prevent procurement fraudulent T&E reports, firing your emotional discerning predication best defense?

‘leakages’ P. 12 ethical lapses P. 20 intelligence P. 26 to examine P. 40 a good offense P. 46

VOL. 35 | NO. 6 | NOVEMBER/DECEMBER 2020

Fraud-Magazine.com

DUSTINGyourDATA

for
FRAUD'S
F INGERPRINTS
P. 32
Learn from the acclaimed authority on Benford’s Law
on how numbers can become your best friends.
S TAT U S Q U O I S C H A I N E D TO T H E PA S T.

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© 2020 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd. In the U.S., visit gt.com for details
 FROM THE PRESIDENT CONNECT WITH US
FM

Number-pattern tests, like

Read more Fraud
Magazine content online
at Fraud-Magazine.com.

Benford’s, are still valuable FM

W e’ve all been there in a fraud examination.

You’re looking at financial statements, invoice
amounts or expense reimbursements that
appear normal, but you know in your gut that something is
Download the Fraud
Magazine app for
iPhone or Android.

wrong. The numbers just don’t feel right, but it’s not obvious.
Like Alice going down a rabbit hole, you’re becoming
“curiouser and curiouser” about what you’re inspecting.
Mark Nigrini, Ph.D., a leading Benford’s Law expert, Like the ACFE on
Facebook for the latest
writes the excellent, detailed cover article on six typical num-
news, photos, videos and
ber patterns (including Benford’s) that you can search for dur-
exclusive online content.
ing your cases to possibly find fraud. Most of us use modern
continuous audit techniques and data analytics tools, but it’s
valuable to revisit some rock-solid detection methods.
Benford’s Law tells us the distribution of digits in multi-
digit natural numbers isn’t random but follows a predictable Follow @TheACFE
pattern. Certain digits will show up more than others. For on Twitter and keep
example, you’ll see more 1s than 2s, more 2s than 3s, and so informed on breaking
news and industry trends.
on. Fraudsters either aren’t cognizant of this law and the
other number patterns Nigrini covers, or they don’t know
how to override them. They often manipulate numbers to try to fly under the radar, but their data altera-
tions always tell a story.
I can recall seeing several illegal payments beginning with “9” or many round numbers in several Make connections with
cases I prosecuted. And I remember procurement fraud cases in which government officials knew the ex- fellow fraud fighters in
act authorization limits, but they thought they could avoid detection when they bumped up the amounts. the ACFE Community at
As Nigrini writes, fraudsters “don’t know when to stop.” They might start small and carefully, but Connect.ACFE.com.
after their initial success they often become brazen and greedy. The numbers and frequencies begin to
increase unnaturally, and these established number-pattern tests will catch them. That’s when you can
isolate transactions for further review.
The ACFE Report to the Nations (ACFE.com/RTTN) demonstrates that organizations with anti-fraud View stories and photos
controls discover frauds faster and lose less than their counterparts who don’t. CFEs who are trained on Instagram and never
in fraud detection techniques, including recognizing number patterns, of course, help organizations miss exclusive Fraud
reduce their fraud losses. Magazine content.
Unfortunately, in the ACFE’s recent study on the impact of COVID-19 (ACFE.com/covidreport), more
CFEs are seeing reductions in their anti-fraud budgets. Now isn’t the time to cut controls as financial
pressures mount. We can’t let our guard down, especially in a pandemic. We must remain vigilant in
reducing the opportunities for fraudsters to thrive.
“All fraudsters think they’re unique,” Nigrini writes. But CFEs can prove fraudsters wrong with
CONTRIBUTE
Share your expertise
number-pattern procedures. Though we depend on high-tech, fraud-detection tools, Nigrini shows us
and earn up to 10 CPE
that decades-old discovery methods are still valuable. ■ FM credits annually for your
published work. Visit
Fraud-Magazine.com/
Bruce Dorris, J.D., CFE, CPA, is president and CEO of the ACFE. Reach him at:
getpublished.
President@ACFE.com.

FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020 FRAUD MAGAZINE 3

 Contents Volume 35, No. 6, November/December 2020

COVER STORY

32
Dusting your data for
fraud’s fingerprints:
Six number patterns
that fraudsters use
By Mark J. Nigrini, Ph.D.

Fraudsters tend to steal in similar ways.

Here are six number patterns you
can search for and possibly find hid-
den fraud. Learn from the acclaimed
authority on Benford’s Law on how
32 Dusting your data for fraud’s fingerprints numbers can become your best friends.

FEATURES

20 Fraudulent t&E ReportS 26 Emotional Intelligence 40 Predication

Fraudulent T&E reports can Predication or not? Discerning when

indicate greater ethical lapses
By Matt Molchany, CFE 20 it’s time to begin a fraud examination
By Dick Carozza, CFE 40
Set fire to your Best defense is a good offense:

26
‘emotional intelligence’ Anti-Fraud Playbook provides practical,

46
By Mandy Moody, CFE actionable guidance
By Sophia Carlton, CFE; and James Ruotolo, CFE

4 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020 FRAUD-MAGAZINE.COM

 Publisher John Gill, J.D., CFE
Editor-in-chief Dick Carozza, CFE
Contributing Editors
Cora Bullock, Scott H. Patterson, Randi Zimmer,
CFE

COLUMNS AND DEPARTMENTS Legal Editor Ron Cresswell, J.D., CFE

FROM THE PRESIDENT
Number-pattern tests, like
Benford’s, are still valuable
By Bruce Dorris, J.D., CFE, CPA
FRAUD IN THE NEWS
COVID-19 ripoff, Wirecard
fraud tentacles and more
Compiled by Dick Carozza, CFE
CASE IN POINT
Doctoring the books
By Joshua Wiesenfeld, CFE, CPA
CAREER CONNECTION
‘Moneyball’ leadership:
Developing leaders from
3 within to help deter fraud
By Donn LeVie Jr., CFE
FRAUD SPOTLIGHT
Keeping tax-supported
6 officials around the globe
accountable
By Haluk Ferden Gursel, Ph.D.,
CFE, CPA
8 CMA, CPA (Texas); Dorothy Riggs, CFE; Daniel Semick,
FRAUD BASICS
Dealing with narcissistic
Contributing Writers
Robert Tie, CFE, CFP; Donn LeVie Jr., CFE
Art Director Becky Plante, CFE
Designers Jennifer Rother, Tracy Paccone
Circulation Manager Aimee Jost, CFE
Advertising Coordinator Travis Kolaja
54 Contact: (800) 245-3321 | tkolaja@ACFE.com
Editorial Advisory Committee
Jonathan E. Turner, CFE, CII, chair; Emmanuel A. Ap-
piah, MBA, CPA, CFE; Johnnie R. Bejarano, DBA, CFE,
CPA, CGMA; Richard Brody, Ph.D., CFE, CPA; Jeimy
J. Cano, Ph.D., CFE, CAS; Courtney Castelino, CFE,
CPA, CA, CBV, CFF; Franklin Davenport, CFE; David J.
Clements, CFE; Peter D. Goldmann, CFE; Katya Hirose,
J.D., CFE, CAMS; Robert Holtfreter, Ph.D., CFE; Robert
Kardell, CFE, CPA; Thomas Cheney Lawson, CFE, CII;
Philip C. Levi, CFE, CPA, FCA; Robert Loh, CFE, CFCS,
58 CIRA; Larry Marks, CFE, CISA, PMP, CISSP, CSTE;
Jimmy S. Pappas, CFE; Cecily Raiborn, Ph.D., CFE,
MPA, CFE, CGFM; Katharina Shamai, CFE, CIA, CA,
IIA; Herbert Snyder, Ph.D., CFE; Stéphane Vuille, CFE,
PCI

interviewees 2020-2021 Board of Regents

Lyn Cameron, CFE, LL.B; Kenneth R. Dieffenbach, CFE;
By Benjamin Schorn, CFE 62 Bruce Dorris, J.D., CFE, CVA, CPA; Eric R. Feldman, CFE;
Bethmara Kessler, CFE; Jeanette LeVie, CFE; Victoria
Meyer, CFE, FCCA, MICA; John Warren, J.D., CFE

Fraud Magazine (ISSN 1553-6645) is published bimonthly

by the Association of Certified Fraud Examiners, 716 West
Avenue, Austin, TX 78701-2727, USA. Periodical postage
paid at Austin, TX 78701 and at additional mailing offices.

Postmaster — Please send address changes to:

Fraud Magazine | ACFE Global Headquarters
8 Doctoring the books 716 West Avenue | Austin, TX 78701-2727, USA
(800) 245-3321 | +1 (512) 478-9000
Fax: +1 (512) 478-9297

INNOVATION UPDATE
Prevent procurement
‘leakages’ and save
precious working capital
By Vincent M. Walden, CFE, CPA
TAKING BACK THE ID
IRS telephone scams,
remote-working risks and
VPNs for tax pros
By Robert E. Holtfreter, Ph.D.,
CFE
Subscriptions
ACFE members: annual membership dues include
$45 for a regular one-year subscription; $15 for an
electronic member subscription, and $15 for student
and retired member subscriptions. Non-member sub-
scription rates are $65. Membership information can
68 Priti Amin, CFE be obtained by visiting ACFE.com or by calling (800)
245-3321, or +1 (512) 478-9000. Change of address
12 notices and subscriptions should be directed to Fraud
Magazine. Although Fraud Magazine may be quoted
I’M A CFE with proper attribution, no portion of this publication
may be reproduced unless written permission has been
Priti Amin, CFE obtained from the editor. The views expressed in Fraud
By Dick Carozza, CFE 68
Magazine are those of the authors and might not re-
flect the official policies of the Association of Certified
Fraud Examiners. The editors assume no responsibility
for unsolicited manuscripts but will consider all submis-
ACFE NEWS 70 sions. Contributors’ guidelines are available at Fraud-
Magazine.com. Fraud Magazine is a double-blind,
peer-reviewed publication.
16 CPE QUIZ 72 To order reprints, visit Fraud-Magazine.com/reprint or
email reprints@fraud-magazine.com.
© 2020 Association of Certified Fraud Examiners, Inc. “ACFE,” “CFE,” “Certified
Fraud Examiner,” “CFE Exam Prep Course,” “Fraud Magazine,” “Association of
Certified Fraud Examiners,” “Report to the Nations,” the ACFE Seal, the ACFE
Logo and related trademarks, names and logos are the property of the Association
of Certified Fraud Examiners, Inc., and are registered and/or used in the U.S. and
countries around the world.

FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020 FRAUD MAGAZINE 5

 FRAUD in the news
Defense contractor
allegedly rips off
$12.8 million in
COVID-19 relief aid
Opportunists with no consciences always
use crises to commit fraud. The U.S.
Department of Justice (DOJ) recently
arrested and charged Martin Kao, 47,
the CEO of Martin Defense Group of
Honolulu, for allegedly bilking $12.8 mil-
lion in coronavirus relief aid earmarked
for small businesses.
The DOJ charged Kao with bank
fraud and money laundering for falsify-
ing loan applications for the Paycheck
Protection Program (PPP) that Congress
created as part of the $2 trillion CARES
Act.
According to the criminal complaint,
Kao lied to lenders about how many
employees he had so he could receive
more money than he was eligible for. The
complaint said he told a bank that he
had nearly 500 employees when he had
fewer than 150. He allegedly used his
subsidiary companies to hide that he’d
already obtained PPP loans from other
institutions.
The criminal complaint describes
how Kao tried using his U.S. Senate
connections to convince banks to fork
over the bucks. Kao emailed a bank ex-
ecutive on April 2 that he works “very
closely” with several U.S. senators who
were champions of the CARES Act. He
said he wanted to provide lawmakers
with a positive story about securing a
loan — his own.
(See “Prominent Hawaii Defense
Contractor Arrested For CARES Act
Fraud,” by Nick Grube, Honolulu Civil
Beat, Sept. 30, tinyurl.com/yxgosp65.)
6 FRAUD MAGAZINE JULY/AUGUST 2019
Read more news at Fraud-Magazine.com
Singapore charges businessman
for claiming he held $1 billion
for Wirecard
R. Shanmugaratnam, a Singapore businessman, faces
11 charges for falsely claiming he held about $558 mil-
lion (475.5 million euros) on behalf of infamous Ger-
man payments business Wirecard AG. This accusation
follows six earlier charges against Shanmugaratnam.
The 11 charges cover more than $1 billion (868 million euros) in cash.
According to Singapore court documents, this director of Citadelle Corporate Ser-
vices Pte was charged with five counts of “willfully and with intent to defraud” falsifying
letters to Wirecard, Wirecard UK & Ireland Ltd. and Cardsystems Middle East FZ LLC.
The charges say Shanmugaratnam falsely stated he’d held about 378 million euros
in escrow across multiple accounts as of December 2016 and 97.5 million euros as of
November 2016 in another account.
Singapore is home to Wirecard’s Asia-Pacific headquarters. The region accounted
for almost 45 percent of the groups reported revenue in 2018.
(See “Singapore Businessman Charged With $558 Million Wirecard Fraud,” by
Chanyaporn Chanjaroen, Bloomberg, Oct. 1, tinyurl.com/y6sfswrx.)
IMAGE: Alexander Hassenstein / Getty Images Europe
Grand Prix CFO’s tax-defrauding racer stalls
According to The Boston Globe, JOHN obtained more than $145,000 in small
F. CASEY, 56, the former CFO of the business loans for the rink business
defunct Boston Grand Prix race, was re- even though he’d sold it more than two
cently arrested on charges he allegedly months earlier.
failed to report income he received as a Prosecutors said Casey also is
race executive, and plotting to defraud charged with allegedly LAUNDER-
equipment and small business financ- ING FUNDS from his fraud and with
ing companies. failing to include the income on his
Prosecutors say the Grand Prix TAX RETURNS.
group made payments to or on behalf (See “Former Boston Grand Prix
of Casey totaling $308,292 in 2015 and CFO arrested for alleged tax and
$601,073 in 2016, which he allegedly fraud scheme,” by Travis Anderson,
“failed to include in the gross income Boston Globe, Sept. 29, tinyurl.com/
he claimed on his personal tax returns y2z57rnm.)
for those years.”
Prosecutors also allege that Casey
secured more than $743,000 in funds
from equipment financing companies
purportedly to buy equipment for an ice
rink he owned. They say he allegedly
FRAUD-MAGAZINE.COM
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 CASE IN POINT Case history applications

Doctoring the books

These case studies will help inoculate medical practices against fraud through
sound ACFE principles — from financial oversight to segregation of duties.

A
former dental office employee
I recently met, after hearing
that I’m a CFE, immediately
began to fill me in about an embezzle-
ment his former workplace suffered. I
smiled wryly as the narrative unfolded.
This wasn’t the first time a member of
the medical industry shared this kind of
story with me. Indeed, this reaction is
almost de rigueur.
Medical establishments are unique-
ly vulnerable to fraud their employees
perpetrate. Doctors, dentists and their
ilk generally prefer to focus on caring for
their patients rather than attending to
dry, business-related tasks necessary to
operate functioning practices.
Physicians in smaller practices,
especially, are likely to trust just one or
two individuals to handle every finan-
cial aspect of the business — including
receipts, invoices and bookkeeping. Medi-
cal practices are ripe for exploitation.
Through my work investigating
medical employee fraud and speak-
ing to victims, I’ve noticed emerging
patterns. These case studies, which
I’ve collected through my work experi-
ences, exhibit some common red flags
of fraud-susceptible medical practices.
I’ve changed names and places.
Ignorance of financial
operations
In 2004, Benjamin Perlman, a Boston-
based dentist, interviewed a young
woman, Tina, to fill the business manager
position at his practice. Tina was smart,
confident and knowledgeable. He hired
her on the spot.
Perlman had a lot going on in ad-
dition to his dental practice. He ran a
charity dental clinic in the Middle East
and held several real estate interests.
He didn’t have the time or proclivity to
manage the tiresome details of running
his busy practice. Perlman felt that Tina
could free him of that responsibility.

8 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020 FRAUD-MAGAZINE.COM

 She proved uber-competent, so
Perlman trusted her implicitly. He
totally removed himself from financial
operations and allowed her to run the
practice as she saw fit. Tina opened all
mail and cut every check, including her
own paycheck. She made all the bank
deposits and became well-acquainted
with the bank employees. They knew
that her boss trusted her and authorized
her every request.
After about a year, Perlman began
to notice that the business checking ac-
count seemed to be perpetually short on
funds. He chalked it up to a temporary
dip in business and didn’t give it much
thought. He knew Tina had everything
under control. One morning soon after,
however, the bank notified Perlman that
four checks had bounced. Confused,
he paid a visit to the bank. The teller
produced copies of the day’s checks for
review. Perlman scanned the images
and felt a pit form in his stomach. The
very first check amounted to $1,500 —
and was made out to Tina.
Perlman quickly asked to see all
the practice’s activity for the last 30
days. He did some quick calculations
and realized that, during this period,
Tina had paid herself $10,000 on top of
her normal paycheck. He immediately
placed two phone calls. The first was to
his accountant; the second was to the
police. When Tina arrived to work that
morning, two officers awaited her. She
wordlessly supplied the officers with
her lawyer’s business card and present-
ed her wrists to be handcuffed.
Perlman ultimately discovered
that Tina had embezzled more than
$100,000 from his practice during her
year of employment. And he wasn’t
Tina’s first victim — she’d executed the
same scheme at several other practices.
Tina’s total ill-gotten gains had exceed-
ed $500,000.
COLUMNIST
JOSHUA
WIESENFELD,
CFE, CPA
FORENSIC ACCOUNT-
ING SUPERVISOR,
WISS & COMPANY
Take control of your
books and protect
your practice. Maybe
it’s boring and
tedious. But better
bored than defrauded.
She was sentenced to two years in
federal prison and deported to her na-
tive Vietnam after her release. Perlman
wasn’t able to recover all the stolen mon-
ey, and he had to borrow money from his
sister to make it through the year.
Perlman now regularly reviews all
the practice’s financial records. He also
personally cuts every check and has all
business mail delivered to his house.
He’s determined to never be victimized
this way again.
Insufficient oversight
The billing department at the Frank-
lin Group, which ran a chain of pain-
treatment centers, received a call from
a patient, Gilbert Moriarty. Moriarty
had found a credit card charge of $3,500
from the Franklin Group, but his copay
should’ve been only $35. Clearly, a Frank-
lin employee inadvertently added two
zeros to the charge.
The billing department reviewed
their records and found another prob-
lem. The Franklin Group had already
issued a refund for the balance. Oddly,
FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020
the check for $3,465 wasn’t mailed to
Moriarty, but to an Anita Gonzalez at a
totally unrelated address.
Franklin’s billing department placed
a call to Gonzalez and asked her if she’d
received a check from the Franklin
Group for $3,465. “I did,” she replied.
“My mother works at Franklin. I’ll check
with her and see if she knows anything
about this.”
The billing department found that
Gonzalez’s mother, Amy Lopez, worked
as a payment poster. Lopez was respon-
sible for recording patients’ payments
and alerting the accounting department
when a patient overpaid so it could
issue a refund. Lopez was immediately
escorted off the premises.
A subsequent investigation found
that Lopez had manipulated the refund
system so she could embezzle $50,000
within three years. Lopez would iden-
tify her victims by studying a master
schedule of stale payments, which
management rarely, if ever, reviewed.
Lopez would change patient names and
addresses to that of her family members
in the computer system. Once account-
ing would issue a refund, Lopez would
change the information back to the
patient’s.
We spoke to every payment poster
at Franklin. They all told us they didn’t
need the ability to alter demographic
information to perform their jobs.
Therefore, Franklin payment posters are
no longer able to change demographic
information, and management now
reviews the payment schedule each
month.
Duties aren’t segregated
Steven Walsh’s father died when Steven
was still a boy, and his uncle, Henry
Walsh, assumed the role of father figure
to his young nephew. When Steven went
off to college, Henry encouraged his
FRAUD MAGAZINE 9
 NEW! DOCUMENTARY SELF-STUDY CPE COURSE

CASE IN POINT

nephew to follow in his footsteps and

become a doctor. Steven did so, even
attending the same medical school as
his uncle. He ultimately joined Henry’s
orthopedics practice.
Five years into the venture, Ste-
ven’s wife, Linda, grew suspicious. She NEW!
consistently earned more money in her
job as a physical therapist than did her
orthopedist husband even though his
practice was busy. Henry’s wife, Debbie,
kept the company’s books and handled
all the practice’s mail. Henry assured
Steven that his low salary was the
result of a struggling practice. Steven
trusted his aunt and uncle — the last
thing he wanted to consider was that
they were swindling him.
Collared: A Story of Insider
Debbie eventually convinced Ste-
ven to approach his uncle and ask for
Trading and White-Collar Crime
access to the company’s books and tax
returns, but Henry repeatedly rebuffed
This unique online self-study course includes the feature-length documen-
Steven. One afternoon, while Steven
was chatting with the billing manager, tary, “Collared: A Story of Insider Trading and White-Collar Crime.” In the doc-
he casually mentioned that the practice umentary, you will learn about the most prolonged insider trading scheme
was doing poorly. The billing manager ever discovered by American and Canadian securities investigators from
gave Steven a quizzical look. “What are leading scholars, experts and the fraudster that perpetrated the scheme.
you talking about?” she asked. “We’re
clearing millions every year.” In this course, you will learn what constitutes insider trading and the ways
Steven promptly hired an attorney that inside traders rationalize their criminal behavior. Additionally, you will
and a team of CFEs. The team ulti- discover methods used by insider traders to avoid detection and ways to
mately uncovered almost $2 million in
identify and prevent insider trading.
damages and discovered that Henry
and Debbie Walsh had paid all their
personal expenses through the practice
YOU WILL LEARN HOW TO:
and drew unusually high salaries. In • Differentiate what constitutes insider trading
CPE Credit
concert with their CPA, they’d hid their • Recall ways that insider traders rationalize 4
fraudulent activity from Steven for five their criminal behavior
years. • Identify the consequences of an insider
Steven eventually settled with his trading conviction
aunt and uncle out of court and took • Determine ways to identify and prevent
Course Level
over as full owner with total access to insider trading
Overview
the financial records. He now runs a • Recognize methods used by insider traders
thriving practice, but he hasn’t recov- to avoid detection
ered from the emotional toll of his
uncle’s betrayal.
$159.20 Members / $199 Non-Members Prerequisite
None

10 FRAUD MAGAZINE
Visit ACFE.com/Collared to learn more.
 One afternoon, while Steven was chatting with the would’ve struggled to hide his illicit
financial activity.
billing manager, he casually mentioned that the
• Familiarize yourself with the book-
practice was doing poorly. The billing manager gave keeping and business side of your
Steven a quizzical look. “What are you talking about?” practice. Franklin employees know
that, after the Lopez incident, the
she asked. “We’re clearing millions every year.”
chances of getting anything by
management are slim to none. The
Better bored than defrauded • If you run a small practice, don’t en- knowledge that you regularly review
Unfortunately, none of these cases are trust an employee to cut checks. Write the books should be enough to deter
unique. Medical partner fraud is more the checks yourself. It’s too easy for an most ethically challenged employees
employee to take an unauthorized cut from defrauding the practice.
common than most medical profession-
Take control of your books and
als realize. Medical practitioners who of your earnings. Remove that tempta-
protect your practice. Maybe it’s bor-
wish to avoid employee fraud can take tion and avoid defalcation.
ing and tedious. But better bored than
these steps to protect their practices. • Properly segregate duties. Henry and defrauded. ■ FM
• Consider having business mail sent to Debbie Walsh were able to cheat their
your home, a step Perlman adopted. nephew for five years because they Joshua Wiesenfeld, CFE, CPA, is
This will minimize, if not eliminate handled the books and taxes. Had a financial investigator at Labaton
entirely, the opportunity for employ- Steven been responsible for some of Sucharow, LLP. Contact him at Joshua.
ees to tamper with correspondence. the practice’s fiscal tasks, his uncle wiesenfeld@gmail.com.

