Key Findings from the 2018 Report to the Nations: Asia-Pacific Edition

Key Findings from the 2018 Report to the Nations: Asia-Pacific Edition

In a new sub-report, we now focus more closely on how occupational fraud impacts organizations in the Asia-Pacific region. This study is based on the 220 cases of occupational fraud from Asia-Pacific countries that were reported in our 2017 Global Fraud Survey. Collectively, these cases, which accounted for 11% of all cases in our global study, caused a median loss of USD 236,000 and lasted a median 18 months before they were detected. 

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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.

Report Highlights Top Fraud Trends in the Asia-Pacific Region

GUEST BLOGGER

Andi McNeal, CFE, CPA
ACFE Research Director

In 2010, the ACFE released the results of our first ever global fraud survey; all of our previous research had been limited to fraud cases in the U.S. The results of our international research revealed that the characteristics of fraud cases and perpetrators follow some universal patterns, but that each geographical region faces unique challenges. Our second global study in 2012 reinforced this observation.

With this in mind and in light of the upcoming 2012 ACFE Asia-Pacific Fraud Conference, we thought it would be interesting to look more closely at some of the trends in the 176 fraud cases from our 2012 study that were reported from the Asia-Pacific region. (For purposes of this analysis, we included the cases from the following countries: Australia, China, Fiji, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam. This breakdown differs from the “Asia” region as discussed in the full 2012 Report to the Nations on Occupational Fraud and Abuse.)

The following chart compares the methods used by fraudsters in Asia-Pacific countries to those employed by fraudsters throughout the world. We see that corruption schemes were significantly more common in the Asia-Pacific region, and misappropriation of non-cash assets also occurred more frequently in this region than was observed overall.

Among our most notable observations was that overall losses were higher in the Asia-Pacific region than for the full sample of cases in our 2012 study. The median loss for the 176 Asia-Pacific cases was US$235,000, compared to a median loss of US$140,000 for all cases. And the median loss was greater in eight of the 11 fraud scheme sub-categories we studied, with the biggest disparity in the losses related to financial statement frauds. The median loss for those cases in the Asia-Pacific region was US$4 million, or four times the median loss for all financial statement fraud cases studied.

In examining how frauds in the Asia-Pacific region were detected, we found that the distribution of detection methods was very similar to that observed overall; that is, tips were by far the most common way frauds were detected, followed by management review and internal audit. Together these three mechanisms accounted for more than 80 percent of frauds detected in the Asia-Pacific region and approximately 72 percent of frauds detected throughout the world.

The table below shows the breakdown of the fraud cases in the Asia-Pacific region by the department in which the perpetrator worked and provides the median loss for the cases associated with each department. When we compared these findings to our overall study results, we noted that fraud was much more common in the Sales and Purchasing departments in the Asia-Pacific region, whereas fraud in the Accounting department occurred much less frequently in that region than in the full sample of cases.

As anti-fraud professionals in the Asia-Pacific region gather to learn and network, we hope this information helps them focus their efforts and assists them in working together in the fight against fraud.

Asia-Pac Conference Heads to Hong Kong for First Time this November

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AUTHOR’S POST

Mandy Moody

ACFE Social Media Specialist

As fraudulent activity, bribery and corruption continue to grow internationally, so does the ACFE. We are proud to boast nearly 65,000 members worldwide. And, in the past few months, the ACFE has responded to membership growth and the interest in fraud prevention and detection in the Asia-Pacific region. We have opened up an office in Singapore and we will be hosting the 2012 ACFE Asia-Pacific Fraud Conference in Hong Kong for the first time, 4-6 November, at the Kowloon Shangri-La Hong Kong.

However, our strength does not just lie in our numbers; it lies in the training, education and experience of our members. These members, along with renowned keynote presenters and the industry’s leading experts, will be at the Asia-Pacific Fraud Conference ready and willing to network, share and learn.

Here are some sessions to look forward to:

  • General Session: Kevin Zervos, SC, Director of Public Prosecutions, Hong Kong Department of Justice
  • Over the past 25 years, Zervos has specialised in credit card and currency frauds, banking and corporate frauds, infringement of intellectual property, money laundering and corruption. He plans to give attendees “An Inside Look at the Fight Against White Collar Crime” in Hong Kong.
  • Panel Discussion: Investigating Within Differing Legal Jurisdictions
  • ACFE Regent Roger Darvall-Stevens, CFE, will moderate a panel of experts during an interactive discussion on the challenges of conducting a fraud investigation that spans international borders. The panel also includes Zervos and Brent Carlson, Director at AlixPartners.
  • Breakout Session: How the Fraudsters Fool the Auditors
  • There are many reasons why an audit can go awry: lack of funds to perform a sound audit, conflicts of interest and inexperience of the person performing the audit. Angela Clancy, CA, Senior Manager at PPB Advisory, warns of these risks and more by dissecting a case from investigation to prosecution.

We look forward to seeing you in Hong Kong! For the full programme and to view a conference agenda, visit ACFE.com/AsiaPac.

The Passion of a Fraud Fighter

GUEST BLOGGER

John Gill, J.D., CFE
ACFE Vice President of Education

Last week, Bruce Dorris, J.D., CFE, CPA and ACFE Program Director, and I had the great pleasure of flying to Singapore to teach the first CFE Exam Review Course outside the U.S. Although Bruce and I have taught the U.S. version of the course many times, this was the first time we taught the international version for the public.

The reception we received could not have been warmer. Everyone in the class was so nice, and they were so excited that we held the first international class in the Asia-Pacific region. We met people from Singapore, Indonesia, India, the Philippines, Hong Kong, Australia and even Kenya! It was really exciting to have such an international crowd.

As I mentioned, I teach about a dozen classes in the U.S. each year, and I travel from Las Vegas to New York City to Los Angeles to teach the Review Course. What struck me the most last week was not how much the Singapore class was different from the courses I teach in the States, but how much it was exactly the same. It really hit home to me that ACFE members have a strong bond that knows no borders. It doesn’t matter where we are located, how much experience we have or even what industry we work in. We all share the same passion: to understand how fraud is committed and do everything we can to find those responsible. The dedication to fighting fraud I saw in each person was very inspiring.

I can’t tell you what a thrill it was to meet them (even though it took me 25 hours to get there!) and I am proud to be a part of such a truly global association.

Pictured: Krishnamah Sanmugam just after she found out she passed the first part of the CFE Exam. View more photos from the event on our Facebook page.