Stevens. "Understanding the local culture and laws is also essential to ensure that you as fraud examiners don't inadvertently contravene laws or disrespect cultural nuances which is likely to inhibit fact-gathering investigations and anti-fraud work."

As we wrap up another successful ACFE Asia-Pacific Fraud Conference, we look forward to putting on more regional conferences across the globe in 2016: the Middle East Fraud Conference in Dubai (February 14-15), the European Fraud Conference in Brussels (March 20-22) and the Canadian Fraud Conference in Montreal (September 11-14). We hope to see you at one of these events! (Learn more at ACFE.com/Conferences.) 

*The ACFE does not compensate convicted fraudsters.

Managing Internal Investigations

LIVE FROM THE 2015 ACFE ASIA-PACIFIC FRAUD CONFERENCE

By Emily Primeaux
Assistant Editor, Fraud Magazine

“If you go out into the mall to buy clothes, shoes or that smartphone you’ve got in your pocket, how much do you scrutinize the quality of that product?” asked Jonathan Davison, Chief Executive Officer of Forensic Interview Solutions at the 2015 ACFE Asia-Pacific Fraud Conference. “What I want is for you to look at your investigation as a product. Can it be scrutinized? Are there gaps in it? As an information-gatherer, where can your product go? Thinking about where it goes is the quality of it.”

Davison posed these questions to attendees at the beginning of his Pre-Conference session, Managing Internal Investigations. In a three-part session, Davison discussed the key elements of an internal investigation, from the beginning objectives, to evidence collection and analysis, and then to the finalizing the investigation by writing reports, presenting the case and overcoming reluctance to prosecute.

Beginning an Investigation

Davison first emphasized that the ACFE Report to the Nations on Occupational Fraud and Abuse tells fraud examiners the key data they need to know about the schemes they might be investigating. One example he gave was the perpetrator’s level of authority. “Depending on how you go up the structure has an impact on the level of fraud that’s being committed, the people involved in it and the amount that’s being taken,” said Davison.

Davison also explored the motivations behind why fraudsters commit their crimes. He cited the Hollinger and Clark Study of 12,000 employees in the workforce. The researchers concluded that the most common reason employees committed fraud had little to do with opportunity but more to do with motivation — the more dissatisfied the employees, the more likely they were to engage in criminal behavior.

Using these tools and an investigative mindset, Davison dove into the initiation of the internal investigation. He emphasized the ABCs — Assume nothing, Believe nothing, Check everything. Davidson also covered the key steps to conducting a fraud examination:

• Data analysis. Before analyzing documents or conducting interviews, examiners should perform data mining and other electronic analysis of relevant information.
• Document examination. Examiners should review documents before interviewing anyone to gain an understanding of the potential evidentiary value of the case, as well as to protect the security of documents.
• Interviews. Examiners should interview witnesses in a logical fashion.
• Report writing. The final step in most internal investigations is the preparation of a written report that summarizes the steps taken and conclusions reached. 

According to Davison, time is also of the essence when considering the quality of your investigative results. “Do you have sufficient time, as investigators, to conduct your investigation? The danger of that is it affects your investigation and the quality of it.”

Evidence Collection and Analysis

Davison explained that documents make up so much of the evidence in fraud cases that it’s important to understand the appropriate way of handling them. Two of the more important aspects of handling documents are chain of custody and marking evidence. 

He also discussed the importance of properly organizing evidence, since fraud cases can create large amounts of paper. Documents can be segregated by witness or transaction, key document files should be updated continuously, and databases can be established to handle large volumes of information.

Finalizing the Investigation

Writing a comprehensive, understandable and effective report is critical. “The best things in life are simple, straightforward and easy,” said Davison. He explained that the fraud examiner will need to address the classic questions of who, what, where, when, why and how. 

And finally, Davison expressed the importance of self-evaluation. “How often do you evaluate your investigations?” he asked. “Do you as a team of investigators sit down after the investigation has been finalized and critique your investigation? We can always improve and look at how we do that with an investigative mindset.”

Knowing What Works: ACFE Asia-Pacific Conference Heads to Singapore

AUTHOR’S POST

Mandy Moody, CFE
ACFE Social Media Specialist

Almost half of the executives interviewed in Ernst & Young’s latest Asia-Pacific Fraud Survey Report said that their companies’ policies do not work. As stated in The Law Society’s Gazette in the article, “Fraud and corruption rife in Asia-Pacific,” 19 percent reported an increase in bribery and corruption, and 27 percent said managers take short cuts to meet targets. These numbers aren’t surprising, as I usually say, but they are loud reminders that companies must continue to implement what does work and look for ways to improve existing policies.

Fraud fighters from all over the Asia-Pacific region will gather in Singapore, Nov. 20-22 at the 2013 ACFE Asia-Pacific Fraud Conference to address these statistics, the latest trends and the ways top professionals are combating fraud.

