Fraud Displaced During EMV Transition

GUEST BLOGGER

Zach Capers, CFE
ACFE Research Specialist

Last year, I wrote about the U.S.’s transition to EMV credit cards and the associated fraud liability shift from card issuers to merchants. The article mentioned the possible side effect of fraud being displaced from in-store to online transactions as has happened in many countries that have undergone similar transitions; one year later, the initial data is in and that possibility is now a reality.

A new report from ACI Worldwide shows that online credit card fraud during the 2015 holiday season increased by 8 percent over the 2014 holiday season. Furthermore, the report shows that 1 out of every 67 online credit card payments was a fraudulent attempt compared to 1 out of 72 the year previous. While there are many factors at play and online purchases continue to increase year over year, the findings correspond with increases expected by industry experts and follow the trends previously experienced by other countries.

Meanwhile, the transition to EMV credit cards has resulted in other forms of turmoil for merchants big and small. Visa was recently sued by Wal-Mart over the card issuer’s insistence on a signature verification system rather than a PIN requirement that Wal-Mart and many others claim would significantly increase security for customers while reducing fraud. Wal-Mart’s central claim is that Visa makes more money by processing signature based transactions than they would with a chip and PIN system, thus profiting at the expense of retailers and their customers.

Another complication wrought by the adoption of the new credit card systems is the slow certification process for new credit card terminals required by last year’s liability shift. A New York Times report in March documented the plight of mid-sized business that were still waiting for their new payment terminals to be certified despite having them in place since the November 2015 deadline. Some merchants argue that relationships between financial institutions and certification firms leave little motivation to speed up this process since uncertified merchants must continue to pay for any fraudulent activity incurred on their terminals.

On Capitol Hill, Wal-Mart and others seem to have an ally in U.S. Senator Dick Durbin who recently assailed the credit card industry’s refusal to allow PIN based transactions and the delayed certification process. The senator also echoed the frustration of many consumers regarding long waits at retail checkout counters caused by slow software processing in new card terminals.

As more consumers adapt to their new EMV credit cards and new merchant terminals are certified and updated with improved software, some of the unexpected issues with EMV adoption will be resolved. Unfortunately, many of the most significant problems with the transition were either widely predicted or entirely avoidable.

Spread the Word: Fraud Week is Nov. 15-21

AUTHOR’S POST

Mandy Moody, CFE
ACFE Media Manager

Fraud is a problem facing companies of all sizes and employees in all departments. But in contrast to days past when companies only reacted to fraud after the fact, organizations are now being more proactive in addressing risk and compliance issues head-on. Organizations like Clorox, Walmart, USAA and more have signed up to support the upcoming International Fraud Awareness Week, November 15-21. They have stepped forward at a time when entities lose an estimated 5 percent of their revenues to fraud (according the ACFE’s 2014 Report to the Nations on Occupational Fraud and Abuse).

International Fraud Awareness Week has come a long way since its humble beginning back in 2000. There are now organizations from all over the world registered as Official Supporters, including large corporations, small businesses, government agencies, boutique accounting firms, nonprofit organizations and ACFE chapters worldwide.

One of the best things about Fraud Week is that it presents a unique opportunity to share free anti-fraud resources and best practices with organizations that want to raise awareness among their employees, clients and even the general public. Available in the resources section of FraudWeek.com, here are some free resources you don’t want to miss:

• Video: Convicted fraudster Nathan Mueller describes the details of his four-year-long, $8.5 million embezzlement scheme.
• Video: Andrea Baxendale recalls the opportunities and rationalization that led to her fraud.
• Printable Fraud Week Supporter Poster: Download and print our Fraud Week poster to show your support as an Official Supporter.
• We have also updated the downloadable Fraud Week logo and customizable press release to help you publicize your proactive stance against fraud.
• More resources

During (and around) the week of November 15-21, Official Supporters will host fraud awareness trainings for employees, conduct employee surveys to assess levels of fraud preparedness, post articles on company websites, newsletters and social media, and team with local news sources to promote fraud prevention and detection.

It’s only a few weeks away. What do you have planned for Fraud Week?

Student Scholarship Winner Receives Much More Than a Free Registration

MEMBER PROFILE

Kim Fleischmann, CFE, Senior Auditor - Global Internal Audit Services
Walmart

When Kim Fleischmann, a born and bred Oregonian, applied on a whim for a student scholarship to attend the ACFE Global Fraud Conference in 2012, she had no idea that she would leave the event with an auditor position with Walmart. “Without the scholarship and conference, I’m not sure when I would have realized what opportunities were available in the private sector,” said Fleischmann. “Ultimately, I believe I ended up where I’m at because of the connections made through the ACFE and my willingness to integrate my experiences into my new career.”

How did you become passionate about fighting fraud?

My passion for fighting fraud has steadily grown throughout my working career. During college, I processed background screenings for rental applications and discovered I loved digging up dirt that people thought they hid. A couple of years after graduating, I worked for a small international fishing company leading the accounts payable department. This was my first experience working for someone whose ethics I questioned. Throughout the next decade, I worked in various companies, good and bad, and continued to have experiences with individuals who walked the fine line between ethical and unethical behaviors. It was during this time that my frustration and passion grew as I continued to see the damage unethical decisions left behind.

