From the President: Exposing Fraud at "Germany's Enron"

From the President: Exposing Fraud at "Germany's Enron"

Wirecard was once a fast-rising European fintech company that grew primarily through acquisitions. Now it’s dubbed the “Enron of Germany.” Its attempts to cover up holes in its accounts resulted in a plummeting stock price and ultimately pushed the company into insolvency. The similarities to Enron are straightforward: gregarious corporate leaders, opaque financial statements and a dogged reporter.

But in Wirecard’s case, Dan McCrum — the investigative journalist who broke the story for the Financial Times and is this year’s winner of the 2021 ACFE Guardian Award — faced unprecedented obstacles and harassment.

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Not Your Average Cup of Joe: Luckin Coffee Opens Investigation Into a Massive Fraud

Not Your Average Cup of Joe: Luckin Coffee Opens Investigation Into a Massive Fraud

In early April, China-based Luckin Coffee shocked investors and consumers worldwide when its board revealed in an SEC filing that it has initiated an internal investigation into the activities of its former Chief Operating Officer (COO), which are linked to an alleged $300 million fraud.

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Everything You Need to Know About the Fraud Allegations at Aflac

Everything You Need to Know About the Fraud Allegations at Aflac

The insurance company Aflac is probably known best for its ubiquitous duck mascot. It is also consistently ranked on Ethisphere magazine’s World’s Most Ethical Company list, and Fortune’s World’s Most Admired Companies and 100 Best Workplaces for Millennials lists. But in the coming months and years, it might also become well-known for fraud and worker abuses.

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The Shared Traits of Those Committing Fraud Against Elderly Family Members

SPECIAL TO THE WEB

Annette Simmons-Brown, CFE

A MOTHER'S LOVE RUNS DEEPER THAN PLANNED
Let's examine the case of "William," the adult son of a victim. Since 1998, William's mother (we'll call her Debra) authorized him to manage her financial accounts that had a balance of $3 million to $4 million. However, she didn't authorize William to withdraw funds from these accounts, and she never initiated the execution of a power of attorney (POA) instrument.

Over the next 11 years, William systematically transferred funds from his mother's accounts to pay his bills and to supplement his accounts. He also opened at least two credit card accounts in his mother's name and tried to hide bank statements from her. By 2009, her accounts were overdrawn. Debra — and her other adult children — finally detected William's thefts and reported them to the police. William was ultimately charged with and convicted of one felony count of theft by swindle over $35,000; he was given a stayed prison sentence of 42 months and ordered to pay restitution of $110,500.

(This is one of many cases in Hennepin County in recent years criminally charged when a POA instrument was absent; thus, the lack of a POA instrument doesn't necessarily prevent criminal charges of financial crimes against the elderly.)

THE FEVA PLAYBOOK
The Hennepin County Attorney's Office (HCAO) in Minneapolis, Minnesota — for which I am a paralegal in its complex crime unit — has long had attorneys specifically assigned to the prosecution of financial exploitation of vulnerable adult (FEVA) crimes. A review of 15 intra-familial FEVA cases charged by the HCAO within the past three years, in which the victims were elderly and related by family to the defendants, reveals a depressingly uniform fact pattern:

  • The life circumstances of the defendants and the victims were similar.
  • The manner and speed with which the defendants accessed the victims' funds were similar.
  • The degree of the thefts was similar.
  • The mindsets of the defendants as revealed in case investigation, litigation and conviction were — you guessed it — similar.

In all 15 cases, the victims were single and either widowed or long divorced. The youngest was 58 years old — a man who had been injured by a car accident and then required assistance with daily living activities and transportation. The oldest was 90.

At least 12 of the victims required professional care for daily living and health problems, either in-home or in an assisted living facility. At least three of the victims experienced memory loss or other cognitive dysfunction.

These were the family ties:

  • Eleven of the victims were parents of at least one of the defendants (in two of the cases involved husband-and-wife defendants).
  • Two of the victims were the defendants' grandparents.
  • One victim was the defendant's aunt.
  • One victim was the defendant's sister.

FINANCIAL EXPLOITATION
Six of the 15 defendants — all of whom were responsible for paying the victims' home- or assisted-living care costs from the victims' accounts — defaulted on these payments, which resulted in the threatened termination of care or even the threatened eviction of the victims from their facilities. In six cases, the amounts stolen from the victims (within the date range of the charges) exceeded $100,000 — the lowest was $107,348 and the highest was $250,196. In eight other cases the defendants stole $14,046 to $71,500.