Are you
winning the fight
against fraud?
SPEND LESS TIME ACQUIRING AND ANALYZING DATA AND
MORE ON STOPPING FRAUD

Helping you manage robust anti-fraud or anti-bribery programs from

detection through to case resolution—to protect your organisation’s
integrity and to meet your anti-fraud compliance obligation.

Ready to focus with HighBond?

See how FraudBond can work for you: wegalvanize.com/fraud-risk-management/

 INNOVATION UPDATE
Prevent procurement ‘leakages’
and save precious working capital
Given the current economic climate and regulatory expectations,
monitoring procurement spending for fraud, waste and abuse
(aka “leakage”) is even more important. We can proactively monitor
procurement data via big data analytics, which will reveal transactions that
are fraudulent or diminish working capital.
C hief financial officers (CFO) are
always looking for opportunities
to optimize working capital and
plough it back into their businesses.
(Working capital is the money a busi-
ness uses in its daily operations. It’s cal-
culated as current assets minus current
liabilities.)
Let’s say your CFO uses a fraud risk
management program to save your orga-
nization 1% to 5% of total procurement
spending by finding improper expen-
ditures. If your organization invests a
fraction of this savings it will increase its
bottom line.
So, if your annual procurement
spending was $50 million, you could
retrieve $500,000 to $2.5 million in
recoveries or cost savings with minimal
personnel and financial investment.
Would you do it? I’m sure your answer is
an unequivocal yes.
The timing has never been better
to implement monitoring mechanisms
to forensically mine procurement data
for potential irregularities. Improved
compliance and anti-fraud monitoring
technologies use advanced data analyt-
ics, automation and intelligent risk-
scoring techniques. Organizations can
now deploy comprehensive spending
12 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020
Practical anti-fraud ingenuity
COLUMNIST
VINCENT M.
WALDEN, CFE, CPA
MANAGING DIRECTOR,
ALVAREZ & MARSAL’S
DISPUTES AND INVESTI-
GATIONS PRACTICE
The timing has never
been better to imple-
ment monitoring mech-
anisms to forensically
mine procurement
data for potential
irregularities.
analytics cheaper and faster than tradi-
tional tools or controls.
Analytics help break silos and
holistically view fraud risks
Organizations must thoroughly under-
stand the interrelated activities within
their procurement processes, such as
vendor due diligence, contract terms,
purchase orders, invoices, receipt of
FRAUD-MAGAZINE.COM
goods and payment activities to effec-
tively combat procurement fraud and
coalesce several skill sets to design fraud
control processes.
Too often, we see compliance or
investigations operating separately
and independently from procurement,
finance or even internal audit. Depart-
ments don’t have insight into what their
colleagues are pursuing, which can lead
to duplication of efforts and data “silos”
of potentially incomplete information.
A chief compliance officer (CCO)
needs to amalgamate expertise from
manufacturing, procurement, account-
ing, investigation and legal departments
when they design a fraud risk manage-
ment process. Organizations also must
use data science and anti-fraud exper-
tise to combine these skills in designing
risk algorithms that help prevent and
detect payment irregularities. As anti-
fraud professionals, we often can bring
these teams together to design preven-
tive solutions.
The Institute of Internal Auditors
(IIA) recently highlighted dismantling
work silos so business functions could
better collaborate in its “Three Lines
Model,” a July 20 update to its widely
accepted “Three Lines of Defense.” (See
tinyurl.com/y46z8bkd.)
 The IIA model suggests that
among all risk management roles of
the organization, “The governing body,
management, and internal audit have
their distinct responsibilities, but all
activities need to be aligned with the
objectives of the organization. The basis
for successful coherence is regular and
effective coordination, collaboration,
and communication.”
In my March/April 2020 column,
“Avoiding the DOJ’s Red Flags of Collu-
sion,” I explored the efforts of the U.S.
Department of Justice’s recently formed
Procurement and Collusion Strike Force.
(See tinyurl.com/y6omg5hm.) In this
column, I’ll focus more on potentially
improper payments, which can include
conflicts of interests, high-risk or shell
companies, bribes and kickbacks,
fraudulent payments processing and
material pricing frauds, among many
others.
Some of my preferred
procurement leakage analytics
My friend, David Coderre, wrote one of
my favorite reference books, the 2009
“Computer-Aided Fraud Prevention
and Detection,” that still helps ignite
my passion for anti-fraud analytics. In

Source Determination Vendor Selection

• Leaking advance knowledge of procurement activity giving • Conflicts of interest between evaluating members and vendors.
extra time and context to selected vendors invited for bids.
• Approvals for pricing schedules that might result in over-charging (e.g.
• Structuring contracts payment schedule and terms and clauses relating to travel and sub-contracted procurement by vendors).
conditions that may result in over-invoicing by vendors (e.g.
• Bid rigging in which a set of bidding forms indulge in collusive
selecting a cost reimbursement payment model instead of a
price-fixing to guarantee selection of at least one member.
fixed price one).

Goods receipt
• Product substitution: accepting
substandard goods for the same price
as the ones agreed in original contract. Payment Processing
Common • Duplicate payments made to a vendor
without services rendered to justify the
second payment. A vendor colluding with

Buying Procurement an employee normally commits this fraud.

• Manual/long open POs. Fraud Schemes • Changing the vendor master file so
payments can be routed to parties not
• Unauthorized changes to POs. originally part of the agreement.
• Unjustified terms
(e.g. advance payment).

Requirements buying definition Invoice verification

• Creating product requirements that favor a • Phantom vendor-employee establishes a fictitious vendor
specific bidder. and submits false invoices for payment.

• Inadequate market research that results in unneces- • Kickbacks often facilitated through accounts payable: A
sary restrictions in competition. company or individual submits an invoice for services that
never occurred or is inflated by the amount of a kickback.

Interrelated activities in the procurement-to-pay process and fraud schemes at each stage

FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020 FRAUD MAGAZINE 13

 INNOVATION UPDATE
the appendix, Coderre lists hundreds of
rules-based tests that fraud examiners
can deploy on procurement spending.
In collaboration with the Committee of
Sponsoring Organizations (COSO) of the
Treadway Commission, the ACFE also
maintains an online library of sample
analytics, divided by fraud scheme, at
ACFE.com/fraudrisktools. I contributed
to the development of this library.
Just like enthusiasts collect baseball
cards or rare coins, I’ve been creating
a library of anti-fraud tests gathered
from my investigative experiences and
networking with fellow fraud fighters at
ACFE conferences or at client locations.
Here are some of my favorite procure-
ment fraud risk tests for discovering
various fraud schemes, many of which
are in the procurement-to-pay (P2P)
cycle. (See the figure on page 13.)
Cash disbursements
• Find duplicative payments as evi-
denced by exact match in invoice
number, invoice date, purchase order/
reference, amount — among many
other duplicate combinations.
• Analyze weekend and holiday
payments.
• Search payment dates prior to invoice
or purchase-order dates.
• Find payments approved by the same
person who created the payment.
• Look for invoiced vendor informa-
tion not matching purchase-order
information.
Vendor management and fake
vendor schemes
• Identify duplicate vendor numbers or
names in the master vendor file.
14 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020
Practical anti-fraud ingenuity
• Ascertain dormant vendors who’ve
had, for example, no activity for more
than a year but suddenly receive
payments.
• Discover vendors with missing or
incomplete information such as tax
IDs, website addresses and phone
numbers.
• Review vendor due diligence ques-
tionnaires for suspicious language, or
conduct adverse media or watchlist
scans on high-risk vendors.
Conflicts of interest
• Identify database linkages between
the employee and vendor master —
addresses, phone numbers (including
spouse emergency contact numbers)
and bank account information,
among others.
• Check for unusual preference given to
vendors, such as pricing or discounts,
and then examine whether any of
the employees hold any undisclosed
interests in those vendors.
Bribery and kickback schemes
• Compare order quantity to optional
reorder quantity.
• Check for any vendor with an ir-
regular share of the business, and
then check for any directorship or
shareholding by any of the company
employees with these vendors.
• Conduct text mining of payments for
kickback-related terms such as “fa-
cilitation pay,” “friend fee” and “help
payment.”
• Find excessive or frequent payments
made to charities, luxury retailers
(for expensive gifts) or miscellaneous
journal-entry accounts.
FRAUD-MAGAZINE.COM
• Identify payments made to state-
owned entities or organizations with
close relations to government entities.
Raw material pricing frauds
• Check for a supplier charging a differ-
ent price for a similar “stock-keeping
unit,” or SKU.
• Examine suppliers’ pricings at differ-
ent purchase locations.
• Look for purchase-order prices that
are different from contracted prices
for the same materials.
• Check for different payment terms for
the same suppliers.
Caution: These lists of anti-fraud tests
are only representative and intended
to spark ideas. It’s important that you
align your final list of tests with your
organization’s fraud risk assessment
results and customize them to your
specific industry, business and
prevailing risk dynamics.
Use advanced data science
to look for irregularities
Aim to have your analysis experts run
all tests on an entire population of data
to get maximum results. Don’t apply
individual tests or rules to procurement
data in isolation because they won’t
provide your desired results or return on
investment. Have them combine differ-
ent tests to see what will be applicable to
high-risk transactions.
Run all transactions through your
testing algorithms. The analytics will ap-
ply each test on all the transactions and
assign a risk score to each transaction
depending on the number of transac-
tion matches. “Many of these complex
linkages and anti-fraud tests are now
scripted and automated, with integrated
machine learning. A 200- to 300-hour
process now takes 20 to 30 hours to
 run,” says Anil Kona, CEO of Spectrum
Data Science Corporation.
Now, simply count up the risk
scores to lead you to the riskiest transac-
tions that might be potential improper
payments.
It’s amazing how efficient
you can be when you sort
tens of thousands of sup-
pliers and you focus on
the top five or 10 based
on their payment activity.
Naturally, each high-risk payment
is also linked to a vendor, which then
allows you to also risk-rank your top
vendors. It’s amazing how efficient you
can be when you sort tens of thousands
Business Email Compromise (BEC)
fraud is arguably the more pervasive
and persistent financial crime
challenge facing U.S. businesses.
Combat BEC Fraud with NICE Actimize:
Define Detect
Learn More
info@niceactimize.com | www.niceactimize.com/blog |
of suppliers and you focus on the top five
or 10 based on their payment activity.
Thankfully, advancements in auto-
mation and application of data science
are helping compliance and anti-fraud
teams achieve a five to 10 times return
on procurement- spending investment
in as little as three to four weeks.
Maximize your savings
A successful data analytics program on
procurement spending has several mov-
ing parts. All of them need to be perfect-
ly aligned to give the best results. Your
chances of finding those cost savings of
1% to 5% on the overall procurement
spend population will be maximized
when you put these into practice:
• Dismantle functional silos to bring
together skills and expertise from
diverse sources to design the most
optimum solution.
Defend
@nice_actimize | linkedin.com/company/actimize |
• Select the appropriate tests for pro-
curement fraud risk identification in
collaboration with all stakeholders in
the P2P process.
• Combine the correct continuous-mon-
itoring data automation, data integra-
tion and risk-scoring techniques.
Happy hunting! n FM
Vincent M. Walden, CFE, CPA, is
a managing director with Alvarez &
Marsal’s Disputes and Investigations
Practice and assists companies with
their anti-fraud, investigation and com-
pliance monitoring programs. He wel-
comes your feedback. Contact Walden
at vwalden@alvarezandmarsal.com.
Walden thanks his colleague, Varun
Mowar, who contributed to this article.
Contact Mowar at vmowar@alvarezand-
marsal.com.
facebook.com/NICEActimize
 TAKING BACK THE ID Identity theft prevention analysis

IRS telephone scams,

remote-working risks
and VPNs for tax pros
The IRS won’t call you or text you to threaten jail. And the pandemic
has created security threats and opened new opportunities for cybercrimi-
nals. Plus, tax pros need VPNs.

H as this happened to you? A

caller, claiming to be from
the U.S. Internal Revenue
Service (IRS), rings you in the middle of
COLUMNIST
ROBERT E. HOLT-
FRETER, PH.D., CFE
PROFESSOR OF
artists might also use fake names and ID
numbers, and leave supposedly urgent
call-back numbers if the intended vic-
tims don’t answer the calls.
the day. Apparently, you need to settle Here are five things the IRS will
ACCOUNTING AND
a tax-related charge, or you’ll be taken RESEARCH never do:
to jail. You’re the target of a typical IRS • Call you about taxes you owe without
telephone scam. (See “Worried About first mailing you an official notice.
the IRS Scam? Here’s How to Handle These spear-phishing • Demand you pay taxes without giving
Phone Fraud,” by Christine Hauser, The
New York Times, July 26, 2018, tinyurl.
IRS telephone scams you the opportunity to question or ap-

com/yc2tmfbo.)
Ways to identify IRS
telephone scams
IRS telephone scams have been
around for years. In a 2018 alert, the
IRS informed taxpayers about ways to
spot fraudulent telephone scams by
fraudsters impersonating IRS officials
(tinyurl.com/y5m3rc92).
The scam artists’ scripts vary, but
they typically mention that the recipi-
ent of the call has a refund due or might
threaten them by demanding money.
Regardless of the script, the main inten-
tion of the scam is to get individuals to
unload their personally identifiable in-
formation (PII) so the criminals can use
it for fraudulent purposes. When the IRS
wants to discuss personal tax issues, it
can be convincing
because the caller
appears to know a lot
about the individuals
and they even change
their caller IDs to
appear legitimate.
doesn’t use email, text messages or any
social media to contact taxpayers.
These spear-phishing IRS telephone
scams can be convincing because the
caller appears to know a lot about the
individuals and they even change their
caller IDs to appear legitimate. The scam
peal the amount they say you owe.
• Require you to use a specific payment
method for your taxes, such as a pre-
paid debit card.
• Ask for credit or debit card numbers
over the phone.
• Threaten to bring in local police or
other law enforcement groups to ar-
rest you for not paying.
The IRS offers this advice if you
get a phone call supposedly from them
requesting money:
• If you know or think you might owe
taxes, call the IRS at 1-800-829-1040.
• If you know you don’t owe taxes,
report the incident to the Treasury
Inspector General for Tax Administra-
tion (TIGTA) at 1-800-366-4484 or at
tigta.gov.

