Episode Notes for Fraud Talk Podcast: Loose Lips Sink Ships

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Emily Primeaux, CFE
Associate Editor, Fraud Magazine

Andrew Snyder has worked in the criminal justice system for more than 30 years, starting as a correctional officer for the California Department of Corrections. He recently told me in a Fraud Talk podcast interview that this first job within the prison system is what inspired him to “mentor” white-collar criminals before they served their prison sentence.

“I’ve interviewed some of these people who have been in the media because of the noteriaty of their cases to give others information about the process,” says Snyder. “[It shows] how they got to the point where they crossed the line and got into trouble, and how it affected them personally and professionally.”

As he got to know these criminals, Snyder came away with insights and questions about their crimes and what motivated them to cross the line. Inspired, he began the Prison Life podcast, often speaking to the criminals in the time after their sentencing but before going to prison. Snyder recently wrote an article for the March/April issue of Fraud Magazine about what motivates insider traders.

“Someone who’s got a gripe with the company might be a risk and should be looked at,” says Snyder. He used the case of Scott London as an example. London — at the time, a senior partner at a Big 4 accounting firm — was convicted of insider trading after sharing secrets to help a buddy in a tight financial spot. Snyder said that London felt for his friend’s predicament, but also was disillusioned with his company at the time of his crime.

Other highlights from the interview include:

  • An analysis of the Scott London and Bryan Shaw insider trading scheme, including their motivations.
  • How insider trading can be compared to espionage.
  • Why Snyder thinks people cross the line into insider trading.

Helpful Resources Mentioned in This Episode

How to Conduct Yourself as a Fraud Examiner in Qui Tam Cases

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Courtney Babin
ACFE Communications Coordinator

Fraud examiners play a vital role in qui tam lawsuits. According to Whistleblowers.org, "any persons or entities with evidence of fraud against federal programs or contracts may file a qui tam lawsuit.’" The person(s) that bring forward the lawsuit are called “relators,” or are most commonly referred to as whistleblowers. A relator is someone that has worked inside a company and has knowledge that fraudulent activity is being committed. Typically, the relator has tried to get the issue resolved in-house, but for whatever reason has obtained outside counsel. This counsel helps the relator file a lawsuit in the federal court system on behalf of the government. Once the relator’s counsel contacts the government and informs them of the lawsuit, the government then decides whether or not to intervene.

In qui tam cases, having a subject matter expert on your case is crucial; this is the role of the Certified Fraud Examiner (CFE). An expert can make or break the case. “I’ve met experts that have knowledge (or credentials), per se, but they don’t know what they are doing or how to communicate,” said Eileen Leslie, CFE, CPA, Financial Analyst at Forensic Strategic Solutions. “A seasoned Certified Fraud Examiner, especially one focused on forensic accounting, has the education and experience needed to be able to detect and understand an unlimited amount of fraudulent scenarios. But that’s only the beginning.” Leslie shared this and other lessons recently in a Fraud Talk podcast interview, "The Role of a Fraud Examiner in Qui Tam Cases."

She goes on to explain that the CFE is there to first and foremost calculate the single damages. Single damages are the losses sustained as a result of fraud.  “It’s my job to obtain a thorough understanding of the issues to perform an unbiased analysis of the facts and make sure all necessary parties understand my damages calculations and findings,” said Leslie. It is important to calculate damages properly because the government uses that number in their negotiations (the government is allowed to go for three times the amount of the single damages).

Another important role of the fraud examiner is to make the case extremely understandable. “To truly be effective you must have the ability to articulate your findings to people of all understanding and interest levels,” said Leslie. “My personal belief is that as an expert you conduct yourself in an expert manner. I want to conduct myself in having full knowledge of the issues. I want to be unbiased. I want to look at just the facts.”

As a fraud examiner and expert in this matter, you need to prepare your case in a way that convinces the government to intervene. When a case is brought before an attorney, keep in mind that this attorney may have never been exposed to the law or rule that is being violated. It’s important to explain the case easily so that they can process the case appropriately. You can assist them by:

  • Knowing the rule or regulation that has been violated.
  • Providing a printed copy of the rule to the government.
  • Articulating the violation from the relator in a manner that is understandable by judges and juries.
  • In a binder, supplying supporting back-up documentation in a structured manner.
  • Preparing a visual PowerPoint presentation with diagrams and graphs.

Above all, said Leslie, “Please be responsible. Be real in your expectations of what you can do. Find somebody that has the experience to be able to guide you appropriately so that you are gaining a full understanding of the issues at hand. Be credible, go by the facts, be responsible and make sure that [everything is] right.”

