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WCCF - Internal Fraud Investigations - Spinelli
WCCF - Internal Fraud Investigations - Spinelli
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VOLUME 11 NO. 3
YOUR SECRET WEAPON IN THE WAR ON FRAUD MARCH 2009
IN THE NEWS
Joseph Spinelli, Daylight Forensic and Advisory LLC
Mortgage Fraud that Led
to Financial Crisis Leads
to More Mortgage Fraud INTERNAL FRAUD
Y ou’d think that with banks
and other mortgage lenders
tightening up on lending stan- INVESTIGATIONS
dards to strengthen their defenses
against fraudulent loan applica-
tions, mortgage fraud would be on
Critical Resources
the decline.
On the contrary.According to the
Mortgage Asset Reporting Institute
(MARI), a unit of Lexis-Nexis, mort-
fraud investigation.
A
gage fraud actually was sharply ccording to key audit standards, it
higher in 2008. Between 2007 and is management’s responsibility to Solution: Establish an in-house fraud
2008 the number of reported inci- determine if suspicious financial investigation unit (FIU). In all likelihood,
dents of mortgage fraud jumped by activity warrants initiation of a fraud employees with the professional skills
26% to an all-time high, represent- investigation. and background necessary to put such a
ing losses of nearly $25 billion com- Specifically, while internal audit (IA) is team together are already on your pay-
pared with just under $20 billion expected to comply with rules govern- roll. It’s a matter of assembling the team,
for the previous year. ing internal controls over financial establishing its mission and providing it
Disturbing: This trend ran reporting and detection of red flags of with the tools and financial resources to
counter to that in mortgage origi- possible operational fraud, evidence fulfill its duties. Added advantages of an
nations which in dollar terms gathered by IA of suspicious activity in-house FIU:
plunged by nearly 40% between must be evaluated and acted on by man- •Unlike outside investigators, internal
2007 and 2008. agement. FIU members are familiar with your orga-
Possible explanation: “With Unfortunately, many organizations nization’s entity-level operational
fewer loan originations today, the lack a formal fraud management strategy processes and procedures and therefore
data suggests that the economic or programs that can assess fraud risks,
downturn may have created more do not require a “learning curve” to con-
monitor the effectiveness of internal duct an efficient and effective fraud
desperation, causing more people
anti-fraud controls and apply the appro- investigation.
than ever before to try to commit
mortgage fraud,” said Denise James, priate procedures when evidence of •Having an FIU enables management
LexisNexis Risk & Information fraud is discovered—including investiga- to quickly and efficiently investigate tips
Analytics Group director of tions, when necessary. about possible fraudulent activity pro-
Residential Mortgage Solutions. These and other key anti-fraud duties vided by employees via the organiza-
White-Collar Crime Fighter source: and responsibilities should be integral tion’s Sarbanes-Oxley-mandated whistle-
11th Periodic Mortgage Fraud Case elements of an enterprise-wide Fraud blower hotline.
Report to the Mortgage Banker’s Management Program (FMP), established
Association (MBA), by Mortgage Asset •Having an FIU in place and ensuring
Research Institute,www.marisolutions.com.
by management with active oversight by that it performs its duties in all incidents
the audit committee (see White-Collar of internal wrongdoing establishes a pos-
IN THIS ISSUE Crime Fighter,April 2008, page 5). itive impression of the organization in
•LOSS PREVENTION Problem: When evidence requires a the eyes of government investigators and
How to obtain confessions in full fraud investigation, many organiza- prosecutors in the event that a serious
retail fraud cases..................3 tions rely on outside investigative ser- fraud within your organization attracts
•CARD CONTROLS vices to handle the case. This can the attention of these authorities.
Prevent purchase card fraud... 4 become prohibitively costly if fraud
activity increases, as is the case now, due THE FIU TEAM
•INTELLECTUAL PROPERTY to the economic downturn. It can also It is essential that all members of your
Industrial espionage is a serious produce poor results, because a third FIU team have “real-life”experience with
danger in a down economy...... 5 party’s lack of familiarity with your orga- fraud investigations,fraud prevention man-
•THE CON’S LATEST PLOY nization’s unique operational, cultural agement and communication with senior
Law-enforcement successes and compliance functions can under- management and outside authorities.
from around the country........ 7 mine the effectiveness of an internal Your FIU should be headed by an indi-
WHITE-COLLAR CRIME FIGHTER