16 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020 FRAUD-MAGAZINE.COM

• If you’ve been targeted by this scam,
also contact the Federal Trade Com-
mission (FTC), and use its FTC Com-
plaint Assistant at FTC.gov. Please add
“IRS Telephone Scam” to the com-
ments of your complaint.
To learn more about reporting tax
scams, go to IRS.gov and type “scam” in
the search boxes.
Be aware of the security risks
of remote work
Organizations were caught off guard
when the coronavirus struck and had
to quickly pivot to remote working. The
shift has created security threats and
opened new opportunities for cyber-
criminals to gain access to important
business resources, including money
and PII.
Security firm Tanium surveyed
1,000 chief experience officers (CXOs)
in the U.S., U.K., France and Germany
between May 29 and June 6. Tanium
produced a report that describes how IT
leaders were surprised by the security
threats and challenges they face from
the COVID-19 pandemic. (See “How IT
leaders were unprepared for the secu-
rity challenges posed by COVID-19,” by
Lance Whitney, TechRepublic, July 29,
tinyurl.com/y6qhm6hz.)
“The almost overnight transition to
remote work forced changes for which
many organizations were unprepared,”
said Chris Hodson, Tanium’s chief
information security officer, in a press
release. “It may have started with
saturated VPN [virtual private network]
links and a struggle to remotely patch
thousands of endpoints, but the rise in
cyberattacks and critical vulnerabilities
has made it apparent that we’re still far
from an effective strategy for the new
IT reality.
“Whether companies choose to
permanently move their operations
remote, return employees to the office,
or some combination of both, one thing
is clear: The edge is now distributed. IT
leaders need to incorporate resilience
into their distributed workforce infra-
structure. A key part of this is making
sure organizations have visibility of
computing devices in their IT environ-
ment,” Hodson said. (Also see “Edge
computing: The cybersecurity risks
you must consider,” by Danny Palmer,
ZDNet, Oct. 1, 2018, tinyurl.com/
ybt8oyoa.)
The report found that 22% of those
surveyed pointed to overwhelmed IT
capacity because of VPN requirements
as a major challenge. VPNs that fail to
work consistently impact the rollout of
patches and force IT staffers to sidestep
routing of employee traffic through
their organization’s security measures.
The report also found that 88% felt
ready to shift to fully remote workforc-
es, and 96% admitted that they were
caught off guard by the security chal-
lenges that emerged within the first two
months of the lockdown.
Other report findings include:
• 27% cited the struggle to identify new
personal computing devices on the
network.
• 50% would return to normal by
prohibiting personal devices on the
network to reduce risks.
• 20% were concerned with increased
security risk from video confer-
encing. In many cases, conferenc-
ing tools that are quickly adopted
might not meet enterprise security
FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020
standards. Zoom is one popular
virtual meeting application that
has been beset with critical security
flaws.
• 88% mentioned a problem keeping
devices updated with software patches.
• 43% said they had difficulty patch-
ing the personal devices of remote
workers.
• 45% said they were able to scan and
patch network devices but were
unable to keep track of how many
devices had been patched.
• 25% said finding and patching
vulnerabilities has taken a backseat
during the pandemic. Many depriori-
tized this task because of overloaded
VPNs and a lack of visibility into
endpoints.
• 93% of the respondents said they had
to cancel or postpone certain security
priorities to deal with the shift to
remote working. The top two kinds of
projects that have been canceled or
delayed are identity and access man-
agement and security strategy.
• 85% said they have seen an increase
in cyberattacks since the start of the
pandemic. The most common types of
attacks witnessed have involved data
leaks, business email compromise
(BEC) or transaction fraud, and phish-
ing campaigns.
• 85% said they think the negative
effects of operating during the
FRAUD MAGAZINE 17
 TAKING BACK THE ID
pandemic will last at least three more
months; 33% predicted it would lin-
ger for another six to 12 months.
• 70% said they will make cybersecu-
rity the top priority for remote work.
Some of the specific goals will be to
meet compliance requirements, man-
age cyberrisk and balance risk with
the privacy of employees. 
Tax practitioners: get your VPN
In conjunction with the Security Sum-
mit, the IRS recently released important
security tips for tax professionals to
secure remote locations by using VPNs
to help protect them from cybercrimi-
nals when considering teleworking. (See
tinyurl.com/y5wqk3wq.)
The Security Summit is an aware-
ness initiative comprised of members
of the IRS, state tax agencies and the tax
community, tax preparation firms, soft-
ware developers, payroll and tax finan-
cial product processors, tax professional
organizations and financial institutions.
Total membership includes 42 state
agencies and 20 industry offices in addi-
tion to the IRS state tax agencies and the
private sector tax industry. The mission
is to combat tax refund fraud to protect
U.S. taxpayers.
“For firms expanding telework op-
tions during this time, a virtual private
network is a must have,” according to
IRS Commissioner Chuck Rettig. “We
continue to see tax pros fall victim to
attacks every week. These networks
are something you cannot afford to go
without. The risk is real. Taking steps
now can protect your clients and protect
your businesses.”
A VPN provides an organization
with an encrypted tunnel to move
important information between the
internet and an organization’s network.
18 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020
Identity theft prevention analysis
A VPN is extremely important to protect
and secure internet connections.
If a tax professional decides to not
use a VPN, they risk a remote takeover
by cybercriminals, which gives them the
opportunity to gain access to the office
network and important client informa-
tion that they can use for tax refund
fraud, among other schemes.
The Department of Homeland Secu-
rity’s Cybersecurity and Infrastructure
Security Agency (CISA) also encourages
organizations to use VPNs. CISA (March
13 alert, tinyurl.com/yahdtvaz) offers
this advice:
• Update VPNs, network infrastructure
devices and devices being used to
remote into work environments with
the latest software patches and secu-
rity configurations.
• Alert employees to an expected in-
crease in phishing attempts.
• Ensure information technology secu-
rity personnel are prepared to ramp
up these remote access cybersecurity
tasks: log review, attack detection, and
incident response and recovery.
• Implement multi-factor authenti-
cation on all VPN connections to
increase security. If multi-factor is not
implemented, require teleworkers to
use strong passwords.
• Ensure IT security personnel test VPN
limitations to prepare for mass usage
and, if possible, implement modifica-
tions — such as rate limiting — to pri-
oritize users that will require higher
bandwidths.
• To help locate a legitimate VPN ven-
dor, search “Best VPNs.”
Tax professionals also can learn
about other security measures to secure
important data:
• IRS Publication 4557, “Safeguard-
ing Taxpayer Data” (PDF) and “Small
FRAUD-MAGAZINE.COM
Business Information Security: the
Fundamentals” (PDF) by the National
Institute of Standards and Technology
(NIST).
• Publication 5293, “Data Security
Resource Guide for Tax Professionals”
(PDF) provides a compilation of data
theft information available on IRS.
gov. Also, tax professionals should
stay connected to the IRS through
subscriptions to “e-News for Tax
Professionals” and social media or
visit Identity Theft Central at IRS.gov/
Identity Theft.
Contact me
Include these scams and important
information to protect your online
identity in your outreach programs and
with your family, friends and business
associates.
As part of my outreach program,
please contact me if you have any ques-
tions on identity theft or cyber-related
issues that you need help on or you’d
like me to research and possibly include
in future columns or as feature articles.
I don’t have all the answers, but I’ll do
my best to help. I might not get back
to you immediately, but I’ll reply. Stay
tuned! n FM
Robert E. Holtfreter, Ph.D., CFE, is a
professor of accounting and research at
a university in the U.S. Northwest. He’s
a member of the Accounting Coun-
cil for the Gerson Lehrman Group, a
research consulting organization and
is a member of the White Collar Crime
Research Consortium Advisory Council.
He’s also on the ACFE’s Advisory Council
and the Editorial Advisory Committee.
Holtfreter was the recipient of the Hub-
bard Award for the best Fraud Magazine
feature article in 2016. Contact him at
doctorh007@gmail.com.
Travel and entertainment spending is
common in many industries, but it also
opens the door for disgruntled or seedy
employees to steal from organizational
coffers. Falsified invoices, altered receipts
and spending on personal luxuries can
add up. Fraud examiners can use data
analytics and tested fraud examination
techniques to root out employees with
nefarious intentions.

BY Matt Molchany, CFE

Fraudulent

reports
CAN INDICATE
GREATER ETHICAL LAPSES

FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020 FRAUD MAGAZINE 21

 Fraudulent T&E reports
In 2008,
shortly after receiving my CFE credential,
my boss emailed me asking to join her in a
meeting with the company’s general coun-
sel to discuss a travel and entertainment
(T&E) matter. I was young and a newly
minted CFE. I naturally felt terrified and
nervous to be included in such a high-pro-
file meeting at an early stage in my career.
The general counsel told my boss and me
that a member of upper management was
potentially falsifying expense reports. This
was my big chance to make a difference
at my company to root out fraud but also
make a name for myself.
The general counsel gave me a year’s
worth of the manual expense reports and
all the applicable receipts for each. I quick-
ly noticed a trend that all the handwriting
for the costs listed on taxi receipts matched
the signature of the driver. Coincidentally,
I also used the same taxi service when I
traveled to the airport, and I remembered
how the taxi driver, when dropping me off,
would give me a handful of blank receipts
for me to fill in.
Ultimately, I determined that the
manager had forged the taxi receipts to
the tune of a couple thousand dollars, but
we didn’t identify anything further dur-
ing the expense review. However, when
I presented this information back to the
general counsel, they decided this man-
ager’s misdeeds were enough to tarnish
their trust, and the company terminated
the employee.
22 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020
Some companies don’t want
their fraud investigations
and/or internal audit teams
looking into T&E fraud be-
cause they might be afraid of
what they could find, or they
feel their employees would
never steal from them.
You might be asking why a company analytics tools (Tableau, ACL and Excel,
would fire a higher-level employee over among others) most companies can iso-
some made-up taxi receipts? This step late red flags from overall data to perform
was crucial to ensure tone at the top and review of expenses.
communicate that all individuals were ex- Once management has given you the
pected to act ethically and with integrity green light to review T&E spending, you
at all times.
need to establish procedures. Management
might feel more comfortable with your
REVIEWING T&E SPENDING
proposed process if you establish clear and
T&E comprises significant amounts of
defined procedures for how you’ll iden-
annual spending in many organizations,
tify red flags, what you’ll do once you find
including airfare, lodging and meals,
those red flags, who you’ll notify during
among other line items. It’s an area that’s
the process and how you’ll ultimately dis-
quite susceptible to fraud. Some compa-
nies don’t want their fraud investigations cuss these with the suspected employee.
and/or internal audit teams looking into This defined process review also pro-
T&E fraud because they might be afraid tects you, the investigations team and the
of what they could find, or they feel their internal audit team. You don’t want people
employees would never steal from them. within the company developing precon-
But with trained fraud examiners and data ceived notions that the investigations and
FRAUD-MAGAZINE.COM
internal audit teams are predetermining
who they want to review.
If you have a data analytics team at
your disposal, this would be a great time
to get them coordinated with your fraud
examiners to begin creating rules that
can flag potential anomalies within your
T&E spending. You might want to run
these rules by those within your estab-
lished core investigations team (human
resources, compliance, legal, internal
audit, among others).
And if a core investigations team
doesn’t exist, you might consider creat-
ing it so management knows exactly what
you’re looking for within the data and can
provide input. Also, establishment of the
core investigations team helps ensure you
don’t receive pushback from management
when you do uncover issues within the
data. You don’t want to get access to the
data, run queries and find red flags and
then have to explain to management what
you plan to do with the identified employ-
ees. It’s better to communicate upfront to
management what you’re doing, so you
don’t have to hand them any surprises
when you discover something.
REVIEWING THE DATA
The No. 1 key to success when you review
data is ensuring levels of management
are involved from the start and can pro-
vide necessary input and support to your
review. Once you get access to the data,
you’ll want to establish various tests to
run against the data.
Be sure to flag:
• Spending that’s right below the re-
ceipt threshold (i.e., if you’re required
to submit receipts for expenses above
$25, isolate expenses at $24.99 or
right below that).
• Expenses that are submitted as out of
pocket (why isn’t the employee using
their company card?).
• Expenses marked as personal.
• Air travel not within compliance of
policy.
• Expense reports approved within a
short time of submission.
• Expenses with MCC (Merchant
Category Codes) related to political
or charitable donations (These could
help identify potential anti-corrup-
tion issues.)
Results of these tests don’t neces-
sarily mean identified transactions are
fraudulent. However, it begins to paint
a picture of how an employee acts with
their company credit card. For example,
while it might be acceptable with your
company’s T&E policy that employees can
use their company credit card for personal
purchases, you should consider two key
factors:
1. Is the employee making the neces-
sary payments to the credit card
company to keep the card current?
2. Is the employee accurately mark-
ing personal transactions in the
expense tool or are they passing
personal expenses through as busi-
ness expenses?
I’ve gone through reviews where
I’ve identified employees who marked
transactions as personal but never made
payments to the credit card company.
The employees were, in essence, running
personal balances in excess of $5,000
on their company card for more than 18
months. The organizations never flagged
these personal charges as past due be-
cause the employee continued to make
new business charges and submit them
for payment. It wasn’t until the team iden-
tified these personal expenses through
testing red flags that it was able to per-
form a reconciliation of the employee’s
account to identify the personal balances.
Data analytics also can plot employee
spending by title and total amount for
FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020
the period in review. With this tactic, you
might uncover employees whom you
wouldn’t expect to incur significant vol-
umes of spending on their company card.
For example, and depending on the na-
ture of your organization, it might make
sense for a vice president of sales to be one
of your top card spenders but identifying
administrative assistants in the top tier
of spending might require some further
review of that spending.
I’ve used this last example of plot-
ting spending by title to swiftly identify
instances of employees misusing their
company credit cards. If not for company
management allowing internal audit to
review the T&E spending, these frauds
most likely would’ve continued and
could’ve caused the company serious
damages.
When you review the results of the
tests performed over the T&E data, some
misuses of the company card will pop
right out to you, and others might need
review of additional data, such as receipts
an employee provides, the employee’s
company emails and social media.
An expense might appear to be re-
lated to business, but then you dig a little
further and uncover fraudulent behav-
ior. For example, business meals and
entertainment are common practice for
employees. However, it might not make
sense if a significant portion of those ex-
penses are conducted within a mile radius
of the employee’s home.
When you identify red flags in an
employee’s T&E you must dig deeper on
the entire population (normally about two
years of expense reimbursements). I had
one case in which the expenses appeared
to be legitimately related to business. But
then I linked a majority of those expenses,
marked as business, to personal pictures of
events — such as celebrating their birth-
day party with friends — posted on the
employee’s social media account.
FRAUD MAGAZINE 23
 Fraudulent T&E reports
INTERVIEW OF EMPLOYEE
After you’ve performed a deep review of an
employee’s expenses and found red flags,
the second-to-last stage of the T&E review
process is the interview. This is the part
I enjoy most. You might spend weeks or
months reviewing an employee’s transac-
tions, receipts and emails, and now it’s time
to sit in front of them and ask pointed ques-
tions to which you might already know
the answers.
This isn’t an “I got you” moment — it’s
a chance to see the three sides of the Fraud
Triangle (pressure, opportunity, rational-
ization) appear as the employee tries to
justify the expense.
I’ve learned it’s best to be courteous,
but firm, when conducting these inter-
views. Try to hear their side of the story.
You might start the interview thinking the
employee is committing fraud, but you
might leave knowing about a larger culture
or company issue you didn’t know existed.
This is also the time when you take all the
data you’ve collected and ask the employee
what transpired.
I’ve had T&E data interview pro-
cesses in which I’ve taken more than an
hour to get an employee to admit to their
misdeeds. An employee once admitted to
the fraud on my first question of “Do you
know why we are here?” The employee felt
comfortable admitting to the same fraud
they’d committed at another company, but
it never appeared on a background check
because the previous employer never re-
ported the crime to law enforcement.
POST-INTERVIEW ACTIONS
As a CFE, the steps you and the company
take following the interview are probably
24 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020
The steps you and the company
take following the interview are
probably the most important
because they set the ethical tone.
the most important because they set the
ethical tone. These actions set a barometer
for your fraud tolerance. Do you termi-
nate the employee, make the employee
pay the company back or do you provide
the case details to law enforcement for
prosecution? In the last example above, the
employee felt that because their previous
employer didn’t do anything to them they
could continue doing the same thing to
their next employer.
89%
of perpetrators
WERE NEVER
CHARGED OR CONVICTED
and
41%
of frauds
WERE NEVER REPORTED
TO LAW ENFORCEMENT.
– ACFE 2020 REPORT TO THE NATIONS
ACFE.COM/RTTN
FRAUD-MAGAZINE.COM
The steps you take in this final stage
will not only affect your organization but
also future organizations that employee
might work for. In the ACFE’s 2020 Report
to the Nations (ACFE.com/RTTN), 89% of
perpetrators were never charged or con-
victed, and 41% of the occupational frauds
in the study were never reported to law
enforcement. In the previous four reports,
“Fear of Bad Publicity” was the No. 1 reason
organizations declined to refer cases to
law enforcement, but this has moved to
the No. 2 spot, while “Internal Discipline”
rose drastically from 33% in 2018 to 46%
in 2020.
I’ll leave you with this thought:
Though internal discipline has risen, is
it enough of a deterrent to keep that em-
ployee from performing the same nefari-
ous deeds at another company? FM
n
Matt Molchany, CFE, is in a senior
fraud role with a leading hospitality
company. He’s president of the ACFE
South Florida Chapter. Contact him at
molchy66@gmail.com.
The author’s views and depic-
tions in this article are those of
the author and not those of his
current or former employers.
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 Set fire to your

‘EMOTIONAL
INTELLIGENCE’
by Mandy Moody, CFE
You might be a brilliant fraud examiner, but if your “emotional
intelligence” is stunted, you’ll be ineffective with those you work with
and investigate. Here’s how to buck the stereotypes of your hard-wired
personality, learn practical ways to change your management style and
be more empathetic in your job and life.

“Neurons that fire together, wire together.” That’s one of the most
insightful, albeit simple, phrases anyone has ever said to me. It
resonates with me professionally, and personally, because it gives
me hope that I really can change my ingrained habits.

As a child, teenager, young woman, parent and now manager, I’ve

heard people say countless times, “That’s just the way you are”
or “You’re just built that way” or “Your brain is hard-wired to think
like that.” While my brain, and yours, might be hard-wired one way
because of experiences and genetics, that doesn’t mean that those
wires can’t be rewired with practice, intention and coaching.

FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020 FRAUD MAGAZINE 27

 In March, I hosted an ACFE Fraud Talk podcast interview with
Lisa Walker, Ph.D., MCC, owner of Walker Consulting LLC
(tinyurl.com/y6jcr97x). We discussed an executive we’ll call
“Samantha.” Here’s Walker’s story of how Samantha rewired
her management style via changes in her emotional intel-
ligence (also known as EQ or emotional quotient):

SAMANTHA’S STORY
“Samantha is this go-getter. She’s known
as this person in her organization … [where
you] give her the hardest task and she is
going to push through that wall and ensure
that they’re getting amazing results,” Walker
says in the podcast. “The challenge is any
wall that Samantha comes up against —
meaning people and others — she tended
to bulldoze them.
“Interestingly enough, because she was
rewarded for the business results year after
year and no one was coaching or paying a
lot of attention to the damage that was being
caused to personnel, she continued on that
path. As she was now … thinking, ‘I’ve been
in this place for such a long time. I need to
be further along in the organization.’ She be-
gan asking why she wasn’t being promoted.
This is when she received answers like, ‘Well,
people fall when they’re around you. People
who work with you report you tend to be
abrasive. You tend to be highly competitive,
and you don’t really care much about others’
feelings.’ When she got this feedback, it was
crushing,” Walker says.
“There’s a part of her that doubted
whether or not she could learn these people
skills, but then the other side of her that was
so competitive made her stand up to the
challenge.
“First, she had to start with understand-
ing who she is as a person; how she shows
up. Then, [she needed to] understand the
gaps in how she navigated relationships and
what she needed to manage in order to show
up differently. Samantha buckled down to do
this work, to develop deep self-awareness.
Because, as I always say to my leaders, you
cannot effectively manage what you’re not
aware of.
“She had to be willing to ask and an-
swer some really tough questions about
herself. As she navigated that and devel-
oped a deeper awareness of herself, then
she could figure out how she could manage
more effectively so she’s not bruising, hurt-
ing or damaging folks and her team. As she
improved in her self-management, then she
noticed additional ways she could enhance
relationships with her peers and stakehold-
ers,” Walker says.
“Part of how we set this up is that she
was constantly getting feedback from oth-
ers around her. She shared with them the
specifics of what she was working on. She
was working on being less abrasive. She was
working on asking questions that were more
open-ended, inviting and inclusive. She was
working on not cutting folks off in conversa-
tion. These were all things that folks reported
that they couldn’t stand about Samantha.
They gave her feedback as they observed
her over time, and even gave her sugges-
tions on what we call ‘feed-forward’ about
how to continue on this path,” Walker says.
“Over time, Samantha became an ex-
ample to her people of what this work can
do. There were individuals who I interviewed
on her behalf who didn’t trust her and they
wanted her to know that because of how she
treated them over time. To see her do the
work, to build trust with these folks who are
now people who want to collaborate with
her and feel good about being in meetings
with her.
“We hear in the sales world that you
buy things from people who you like and
trust. Well, the same thing happens in the
workplace on a team. We want to collaborate
more with people who we trust. The work
that she did first on self-awareness and on
managing herself more effectively, then no-
ticing how she was impacting others around
her, allowed her to build stronger relation-
ships that were now founded on trust.
“That allowed her work to be more ef-
fective, so not only is she more productive,
her team members are more productive. Of
course, that impacts the bottom line for the
organization in a positive way. She’s a great
example for me of when somebody takes this
seriously, and leans in and does the work
around building emotional intelligence,”
Walker says in the podcast.
The emotional intelligence changes
that Walker shares in Samantha’s story
aren’t about “being in touch with one’s feel-
ings” or participating in a human resources
trend. Psychology Today defines emotional
intelligence as “the ability to identify and
manage one’s own emotions, as well as the
emotions of others.” But I like how Walker
initially described the concept to me. She
said, quoting psychologist and author Daniel
Goleman, “CEOs are hired for their intellect
and business expertise — and fired for a lack
of emotional intelligence.”
As we see in Samantha’s story, and as
we’ve seen with those we work with, our
emotional intelligence is just as important, if
not more important, than our business acu-
men. And, for some, that’s a tough lesson
to learn.