To hear Leslie’s full podcast interview, visit ACFE.com/podcast

How a Clerk’s $250,000 Fraud Went Unnoticed for 4 Years

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Courtney Babin
ACFE Communications Coordinator

Between August 2010 and March 2014 an employee within the City of Ithaca’s Tompkins Consolidated Area Transit (TCAT) diverted cash out of TCAT accounts using a fraudulent check scheme. In total, the fraud cost the not-for-profit organization nearly $250,000 over a span of four years. The fraud kept growing in the years that it remained undetected: in 2010 they lost $1,600; in 2011, $43,000; in 2012, $69,000; and in 2013, a staggering $113,000.

In last month’s Fraud Talk podcast, John E. “Jack” Little, CFE, CPA, Senior Lecturer of Accounting at Cornell University, examines this fraudulent check scheme and discusses a three-part process that every anti-fraud program should implement.

The perpetrator was Pamela Johnson, an accounts assistant clerk, who managed the bills and the accounts payable system. According to The Ithaca Voice, she created a fictitious vendor, “JTD Enterprises,” which happened to reflect her husband’s company: Johnson Tool Design. Johnson then created fictitious invoices which she paid through the accounts payable system. She cut the checks, signed them with a signature stamp and then deposited them into a business account to which she had access.

The fraud was discovered March 2014, during the audit process of the 2013 year, by a staff accountant. The accountant asked Johnson to pull an invoice and when Johnson was uncooperative, the staff accountant went to the purchasing manager and asked them to look into the issue. “The purchasing manager, of course, had never heard of the vendor,” says Little. Ultimately, Johnson was interviewed, suspended and indicted for grand larceny in the second degree.

The fraud went unnoticed mostly because of the volume of TCAT’s $13 million budget. “When you have a $1,600 fraud amongst $13 million, it’s not apt to be discovered,” says Little. “Even in the next couple of years when it’s $40-$60,000, in the grand scheme, it’s perhaps not ‘material.’” By 2013, she had gotten a little bolder and was taking larger sums and more often. And at the same time the fraud became material, it was discovered.”

According to Little, it’s essential for all entities to have an anti-fraud program and it needs to be a 3-part process: deterrence, detection and response.

  • Deterrence: How companies set their top at the top. There need to be written policies that outline fraud prevention, internal controls and some sort of prevention program that is educational in nature. Organizations need to educate their board, management and staff.
  • Detection: Organizations need to know how to investigate fraud. Fraud can be prevented by simply having better controls. With detection, monitoring and auditing all of the procedures on how we deal with misconduct should be written down and summarized. There has to be a response policy implemented.
  • Response: What happens when an organization finds something? How do they investigate and report to when there is an alleged fraud. “It’s so important that these things get laid out and considered long before you have a problem,” says Little, “It shouldn’t be a reaction, it should be preventative in nature.”

Little’s advice to staff auditors is to be diligent in your work and follow through. Watch for unusual behaviors in your coworkers. Is there unusual behavior by coworkers at your organization that is going unnoticed; what about behavior that is evident? It’s easy to look the other way and press forward with the rest of your work but follow through with the rest of your items in question. But above all, says Little, “Be diligent.” 

Hear Little's full interview with the Fraud Talk at ACFE.com/podcast.

3 Tips for Conducting Interviews

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Courtney Babin
ACFE Communications Coordinator

In the most recent Fraud Talk podcast, Jonathan Turner, CFE, CII, ACFE Regent Emeritus, speaks about his top interviewing tips. As Turner says, “Everything that you do that adds another tool to the toolbox makes you more successful.”

Here are three of Turner’s tips for fraud examiners to remember while conducting interviews:

1. Have an Open Mind
In interviewing it is important to not let your own biases get in the way of the investigation. Biases can cloud your judgement, reality and, most importantly, your investigation. A flaw with many investigations is when you ask a question with an answer in mind, warns Turner. “If you walk in with a predetermination of what they’re going to say, you’re only going to capture part of what they have to say.”

One of the earliest fraud cases that Turner worked on was for a company that had received handwritten letters with serious allegations. He was hired on retainer to see what facts in the letters, if any, were true. The letters made some outrageous claims and Turner made a mistake that many people make. “I let my bias get in the way of my investigation,” admits Turner. “I judged the letters based on their content and their style instead of giving them the credence that they really deserved.” Once the interviews began, Turner was shocked to realize that the witnesses he interviewed had seen the shocking behavior that the letters stated. “One of the things that I use in interviewing to this day is to remember that no matter how outrageous the claim or how crazy the scheme sounds at first, you always have to be open to the possibility that it’s true or is a reflection of truth.”

