Know Where You Are Going: The Value of Interviewing Fraudsters

GUEST BLOGGER

John D. Gill, J.D., CFE
ACFE VP of Education

In the early 1980s, Dr. Joseph T. Wells, CFE, CPA, Chairman and founder of the ACFE, and Jim Ratley, CFE, ACFE President and CEO, began producing anti-fraud training videos. One of the signature elements of their videos was the inclusion of videotaped interviews with actual fraud perpetrators. Thirty years later, interviews with real-life fraudsters are still an important part of the ACFE’s training programs.

For the last few years, I have been fortunate to conduct many such interviews myself, and I freely admit that it is one of my favorite parts of my job. I’m always surprised that anyone is willing to sit down and talk on camera about their crimes. We do not pay them for interviews, but we have at least a few people each year who are willing to talk candidly about their mistakes.

Yogi Berra said, “If you don't know where you are going, you'll end up someplace else.” In the fraud examination field, if you don’t know who you are trying to catch, you’ll end up with someone else as your perpetrator. I’ve interviewed at least a dozen white-collar criminals, and without exception, they have all been articulate, congenial, nice and intelligent. Several were CPAs or lawyers, and one had a Ph.D. in science. Several had previously led Fortune 500 companies.

So if you think the individuals who are committing fraud in your organization are the low-level employees with little education, you don’t know where you are going.

Another thing I have learned is that the Fraud Triangle is alive and well. Every so often, someone argues that the triangle is no longer relevant or needs to be revised, but based on the interviews I’ve done over just the last four or five years, I think it’s just as relevant as it was back in Dr. Donald Cressey’s day. In case you are new to fraud examination, one of the core principles is the Fraud Triangle, which was based on research done by Dr. Cressey in the mid-1950s. The theory is that fraud is likely to occur if the subject has some kind of unshareable financial pressure, a perceived opportunity to relieve that pressure, and the ability to rationalize his or her conduct so that there is a lessening of guilt or a feeling of justification.

In every interview I have conducted, the circumstances followed the Fraud Triangle pattern. For example, Nathan Mueller, who is interviewed in this video made especially for International Fraud Awareness Week, was expecting his first child. His financial pressure was that he believed in order to adequately provide for his family, he needed extra money to pay off debts and purchase a bigger house. A year earlier, he found out he had check approval of up to $250,000, a mistake on the company’s part that provided his perceived opportunity. Nathan’s rationalization was that a check to him in the amount of $19,000 was of no consequence to a large insurance company. His department regularly processed payments in the millions of dollars, so the company would never miss the money.

We feature these fraudster interviews in our newsletters, our online courses, in our live seminars and for awareness campaigns like Fraud Week. I urge you to give them a close listen. These are the people you are trying to catch. Other than the fact that they made some bad choices with regard to doing the right thing, they are just like you and me. Watching these videos will give you some insight into who you are looking for so you know where you are going.

Fraud: Yes, It Can Happen to Your Business

GUEST BLOGGER

Sarah Hofmann
ACFE Public Relations Specialist

The word “fraudster” conjures up images of a suspicious looking stranger in a trench coat, or perhaps Wall Street bankers lighting cigars with flaming $100 bills. However, what a real fraudster looks like could be the person who attended your most recent birthday party. Fraud is often perpetrated by the people we least expect — from the trusted friend to the most veteran employee of an organization. One of the biggest downfalls for employers is the blind belief that fraud could never happen to them.

Roy Faust was one such owner when he hired a friend to do bookkeeping for his custom kitchen and bath company without performing a background check first. “Since we already knew each other and I trusted her, I thought it would be a great fit for our business to bring her on as my bookkeeper,” he told the ACFE in a recent video, Fraud: Yes It Can Happen to Your Business. Even after Faust caught the employee stealing after only eight months of employment, he said, “she still had me kinda convinced throughout the process that she wasn’t really capable of doing this.”

Small businesses are not the only organizations that are susceptible to fraud. Rita Crundwell served as the Comptroller and Treasurer for Dixon, Illinois, for 29 years before it was discovered that she had embezzled $53.7 million from the city beginning seven years into her tenure. 

Jeremy Clopton, CFE, CPA, ACDA, explains that although employers are aware of the risk, they maintain a willful bias when it comes to fraud. “They think that they have wonderful employees that would never steal from them and that fraud would not happen to them. Yes, they realize that it exists, yes they realize it’s going to happen to somebody, but they always think that it’s not going to be them,” he said.