28 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020 FRAUD-MAGAZINE.COM


‘360-DEGREE EVALUATIONS’
After a brief stint as a newspaper reporter,
I joined an Austin, Texas, executive coach-
ing firm, which quickly trained me to con-
duct “360-degree evaluations” of clients’
employees and leaders — comprehensive
views gained via interviews with their di-
rectors, peers and direct reports.
We and the clients would group the
interviewees’ comments (some recorded
verbatim) by themes and share them with
the coached employees and leaders. As a
young professional, I relished the chance
to hear what I expected to be juicy gos-
sip and insider knowledge of some of the
world’s top executives. I even worked with
a talent agency client from Los Angeles,
and I just knew I’d discover a new movie
to be released or secret romances forming
PSYCHOLOGY TODAY DEFINES
EMOTIONAL INTELLIGENCE AS
“the ability to identify
and manage one’s own
emotions, as well as the
emotions of others.”
between actors. To my dismay, the confi-
dential information I was obligated to keep
to myself didn’t satisfy any of my tabloid
curiosity.
Instead, the interviews yielded com-
ments upon comments about leadership
styles: bulldozers, dictators, dominators,
appeasers, wallflowers or robots. The
flawed emotional intelligence of each
coached employee and leader was, just
like Samantha, a prevalent factor in their
effectiveness. The only substantive way
for them to change was to acknowledge
their emotional intelligence challenges,
value them, and then rewire these default,
learned characteristics that got them to
where they were but held them back from
where they needed to be.
I recently gave a presentation with
Andi McNeal, CFE, CPA, the ACFE’s director
FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020
of research at a virtual event for associa-
tion executives on how we can develop
three good habits that will help us move
us forward in our jobs. This presentation,
directed at women, was based on the book,
“How Women Rise: Break the 12 Habits
Holding You Back From Your Next Raise,
Promotion, or Job,” by Sally Helgesen and
Marshall Goldsmith, but the habits apply
to everyone.
We not only shared our ingrained bad
habits we most identified with but how we
can overcome them with intention and
practice. Just like the opening quote to the
article explained, to change a default reac-
tion we must stop and rewire those firing
neurons. And, just as Walker showed us
with Samantha, we must use emotional
intelligence to take us beyond where our
acumen stops.
FRAUD MAGAZINE 29
 Set fire to your ‘emotional intelligence’

HERE ARE THE THREE HABITS, AS DESCRIBED IN HELGESEN

AND GOLDSMITH’S BOOK, AND THE WAYS TO TURN THEM
INTO POSITIVES:

SHARE SUCCESSES AND BUILD RELATIONSHIPS AND

ACHIEVEMENTS.
For some people, sharing a success-
ful project or job well done comes naturally. But some
feel uncomfortable because they worry they’ll sound
like braggarts or show-offs. Others think they shouldn’t
have to say anything, and their work will speak for itself.
Unfortunately, your work doesn’t always speak for itself
or even make it in front of the people we’re trying to
impress. And, if we aren’t promoting ourselves, who can
we depend on to do it for us?
Just like a muscle you exercise, you only become
comfortable with sharing your own achievements by
intently, repeatedly practicing. One way to begin using
this muscle is by sharing your excitement for a project
pre-launch and then naturally following up with a suc-
cess post-launch.
Another way is by using your annual review and
evaluation to tout all the things that went well during
the year. I actually keep a folder in my email box called
“Personal Successes.” I place in there all compliments
and words of appreciation about my work and then share
them with my director during my annual evaluation.
Another way to tout yourself is by promoting your
team members and their achievements. Any success
by one of your employees is a direct reflection of your
own success as a manager. It also instills trust with your
team members that you’re looking out for them and are
proud of what they’re accomplishing.
ENLIST ALLIES.
You might have read these two actions
as synonymous, but they’re actually two separate ways
to look at partnerships you build at work.
Many of us think of building relationships as go-
ing for coffee with our work friends, attending a virtual
happy hour or setting up recurring meetings with staff
members. But the real value is in enlisting allies. Reach
out to someone who might need information you have.
Ask others to join a project with you. Support people in
front of key stakeholders. These are ways to make not
only friends, but allies, in the workplace. The benefits
make your efforts worthwhile. These allies offer differing
perspectives, honest feedback, buy-in for key initiatives,
and views of your organization from varying levels and
expertise.
TURN PERFECTIONIST
TENDENCIES INTO STRENGTHS.
Perfectionism can be our biggest
strength, but, in the blink of an eye, can
become our biggest weakness. While we might bask in
the glory of attention to detail, high achievement, spotless
report findings and an eagerness that sometimes can’t
be tamed, perfectionism can also make us succumb to
procrastination, develop fears of failure and taking risks,
and be unable to trust others to accomplish tasks the
way you would do them.

As Andi McNeal said in our presentation, “Like any trait, those of us who are perfectionists know we can’t just stop
being that way. And the instinct itself can be powerful and positive. But if we want to make it work for us as we
rise, we need to learn how to harness it and direct it.”
Again, we must rewire and practice things like risk-taking, recognizing failure and mistakes and letting them go,
assessing risks, prioritizing worries and then repeating all of these.

30 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020 FRAUD-MAGAZINE.COM

USING EMOTIONAL INTELLIGENCE DURING CRISIS AND UNCERTAINTY
Combine the pandemic with social unrest and we have a mix of heightened emotions, shifting priorities, tension, discomfort, mo-
ments of clarity and anxiety. But, as Walker pointed out at her recent presentation at the 31st Annual ACFE Global Fraud Conference
in June, “We still have to be in control. We have work to do, and we have to get things done.”
During her live virtual presentation, Walker began by asking attendees several questions to think about, including, “When
do you have your biggest breakthroughs?” Attendees responded with things like mowing the grass, showering, riding their mo-
torcycle, shaving, cooking, prayer, meditation, running, walking and being alone in nature.
According to Walker, it’s during these times we’re able to reset our brains, which are hard-wired during times of crisis or
stress to immediately go to “fight or flight” in our amygdala. She said we need to be deliberate about creating these moments so
we can slow down our hamster wheels; regain clarity and control; and begin to empathize, strategize and make better decisions.

HERE ARE SOME OF HER SUGGESTIONS TO RESET OUR BRAINS DURING DIFFICULT MOMENTS:

Name it to tame it
Walker said we must be able to name the emotions we’re
feeling as they’re happening. “We cannot effectively man-
age what we aren’t aware of,” she said. “This will then help
us figure out how best to respond to it.”
Reframe the situation
Instead of looking at a crisis or situation as difficult, Walker
encouraged attendees to look at it as a learning opportunity.
She gave the example of the conversation you need to have
with a peer or employee that could be awkward or hard. She
said to reframe it as an important conversation that will
help the team and the organization instead of a difficult
situation you’re dreading.
Reorder and prioritize
Walker posed multiple questions that would be useful to
ask during times of heightened anxiety. What priority is
this for me, my team, my customers or the organization?
When should this be a priority? What kind of priority is this?
Is it health, safety, process or efficiency? For whom is this a
priority? As one attendee wrote in the chat, “If everything
is a priority, then nothing can be a priority.”
Normalize it
Walker said once we start to normalize a situation, we then
have more resources at our disposal. Talk to people who have
been through crises before and ask how they dealt with them.
Look at your own organization and reflect on a time you’ve
been through a crisis in the past. How did you come out of
it? Who did you lean on for support? Who did you support?
Reposition it
Look at the situation from different perspectives. Think
about how: (1) your customers or clients see a situation (2)
your executives see it (3) people of different backgrounds
see it (4) different people within your company see it. “Try-
ing to see from different perspectives of others will help us
navigate the crisis more successfully,” Walker said.

New Year’s Eve of 2025

Walker left attendees with a hopeful and promising challenge. She asked everyone to close their eyes and think about where
they’ll be and who they’ll be with on New Year’s Eve of 2025. She said to imagine on that day in the future you’re talking about the
pandemic of 2020 and what you learned. She encouraged listeners to think about what they hoped they’d say when friends and
family asked how they made it through. Definite food for thought. Hopefully, in 2025 we’ll share about our renewed emotional
intelligence that helped us improve our work and life relationships. ■ FM

Mandy Moody, CFE, is the ACFE’s communications manager. Contact her at mmoody@ACFE.com.

FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020 FRAUD MAGAZINE 31

DUSTINGyourDATA
forFRAUD'S FINGERPRINTS
SIX NUMBER PATTERNS THAT FRAUDSTERS USE

Fraudsters tend to steal in similar ways.

Here are six number patterns you can
search for and possibly find hidden fraud.
Learn from the acclaimed authority on
Benford’s Law on how numbers can
become your best friends.

By Mark J. Nigrini, Ph.D.

C
ynthia Mills diverted $14.8 ROUND NUMBERS
million from her employer, Round numbers such as 10-year anniversaries or 100-degree days act as key refer-
Matthews International, ence points. Fraudsters also tend to favor round numbers even in situations where
for her own use. Her em- round numbers should be rare or nonexistent.
bezzlement scheme began Michelle Higson was the part-time bookkeeper of a company that manufac-
in 1999. At first, she took possession of tured high-tech electronic equipment for the semiconductor, energy and medical
the company’s customer payments, but industries. Her fraud scheme involved preparing company checks made payable
from 2013 onward she used a fictitious to cash or petty cash. She then cashed the checks and used the funds to pay for
vendor, “Designs By Cindy.” The com- personal expenses. See the check amounts in Figure 1 below.
pany estimated that the losses for 2013,
2014 and 2015 were $1.2 million, $1.7 Check date Amount Payee
million and $2.2 million, respectively. Dec. 19, 2013 $ 3,000.00 cash
Legitimate vendors are unlikely to have
Jan. 16, 2014 1,000.00 petty cash
high percentage increases in companies
that are growing in line with the increase Feb. 27, 2014 3,000.00 petty cash
in the economy. Mar. 14, 2014 4,730.00 petty cash
RAPIDLY RISING NUMBERS is one Apr. 18, 2014 4,730.00 petty cash
of six common number patterns that
May 2, 2014 4,730.00 petty cash
fraudsters unknowingly use in their
thefts. The others are: June 4, 2014 4,730.00 petty cash

 ROUND NUMBERS July 1, 2014 4,730.00 petty cash

 THRESHOLD NUMBERS Aug. 1, 2014 4,730.00 petty cash

 NON-BENFORD NUMBERS Aug. 13, 2014 2,250.00 petty cash

 DUPLICATE NUMBERS Aug. 26, 2014 3,500.00 petty cash
 OUTLIER NUMBERS Oct. 2, 2014 3,550.00 petty cash

We can identify these patterns with
software, such as spreadsheets, IDEA,
database queries and R (a program). The
fraud types I consider here are asset mis-
appropriation schemes in which a fraud-
ster (internal or external) uses deception
to divert resources or assets for their
personal gain, and corruption in which
a fraudster gives something valuable to
a person in a position of trust to influ-
ence their judgment or conduct. Asset
misappropriation schemes orchestrated
by an outsider have some attributes of
a cyberattack in that they’re intrusions
into computer systems with the objec-
tive of achieving a monetary gain.
Oct. 29, 2014 3,550.00 petty cash
Nov. 19, 2014 3,755.00 petty cash
Dec. 4, 2014 4,730.00 petty cash
Jan. 6, 2015 3,575.25 petty cash
Figure 1: Michelle Higson’s fraudulent checks
The dollar amounts are at odds with the way that a petty cash imprest sys-
tem works. Under an imprest system a check is drawn every week that equals the
amount of the cash disbursements. The replenishment check brings the balance
back up to, say, $500.
In bygone days a surprise count of petty cash was a routine and required audit
procedure. The chances of a round-number replenishment check ($3,000, $1,000,
$3,000 and $3,500) were minimal and would only occur if all the disbursements
were round amounts or by some rare coincidence.
The dollar amounts are also way too high for petty cash because these bal-
ances are usually kept low to avoid a large loss in the event of a theft of these
funds. Finally, there were six consecutive checks for $4,730, followed by five other
amounts, followed by a repeat of the familiar $4,730. These number duplications
are anomalies for petty cash because the dollar amounts of the cash disbursements
are unlikely to be equal (and high) period after period.

FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020 FRAUD MAGAZINE 33

 Six number patterns
In September 2017, Higson was sen-
tenced to prison for three months plus
nine months of home confinement. The
judge allowed her to go to work during
the months of home confinement. An
extract from her court documents notes
that, “Ms. Higson has been working at an
event planning company called The Art of
the Event since March 2017. She has pro-
vided undersigned counsel with paychecks
verifying her employment. Ms. Higson has
told undersigned counsel that her duties
in this position do not involve any contact
with money, checks, paying vendors, or
bookkeeping.”
In November 2018 (one year later),
Higson was indicted on fraud charges re-
lating to a fraud scheme that began in Feb-
ruary 2015 while she was the bookkeeper
of “an event planning and design com-
pany [The Art of the Event].” That fraud
started one month after the date of the
January 2015 check. The new indictment
shows that the annual totals for that four-
year fraud were $76,368 (2015), $148,992
(2016), $146,772 (2017), and $41,735 (2018).
At publication, Higson was to have been
sentenced Oct. 13 for her most recent
fraud scheme. (Her sentencing had been
postponed several times because of the
pandemic.)
Bribes in corruption cases are most
often round numbers. In 2016, the presi-
dent of the Correction Officers’ Benevolent
Association (COBA) and a manager of a
Manhattan hedge fund were charged with
honest services fraud.
The hedge fund manager paid the
COBA president, Norman Seabrook, a
kickback of $60,000 in cash in exchange
for Seabrook channeling investment funds
to the hedge fund. An intermediary paid
the kickback, and the hedge fund manager
agreed to reimburse the intermediary for
the disbursement.
The hedge fund manager approved an
invoice for payment that showed the inter-
mediary had sold the hedge fund “8 Knicks
Games @7500 per game” for two seats.
34 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020
This is an example of a round-number then rerun them in iterative processes to
bribe, and the case also shows that inter- reduce the number of audit targets.
mediaries are used to make the payments, With each iteration, fraud examin-
and the disbursement is usually disguised ers can eliminate round numbers that
in the financial records of the payee. have an inherently lower risk of being
The court documents related to the a part of a fraud scheme or a bribe. For
parents charged in the recent university example, when searching for bribes, the
admissions scandal (actor Lori Loughlin first query could identify round-dollar
payments. The next query could iden-
and many others) show SAT score manipu-
tify cases in which the payment date was
lation payments of $2,000, $4,000, $5,000,
within five days of the payment request
$10,000, $13,000, $15,000, $15,600,
date (urgent payments), and the descrip-
$18,000, $20,000, $25,000, $35,000, tion field included high-risk keywords
$40,000, $50,000 and $75,000, with many such as “expedite,” “facilitation pay” or
amounts used multiple times. “special payment.” The next query could
The bribe payments were $100,000, filter on locations based on a company’s
$125,000, $160,000, $170,000, compliance investigation database (in-
$200,000, $244,000 (a series of install- cluding whistle-blowing data) so the re-
ments), $250,000, $300,000, $400,000, sults are the highest risk transactions.
$500,000, $950,000 and
$1,200,000 with many
amounts used multiple
times. The only precise
bribe amounts were RAPIDLY RISING NUMBERS
$24,443.50, $101,272, Rapidly rising numbers refer to transaction totals that
$249,420 and $251,249, increase at an abnormally high rate over time. These in-
and these were all relat- creases come about because, loosely speaking, fraudsters
ed to the parents making “don’t know when to stop.”
(fraudulent) tax-deduct- We revisit the opening scheme of Cynthia Mills who
ible charitable contri- diverted $14.8 million for her own use. Her employer,
butions of appreciated Matthews International, filed a form 8-K with the U.S.
stock to William Rick Securities and Exchange Commission on July 30, 2015, in
Singer’s foundation to which it reported her embezzlement scheme that began
make the payments tax in 1999. Real vendors are unlikely to have high percentage
deductible by the par- increases (losses for 2013, 2014 and 2015 were $1.2 million,
ents. (Singer was the $1.7 million and $2.2 million, respectively) in companies
scheme’s organizer.) that are growing in line with the economy’s increases.
Tests that iden- Salvadore Galvan was one of two deputy city treasur-
tif y round numbers ers for the City of Compton, California. The treasurer’s
will generate many office had three window cashiers that collected payments
false positives because for water bills, business licenses, building permits and
round numbers are parking tickets from residents who paid via cash, checks
also overused in valid and credit cards.
transactions. Fraud ex- At the end of each day, cashiers reconciled their cash
aminers should assess and checks with the receipts that they’d issued. The ac-
whether they’ve care- counting system prepared a bank deposit slip for the con-
fully planned and per- tents of their till. The till’s metal boxes were then locked
formed their tests and in a safe in the vault of the treasurer’s office until the next
FRAUD-MAGAZINE.COM
morning when Galvan counted the cash at his desk (unsupervised) and then
prepared a bank deposit slip. He sealed the entire deposit, which included
checks, cash and other forms of payment, and gave it to an armored service Months, 2010 Amount
that drove it to the bank.
January-April $0
In 2010, after only a few months in that position, Galvan added two
extra steps to his banking-related tasks. Each day, he’d remove a portion of May 1,400.00
the cash, prepare a new deposit slip for the reduced cash amount and send June 500.00
the system’s deposit slip for the correct amount along with the accurate July 1,950.00
daily cash reports to the controller’s office.
August 1,560.00
On Dec. 6, 2016, the other deputy city treasurer, Ralph Salgado, by
chance, compared Galvan’s deposit slip to the deposit slip prepared by the September 800.00
accounting system, and he noticed a $7,000 shortfall. He asked Galvan for October 263.00
an explanation.
November 12,383.17
The next morning Galvan was at work especially early. When Sal-
gado went to the vault to get the money to count that day, he noticed a December 17,931.83
bank bag with a deposit slip in Galvan’s handwriting for the unaccounted
$7,000. Galvan told Salgado that he found
the money in his desk drawer and that he’d
put the money in his drawer when he went
to the bathroom and had forgotten about Dollars embezzled per year
it. Salgado then audited the cash deposits $1,000,000
going back just two weeks and found other
$900,000
discrepancies. An audit showed that Galvan
$800,000
had embezzled $3,721,924.42 from 2010 to
2016. Galvan’s month-by-month totals for $700,000
▲
Total dollars

SCHEME
2010 are shown in Figure 2 (at right). $600,000 DISCOVERED
IN 2016
The monthly totals show an amount $500,000
in May that could be blamed on a small ac-
$400,000
counting error. After that, he was cautious.
$300,000
He then took even larger amounts followed
by some caution. That was followed by an $200,000

amount he stole in excess of everything he $100,000

previously pilfered, and by an even larger $0
2010 2011 2012 2013 2014 2015 2016
amount in December. Figure 3 (at right) show
the embezzlement totals by years. Year
The graph of the annual totals shows
rapidly rising totals from 2010 to 2015.
There’s a decrease in 2016 because that’s when Salgado discovered the scheme ▲ ABOVE, FROM TOP
in early December 2016.
Figure 2: Salvadore Galvan’s embezzlements by
To run this test in Excel we could use pivot tables, in IDEA we could use month for the first year of his fraud scheme
Summarization and in the software, R, we could use aggregate and sum.
A programming issue arises when the audit unit (a vendor or loyalty pro- Figure 3: Salvadore Galvan’s embezzlements
gram member) has zero activity in the prior period because we can’t calculate per year
a percentage increase when going from $0 to a positive number. Also, a large
percentage increase might not be a red flag if the prior and current amounts
are small. For example, a $51 total that increases to $1,805 is a large percentage
increase, but it’s an increase from a small base. As before, run these tests in
an iterative process.

FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020 FRAUD MAGAZINE 35

 Six number patterns

THRESHOLD NUMBERS for the miles driven for each passenger. In almost every case, CW Transport
Threshold numbers (also called hurdles) are For example, the fixed fee could be $300 billed the agency for 99 miles of transport
numbers that are a level, point or numeric with a rate per mile of $1.50. Prior autho- (exactly one mile under the threshold of
value at which something is true, such as rization from AHCCCS was required for 100 miles) regardless of the actual distance
transaction limits on corporate purchasing all trips that were more than 100 miles in traveled. The indictment lists nine invoices
cards and the per diem rates that can be length. From July 2011 to July 2013, Werito together with the relevant 2012 invoice
reimbursed to federal employees while on billed the agency for false claims for medi- dates, the payment details and amounts.
official travel. Internal-control thresholds cal transports that never occurred. To settle (See Figure 4 at left.)
AHCCCS settled three or four days
after the invoice date, which suggests it
Invoice Payment automatically paid the claims without
Invoice No. Date Payment Date Amount manually reviewing them. This is consis-
A12210 July 28 165926 July 31 $33,956.00 tent with the agency’s website that states
that it uses more than 60,000 service pro-
A12217 Aug. 4 166599 Aug. 7 30,358.00
viders, and in 2012, total payments to pro-
A12231 Aug. 18 168249 Aug. 21 21,208.00 viders amounted to $9.5 billion. AHCCCS’
A12245 Sept. 1 169934 Sept. 5 34,414.00 Office of Inspector General announced in
2016 that it had a special task force devoted
A12273 Sept. 29 173218 Oct. 2 34,527.00
to non-emergency medical transportation
A12287 Oct. 13 174962 Oct. 16 29,587.00 that would, among other things, moni-
A12344 Dec. 8 180576 Dec. 11 24,788.00 tor the use of these services for various
provider types. Fraud examiners could’ve
A12357 Dec. 22 182272 Dec. 26 33,170.00

A12364 Dec. 29 183085 Jan. 2 (2013) 18,859.00

Figure 4: CW Transport’s invoice numbers and dates shown in indictment

are values at which additional checks or
procedures will take place. Thresholds
have consequences, which give people a
disposition to act in a certain way.
In June 2011, Cory Werito founded
CW Transport, which he registered as
a medical transportation provider with
Arizona Health Care Cost Containment
System (AHCCCS). AHCCCS is Arizona’s
Medicaid agency that offers health care
programs to serve Arizona residents. The
agency paid for non-emergency transpor-
tation for indigent residents for scheduled
medical and dental appointments.
The first red flag should’ve been that
CW Transport was based in a town that
was in New Mexico — 50 miles from the
Arizona border. AHCCCS paid the com-
pany a fixed fee plus a variable amount
these claims AHCCCS paid him $1,959,405.
An audit showed that more than 90
percent of Werito’s transportation claims
were defective. In many cases CW Trans- Threshold numbers
port claimed to have provided medical
transport for patients that received no Prior authorization from
medical services on that day. The company AHCCCS was required for
made claims for transport on weekends or
holidays when the clinic or the doctor’s of-
all trips that were more
fice, where the patient was supposedly get- than 100 MILES in length.
ting treatment, was closed.
Patients received medical services at
the facilities in fewer than 10 percent of In almost every case,
the cases. CW Transport often claimed to
have provided transports on a day in which
CW Transport billed the
other transportation companies operated agency for 99 MILES
by Werito and his relatives also claimed to
of transport.
have transported the same patients.

