How Hard the Mighty Can Fall

LETTER FROM THE PRESIDENT

James D. Ratley, CFE
ACFE President and CEO

Sometimes there seems to be no end to the list of corporate giants crippled or demolished by fraud. All too often these companies should have seen it coming, but did not. Two recent examples illustrate just how hard the mighty can fall.

The former chairman and owner of Taylor, Bean & Whitaker in June drew a 30-year sentence for his pivotal role in a $2.9 billion mortgage fraud scheme that brought down his firm and Colonial Bank, which once were leaders in, respectively, the privately held mortgage lending and banking sectors.

Only a week later, JPMorgan Chase & Co. entered into a non-prosecution agreement with the U.S. Department of Justice, acknowledging responsibility for a fraud scheme in which some of its employees illegally manipulated bids in the municipal bond market from 2001 to 2006. As part of the agreement, Chase will pay federal and state agencies $228 million in restitution, penalties and disgorgement of profits.

These incidents and others like them highlight a growing crisis: Many large organizations, despite their size and sophistication, are in dire need of well-informed anti-fraud leadership. With the right training and support from a best-of-breed professional association, their employees can fill that gap and mitigate frequently unchecked fraud risks. The missing ingredient in building such cadres of in-house fraud fighters is an arrangement — customized to meet the needs of large companies — for simplifying the process of obtaining and maintaining professional certification for groups of individuals.

In response, the ACFE has developed the Corporate Alliance Program, which makes it easier for large organizations to help their employees obtain the CFE credential. Imagine what your team, certified and sharing a common vocabulary and body of knowledge, could do to improve your company's fraud awareness program and internal controls.

Read the full Letter from the President here.

How Will You Get Involved in International Fraud Awareness Week?

GUEST BLOGGER

Scott Patterson
ACFE Public Relations Specialist

Years ago, the ACFE’s grassroots fraud awareness campaign, International Fraud Awareness Week, was held during our Annual Fraud Conference and Exhibition. In 2006, I remember seeing hundreds of conference attendees sporting “I’m a Fraud Fighter!” stickers and grabbing literature to take back to their companies, clients and chapters to help spread the word. Over time, though, we realized that Fraud Week (for short) deserved its own spotlight. The next year, Fraud Week was moved to November, and the movement really took off, with hundreds of organizations partnering with the ACFE to support the effort.

Since then, Wal-Mart, USAA, Coca-Cola and Deloitte are just a few of the businesses that have signed on as official partners for this important campaign, in addition to government agencies including the Secret Service, U.S. Dept. of Justice and the U.S. Dept. of Labor. The best thing about International Fraud Awareness Week, though, is that any organization can get involved – it doesn’t cost anything to sign up, and the ACFE shares resources with all of the official supporters to help them in their anti-fraud activities. Every year on FraudWeek.com we post downloadable resources, including the Fraud Prevention Check-up, Fraud IQ Quiz and educational presentations focused on fraud prevention and detection.

This year, International Fraud Awareness Week is Nov. 6-12. I encourage you to get your company involved, and take the initiative to make an impact during the week, whether by hosting fraud awareness training for your employees and/or the community, conducting employee surveys to assess levels of fraud awareness within your organization, posting articles on your website and newsletters and/or teaming with local media to highlight the problem of fraud.

The problem is an urgent one, as fraud schemes are extremely costly:

• The median loss caused by the occupational fraud cases studied in the ACFE’s 2010 Report to the Nations on Occupational Fraud and Abuse.
• Schemes can continue for months or even years before they are detected, lasting a median of 18 months before being caught.
• Small businesses are especially vulnerable to occupational fraud. These organizations are typically lacking in anti-fraud controls compared to their larger counterparts.
• Occupational frauds are much more likely to be detected by tips than by any other means. This finding reinforces the need for promoting awareness to foster an informed workforce.

Check out FraudWeek.com to learn more.

Fool Me Once, Shame on You; Fool Me Twice…

GUEST BLOGGER

Sheila Keefe, CFE, CPA
Principal, BDR Advisors LLC

Lousy Tone at the Top Breeds Fraud

Pamrapo Savings Bank of New Jersey first made headlines last March when pleading guilty to conspiracy to commit Bank Secrecy Act (BSA) violations and forfeiting $5 million. Pamrapo admitted it had willfully violated the BSA to avoid the expenses associated with compliance (those pesky compliance expenses). It concealed its customers’ illegal or suspicious activities by failing to file Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs) and willfully failed to maintain adequate anti-money laundering programs.

Per Assistant Attorney General Lanny A. Breuer, DOJ Criminal Division, “This case is a good example of how disregarding reporting and compliance can turn into a crime. [The] guilty plea by Pamrapo Savings Bank should remind financial institutions, large and small across the country, of the high price they will pay for ignoring the law.” Read the full article here.

Well, perhaps the DOJ enforcement action did remind other financial institutions of the importance of ethical business practices, but unfortunately for Pamrapo Savings Bank, the lessons were quickly forgotten. Within a year of the DOJ settlement, a Pamrapo Savings Bank affiliate, Pamrapo Service Corporation, was in the news when a former managing director embezzled more than $600,000 in commissions and was convicted of 33 counts of mail fraud.

Lousy tone-at-the-top was definitely the culprit with the Pamrapo Service Corporation embezzlement, with the ill-gotten gains in the form of ‘commissions’ approved by the bank founder and fraud perpetrator’s father. The ‘commission’ compensation arrangement was developed when the son went to the father seeking additional income in response to a pay cut.  The ‘commissions’ were deemed fraudulent because: (a) the commissions represented a change in accounting treatment for ongoing business activities for which the son had previous received no personal economic benefit and (b) no other officer or director of either the bank or the subsidiary was aware of the new arrangement. 

Other organizations have suffered similar losses due to unreported conflicts-of-interest and improper related party transactions. It is notable with the Pamrapo organization because they had so recently been reprimanded and apparently made little effort to change their ways.  In the aftermath of a fraud detection, it is crucial that organizations take action to prevent additional fraud. Lousy tone-at-the-top can be especially difficult for companies to correct.  However, little can change without it.

Read more of Sheila's insights on her blog, Business Done Right.