One of the best ways employers can protect themselves against fraud is by making themselves more aware about how and why fraud occurs and how it can be prevented. International Fraud Awareness Week is November 15-21 and serves as a time for organizations and individuals alike to focus on fraud and the potentially devastating impact it can have. The ACFE has shared a number of free resources on Fraudweek.com including videos, infographics, press releases and more.

Organizations that have signed up for Fraud Week are raising awareness in a variety of ways, including planning seminars, movie screenings and cocktail receptions. As fraud fighters, Fraud Week is a perfect time to let those around you know that yes, fraud can happen to them.

Have you signed up as an Official Supporter of Fraud Week?

Convicted Enron CFO Says Committing Fraud is Easier Than Ever

“It is easy to find examples of Enron-like behavior today in companies from the U.S. to Asia,” says former Enron CFO and convicted fraudster Andrew Fastow. In the wake of scandals like the Olympus fraud and the recently uncovered emissions scandal committed by Volkswagen, he believes his story is even more relevant today.
 
“Committing fraud is easier than ever. The tools available to commit fraud have increased exponentially since the 1990s, even since Enron, and more public companies are taking advantage of them,” he told the Association of Certified Fraud Examiners. He will be speaking at the 2015 ACFE Asia-Pacific Fraud Conference in Singapore November 4-6 and thinks that fraud is not only growing in frequency, but also expanding its reaches globally. He said, “People are people, no matter what country or region they are from. The drivers of fraud and executives’ rationalizations of actions that may be fraudulent are universal.”
 
It seems like after fraud cases, the first public response is often for the CEO or chairman to step down from the company or organization. While that might placate shareholders and parts of the public, Fastow warns that a more comprehensive overhaul of company culture may be needed. “Culture starts at the top … But it doesn’t start at the top with pretty statements. Employees will see through empty rhetoric and will emulate the nature of top management decision-making. If top management were to make a statement or decision that is misleading, for example, employees will see that clearly, and they will adjust their behavior accordingly in order to emulate it. A robust ‘Code of Conduct’ can be emasculated by one action of the CEO or CFO.”
 
The 2015 ACFE Asia-Pacific Fraud Conference will be one of the largest gatherings of fraud fighters in the region. Fastow believes that the attendees of the conference serve more than just a clerical purpose, but are actually one of the best tools in the arsenal against fraud. “The role of fraud examiners needs to be reinforced and expanded. Fraud examiners must not just be the police who catch the problem that has already occurred; they must become the conscience of the company.”
 
Fastow pled guilty to two counts of securities fraud and served a six-year prison sentence. He has since assisted the Enron shareholders in recovering approximately $6 billion and volunteers his time for speaking engagements at training conferences, universities and business groups around the world. As of today, he is the only former Enron executive that has accepted full responsibility for his role in the scandal.
 
Fastow will speak at the conference along with Christophe Durand, Interpol’s Head of Cyber Strategy, Barry Wong, Vice President and Head of Asia Pacific for customer fraud management for MasterCard Worldwide and James D. Ratley, CFE, the President and CEO of the ACFE.
 
Register now for your chance to attend the 2015 ACFE Asia-Pacific Fraud Conference November 4-6 at Marina Bay Sands in Singapore.

Two Ways to Educate Your Company About Fraud Prevention

FRAUD WEEK RESOURCES HIGHLIGHT

“Profile of a Fraudster” and 
“Tips for Organizations” (PowerPoints)

A fraud suspect might not be easy to pick out of a crowd - or from a rap sheet. However, ACFE research and resources can help your company identify certain common traits and red flags.

The ACFE has published two new PowerPoint presentations that can provide insightful information for any audience during International Fraud Awareness Week (and beyond). These short but valuable slideshows communicate both the urgency of the occupational fraud problem and ways to mitigate fraud risk.

“Profile of a Fraudster” explores common traits and behavioral red flags among those who perpetrate fraud. These factors, such as age, department and background record of a fraudster are gleaned from research for the ACFE’s 2010 Report to the Nations on Occupational Fraud & Abuse. “Tips for Organizations” provides simple steps any business, agency or non-profit can take immediately to help prevent and detect fraud.

Download the ACFE’s newest fraud resources, “Profile of a Fraudster” and “Tips for Organizations” here.