36 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020 FRAUD-MAGAZINE.COM

 0.05
detected this scheme using analytics tests
that identified those providers with the
highest percentages of their trips that were 0.04
for or exceeded 90 miles.

NON-BENFORD NUMBERS 0.03

Proportion
Fraudulent numbers have the potential
to distort the frequencies of the digits in
0.02
accounting data. Benford’s Law gives us
the expected frequencies of the digits in
accounting and finance-related data sets. 0.01
The first two digits of a number are the
two left-most digits, and we ignore minus
signs, decimal points and leading zeros 0.00
10 20 30 40 50 60 70 80 90
(such as 0.0046).
In 2004, internal auditors, using First two digits
Benford’s Law in an analysis of an elec-
Figure 5: Using Benford’s Law to find a kickback scheme
tric utility’s kilowatt-hour (kWh) debits
and credits, discovered a kickback scheme
perpetrated by the company’s collections
personnel. In the first step of their inves-
tigation, the auditors sought to identify kWh. (A kWh is worth about 10 cents.)
customers with large decreases in the The investigation found that collections
amounts billed. This was essentially the The curved line in personnel were giving customers large
opposite of a rising numbers test because
with revenues the company was concerned
Figure 5 shows the kWh credits (that reduced the amounts
billed to the customers by $3.8 million) in
with decreasing revenues. This test gen- expected first-two- exchange for kickbacks.
erated too many false positives to be of
much practical use. The auditors then digit proportions of A Benford analysis is a useful tech-
nique to identify fraud numbers that are
ran a series of analytics tests on the kWh Benford’s Law. just below control thresholds. In these cas-
numbers credited to customer accounts.
The fact that these credits even existed es, we might see spikes at, say, 99, 49, or 24
was an anomaly. The Benford’s Law graph When a bar protrudes above (perhaps where a receipt is only required
is shown in Figure 5 (at right). the Benford’s Law line it for expenses of $25 and above).
The curved line in Figure 5 shows The follow-up work would drill
means that the actual
the expected first-two-digit proportions down into the data and extract the actual
of Benford’s Law, and the bars show the
proportion for that
first-two-digit combination amounts that were most “responsible” for
actual first-two-digit proportions. When
exceeds the expected the spike or spikes. Auditing journal en-
a bar protrudes above the Benford’s Law
line it means that the actual proportion for tries using Benford would be effective if
Benford’s Law proportion.
that first-two-digit combination exceeds the fraudulent journal entries were a large
the expected Benford’s Law proportion. portion of the population and contained
For the customer credits, the actual some systematic attribute, such as being
proportion for the 99s (the right-most bar) from $2,000 to $5,000. The auditors would
was about twice as large as the Benford examine the attributes of the fraudulent
proportion. The next step identified all the
amounts (such as the dates, the ledger ac-
first two digit 99 credits and then sorted
counts affected, the creators, the approv-
the credits from largest to smallest. There
were eight credits averaging 998,000 kWh ers, the descriptions, etc.) to identify all
and about 200 credits equal to 99,999 the fictitious transactions.

FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020 FRAUD MAGAZINE 37

 Six number patterns
DUPLICATE NUMBERS
Fraudsters with accounting authority can use intentional dupli-
cate payments in occupational fraud schemes. (They can also use
duplicate payments to generate funds for bribery schemes.) An
accountant, for example, would request a refund from a vendor and
then divert that refund for their own use. The employee might also
conspire with a vendor to make the fraud even easier to execute.
If the fraudster wasn’t greedy or careless, they could blame the
duplicates on innocent errors.
Ryan King was an accounting manager at Carrier Corporation
in Indianapolis, Indiana. In 2013, he opened a personal checking ac-
count in the name of “Carrier Services.” He then purposely made du-
plicate payments to four vendors. He instructed two of the vendors
to refund overpayments by check, and two of the vendors to wire
overpayment refunds directly to his Carrier Services bank account.
King embezzled $1,233,343.80 from June 2013 to February
2015. His attorneys blamed the ease with which he executed his
scheme on the director of finance’s “lax supervision.” These over-
payments weren’t detected during the annual internal audit, the
annual external audit or the controller’s group audit. King’s re-
placement discovered his predecessor’s fraud by inspecting the
regular monthly account reconciliations, which King had altered
to conceal his scheme.
Brantley Thomas was the CFO of the Berkeley County (South
Carolina) School District (BCSD). Over 16 years, ending in early 2017,
Thomas enriched himself from embezzlements and kickbacks to
the tune of $1.23 million. The first leg of his embezzlement scheme
was to intentionally overpay certain vendors and then deposit those
refunds to his Bank of America credit card for his personal use.
The second leg of Thomas’ embezzlement scheme was to divert
vendor rebates or refunds (not because of overpayments) for his own
use. For example, the Berkeley Electric Cooperative issues regular
rebates to its customers for various reasons. An insurance broker
also gave Thomas $32,000 in kickbacks for steering school-related
insurance purchases to the broker.
The sentencing memorandum noted that Thomas was intelli-
gent and charismatic, and he could be kind and faithful to his family,
friends, coworkers and peers. Before his scheme was discovered
(through a tip) he was respected at work and in the community.
At his sentencing the judge said Thomas “had no respect for the
law, since after he got out on bond in this court, he went around and
stole $36,000 from his next employer. … Mr. Thomas has what they
used to say in State Court, an OPM [other people’s money] addiction.”
This test often gives many duplicates to manually review.
Fraud examiners should focus on the higher-dollar items and on
vendors that received multiple regular high-dollar duplicate pay-
ments in a period.
38 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020 FRAUD-MAGAZINE.COM
OUTLIER NUMBERS
Fraudsters would presumably want their numbers to look
“normal.” However, from time to time, fraud numbers are
outliers. Michelle Higson (see “Round numbers” above) used
petty cash checks that were just too large for that type of outlay.
In this scheme, programming steps would identify the
largest amounts, and fraud examiners could run tests to find,
for example, employees earning the most overtime pay, the
employees claiming the most for travel and expense reim-
bursements, employees voiding the largest number of sales
at the cash register or the customer credit cards receiving the
most in sales refunds.
In another outlier-numbers scheme, Harriette Walters,
who was the tax assessments manager for the District of Colum-
bia, worked with others to approve 143 fraudulent property tax
refunds from $2,300 to $248,800 and 96 fraudulent property
tax refunds ranging from $250,000 to $543,000 for a total loss
of $49.3 million. Walters was arrested in 2007.
In yet another outlier-numbers case, Charlene Corely,
a former defense supplier, received $20.6 million from the
U.S. Department of Defense (DOD) for fraudulent shipping
charges. In one example, the DOD paid her $998,798 for ship-
ping two 19-cent washers and locks. Her fraud scheme began
in November 1997 and ended in September 2006.
COMBINING NUMBER
PATTERNS TO FIND FRAUD
In 2013, the Oregon Audits Division (OAD) set out to proactively
detect fraud in the state’s Supplemental Nutritional Assistance
Program (SNAP). Households in the program could use their
benefit cards to buy food or seeds and plants that produce food.
Households couldn’t use their cards to buy certain prepared
foods, beer, wine, liquor, cigarettes, tobacco or non-food items.
OAD’s objective was to identify cases in which a SNAP
recipient had a merchant run their benefit card as if they were
paying for food, but the merchant gave the recipient cash instead
— 50 cents on the dollar. The SNAP recipient would then pocket
the cash, and the merchant would be reimbursed for the “sale.”
The OAD auditors analyzed store claims for conformity
to Benford’s Law. They also looked at the percent of even dol-
lar (round dollars such as $20) transactions (round numbers)
and the trend over time of the even-dollar percentages (rap-
idly rising numbers). They looked at the average transaction
amounts and the trend over time of these averages (rapidly
rising numbers). The auditors also identified cards with a high
count of same-card, same-dollar and same-day transactions
(duplicate numbers).
 OAD, using Geographic Information System software,
also identified stores with high proportions of customers
that traveled more than 10 miles to stores (threshold num-
bers) and those stores where this proportion was increasing
(rapidly rising numbers).
OAD’s success highlights the value of using multiple,
well-planned, relevant tests.
UN-RANDOM RANDOMNESS
All fraudsters think they’re unique. That assumption is
incorrect because they generally use similar methods that
range from using numbers designed to “fit in with the
crowd” to those that are blatant outliers. Running analytics
tests to find the patterns reviewed in this article, at a mini-
mum, should give you some interesting discoveries. ■ FM
Mark J. Nigrini, Ph.D., is an associate professor of
accounting at West Virginia University and author of
“Forensic Analytics: Methods and Techniques for Foren-
sic Accounting Applications” and “Benford’s Law: Ap-
plications for Forensic Accounting, Auditing, and Fraud
Detection.” Contact him at mark_nigrini@msn.com.
Bibliography
“Fraudulent Tax Refunds: The Notorious Career of Harriette Walters,”
by Phillip F. Jacoby, Sebastian Lorigo and Brent T. McCallum, Current
Issues in Auditing, volume 5, issue 1, 2011, tinyurl.com/y4vu7wog.
“Forensic Analytics: Methods and Techniques for Forensic Account-
ing Investigations,” by Mark Nigrini, Wiley, 2020, tinyurl.com/
yyrba3sw.
“The Guide to Corporate Compliance,” June 2020, chapter 9, “Embrac-
ing Technology,” by Matthew Galvin and Vincent Walden, tinyurl.
com/y4p4ss8f.
“Round numbers: A fingerprint of fraud,” by Mark Nigrini, Journal of
Accountancy, May 1, 2018, tinyurl.com/yxv3bubr.
Matthews International’s Form 8-K, filed on July 30, 2015, tinyurl.
com/yym2pto9.
Oregon Audits Division, YouTube presentation of “Fraud Analysis
and Detection: Using Benford’s Law and Other Effective Techniques,”
at National Association of State Auditors, Comptrollers and Treasur-
ers, tinyurl.com/y6m6c8rv.
“Secretary of State Oregon Audits Division Advisory Report, Supple-
mental Nutrition Assistance Program (SNAP) Fraud Investigations,”
June 2018, tinyurl.com/y5trunl9.
Find source materials for the cases in this
article at tinyurl.com/y9jeo5m3. – ed.

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Predication or not?
Discerning when it’s time to begin a
fraud examination
By Dick Carozza, CFE
CFEs discuss how they know
when they should devote
resources to launch fraud
examinations or at least
preliminary investigations.
40
The net revenue for a textile plant was significantly lower
than projected even though sales had increased. The com-
pany couldn’t find evidence of fraud and didn’t detect unusual
trends in financial data, so it attributed the cause to accounting
errors. There were some minor inconsistencies in procurement
of plant supplies, but the plant manager enforced strict con-
trols, and validated purchases and requisitions each month. He
hadn’t found any outliers. Though nobody discovered evidence
on the surface, Charles Washington, CFE, wasn’t convinced. His
continued investigation into the small procurement inconsis-
tency led to the identification of a major vendor fraud commit-
ted by the supply supervisor who maintained duplicate ledgers
to conceal his crimes from the plant manager and other execu-
tives. (Washington is now the senior director, global fraud and
asset protection at Pfizer.)
According to the ACFE Fraud Examiners Manual (FEM),
“predication” is the totality of circumstances that would lead
a reasonable, professionally trained and prudent individual
to believe that a fraud has occurred, is occurring or will occur.
(See the FEM, “Act of Predication,” tinyurl.com/y4djjcen.)
FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020 FRAUD MAGAZINE 41
 Predication
In other words, predication is the ba-
sis upon which a fraud examination — and
each step taken during the examination
— is commenced. The CFE of Professional
Standards reads, “Certified Fraud Examin-
ers shall establish predication and scope
priorities at the outset of a fraud examina-
tion and continuously reevaluate them as
the examination proceeds.”
However, the basis for predication
can vary. In the opening case, despite no
apparent evidence, Washington felt that
something was amiss. And he was correct.
There’s nothing magic about the word
“predication”; fraud examiners worldwide
go through similar processes even if they
don’t call it that.
“In Europe, we tend to talk about ‘sus-
picion’ of fraud and ‘justification’ for our
actions,” says Regent Victoria Meyer, CFE,
FCAA, director of financial crime consult-
ing at the Swiss International Business
Academy.
John Gill, J.D., CFE, ACFE’s vice presi-
dent – education, says that when he teach-
es the CFE Exam Review Course, he tells stu-
dents, “Predication is just a fancy word for
having a justifiable, business reason for
doing what you are doing.”
Fraud Magazine recently consulted
with CFEs who work for diverse organi-
zations — public and private — to under-
stand how they determine when it’s time
to begin fraud examinations or at least
preliminary investigations.
We asked what they normally look
for to determine if a fraud “has occurred,
is occurring or will occur.” We also asked
if they sometimes determined predication
via informed “gut checks” or methodical
fact finding, about cases in which they had
to reevaluate predication as they discov-
ered more evidence and determining if
cases were prosecutable. Here are their
answers. Agree or disagree, but please of-
fer your views on Fraud-Magazine.com.
42 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020
What you look for when
establishing predication
Your resources are limited. And you surely
don’t want to waste them burrowing down
rabbit holes. What do you pursue and what
do you leave alone?
“My rule of thumb [for determining
predication], most simply put is ‘one of
these things is not like the other,’ ” says
Regent Bethmara Kessler, CFE. “Whether
a potential fraud is identified by a tip, proac-
tive data analytics or some other method,
it is important to understand the ‘usual’ to
be able to spot or identify the ‘unusual.’ ”
(Kessler is a lecturer and consultant and a
member of the ACFE Faculty.)
“The source of an allegation in estab-
lishing predication is very critical,” says
Francis Njiru, CFE, CPA. “Allegation sources
range from media reports, whistleblower
reports, data analytics, audit reports, man-
agement review, exception reports, among
many others,” he says.
Njiru says that when we’re tasked with
conducting a preliminary investigation to
offer insights on whether to proceed to a
full investigation, it’s crucial to first deter-
mine how close the alleging party is to the
alleged misconduct. “Second, the ability of
the party alleging to corroborate evidence
is critical,” he says. “Anonymous sources,
for example, who may not be willing to
provide more specific information raise
the level of doubt on the authenticity of
their claims. The veracity of data sources
used in an allegation or the data integrity
of data sources analyzed is also important
in establishing predication.” (Njiru is an
anti-fraud and compliance consultant. He
previously worked as a manager – forensic
& integrity services at EY.)
Depending on the strength of the evidence, tip, etc. that we
are provided at the outset, our assessment may be a mere
formality, or it may be extensive.”
FRAUD-MAGAZINE.COM
Cynthia Hetherington, CFE, says her
team spends hours reviewing internet
companies to discern the real from the fake
for clients. Predication, for her, is based on
years of online and open-source discern-
ment. “We see companies propping up
COVID cures and PPE for sale, investment
opportunities too good to be true and, of
course, the big global business magnate
who really is just a guy operating a scam
from his mother’s basement,” Hetherington
says. (She’s president of the Hetherington
Group.)
“One client was desperate to believe
the sales pitch of a new investment group,”
she says. “New investments are always
promising, yet very risky. We ran a thor-
ough background check on the group to
include criminal and civil history, concerns
about past litigation matters and predict-
ability of future engagements. We always
ask in risk scenarios if we can predict be-
havior based on our findings of how this
new investor or partner will behave. We
look strongly at a group that overreaches
and demonstrates greed.
“The overreach is a predictable tell
that you are desperate, hungry or too risk-
tolerant,” Hetherington says. “It’s okay to
be ‘young and hungry,’ and if you are trans-
parent to the client that you are ready to
go for gold, then they understand their
investment. But if you are saying you are
old money, blue chip, with historical value
at the same time, you are behaving like a
1999 tech stock bubble company,” she says.
“We see your fraud and raise you more due
diligence. Or in other words, yes, these
companies are predictably and obviously
behaving fraudulently.”
Regent Ken Dieffenbach, CFE, says he
looks at the scope and scale of an issue,
the quality of evidence (for example, one
anonymous source versus multiple inde-
pendent reports), known areas of risk that
KELLY TODD, CFE, CPA
could increase likelihood the reporting is
accurate and if anyone has audited and
closely inspected this program recently.
(Dieffenbach is the special agent in charge
of the Fraud Detection Office in the U.S.
Department of Justice Office of the Inspec-
tor General.)
“We begin each engagement as an as-
sessment,” says Kelly Todd, CFE, CPA. “De-
pending on the strength of the evidence,
tip, etc. that we are provided at the outset,
our assessment may be a mere formality,
or it may be extensive,” she says. “The as-
sessment is designed to move from the
general to the specific, including the evalu-
ation of the initial evidence provided and
the identification of fraud exposures and
symptoms.” (Todd is a managing member
of Forensic Strategic Solutions LLC.)
Todd says predication processes in-
cludes identifying:
• Exposures through an understanding
of processes and procedures.
• Exposures and trends through the
analysis of the financial statements
and transactional data from the finan-
cial reporting systems.
• Susceptibility of assets to fraud, waste
and abuse.
• Evaluation of fraud symptoms in the
areas where exposures are identified.
Todd’s teams also consider pressures
and motivations of possible subjects to
commit fraud, she says.
“When we’re considering the totality
of the circumstances to determine if suf-
ficient predication exists to commence a
fraud examination, we generally classify
fraud symptoms in several categories, in-
cluding analytical, accounting and em-
ployee symptoms; internal control devia-
tions; tips; and complaints,” Todd says.
“Our methodology allows us to create
decision points — specific to the totality of
the facts and circumstances moving from
general to specific — as to whether we
should recommend carrying the develop-
ment of our work and evidence further,”
she says.
Regent Emeritus Jonathan Turner, CFE,
says fraud examinations have always been a
blend of art and science. “CFEs should have
a good-faith basis to begin an examination,
so there needs to be clear and objective ele-
ments that can be demonstrated,” Turner
says. “For example, are there objective ac-
tions or inactions that implicate a policy?
Do those activities present an opportunity
to personal gain? If these actions could be
fraudulent, who else would you expect to
see or not see? Do those elements appear?”
Turner says we should consider an al-
legation worthy of further investigation
if it’s specific, credible and testable. (He’s
the global head of compliance, privacy and
governance at Zoll Medical Corporation and
a member of the ACFE Faculty.)
Washington says we must look for the
loss and the corresponding lie supporting
the loss. “But then there are times when
you might identify the lie first, and the loss
won’t be too far away. Opportunity sets the
stage for the fraud to occur, so the discov-
ery of weak or lax controls will be a lead to
identifying the loss,” he says.
Jeff Matthews, CFE, CPA, says fraud
examiners should maintain an attitude of
skepticism and objectivity when looking
at any situation. “We are trained to under-
stand the specific frauds that are perpetrat-
ed and how each fraud scheme is usually
committed,” he says.
“We will look for signs of the fraud
and carefully examine evidence that sug-
gests the situation is more than an error or
mistake. These include failure to cooper-
ate with an investigation, destruction of
evidence immediately before or after a re-
quest, an abrupt resignation when difficult
questions arise or other unusual personal
behavior. Red flags can also stem from ab-
normal trends in financial data, such as
unusual journal entries or unsupported
transactions.” (Matthews is a partner of
StoneTurn and adjunct accounting profes-
sor at The University of Texas at Arlington.)
FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020
Most of the huge fraud cases I’ve
investigated had few red flags.
And too many have had lots of
red flags and no fraud.”
TIFFANY COUCH, CFE, CPA/CFF
Gut check, methodical
fact-finding or both?
Sometimes predication for cases can seem
to go either way. Fraud examiners might
depend on experienced intuition based on
previous cases or depend solely on the hard
facts in front of them. Or a combination
of both.
“I have had a few cases in my career
where the fraudsters were very careful in
covering tracks such that the evidence of
the activity related to the fraud mirrored
activity that could have happened in the
normal course of business,” Kessler says.
“In those cases, I trusted my gut and dug
just a bit deeper. It is important in those
situations to really allow yourself to think
like a fraudster to creatively think about
the direction to look towards.”
Turner says gut checks are helpful to
fraud examiners, but we can’t rely on them.
“So, if you feel there is something in your
gut, find the factual and objective informa-
tion to open the case, then begin the inves-
tigation. There is a reason the alphabet goes
a, b, c. The order of things matters,” he says.
Dieffenbach says our guts are terrible
predictors of most things. “We see many
issues on the line and might do some ini-
tial work to further develop the facts,” he
says. “The decision to investigate is not an
all-or-nothing endeavor. We can generally
stop anytime we think it’s prudent. We also
must consider the opportunity cost: If I in-
vestigate this thing what am I not going to
investigate?”
Regent Emeritus Tiffany Couch, CFE,
CPA/CFF, says we should pay attention to
our gut feelings but not rely solely on them
in sum. “Most of the huge fraud cases I’ve
FRAUD MAGAZINE 43
 Predication
Chelsea Binns recommends ways to improve
forming of predication in financial institutions
CHELSEA BINNS, PH.D., CFE, who
worked as a fraud examiner in the
financial industry from 2007 through
2014, says she learned that some
institutions were particularly con-
cerned about forming predication to
determine insider fraud and crime.
“In the early 2000s, internal
frauds became especially problemat-
ic, which resulted in many instances
of fraud that were widely reported in
the public domain,” she says. (Binns
is now an assistant professor at John
Jay College of Criminal Justice at
The City University of New York.)
Her analysis of some of the
cases in the financial industry sug-
gests the frauds were quite simple in
their design and execution. “In some
cases, there were cues and indica-
tors based on what they knew from
the anti-fraud literature,” she says.
“Had the organization been looking
at them proactively and with an anti-
fraud mindset, perhaps these frauds
could have been thwarted while in
progress.”
Binns says after one organiza-
tion discovered the crimes, it cre-
ated a specialized anti-fraud unit to
determine the potential of monitor-
ing fraud indicators with big data
and predictive analytics.
The organization conducted
research to determine the best in-
ternal fraud indicators it could use as
fraud predictors. “Some data points
were known to be generally indica-
tive of fraud, while others were
more specific to past inci-
dents,” she says.
“Some of the gen-
eral indicators included
human resources data
44 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020
that showed employees who didn’t
take vacations or data that showed
employees who accessed their of-
fices at odd hours,” Binns says.
Specific indicators included the
known behaviors of past fraud-
sters partially gleaned from social
media data, she says. “Social media
examinations of employees sus-
pected of internal fraud revealed
suspicious behavior on social media
such as regularly ‘checking in’ to
casinos or flaunting photos of cash,
expensive luxury goods, time spent
on luxury vacations and dinners
at fancy restaurants, among other
behaviors.”
Technology provided endless
opportunities for large-scale analy-
ses, she says, but this organization
found it difficult to gain cooperation
from other internal departments to
form predications. “Some depart-
ments didn’t routinely provide data.
And they typically didn’t receive
requests very well.
“And although social-media
data is technically public, using it for
anti-fraud purposes was controver-
sial. Even though an organization
might be legally able to inspect
social-media data, it still might not
think it’s a good idea optics-wise,”
she says.
Binns says the movement to-
ward the creation of “fusion cen-
ters” and similar intelligence centers
might assist in opening communi-
cations channels and prevent-
ing siloed organizational
structures from impeding
establishing predication
and other anti-fraud goals.
FRAUD-MAGAZINE.COM
investigated had few red flags. And too
many have had lots of red flags and no
fraud,” she says. (Couch is founder, CEO
and principal of Acuity Forensics.)
Suzette Stevenson, CFE, says she saw
a situation in which gift card transactions
were increasing in a specific location. “Dur-
ing that same time frame, there was a sales
contest going on,” she says. “Although I
knew that the sales contest could have at-
tributed to the gift cards sales increase, I
also knew the increase in this specific loca-
tion was not because of the contest.” Her
experienced gut told her that fraud was
occurring even though red flags weren’t
necessarily flying. (Stevenson is manager
of compliance and ethics at Giant Food.)
“We often start a private-sector inves-
tigation without knowing exactly what we
are investigating,” Meyer says. “We keep
an open mind as to whether the root cause
could be fraud, incompetence or systems
failure. We’d likely start out calling it a
‘review’ rather than an investigation. The
exact point at which it becomes an inves-
tigation is not clear cut because we will be
gathering evidence of any fraud alongside
ruling out other causes.”
Meyer says it’s important to maintain
evidence-handling protocols even before
you’re sure you’re investigating fraud so
that a possible prosecution isn’t compro-
mised when you’ve ruled out non-fraud
reasons.
Reevaluating predication
Few fraud examinations are simple en-
deavors. Many are projects complicated
by conflicting or vague testimonies, and
inconclusive evidence. Sometimes fraud
examiners must change direction mid-
stream or cease an investigation.
“We were hired by a municipality to
investigate allegations by a bookkeeper
that the head of a department was cooking
the books,” says Todd. “Numerous hard
drives were imaged and held to preserve
evidence while we sought to identify
and understand numerous suspicious
transactions. As our analysis of the ques-
tionable transactions was understood in
the larger context of supporting transac-
tions and business operations, we quickly
reevaluated predication and recommend-
ed to our client that they cease further
investigation.”
Initial sources of allegations can even-
tually prove unreliable. Matthews says he
was recently engaged to investigate poten-
tial FCPA violations involving a project in
China. “The initial predication was based
on a lawsuit sent to an inspector general
by a former, disgruntled employee, who
alleged bribery,” he says. “The company
took the allegations seriously and allowed
us to expand the scope to include other
potential related parties and projects.
“We identified certain emails and
documents that were puzzling. However,
after reviewing thousands of email corre-
spondence, journal entries, contracts and
extensive interviews, it became clear that
the company never made payments to the
Chinese business partner that it was sup-
posedly bribing or any other contractor in-
volved in the particular project,” Matthew
says. “A closer inspection of the complaint
also proved other allegations false. If we
had only considered the complaint, and
a few out-of-context emails, any opinion
reached would have been incomplete and
premature.”
Couch says that she and her team
often have to reevaluate predications. “I
once combed over the books of a medical
practice where we had all red flags,” she
says. “One employee, who had access to ev-
erything, wouldn’t turn over basic reports
and got mad when we asked her questions.
Everyone loved her, but one doctor was
convinced she was stealing.
“I was concerned, but all patient funds
made it to the bank, all checks were for
business purposes, and her payroll was
pristine. No fake vendors or employees.
The doctor was so convinced he had me
look further back in time. No fraud found
at all,” Couch says.
Walt Manning, CFE, says he worked an
investigation, which involved allegations
that an employee was using his company
computer to send a tremendous volume of
spam to a person in Australia. “The accuser
contacted the company’s chief legal offi-
cer to complain and threaten legal action
against the employee and the company,”
Manning says. “Our digital forensics analy-
sis found no evidence of this type of activ-
ity. Further investigation revealed other
occasions where the accuser had made
false allegations against other people who
had upset him with comments on social
media in order to cause problems for his
targets with their employer.” (Manning
is president of Techno-Crime Institute.)
Prosecutable cases?
A CFE’s job is to discover facts for their orga-
nization or client, regardless of where they
might lead. According to the ACFE FEM,
“If fraud is discovered, the fraud examiner
will also have to discuss it with the relevant
individuals and determine whether the case
should be presented to criminal prosecu-
tors.” (In the FEM, see “Presenting the Case
for Prosecution,” tinyurl.com/y4ecy92u.)
Fraud Magazine asked the CFEs if they
hadn’t proceeded on a possible case because
an organization or client didn’t believe it
was prosecutable.
Matthews recalls when a large global
organization suspected it was the victim of
a vendor kickback scheme. “The company
had purchased 10 semi-trucks and trailers,
yet, claimed the rigs were never shipped,”
he says. “There were no signed receipts
or bills of lading indicating the compa-
ny-specific location had received them,
which happened to be in a foreign country.
When questioned, the general manager of
the location abruptly resigned. The com-
pany launched an investigation with the
FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020
intention of filing a fraud claim with its
insurance carrier.
“However, our review of the company’s
fixed inventory identified rigs with simi-
lar descriptions of those believed missing,
located in other countries,” Matthews
says. “Therefore, we could not determine
with reasonable certainty that fraud had
occurred without obtaining further de-
tails, such as VIN numbers, dates of pur-
chase, receipts, and source vendors. We
also needed a better understanding of how
fixed-asset transfers were documented be-
tween countries or if shipping addresses
were occasionally altered. Unfortunately,
the relevant fixed asset log was outdated
and incomplete. The procurement and
transfer process was largely undefined and
very inconsistent.”
Matthews says that when they sought
additional information, some locations
weren’t cooperative; others were complete-
ly non-responsive. “Despite having initial
predication, we determined that the cost
of conducting a full investigation through
obtaining third-party documentation and
various vendor records — and the situa-
tion could simply be sloppy accounting
and paperwork error — far outweighed the
potential for proving fraud and obtaining
recovery for the company,” he says.
Kessler says she never gave up on an
investigation based on whether it was pros-
ecutable or not. “If there is predication, I
believe that we have the responsibility to
follow the threads wherever they lead,”
she says. “In the end, there should always
be consequences for fraudsters even if the
fraud isn’t big enough to warrant a criminal
action. Consequences can include, but not
be limited to, paying the organization back
or some other clawing back of the ill-gotten
gains. Termination options should also be
considered.”
Turner says private-sector entities sim-
ply don’t know if a case is prosecutable until
CONTINUED ON PG. 73
FRAUD MAGAZINE 45
 Best defense is
by Sophia Carlton, CFE;
and James Ruotolo, CFE