In every case, the defendants used the victims' funds to finance their lifestyles. They accessed the victims' bank accounts using checks, ATM withdrawals, debit card payments, counter withdrawals and online transfers from the victims' accounts straight into their own accounts.

They used the victims' credit cards for their purchases and accessed the victims' funds to pay the credit card balances. They also transferred money from victims' investment accounts into the victims' bank accounts and spent that cash.

In one egregious case, the defendant took out a mortgage on a real estate parcel that was part of her father's trust estate (for which she was co-trustee) that she and her brother were due to jointly inherit. She used the proceeds of that mortgage to pay off the mortgage on another real estate parcel within the trust estate that she was due to solely inherit. This devious move left her with an unencumbered property but left her brother with the shaft.

In 12 of the 15 cases, the victims executed a POA. Judging from the defendants' spending patterns after the POAs were executed, it's clear they all felt they "owned" the victims' funds or at least had joint ownership. They failed to remember, or deliberately disregarded, that the POA confers more responsibilities than rights. Most importantly, the fiduciary responsibility is to spend the principals' money to benefit the principals rather than themselves, always.

They also all failed to remember, or deliberately disregarded, that a financial transaction always leaves a paper trail. And when their conduct came to light, the paper trail told the story far better than an interview with an enfeebled, distraught victim ever could. And they all failed to realize that their conduct couldindeed come to light, the subtleties of modern-day money transfers notwithstanding.

In 10 of the 12 cases in which a POA instrument was present, the defendants were charged with at least one count of felony — financial exploitation of a vulnerable adult — and several received an additional felony of theft by swindle. In the remaining cases, the defendants were charged with a felony of theft by swindle of amounts over various thresholds. Seven of the cases have resulted in felony convictions, one case has been sent to diversion, two cases have been dismissed and five are pending disposition.

A GROWING PROBLEM
These examples are a fraction of elderly financial crimes cases charged worldwide. Financial crimes against the elderly are growing internationally because many countries are experiencing graying populations. I can easily see the day when crimes like these replace employee theft as the standard-issue blue jeans of fraud.

Read part one of this article on Fraud-Magazine.com, and read how Annette looked at the growing incidence of family members who defraud their aging relatives and the similarities of these miscreants to traditional occupational fraudsters. 

Keeping Everyone Honest: Financial Statement Fraud Schemes and IFRS

GUEST BLOGGER

Misty Carter, CFE
ACFE Research Specialist

The International Financial Reporting Standards (IFRS) are becoming familiar to many in the accounting and auditing world, especially those who perform work internationally. For those who are not familiar with the term, IFRS are a set of accounting standards developed to drive consistency in how publicly traded companies prepare financial statements. In other words, its purpose is to ensure that companies that transact business internationally are on the same page when reporting financials. I like to refer to it as a way of “keeping everyone honest.” Personally, I think that the idea of having one global standard for how companies prepare and report their financial statements is a good one. In fact, approximately 120 nations either permit or require IFRS. The European Union (EU) has fully conformed to IFRS and requires companies whose securities are listed on the EU-regulated stock exchange to prepare their financial statements in accordance with IFRS.

If someone were to ask my opinion on the biggest impacts the IFRS have on financial statements, I would have to say it would be related to how a company recognizes its revenue and values its assets. Why? Because these are the two areas in which fraudsters most commonly manipulate or falsify financials. When it comes to committing financial statement fraud schemes, falsifying revenue and overstating or even understating assets is a common theme — a theme that is not limited to any one specific accounting standard used in any particular country. I believe that it is vital for all companies, regardless of where they operate, to be aware of financial statement fraud schemes so they can be proactive in detecting red flags and identifying ways to prevent these schemes.

For those of you interested in learning more about IFRS and common financial statement fraud schemes, I encourage you to check out the new online self-study course, International Financial Reporting Standards for Financial Statement Fraud. This course provides an overview of IFRS with an emphasis on revenue recognition and the fair value of assets. It also covers the basics of financial statement fraud schemes, including red flags and methods to detect these schemes.

With so many companies operating globally, it is vital that everyone be aware of new and emerging changes in the financial world. One way to stay abreast of these changes is by becoming familiar with IFRS and its impact on financial statements. It is also essential that all companies take the necessary steps to prevent and detect financial statement fraud schemes.