2. Listen
Don’t do all of the talking — provide moments of silence, pause and wait. “The No. 1 tip is listening,” says Turner. “Listen to what they’re saying, let them take you places. If people feel like they are being heard, it encourages them to speak.” By listening instead of speaking you leave the interview open for the interviewee to say something you were not expecting. “It’s astounding how many people have confessed to things that I didn’t even know they had done,” says Turner. He mentions that there is always a temptation to come into an interview and show the interviewee how much you know, all of the facts that you’ve spent time figuring out and all of the details you’ve noted. But the weakness in that is that the interviewee begins interviewing you — you are telling them what you’ve learned rather than learning any new information. “I should walk out of that interview feeling like I’ve learned everything that there was to learn and feel like the other side has learned as little as I could possibly give them,” says Turner. “I always consider my best interviews the ones where the bad guy walks away thinking, ‘I just got away with that.’”

3. Practice
Mistakes happen. Everyone, even the most skilled fraud examiners, will make mistakes. How do you minimize those mistakes? Practice, practice and more practice. Turner has two exercises that will help even the most introverted fraud examiners become interviewing professionals (if they have the guts).

Write down five things that you want to know (anything) and go into your local grocery store, walk up to a stranger and ask that person those questions. “The reason I suggest this exercise is most of what makes people nervous about interviewing is their own internal anxiety about asking the questions,” says Turner. In order to interview successfully, you have to practice asking people questions to a point where you get comfortable asking them. Why did Turner choose a grocery store for his practice site? Because “to get people to engage in a conversation with you, you will have to use your powers of persuasion.”

Ready for the next exercise? This time, time yourself and try to get someone (a stranger – in a grocery store) to talk to you for two, then four, six, eight, 10 minutes. Use this one as a listening exercise. Ask them a question, listen to their responses and let that drive you to the next question.

These exercises will allow you to develop ease when asking strangers questions while evolving your ability to think on your feet and interview effectively.

Hopefully these three pieces of information spur your interviewing skills forward. And when all else fails, “Remember that the basics work 99 percent of the time.”

Hear the complete interview with Turner at ACFE.com/podcast.

Resources and Tips to Help Fuel Fraud Week

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Scott Patterson
ACFE Senior Public Relations Specialist

As International Fraud Awareness Week rolls on, I’m pleased to announce that we have more than 900 organizations worldwide signed up as Official Supporters. These proactive businesses and government agencies are helping to promote fraud awareness through trainings, employee communications, social media postings and other activities (hashtag: #FraudWeek).

We have some new resources this year that we encourage you to check out during Fraud Week and beyond. They include:

  • Fraud Talk Podcast. The ACFE's monthly podcast, dedicated to helping professionals who fight fraud on a daily basis. In these sessions, we break down case studies, talk with the industry's leading experts and give you more tools you can use to spot, fight and prevent fraud.
  • Fraud Magazine White Papers. Stay up-to-date on anti-fraud challenges with free white papers offering real-world solutions. Recently added topics include big data, anti-money laundering and employee misclassification.
  • Fraud Videos Library. The ACFE's library of fraud-related videos from Fraud Magazine, our Career Center and more.
  • Fraud Prevention Resources CD-ROM. Available free to both ACFE members and non-members, this collection of anti-fraud resources will be of value in your company's ongoing fight against fraud.

One resource from previous years is still a valuable starting point for businesses to assess their anti-fraud controls. The ACFE’s Fraud Prevention Check-up (PDF) helps owners and managers identify fraud risks and establish a strategy to prevent losses.

There are some other basic tips that any organization should be aware of to help prevent and detect fraud:

  1. Be proactive. Establish and maintain internal controls specifically designed to prevent and detect fraud. Adopt a code of ethics for management and employees. Set a tone at the top that the company will not tolerate any unethical behavior.
  2. Establish hiring procedures. Every company, regardless of size, can benefit from formal employment guidelines. When hiring staff, conduct thorough background investigations. Check educational and employment history, as well as references. After hiring, incorporate evaluation of the employee's compliance with company ethics and antifraud programs into regular performance reviews.
  3. Train employees in fraud prevention. Once carefully-screened employees are on the job, they should be trained in fraud prevention. Are employees aware of procedures for reporting suspicious activity by customers or co-workers? Do workers know the warning signs of fraud? Ensure that staff know at least some basic fraud prevention techniques.
  4. Conduct regular audits. High risk areas, such as financial or inventory departments, are obvious targets for routine audits. Surprise audits of those and all parts of the business are crucial.
  5. Call in an expert. For most firms, fraud examination is not a core business component. That's why, when fraud is suspected or discovered, it is imperative to enlist the anti-fraud expertise of a Certified Fraud Examiner (CFE).

If you’re not yet aboard the Fraud Week train, I invite you to visit FraudWeek.com and learn more about increasing awareness and reducing risk.