X
X X
X

Use the new ANTI-FRAUD PLAYBOOK,

produced by the ACFE and Grant Thornton,
to operationalize leading guidance from the
ACFE/COSO FRAUD RISK MANAGEMENT
GUIDE to help your organization move from
theory to practice.
a good offense
Anti-Fraud Playbook provides practical, actionable guidance
F
raud is happening all the time and at every
organization. In our experience, many
organizations think they’re immune to
fraud. They might say, “We’ve hired good people
and have very strong internal controls, so fraud
isn’t a problem here.” It’s probably not news to
you, but the fraud problem is normally bigger
than organizations think. One organization
we worked with found this out the hard way. A
well-respected senior leader had been caught
embezzling in excess of $1 million over more
than 10 years. It started with his perceived need
for extra money to pay bills that were piling up,
but once he started, he couldn’t stop. Through
the investigation, the organization found that
many employees had seen behavioral red flags
— like living beyond his means — for years but
hadn’t reported it because they believed it was
impossible that this well-respected leader was
doing anything nefarious. This example and
many others like it showcase the bottom line:
Good people do bad things, and controls fail.
Fraud is like the proverbial iceberg. The
bulk of fraud risk is unidentified and lurking
beneath the surface. Organizations can and
should take steps to proactively reduce their
risk and minimize the impact when fraud does
slip through the cracks. An effective fraud risk
management (FRM) program enables organiza-
tions to know where they are vulnerable and
how to take control.
FRAUD-MAGAZINE.COM
Why we developed the Playbook
The ACFE/Committee of Sponsoring Organizations of the
Treadway Commission (COSO) Fraud Risk Management
Guide (ACFE.com/fraudrisktools) is a tremendous resource
for helping organizations establish a strong fraud risk
framework. The 2016 guide is designed to serve as best-
practice guidance for organizations to follow in address-
ing COSO’s 2013 Internal Control – Integrated Framework
(tinyurl.com/y7yd9h3h) fraud risk assessment Principle
8. However, implementing all the best practices in the
guide can be daunting.
The ACFE and Grant Thornton published the Anti-Fraud
Playbook (also see ACFE.com/fraudrisktools) to provide the
fraud-fighting community and organizations across the
globe with practical, actionable guidance. The Playbook
draws on insights from the Fraud Risk Management Guide
and seeks to clarify and operationalize its concepts.
The Anti-Fraud Playbook provides easy-to-use tools
and templates to help your organization no matter your
efforts. Whether your organization is just beginning its
anti-fraud journey or if you’re looking to enhance your
fraud risk management (FRM) practices, the Anti-Fraud
Playbook can help.
Phases and Plays
The Anti-Fraud Playbook includes 10 Plays, organized into
five phases that align to the ACFE/COSO guide’s five key
principles, detailed in Figure 1 on page 48. This article
explores those Plays and how you can use them to improve
an FRM program. We begin each section with the under-
lying principle from the Fraud Risk Management Guide.
NOVEMBER/DECEMBER 2020 FRAUD MAGAZINE 47
 Anti-Fraud Playbook
FRAUD RISK
GOVERNANCE
The organization establishes and
communicates an FRM program that
demonstrates the expectations of the
board of directors and senior manage-
ment and their commitment to high
integrity and ethical values regarding
managing fraud risk.
Understand where you are
and where you want to be
The vital backbone of an effective FRM
program is a strong strategic plan that will
help you make the correct decisions and
ensure you focus your resources on your
areas of highest impact and priority. Many
organizations don’t take the time to develop
strategies for their FRM programs. Often,
Figure 1: Anti-Fraud Playbook Phases and Plays
48 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020
an organization will hastily create
a program as a response to a major
fraud event. Or it will decentralize
FRM efforts so it doesn’t have broad
“enterprise view” decision making.
Just this year, an organization
we worked with experienced a mul-
timillion-dollar fraud event and then
called for help to conduct a fraud risk
assessment and build a more com-
prehensive FRM program. It could’ve
avoided this fraud event or caught it
sooner if it had taken these actions
proactively.
The first step in this process
is to conduct a “maturity assessment” to
understand where your program is today.
Once you understand your current state, you
can identify your long-term vision and goal
state. This process will allow you to develop
a road map for the future and focus on gaps
you need to address to propel efforts from
the current to the goal state and ensure re-
sources are effectively used in areas of high
impact and high priority.
FRAUD-MAGAZINE.COM
Create a culture
Promoting fraud awareness throughout
your organization from the top down is vi-
tal to creating a strong anti-fraud culture,
enhancing fraud awareness and encourag-
ing employees to discuss fraud risks openly
and thoughtfully. We’ve all seen and heard
of scandals resulting from bad cultures. A
2015 independent investigation (see tinyurl.
com/ouzbk73) discovered Toshiba had been
inflating profits over a number of years. “A
corporate culture existed at Toshiba whereby
employees could not act contrary to the intent
of their superiors,” the investigation report
stated.
Fortunately, you have many ways to
promote and enhance fraud awareness and
an anti-fraud culture at your organization.
At a minimum, organizations should:
• Develop a comprehensive fraud risk
policy.
• Construct an enterprisewide, anti-fraud
training program, including staff and
third parties.
• Conduct a culture assessment.
 Figure 2: Enterprise Anti-Fraud Maturity Assessment Model©
Stakeholder Value

AD HOC INITIAL REPEATABLE MANAGED LEADERSHIP

LEVEL ONE LEVEL TWO LEVEL THREE LEVEL FOUR LEVEL FIVE

We place a heavy emphasis on con-
ducting culture assessments because
they help organizations understand how
their current efforts are lacking, identify
potential vulnerabilities that might lead
to internal pressures to commit fraud and
highlight areas where fraud might be slip-
ping through the cracks. Some of the most
important areas to explore during a culture
assessment include:
• The stated and unstated values that
govern daily decision-making.
• Tone heard from the top and percep-
tions of senior leaders’ integrity.
• Perception that supervisors set good
examples and encourage ethical
behavior.
• The extent to which peers support each
other in “doing the right thing.”
• Rate of reporting of misconduct, recipi-
ents of reports and perceptions of the
reporting process.
Like most things in FRM, a one-size-
fits-all model for promoting fraud aware-
ness doesn’t exist. Tailor your efforts to
be relevant to your organization’s fraud
risks and the strategic goals of your FRM
program.

FRAUD RISK
ASSESSMENT
My supervisor and I both
need fast cash. I will add overtime
hours to my time sheet and we will
split the profits.

The organization performs comprehensive

fraud risk assessments to identify specific Janet always leaves her
fraud schemes and risks, assess their likeli- computer unlocked.
The company owes me, and
hood and significance, evaluate existing When she steps away, I can hack into it won’t hurt anyone if I steal
fraud control activities and implement ac- customer account information to sell on one small check, right?
the dark web or change payee
tions to mitigate residual fraud risks. information to my bank account.

Think like a fraudster

Organizations, without consistent fraud taxono-
mies, struggle to speak the same language, which
makes oversight, aggregation of underlying data
and reporting difficult or impossible. Many times,
organizations focus only on schemes they already
know about without considering unknown or
emerging schemes. And often, organizations fail
to think through their specific controls and how a Figure 3: Think like a fraudster

FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020 FRAUD MAGAZINE 49

 Anti-Fraud Playbook
motivated fraudster might circumvent or
take advantage.
Put on your “fraudster hat” to ensure
an effective risk identification process.
(See Figure 3 on page 49.) Brainstorm
fraud scenarios that are specific to your
processes and controls to identify your
key risks, gaps and vulnerabilities. We re-
iterate: Good people do bad things, and con-
trols fail. Don’t get stuck focusing only on
what you’ve seen. Think outside the box. If
someone was motivated to commit fraud,
how would they do it? What processes or
controls would they circumvent? Who’d
be most likely to perpetrate the fraud and
why? Thinking like a fraudster will help
you in your risk-identification process,
which will serve as a key insight in your
fraud risk assessment. Don’t forget to con-
sider both internal and external fraud, and
think beyond just financial losses.
Discover what you don’t know
A fraud risk assessment should be dynamic
and iterative, aimed at identifying and as-
sessing fraud risks relevant to an organiza-
tion. A best-in-class fraud risk assessment
is a comprehensive program with a con-
stant pulse on current and emerging risks,
and a clear path to mitigation, monitoring
and reporting across the enterprise.
Ineffective risk assessments might
rely solely on surveys to assess likelihood
and impact rather than a mix of qualita-
tive risk assessment techniques, which
is ineffective and puts the emphasis on
perceptions
TIP of risk. For
example, we
A mature risk assessment
worked with
process should employ
multiple techniques. an organiza-
tion who’d pre-
viously relied
solely on surveys to ascertain the likeli-
hood and impact of fraud risks. We found
that most people took little time to respond
to the survey and had little understanding
50 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020
of how the organization was using the in-
formation, which resulted in erroneous
scores. Unfortunately, senior management
relied on that misleading data to make its
decisions.
Interviews
Appropriate for senior
management or when
you need to solicit input
in a targeted session
Surveys
Appropriate in early stages
of risk assessment and are
then followed on by inter-
views or workshops for
deeper analysis
Workshops
Appropriate when gathering
cross-functional groups to
break down silos and
discuss how process and
risks interrelate
Figure 4: Qualitative risk
assessment techniques
FRAUD-MAGAZINE.COM
After we educated stakeholders and
facilitated meaningful dialogue on how
fraud risks and specific controls and pro-
cesses at the organization interrelate, we
conducted in-depth fraud risk workshops.
The risk scoring and prioritizations ended
up looking very different, including the
identification of new key risks and a clear
picture on gaps and vulnerabilities in cur-
rent processes.
To achieve an effective risk assess-
ment, develop a mix of quantitative and
qualitative risk assessment techniques,
including interviews, surveys and work-
shops. (See Figure 4 at left.) It’s important
to understand when to use each technique
so you can garner the most actionable
information and use stakeholder time
efficiently.
Study your documentation and inter-
view stakeholders to identify anti-fraud
controls, assess their effectiveness and
understand how your organization car-
ries out these controls in practice. You also
can look at current and past findings from
either internal or external audit, or other
oversight functions.
You should then map controls iden-
tified to your identified risks. This will
showcase areas that are well-controlled
and highlight key gaps, which will help
meaningfully determine likelihood, and
impact scores and inform risk response.
With risk scoring and prioritization, re-
member that understanding what’s rela-
tively more likely to occur is more impor-
tant than perfecting a numerical score.
If you already have a fraud risk as-
sessment in place, dive deep to determine
where you might be able to improve cur-
rent processes to increase effectiveness
and usefulness. If you’re starting from the
beginning, pick one area to focus on first.
Then leverage best practices and leading
guidance to build a methodology that’s
tailored for your organization. 