How do you think receiving a scholarship to attend the ACFE Global Fraud Conference impacted your career?

Applying for the student scholarship to the ACFE Global Fraud Conference was something I did on a whim. I was close to completing my masters in Criminal Justice Administration, and I was not sure of my next step. The only thing I was sure of is that I wanted to fight fraud and corruption. While at the conference, I approached the Walmart Internal Audit booth in the Exhibit Hall to see what opportunities they had to offer. Before leaving the conference, I had completed an interview. I received a job offer within the month. Throughout my studies, I assumed I would end up in the public arena and never really considered the corporate world, despite having worked in that world for the previous decade. Without the scholarship and conference, I’m not sure when I would have realized what opportunities were available in the private sector.

What is one of the biggest lessons you have learned since becoming a CFE?

I remember someone once saying that fraud is sexy. In the last couple of years, especially since earning my CFE, I would agree with that statement. On the surface, fraud is sexy and fascinating, but it is after you look past the exciting façade and really look at it that you see the infectious and insidious nature that allows it to proliferate. I have discovered that when the CFE credential comes up in conversation most people are intrigued, but tend only to see the sexy side of fraud. Those that are truly passionate are the ones that look beyond the obvious and see the challenges faced in combating fraud and corruption.

What steps led you to your current position?

After one particularly boring day at work, I did some depressing calculations and realized I still had 30 years left before retiring. That, combined with the fact that I never truly loved any job since graduating, prompted me to reassess how I wanted to spend the rest of my working career. Law enforcement had always fascinated me, so I jumped head first into a criminal justice graduate program. It was there I realized how different I was from my classmates as years spent in business gave me a unique perspective. Throughout my studies, I made a conscious effort to grow and expand that perspective through classes, research and networking so that I stood out among my peers. Ultimately, I believe I ended up where I’m at because of the connections made through the ACFE and my willingness to integrate my experiences into my new career.

What is your current role and what does it entail?

As a Senior Auditor within Internal Audit, I am lucky to be a member of a small functional team specifically focused on anti-corruption and fraud prevention. Working with customers in ethics, compliance and legal, my team helps ensure that policies and controls are in place to discourage or detect unethical or fraudulent activity. Additionally, I have the opportunity to encourage and educate others on the risks of fraud within various areas of the company through work with the local ACFE chapter.

What is a memorable case or project that you have worked on? Feel free to alter details to protect confidential information.

My current project is by far one of the most challenging, and rewarding, that I have worked. Presently, my team is traveling the world to assist in reinforcing existing anti-corruption policies and controls. Throughout the project, I have had the privilege of learning the intricate workings of the world’s largest company.  Beyond that, I have seen firsthand the difficulties cultural and ethical difference present when operating in the global sphere.

What activities or hobbies do you like to do outside of work?

I like trying new things and going to places off the beaten track. While at home, I enjoy reading, cooking and enjoying the beauty of Northwest Arkansas. When on the road, I love trying local delicacies and cultural activities. 

To apply for a scholarship to attend the 25th Annual ACFE Global Fraud Conference, contact Lupe DeLeon, Member Services Manager, at LDeLeon@ACFE.com.

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.

The Best — and Biggest — on Earth

PRESIDENT'S BLOG

James D. Ratley, CFE

ACFE President and CEO

If the International Space Station passes over San Diego next week those on board just might be able to make out the largest group of fraud fighters ever assembled. Well, maybe I’m exaggerating a little. But 2,300 fraud fighters will indeed set an all-time attendance record when they gather in “America’s Finest City” for the 22nd Annual ACFE Fraud Conference, June 12-17.

We’ll welcome you with insights on the latest forensic, legal, regulatory and political developments, combined with enough networking and other fun to make your conference a personal and professional success.

We are also proud to announce the publication of ACFE Founder and Chairman Dr. Joseph T. Wells’ 19th book, Fraud Fighter: My Fables and Foibles. Dr. Wells’ autobiography will be on sale at the Conference, and he will attend a book signing Monday afternoon.

Our internationally renowned keynote speakers also have much to share with you. “America’s Most Wanted” host John Walsh will tell how he became an anti-crime activist, and Joan Pastor, PhD, will explain the fraudster psychology insights she developed during her career in government and law enforcement. Likewise, forensic accounting specialist Dr. Howard M. Schilit will spotlight the early signs of financial statement fraud.  And Assistant Attorney General Lanny Breuer will offer an inside perspective on his leadership of the Criminal Division of the U.S. Department of Justice (DOJ).

As you know, insider tips are a prime source of investigative leads for the DOJ and all fraud fighters. That’s one reason for the wide interest in the SEC’s new Whistleblower Program rules, which take effect Aug. 12. As the number of SEC whistleblower cases rises, so will the potential for sometimes controversial parallel proceedings by the DOJ and SEC. More than ever, because of this and other legal complexities, CFEs need to understand factors governing the admissibility of whistleblower-provided evidence that may lead to federal charges against their employers or clients.

Along with the DOJ perspective Breuer will provide, the conference session, “Whistleblowing After Dodd-Frank: A New World,” will help attendees understand the SEC's approach to this important topic. One discussion item you won’t want to miss is the new rules’ position on whether whistleblowers should have to report fraud internally before they do to the SEC.

You’ll find me chatting with members at this and other conference events. I hope to see you soon.