Here are just a few of the keynotes that will be reporting on what does work for companies in the region:

Nagesh Pinge, Chief Internal Auditor, Tata Motors, India

In a career spanning 29 years, Pinge has worked with many organizations of repute such as ICICI Bank, Reliance Industries Ltd, Deutsche Bank of Germany and JSW Group. Pinge's major tenure has been with ICICI Bank for 14 years where he managed a team of 100+ internal auditors located worldwide.

John Geurts, Executive General Manager, Group Security & Group Property, Commonwealth Bank, Australia

Geurts has more than 13 years’ experience as a global security leader in the banking sector, combined with 19 years in law enforcement with the Australian Federal Police. In his current role at the Commonwealth Bank of Australia, Geurts leads Group Security in investigations, fraud control, financial crime and anti-money laundering shared services.

Jeffrey Robinson, Author, Lecturer and Journalist, U.S./UK

Robinson is the bestselling author of 27 books, and a popular speaker on the international after-dinner circuit. His money laundering tour de force, The Laundrymen (1993), was a headline-maker in 14 countries, establishing him as a recognized expert on organized crime, fraud and money laundering.

D. Bruce Dorris, J.D., CFE, CPA, CVA, VP and Program Director, ACFE, U.S.

Dorris is an advisory member of the ACFE Board of Regents. As an Assistant District Attorney for the Caddo Parish District Attorney’s Office in Shreveport, La., Dorris created and was the Director of its Financial Crimes Screening Section. He formerly served on the Board of Directors of the National White Collar Crime Center, and was the Vice Chairman of its Audit Committee.

Read more about the Conference at ACFE.com/AsiaPac, and register by Oct. 21 to get the early registration discount!

Greetings from Sunny Singapore

GUEST BLOGGER

Dewi Malik

Business Support Manager

ACFE Asia Pacific Regional Service Centre

Combatting fraud has no geographical boundaries. That is why the nature of fraud in global business today calls for an international presence. With the opening of the new Asia-Pacific office in Singapore we wish to strengthen our presence throughout this area and beyond. We also want to greatly improve support for our ACFE members in the region.

My colleagues and I are extremely excited to be a part of this huge step towards fulfilling ACFE's No. 3 New Year's Resolution-Expand International Growth Efforts to New Regions. This move to set up an ACFE office in the hub of Singapore truly represents the astounding membership growth in the Asia-Pacific region.

The ACFE Asia-Pacific office offers timely language-specific support to new, existing and potential members in this culturally diverse region. Whether you are from Korea, Japan, Australia or China, my colleagues and I are here to answer any queries or give feedback relating to the ACFE's membership, conferences, programmes and services. In addition to English, we have support staff members well-versed in Mandarin, Japanese and Korean.

I cannot tell you how thrilled I am to join the global ACFE family. I hope to be able to meet you and colleagues from around the world at the upcoming 2012 ACFE Asia-Pacific Fraud Conferencein Hong Kong, 4-6 November 2012.

We welcome your queries and feedback. Please contact us at +65 6496 5503 or AsiaPacific@ACFE.com. I certainly hope to speak with you soon.

#3 New Year's Resolution: Expand International Growth Efforts to New Regions

GUEST BLOGGER

Kevin Taparauskas, CFE
ACFE Director of Marketing and Events

#3: Expand International Growth Efforts to New Regions

The first-ever ACFE Asia-Pacific Fraud Conference, held last October in Singapore, was a great success, with more than 200 attendees representing 23 countries. I had the pleasure of attending this eye-opening event in a part of the world where the ACFE is quickly growing. I knew we had loyal members in the region, but I was honored to witness the enthusiasm of our attendees and their dedication to truly growing the profession. I now understand why we have expanded so rapidly in the region for the last several years.

With members in more than 150 countries, the ACFE is truly an international association. However, certain regions have a much stronger foothold of CFEs and anti-fraud professionals than others. This discrepancy is changing, and the ACFE is committed to building a strong presence throughout the world.

The ACFE intends to fully support and help facilitate ongoing growth. I announced to attendees at the conclusion of the Asia-Pacific Conference that the ACFE would hold our first CFE Exam Review Course in Singapore, March 26-29. We are also currently working on a regional call center based in Singapore that will greatly improve support for all of our members in the Asia-Pacific region and beyond.   In addition, we are committed to returning to the region for additional training seminars and the second ACFE Asia Pacific Conference in late 2012. We hope to emulate this in cities and countries all over the world, and we are excited to take these next steps.

With the global nature of fraud in business today, it is essential for the ACFE to have an international presence in every country in the world. The diverse representation of fraud-fighters we see in membership is also evident in our social media groups. This week, we reached 10,000 members in our LinkedIn discussion group, an invaluable resource for members from all over the globe to connect and learn from one another.

We hope our global network of anti-fraud professionals will benefit you no matter where you live and work, and that our global reach can also be one of the tools you use on your next case.