Rule-based Anomaly detection
analytics analytics

 a-z
O
Known patterns Unknown patterns
Common fraud
Figure 5: Examples of analytic techniques
FRAUD CONTROL
ACTIVITIES
The organization selects, develops, and
deploys preventive and detective fraud
control activities to mitigate the risk
of fraud events occurring or not being
detected in a timely manner.
Use data to uncover fraud
It’s probably not news to you that data ana-
lytics is a powerful tool. The ACFE’s 2020 Re-
port to the Nations (ACFE.com/RTTN) found
that organizations that implemented proac-
tive data monitoring and analysis experi-
enced a 33% reduction in the median loss
and duration of fraud schemes compared
to organizations that didn’t. You can easily
implement many anti-fraud analytics tests
with basic spreadsheet software or — on the
other end of the spectrum — use robotics,
machine learning and artificial intelligence
to combat fraud. Each of the many analyt-
ic techniques brings unique benefits and
FRAUD RISK ASSESSMENT
Predictive Network / link
analytics analytics
Complex patterns Linked patterns
Criminal fraud
insights. However, not all analytic
techniques are equal; certain tech-
niques are better suited for certain
objectives or analyses than others.
Figure 5 (above) outlines analytic
techniques ranging from simple to
more advanced. Of course, this isn’t
a comprehensive listing.
Data analytics is critical for
elevating your organization’s FRM
program. When in doubt, start
small with a pilot approach to re-
duce initial investment and gain
quick wins.
Knowledge is power
Earlier, we covered the need to develop and
deploy mandatory enterprisewide anti-fraud
training. However, training shouldn’t stop
there. Implementing targeted role-based
training helps employees better connect
the message of the training to their daily
responsibilities.
This type of anti-fraud training also
helps your employees identify suspicious
activity and feel empowered to act against
potential fraud. Focus on real-life exam-
ples and provide on-the-job tools, such as
FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020
Text analytics
Text patterns
Organized fraud
red-flag lists or job aids. Include interactive
sessions, such as role-playing exercises, to
keep participants engaged and help them
practice thoughts and behaviors demon-
strated in the training materials. Employees
who’ve practiced their fraud prevention and
detection skills and behaviors in a simulated
environment will be more likely to use them
effectively in their daily work.
Still not convinced that you need this
type of training? Consistently, one of the
top ways organizations identify fraud is via
tips. The Report to the Nations found that
organizations with fraud awareness training
for employees were more likely to get tips
through formal reporting mechanisms —
56% compared to 37%. That translates to
more effective hotlines and the potential to
catch fraud sooner, which reduces the loss
and impact to your organization.
Don’t know where to start imple-
menting role-based training? Leverage
the results of your fraud risk assessment.
Focus on areas where your risks are higher
or where you’ve identified major gaps or
vulnerabilities. 
FRAUD MAGAZINE 51
 Anti-Fraud Playbook

experiences or perceptions. This Conduct investigations

FRAUD INVESTIGATION
AND CORRECTIVE ACTION
The organization establishes a communica-
tion process to obtain information about
potential fraud and deploys a coordinated
approach to investigation and corrective
action to address fraud appropriately and
in a timely manner.
Lay the groundwork
for investigations
You must have mechanisms in place to
conduct thorough investigations. This
should include a plan for determining and
understanding the root causes of fraud and
the process for implementing corrective
actions to address them.
Most sizable organizations have
some type of fraud investigation func-
tion in place. However, they vary greatly
in effectiveness. For example, you might
have many investigative bodies spread
throughout your organization. This lack of
centralization leads to missed opportuni-
ties for synergies, trend identification and
aggregate reporting, and departments are
handling investigations differently across
would be detrimental because, as
we highlighted above, tips are one
of the most common ways that
fraud is detected. Those tips will
stop coming in if employees lose
faith in the system.
If you already have a fraud
investigation function in place,
dive deep to determine where you
might be able to improve processes
to increase effectiveness. If you’re
starting from the beginning, use
the Anti-Fraud Playbook, the ACFE/
COSO guide and other leading guid-
ance to build a solid foundation for
your fraud investigations function.
Enterprisewide fraud
investigation and
response protocols
Mechanisms
to assess
investigation
performance
Investigations are a critical component of
uncovering not only fraud within your or-
ganization, but also other corporate crimes,
such as money laundering, corruption and
bribery. Investigations also act as an effective
fraud deterrence practice that showcases the
organization’s commitment to high ethical
standards and creating the perception of
detection.
If you have a solid foundation, as high-
lighted in the previous Play, then this should
be a well-defined process. Key steps you
should perform following the conclusion
of an investigation include communicat-
ing investigation results, taking corrective
action and, finally, evaluating investigation
performance. 
Effective
reporting
mechanisms

the board.
Another common pitfall is a lack of
mechanisms to assess investigative perfor-
Communication
mance. As Figure 6 (at right) shows, that’s channels and
one of the key elements in a solid investi- procedures
gation foundation. Without it, your team
won’t understand how investigations are
perceived. If stakeholders feel the organi-
zation isn’t managing their concerns or
not handling their complaints appropri-
ately, they’ll be less likely to report similar Figure 6: Key elements to lay the groundwork for investigations
concerns in the future. They might also
tell colleagues not to share their negative

52 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020 FRAUD-MAGAZINE.COM


FRM MONITORING
ACTIVITIES
The organization selects, develops and
performs ongoing evaluations to ascertain
whether each of the five principles of FRM
is present and functioning and communi-
cates FRM program deficiencies in a timely
manner to parties responsible for taking
corrective action, including senior manage-
ment and the board of directors.
Monitor your progress
Monitoring almost always comes last when
organizations build FRM programs — some-
times even as an afterthought. However,
monitoring and periodic evaluations pro-
vide vital insight into the effectiveness of
FRM activities and help identify areas for
improvement. Monitoring should cover
the full spectrum of an FRM program and
should focus on the effectiveness of activi-
ties in place. For example, focus on mea-
suring outcomes instead of outputs. When
looking at a fraud risk assessment, instead
of focusing on the number of fraud risk as-
sessments performed (output), measure the
change in likelihood and impact scores from
one assessment to the next to measure how
awareness and understanding has improved
since the previous assessment (outcome).
Finally, use the results to drive continu-
ous improvement. For example, let’s say you
were evaluating the level of fraud awareness
within a particular area after conducting
targeted anti-fraud training using a survey,
and the results were lower than expected.
This would indicate that the outcome of the
training wasn’t adequately achieved, and
you should improve the training to achieve
the desired outcome.
Report on your progress
Communicate the outcomes of your
FRM program to all levels of your
organization to increase awareness
and showcase your accomplish-
ments. You should be communi-
cating informally to all parties along
the way, but periodically report out-
comes, insights and lessons learned.
Tailor the information for each audi-
ence. Senior executives and board
members might be most interested
in key performance indicators and
executive summaries while front-
line management might be most
interested in detailed feedback on
processes and controls.
As part of your report development,
consider all factors, such as the results of
your fraud risk assessment and anti-fraud
training — both individually and together.
You might be surprised to see new insights
when you look at the information as a whole
rather than only looking at the individual
factors. 
FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020
Next steps
The fraud risk journey looks different for
every organization. One size doesn’t fit all.
As the first Play suggests, customize fraud
risk management to meet the unique needs
of your organization. A strong fraud risk
management program has relevance and
context to match the culture and broader
objectives of the enterprise. And fraud risk
management is not a set-and-forget exercise.
Plan continuous improvement to your fraud
risk program as you face a constantly evolv-
ing fraud risk landscape.
Use this Anti-Fraud Playbook as the
foundation to develop a custom fraud risk
management approach for your organization
and move from theory into practice. ■ FM
Sophia Carlton, CFE, is manager, fraud
risk mitigation & analytics, at Grant
Thornton LLP. Contact her at sophia.
carlton@us.gt.com.
James Ruotolo, CFE, is senior manager,
fraud risk mitigation & analytics, at Grant
Thornton LLP. Contact him at james.
ruotolo@us.gt.com.
Use this Anti-Fraud Playbook
as the foundation to develop a
custom fraud risk management
approach for your organization
and move from theory into
practice.
ACFE members: Visit
ACFE.com/fraudrisktools
to download the playbook.
FRAUD MAGAZINE 53
 CAREER CONNECTION Building your professional future

‘Moneyball’ leadership
Developing leaders from within to help deter fraud
Leadership is part art, part science and perhaps a bit of alchemy.
Selecting individuals to lead companies has become more complex for
boards of directors. CEOs must address the interests of all stakeholders
— not just shareholders. Organizations should consider grooming honest
and proven managers from within to help prevent and deter fraud.

O ld-school, C-suite executive re-

cruitment failures have been
in the headlines a lot in 2020:
• “Former Bumble Bee CEO Lischewski
Sentenced to 40 Months in Prison,”
by Jason Smith, undercurrent news,
tinyurl.com/y8glbdtu.
• “Ex-Pharma CEO Gets Over 2 Years in
Prison for Bribery Scheme,” by Philip
Marcelo, U.S. News & World Report,
tinyurl.com/y7wodwqq.
• “San Rafael Biotech Firm’s Former
CEO Convicted of Fraud, Money
Laundering,” KPIX, tinyurl.com/
ybl5kjc8.
As some executives climb corpo-
rate ladders, the harder it might be
for them to maintain an ethical grip.
COLUMNIST
DONN LEVIE JR.,
CFE
can use this bias as a self-preservation
mechanism to strengthen their resolve if
they choose to stand by failing C-suiters.
Board members can selectively recall
LEADERSHIP positive accomplishments of CEOs’
CONSULTANT
tenures while hoping the fires in the
boardrooms extinguish themselves.
From my lifelong We’d all like to think that opposing
hard facts would adjust our thinking and
interest in the sport, challenge us to change our strong beliefs
I’ve found that and opinions. Apparently, not so. Con-
tradictory evidence tends to strengthen
baseball players our deepest convictions — not reverse
mature in structured them. This suggests our brains prefer
to set aside critical thinking in favor
environments. Their of faulty positions or beliefs. (See “The
organizations mentor backfire effect,” by David McRaney,
tinyurl.com/jtcdda3.)
them to handle fame, Organizations compound their

Boards invest time and money recruit-
ing leaders with the hope they can set
visions, increase revenues and boost
fortune and distrac- problems when they hire outside CEOs
and other C-suite executives without
tions of the big-league appropriate due diligence.

shareholder value. bright lights. Risks from hiring outside

Sometimes those hires backfire.  the organization
The U.S. 2002 Sarbanes-Oxley Act In Richard Steinberg’s seminal book,
tightened corporate governance by “Governance, Risk Management, and
prohibiting CEOs from loading boards Bias in board decision-making Compliance” (John Wiley & Sons, 2011,
with friends and associates. But legisla- “Choice-supportive bias” is the tendency pages 195-196), he writes that S&P 500
tion and corporate policy can’t pre- (see tinyurl.com/vq6ey2u) to stick to non-financial companies, in a 20-year
vent human behavior subtleties from bad choices, such as hiring flawed study, appointed internal candidates
intervening. CEOs, even as situations worsen. Boards to CEO positions who “significantly

54 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020 FRAUD-MAGAZINE.COM

outperformed those that bring
outsiders to the job.” The study
also showed that the cost of
attracting external candidates
was much higher — by as
much as 65 percent — than for
NEW SUPERSTAR EXECUTIVE/LEADER
internal CEO hires. Four in 10 HIRED FROM OUTSIDE THE ORGANIZATION
CEOs recruited from the out-
side leave their companies after
two years and nearly two-thirds
exit by their fourth year with
expensive golden parachutes
easing the descent.
Organizations still debate
the pros and cons of promoting
managers to CEO positions or
hiring externally. But if an or-
ganization needs a turnaround
specialist or crisis management
expert at the helm, the board
might search the open market
for likely candidates with those
unique skills and experiences.
A major challenge for outsiders is
building credibility, trust and rapport
with board members. They probably
haven’t worked together, so they need
to take time to engage and become
comfortable with each other — a process
that can take months or years.
Incoming outsiders must be
sensitive to how boards and others will
scrutinize their early decisions or initia-
tives. However, it’s easier for an incom-
ing outsider to overhaul or reverse prior
decisions or move those who might have
had a hand in implementing them. (See
“CEO 1000: Insiders vs. outsiders,” Chief
Executive, Oct. 11, 2018, tinyurl.com/
y4pxy2d3.)
Risks from promoting inside
the organization
Incoming insiders have their own set of
challenges, especially when they change
members of the management team with
OLD-SCHOOL
C-suite leader vs.
recruitment
THE LEADER EMERGES FROM THE SYSTEM
People
and
tribes
om r om
C
e
p a n y c ult u
In
ter es
n a l p ro c e s s
whom they might have enjoyed positive
working relationships. An incoming
insider needs to be sensitive to how col- the Brad Pitt movie of the same name.
leagues might perceive these employ-
ment decisions, convey the importance
of having the right team and get align-
ment from the rest of the executive team
and/or board. (See “CEO 1000: Insiders
vs Outsiders,” by RHR International, Oct.
11, 2018, tinyurl.com/y4pxy2d3.)
If one day you were a member of the
team and the next you were its manager,
you remember how your former peers
had to adjust their perceptions of you
in your new role. You might have had
to have one-to-one conversations with
some so they could perceive you as a
highly capable leader, recalibrate their
relationships with you, and so they
and you could communicate mutual
expectations.
Let’s talk baseball for a minute
Board members who opt to hire CEOs
from outside their organizations should
FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020
MONEYBALL
C-suite leader
recruitment
THAT DEVELOPED THEIR TALENT
People
and
tribes
r
e
p a n y c ult u
In
te r es
n a l p ro c e s s
read Michael Lewis’ 2003 book, “Mon-
eyball” (W.W. Norton & Company) or see
This is the story of the Oakland Athlet-
ics’ baseball team that exploited — dis-
rupted is a better descriptor — industry
market inefficiencies to experience one
of the best seven-year runs in franchise
history.
Instead of traditionally loading the
team with superstar athletes, the Athlet-
ics focused on developing the existing
roster of lesser-known talent that could
play more than one position well, and
had overall position-by-position balance
and depth off the bench — so all players
at one specific position had equal tal-
ent. The Boston Red Sox and Houston
Astros followed the same strategy, and
each won World Series championships.
(However, unfortunately, both teams
were later caught cheating.)
(See “MLB reveals Red Sox’ cheat-
ing scandal, tainting yet another
FRAUD MAGAZINE 55
 CAREER CONNECTION
championship team,” by Tom Verducci,
SI.com., tinyurl.com/y93kw88g.)
Bringing talent up
through the ranks
Baseball teams have learned to develop
talent by bringing players through
minor league teams. They learn systems,
work with teammates and team coaches,
improve technical skills and increase
knowledge of the game.
From my lifelong interest in the
sport, I’ve found that baseball players
mature in structured environments.
Their organizations mentor them to
handle fame, fortune and distractions of
the big-league bright lights. Individual
players function better as a cohesive
team rather than relying on the one or
two home-run sluggers or the pitching
ace throwing physics-defying sliders
and curve balls at helpless hitters.
The baseball analogy parallels
what happens when some organiza-
tions go outside their corporate walls to
reel in superstar C-suite executives by
dangling excessive compensation. In
“Moneyball,” author Lewis tells of the
relationship of insiders versus outsiders
(organizations pay groomed insiders less
than those they hire from outside) and
the ever-increasing capitalist demands
of market efficiencies — to which pro-
fessional baseball isn’t immune.
Global leadership development
is using Moneyball principles
According to a TechNavio market
research report summary, the global cor-
porate leadership training market from
2020 through 2024 is expected to post a
compound annual growth rate of 14% or
about US$26.7 billion.
TechNavio’s research also shows
that organizations are increasingly
56 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020
Building your professional future
spending on leadership training because
it’s more cost-effective for organizations
to fill senior positions from within their
hierarchies rather than hire external
resources. (See “Global Corporate
Leadership Training Market 2020-2024,”
tinyurl.com/vvekwnn.)  vice-versa to help others receive the
That’s what I call Moneyball leader-
ship, which is about building depth,
creating engaging relationships at all
levels over time and strengthening posi-
tive influence throughout organizations.
Organizations are quickly recognizing
leadership succession training is essen-
tial to efficient functioning and financial
health. (See the figure on page 55.)
However, all’s not rosy for succes-
sion planning because organizations
might not always find their managers
are willing to move into top positions. In
2019, DDI, a global leadership consult-
ing firm, developed its Frontline Leader
Project. The endeavor, which surveyed
more than 1,000 leaders and executives,
found that only one in 10 wants a seat
in the C-suite, 34% of managers would
like to move up just one level into an
operational leadership position and 11
percent had no interest in steering the
ship in a CEO position. (See tinyurl.com/
qmhspdb.)
Organizations must recognize
high-potential managers earlier in their
leadership development processes, such
as a first-base coach who shows prom-
ise as a manager. They must prioritize
player growth into those ever-expanding
roles and identify select candidates for
higher leadership succession over their
careers as team leaders, coaches, manag-
ers and perhaps even in positions in the
organization’s front office.
Batter up!
Apply the Moneyball leadership model
within your organization to:
• Identify internal talent.
FRAUD-MAGAZINE.COM
• Teach them your systems.
• Grow them into leaders who under-
stand your people, culture and pro-
cesses, and then let them shine.
• Share the why behind the how and
clarity of vision for moving forward.
• Keep asking others, “Are there any
obstacles that might prevent you from
achieving your objectives?”
• Listen and pay attention to the sights
and sounds that will help prevent and
deter threats to the enterprise, such as
fraud.
Ensure managers understand that
building connections with others takes
precedence over claiming authority over
them. They can’t have faith in your orga-
nization without believing and trusting
in who you are. Take the time to nurture
your own Triple-A talent so they can
more easily put together consecutive
winning fiscal seasons rather than using
the Wall Street scorecard of quarter-by-
quarter (the equivalent of inning-by-
inning) results.
After all, it doesn’t matter who’s
ahead at the seventh-inning stretch; what
matters is who’s winning and warding off
fraud at the end of the game. n FM
Donn LeVie Jr., CFE, a Fraud Magazine
staff writer, has been a presenter and a
leadership positioning/influence strate-
gist at ACFE Global Fraud Conferences
since 2010. He’s president of Donn LeVie
Jr. STRATEGIES, LLC, and the creator of
several virtual strategic mentoring pro-
grams for high-performing professionals.
His website is donnleviejrstrategies.com.
Contact him at donn@donnleviejrstrate-
gies.com.
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 FRAUD SPOTLIGHT Lesser-known frauds and anti-fraud methods

Keeping tax-supported officials

around the globe accountable
National agencies are adopting income-asset disclosure management
systems to help ensure transparency and accountability among high-level
political and governmental officials.

N icholas, a citizen of an Eastern

European nation and a highly
respected scientist, worked
as the director of a public institution in
his country. He had the power to grant
funds to research institutions in his
country from international organiza-
tions, such as the Global Fund, the
United Nations, the European Com-
mission and the United States Agency
for International Development (which
included U.S. taxpayers’ money).
The country’s state civil service
bureau, which receives and reviews of-
ficials’ income-asset disclosures (IAD),
selected his declaration to inspect. The
bureau’s staff noticed some red flags
when they matched his information
on the declaration to the external data
sets, such as public land ownership,
salaried employees by public resources
and police records. Then the board sent
the suspected case to the state audit
office for further review. Helen, a smart
oversight professional from the office,
discovered Nicholas had committed a
him for COI. Similar organizations in the Public wants transparency
fraud via a conflict of interest (COI) by
country blacklisted him for the rest of and accountability
granting funds under his signature to an
his career despite his highly respected
institution that, in exchange, had hired Organizations are now using a relatively
his daughter. scientific bonafides. His ethical breach
new tool, IAD management systems, to
Because Nicholas had failed to obviously was more important for him
declare income for relatives under his than his good name. (This story is an detect fraud and corruption by those in
custody in his IAD, his employer fired amalgamation of several cases.) high-level political, governmental and

58 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020 FRAUD-MAGAZINE.COM

civil servant positions who could receive
remuneration from tax dollars.
The public, which is eager for trans-
parency and accountability, is asking for
clear disclosures in changes in income,
assets and fortunes of top officials in
community service. Mere income moni-
toring doesn’t work anymore. Citizens
won’t tolerate the illicit enrichment and
conflicts of interest of these high-rank-
ing leaders while on duty.
IADs can increase public confi-
dence in accountability and perception
of good governance. Organizations can
use them to discover illicit enrichments
and COI. In recent years, private-sector
entities — multinationals and other
large firms — are also using systems
similar to IADs to vet their top execu-
tives, and enhance accountability and
transparency.
“The potential for IAD systems to
contribute to broader anticorruption
efforts, such as national international
financial investigations and prosecu-
tions, international recovery efforts, the
prosecution of illicit enrichment, and
the identification of politically exposed
persons is as yet largely untapped,”
according to “Public Office, Private In-
terests: Accountability through Income
and Asset Disclosure,” Stolen Asset
Recovery Initiative, The World Bank,
UNODC, 2012, tinyurl.com/yyenwery.
An IAD isn’t a magic bullet. Public
officials can still find ways to hide their
crimes. But an IAD is an important
weapon in a country’s anti-corruption
arsenal.
Primary concerns
IADs deal with two major accountability
issues: illicit enrichment and COI.
Illicit enrichment
Fraud examiners can focus on this when
perceptions of corruption and impunity
COLUMNIST
HALUK FERDEN
GURSEL, PH.D.,
CFE, CPA
TRAINING
CONSULTANT
The public, which is
eager for transpar-
ency and account-
ability, is asking for
clear disclosures in
changes in income,
assets and fortunes
of top officials in
community service.
are high. An IAD can assist in combating
the underlying issues and behaviors that
contribute to these perceptions.
Governments might prefer to
adopt a model that concentrates on
monitoring officials’ wealth to detect the
concealment or theft of assets, and sanc-
tioning violators through administrative
or criminal means.
Conflict of interest
Rather than focusing on the detection of
wrongdoing, COI models concentrate on
avoiding situations that might lead to un-
ethical behavior. These models can provide
ethics frameworks to avoid COI situations
that might lead to corrupt behavior.
Approach
Public-sector organizations review
high-risk officials’ performances based
on fraud and corruption risk inher-
ent in such groups’ behavior. A fraud
risk assessment (FRA) thus employed
to determine leaders’ possible illicit
enrichment and COI. (For examples, see
the ACFE/Grant Thornton Anti-Fraud
Playbook and the ACFE/COSO Fraud Risk
Management Guide, tinyurl.com/uo4f-
wfm; and ACFE’s Fraud Risk Assessment
Tool, tinyurl.com/y6pnzwfq.) Public-
sector organizations review high-risk
officials’ performances.
World governments are debating
how to provide public access to data in
countries that lack serious verification
or where anti-fraud laws are weak and
often ineffective. Therefore, some coun-
tries grant tiered access. In other words,
some of the information is publicly
available, whereas disclosure of more
sensitive and detailed information is re-
served for the use of specific authorities,
such as during court cases. The idea is
to preserve sensitive personally identifi-
able information from public consump-
tion thus preventing possible abuse.
A jurisdiction’s thorough IAD system
will:
• Be “anchored” in a code of ethics and/
or criminal code.
• Establish credibility among stakehold-
ers as it releases results to the public.
• Include proportionate, enforceable
sanctions for noncompliance.
Anchoring IAD systems
Disclosures in IAD systems need to be
anchored in sets of norms that obligate
income and asset declarants to behave
in ethical ways. Such norms are com-
monly set out in criminal laws and/or
in ethics codes and codes of conduct.
The codes can broaden the categories of
unacceptable behavior that wouldn’t be
covered under criminal statutes, such as
awarding contracts to brothers, cousins
or close friends. These codes must gibe

FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020 FRAUD MAGAZINE 59

 FRAUD SPOTLIGHT Lesser-known frauds and anti-fraud methods
with internal cultures, so employees find
them relevant.
This anchoring provides filers with
additional motivation to fill in IAD
forms completely, accurately and timely.
Linking an IAD system with an ethics/
conduct or criminal code also provides
parameters to evaluate disclosure
documents.
Credibility of IAD systems
Manage expectations
The public won’t trust inflated expecta-
tions of achievements. Exaggerated
campaign statements about “wiping
out corruption” can extinguish good-
will because the public seen past failed,
unsustainable attempts.
Leadership
Politicians’ and legislators’ visionary
leadership must drive the introduction
and development of IAD systems. At a
minimum, they should show account-
ability, consistency and transparency.
So, good tone at the top will increase a
system’s credibility.
Accountability must begin with legal
frameworks written in organizations’
statutes and bylaws. Organizations must
require their officials to demonstrate
their accountability by participating in
all minor and major internal and exter-
nal systems without requesting special
treatment. Organizations also must en-
force accountability by swiftly penaliz-
ing officials to send the message it won’t
tolerate contravention of standards.
Consistency includes harmoniza-
tion with, and no contradictions from,
countries’ anti-fraud legislation. IAD
documents should reflect all laws and
penalties and not supersede them. And
definitions, such as COI and gifts that
officials can accept, should be consistent
within a jurisdiction’s various IADs.
60 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020
Transparency demonstrates account-
ability of governments, agencies and
officials. They should make laws and
guidelines publicly available for scrutiny
and ongoing education.
Organizations must maintain the
same principles in their IAD systems
through the years so they’re as forceful
and coherent on day 3,000 as they were
on day one. And they must clearly com-
municate the purposes of their systems
to internal parties and citizens.
Most officials, of course, initially
negatively react to IAD systems. They
often view the processes as cumbersome
and unnecessary. Management’s chal-
lenge, over time, is to persuade public
officials that IAD systems are beneficial
for them and their organizations. It can
emphasize to officials that their lack of
transparency and accountability can
cause non-governmental organizations
to produce incorrect reports and conclu-
sions and weaken systems’ reliability.
Sanctions for IAD violators
Organizations, in constructing their IAD
plans, must determine those offenses
that warrant punishment. They gener-
ally impose sanctions to ensure com-
pliance with requirements to declare
in a timely fashion and veracity of
submissions.
In practice, offenses are: (1) late fil-
ing (2) non-filing (3) incomplete declara-
tions (4) false declarations. The first two
are focused on the submission process
while the second two on the content of
declaration.
A system focused on identifying
and preventing potential COI will tend
to rely on a collaborative approach
among the administering agencies and
the declarants. The individuals subject
to declaration are expected to disclose
anything that could even give the
FRAUD-MAGAZINE.COM
appearance or perception of COI. Public
officials can’t be too careful.
A system focused on
identifying and
preventing potential
COI will tend to rely
on a collaborative
approach among
the administering
agencies and the
declarants.
Designs of sanctions need to fit to
specific objectives within political and
economic contexts of a country. The em-
phasis, for example, might need to be on
guaranteeing that all covered individu-
als submit their declarations completely
and on time.
Once an agency has largely verified
the content of officials’ declarations, it
can expand its IAD system to focus on
accuracy and veracity. A country can
gradually increase the credibility of its
system by including sanctions that are
enforceable and proportionate.
Sanctions might range from fines
to administrative penalties (such as
reprimands, demotions, suspensions
from office and dismissal) to criminal
penalties. Those who lie on IAD forms to
elude illicit enrichment detection can be
subject to criminal penalties.
The unique U.S. Ethics in Govern-
ment Act of 1978 (tinyurl.com/y2nedz-
vb), passed in the wake of Watergate,
created mandatory public disclosure
of financial and employment history
of public officials and their immedi-
ate families. (The U.S. Congress passed
the Ethics Reform Act in 1989, tinyurl.
com/y6796dbs.) The act created the U.S.
Office of Government Ethics. Criminal
penalties for falsifying information
can include imprisonment of up to a
year plus civil penalties not exceeding
$50,000. (See tinyurl.com/y4ytqjpx.)
Italian public officials and members
of government can be criminally liable
The severity of sanctions needs to be calibrated both
to its enforceability and to its potential for deterring
noncompliance. The possibility of a prison term could
be as ineffective as a small fine if an organization
doesn’t enforce sanctions.
for not submitting declarations of inter-
ests and for providing false information.
In the U.K., criminal sanctions can be
applied to some categories of public of-
ficials. (See tinyurl.com/y2vnupeb.)
In Poland, local public officials can
be sentenced up to three years in prison
for false declaration of interests. (See
“Asset Declarations for Public Officials:
A Tool to Prevent Corruption,” OECD,
2011, Part II, Chapter 7, “Liability and
Sanctions,” tinyurl.com/y62nd57o.)
The severity of sanctions needs to
be calibrated both to its enforceability
and to its potential for deterring non-
compliance. The possibility of a prison
term could be as ineffective as a small
fine if an organization doesn’t enforce
sanctions.
The trend is leaning toward impos-
ing fines and administrative sanctions in
cases of late and non-filing, and criminal
sanctions for false statements. Organiza-
tions who incompletely file might get
a second chance to submit additional
information. (See “Stolen Asset Recov-
ery,” by Ruxandra Burdescu, Gary J. Reid,
Stuart Gilman and Stephanie Trapnell,
StAR Initiative, November 2009, page
14, tinyurl.com/yxure85s.)
Administrative sanctions, which
appear to hold the greatest promise of
ensuring compliance, consist of fines
or suspension of salaries for late filing.
Some administrative sanctions, such as
publishing names of non-compliant offi-
cials, might carry personal reputational,
political, career and earnings costs that
can effectively compel compliance. And
linking officials’ compliance to perfor-
mance evaluations can pressure them to
buy into the system.
Serious administrative sanctions,
such as suspension and/or dismissal,
might apply in cases of failure to file.
Different categories of officials might re-
quire varying administrative sanctions.
Members of parliament, judiciary, minis-
ters and heads of state, of course, can’t
generally be immediately dismissed
from office, reprimanded or suspended
from duty like civil servants without
formal procedures.
Reviewing results
of declarations
Review of participants’ declarations can
be grouped into three levels:
• First tier: simple checks for consis-
tency and completeness.
• Second tier: cross-checking data with
other available sources (land regis-
tries, tax declarations, bank informa-
tion etc.).
FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020
• Third tier: computer-assisted logic
checks (AI, data-mining software,
looking for red flags).
For example, Argentina performs
electronic reviews while in Mongolia
ethics officers manually review the top
256 officials. Reviews by some other
counties emphasize compliance rather
than content verification. Staffing per
number of officials’ disclosures vary
widely. Mongolia uses 10 staff members
in its Independent Authority Against
Corruption per 256 disclosures — a ratio
1 to 25. Kyrgyzstan allocates four staff
for 17,000 disclosures — a ratio of 1 to
4,250. Argentina has 12 staff for 34,000
IAD — a ratio 1 to 2,833. And Croatia has
27 staff for 1,800 disclosures — a ratio
of 1 to 66. (See “Asset Declarations for
Public Officials: A Tool to Prevent Cor-
ruption,” OECD, 2011, Part II, Chapter 6,
“Processing of the Declarations,” tinyurl.
com/y62nd57o.)
‘Doveryay, no proveryay’
Accountability and transparency require
each person controlling public funds to
be clear of suspicion of corruption and
fraud. As the old Russian adage says,
“Doveryay, no proveryay” — “trust but
verify.” The way to prove the absence of
corruption is via a system of verifica-
tions and to sanction those not comply-
ing with sets of rules. Income and asset
disclosure frameworks can help ensure
compliance and combat corruption and
fraud in any jurisdiction. n FM
Haluk Ferden Gursel, Ph.D., CFE,
CPA, is a training/coaching consultant
and content provider for policy docu-
ments and e-learning training. Contact
him at hgursel@gmail.com.
FRAUD MAGAZINE 61
 FRAUD BASICS Fundamentals for all

Dealing with narcissistic

interviewees
Interviewing narcissists during a fraud examination demand special
skills. Here are some practical ways to interview those who have inflated
self-perceptions and are missing solid self-esteem fundamentals.

A s fraud examiners, many of us

are familiar with the cognitive
interview technique, mainly
developed by R. Edward Geiselman,
Ph.D., as a core method to interview
victims, witnesses or accused. (See the
ACFE Fraud Examiners Manual, The Cog-
nitive Interview Technique, tinyurl.com/
y2rpq8qm.)
However, during interviews we
often focus on questions and method-
ological steps and less on interviewees’
characteristics. Awareness of interview-
ees’ psychological functioning can help
us prevent conflicts and glean needed
information. Here we focus on inter-
viewees with narcissistic tendencies:
how to spot them, how they think and
how to best cooperate with them.

Narcissistic interviewees
According to “Diagnostic Statistical
Manual of Mental Disorders,” 5th Edition,
approximately .5% to 1 % of the popula-
tion suffer from narcissistic personality
disorder (NPD). Science indicates that Researchers from the Ohio State (See “Leader Emergence: The Case of the
people with strong narcissistic tenden- University and the University of Georgia Narcissistic Leader,” by Amy B. Brunell,
cies are more prevalent in manage- discovered in an experimental study William A. Gentry, W. Keith Campbell
ment positions. (See “The Prevalence of that narcissism predicted emergent and Brian James Hoffman, October
narcissist CEOs,” by Patrick Wright, HR leadership, regardless of whether it was 2008, tinyurl.com/y4jeoa3u.)
magazine, April 13, 2017, tinyurl.com/ self-reported, reported by others in the Further research indicates that
y9fde87r.) group or assessed by expert observers. narcissistic behavior is linked to fraud.

62 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020 FRAUD-MAGAZINE.COM

(See “Some Personality Correlates
of Business White-Collar Crime,” by
Gerhard Blickle, Alexander Schlegel,
Panataleon Fassbender and Uwe Klein,
Feb. 28, 2006, tinyurl.com/y2ypdsq9.)
Therefore, it’s not unlikely that fraud
examiners are confronted with people of
high narcissistic personality traits dur-
ing interviews.
What motivates people with
strong narcissistic tendencies?
The media often portrays narcissism as a
horrible trait of arrogant and manipula-
tive people. On closer inspection, how-
ever, narcissism isn’t necessarily always
bad. All of us have moderate narcissistic
aspects in our personalities that make us
love ourselves and believe we’ll be able
to achieve our goals and that protect us
from inappropriate criticism.
However, some have pathologic
narcissism with strong self-centeredness
that they use as an over-compensating
survival strategy to excessively protect
their self-worth — sometimes to the det-
riment of others. We assume that overly
narcissistic people have either experi-
enced strong debasements and humili-
ation or have been seated on thrones
without boundaries or consequences
for bad behavior in their childhood and
adolescence. Both scenarios usually re-
sult in an inflated self-perception with a
missing solid self-esteem fundamental.
Those individuals with strong
narcissistic traits have inner needs to
be recognized and admired. And their
need to sustain their public images drive
them. They work hard to have others
perceive them as “recognized persons.”
They’re attuned mostly to the reactions
of others that increase their self-esteem.
Their impaired ability and willingness
COLUMNIST
BENJAMIN
SCHORN, CFE
FORENSIC
INVESTIGATOR, KPMG
it’s not unlikely that
fraud examiners
are confronted with
people of high narcis-
sistic personality
traits during forensic
interviews.
to recognize and identify with the needs
and feelings of others keep their rela-
tionships largely superficial.
Narcissists usually have fantasies
of grandiosity and a heightened sense
of uniqueness and self-importance, and
perceive themselves as more special
than others. They can express this “red-
carpet-mentality” in rule-disregarding
behavior: “I’m a top manager in this
firm. The rules don’t apply to me.”
Status seeking and self-worthiness
drives those with narcissistic tenden-
cies, which they often express by their
high performances at work. And the link
between status and wealth further drives
high-performing narcissists as their
careers become more successful.
How do we identify narcissists
in interviews?
A self-centered person’s need to be
recognized and admired often manifests
in their attention-seeking behavior.
Usually they openly sell their visions,
dreams and competencies instead of
FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020
hiding their ambitions. If you listen to
their stories you’ll eventually notice,
predictably, that narcissists tend to use
the word “I” more often than those with
moderate personality traits. Their inner
need for higher self-worth is also often
reflected in their appearance: designer
clothes and shoes, expensive purses,
fine handkerchiefs, signet rings, cuff-
links with their initials, luxury cars and
personalized high-brand — in short, a
“valuable” look.
How do we deal with these
people in interviews?
According to Geiselman, we should
divide the cognitive interview into the
narrative phase and the specific-detail
phase. (See the ACFE Fraud Examiners
Manual, The Cognitive Interview Tech-
nique, tinyurl.com/y2rpq8qm.)
However, an interview is a social
interaction between two or more indi-
viduals that begin with a get-acquainted
talk. Also, before we move from the
first “Hello” to “Tell us everything” we
usually give the interviewee an overview
of the interview proceedings, such as
who we are, intended topics, protocol of
those taking notes, admissions, reason
for our meeting, etc. For these reasons,
I added “warming-up” and “overview”
phases to the interview process.
Warming-up phase
In social interactions with those whom
we haven’t met before, the first ques-
tions we unconsciously ask ourselves
is “Can I trust this person? Am I able to
feel safe here?” Or in other words, “Am I
encountering a friend or foe?”
A narcissistic person often uncon-
sciously assumes that other people are
better than they are. To protect them-
selves from the corresponding feelings
FRAUD MAGAZINE 63
 FRAUD BASICS Fundamentals for all
of inferiority they use a psychological
trick. Instead of thinking, “This person
is better — in any terms — than me”
they’ll think, “This person is bad.” Thus,
it’s important, that we don’t go into an
interview with an attitude of “I’ll teach
this person a lesson.”
We should keep in mind that a
fraud examination inherently isn’t a
social situation between two equal part-
ners but one-sided skewed toward the
interviewee. We usually determine the
meeting date and location, and the topic
of conversation. We ask questions and
therefore lead the conversation.
Narcissists are usually more
interested in telling their
stories instead of listening
to us talk about our careers,
the interview processes,
protocols and so on.
All of this can make an interviewee
feel, especially if they’re narcissis-
tic, that they’re subordinate, and the
interviewer is superior, even before the
interview starts. And an interview can
reveal an interviewee’s shameful, sensi-
tive information.
Therefore, try to dissuade an inter-
viewee from feeling you’re the enemy by
first asking them general non-threaten-
ing questions about their wellbeing, city,
office, company and family, among other
innocuous subjects.
Gaining sympathy is of higher value
than showing that you’re an experienced
professional with whom your coun-
terpart better not mess with. Let the
interviewee lead the small talk as you
64 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020
show interest by actively listening and
nodding in agreement.
However, avoid asking seemingly
neutral questions that the narcissistic
interviewee can’t answer, such as, “Wow,
this is an incredible picture here of you
and the northern lights. Last winter, I
took my holiday at Cape Horn. Do you
know where that is?” A narcissistic
person could interpret that as a chal-
lenge to play the “mine is better than
yours” game and then hold back with
important information to your substan-
tive questions.
Overview phase
Interviewees, including narcissists, gen-
erally are more willing to share informa-
tion with us if we’re transparent and
show our readiness to share information
with them first. However, narcissists
are usually more interested in telling
their stories instead of listening to us
talk about our careers, the interview
processes, protocols and so on.
In contrast, people with high ac-
centuations of conscientiousness or
vigilance explicitly want to know as
much as they can about the interviewer
in front of them, what the interview
will be about, how you’re going to use
their statements, if the interview will
be legally in line with data protection
guidelines, etc.
By dealing with narcissistic inter-
viewees, instead of excessively explain-
ing the processes etc., you can use the
overview phase to explicitly state that
you’re reliant on their help and explain
how they’re able to support us in this
case: “You’ve worked at this company
for 10 years, so you probably have more
expertise than most other employees
around here, don’t you? Because of this,
we’re very happy to have the opportu-
nity to talk to you today about …”
FRAUD-MAGAZINE.COM
Narrative phase
You’ll probably gather most of the
interview’s information in the narrative
phase. It’s highly important that you
give the narcissistic interviewee enough
time and space to tell their story and
avoid interrupting them.
As you ask them to remember inci-
dents or conversations that might have
happened months or years ago, they’ll
need to dig into their brain’s long-term
episodic memory. This long process can
be exhausting for them. Patiently wait
during these moments of silence until
they answer.
The narcissist equates their spoken
words as their very essence, value and
importance. Interrupting them is an
attack on their self-worth. TV political
talk shows exhibit narcissists’ extremely
defensive behavior when they’re inter-
rupted. “Excuse me,” they’ll say. “If you
don’t let me finish speaking, I can leave
right know. You invited me to hear my
opinion, didn’t you? So, let me finish.”
Specific-detail phase
Here are three essential rules when you
interact with narcissists in this phase:
Begin with simple questions that
the narcissist will be able to answer
instead of tough questions that require
expert knowledge. Any of us feels good
supplying helpful information, but a
narcissist’s self-esteem will especially
grow if they can answer your first ques-
tions, which could spur them to think
longer for your eventual more difficult
interrogatives. But if you ask the hard
questions first, a narcissist could give
wrong answers because they might not
safe enough to say, “I don’t know. Let me
think about it.”
Generally, don’t begin questions
with “why,” such as, “Why didn’t you
follow the prescriptive rules of your
 company regarding vendor selections?” explain the reason behind …” This im- saying things like, “I would expect that
All of us usually link “why” questions plies that you understand the interview- you know this” or asking, “Wasn’t this
with feelings of inferiority and our ee’s position, you’re honestly interested your responsibility?” Narcissists won’t
parents’ age-old demands, such as, in them and won’t judge their actions. accept even constructive criticism, and
will be angry or refuse to give further
“Why did you get a D in math again? Therefore, we reduce the interviewee’s
information. n FM
Learn more the next time!” A narcissist feelings of shame and add more space
translates those questions as, “You’re a for them to openly and freely explain the
failure. As a person, you’re not worthy!” situation. Benjamin Schorn, CFE, is a forensic
investigator at KPMG and self-employed
Instead of asking the interviewee, Don’t criticize. You might be
profiling specialist, systemic coach
“Why?” we should say, “I’m sure there tempted to point out the interviewee’s and behavior analyst. Contact him at
was a plausible reason you did this and mistakes, because it might give you a bschorn@kpmg.com and benjamin-
that. It would really help us if you would feeling of superiority. However, avoid schorn.de.

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Calendar of Virtual Events

ADVANCE YOUR CAREER WITH

VIRTUAL TRAINING FROM THE GLOBAL
LEADER IN ANTI-FRAUD EDUCATION.
ACFE.COM/TRAINING

NOVEMBER 2020 NOV 2020 ACFE GOVERNMENT DEC ADVANCED FRAUD

17 ANTI-FRAUD SUMMIT 10 EXAMINATION TECHNIQUES
NOV 2020 ACFE FRAUD CONFERENCE Virtual Conference Virtual Seminar
1 CANADA November 17, 2020 | CPE: 8 December 14-16, 2020 | CPE: 12
Virtual Conference
November 1-4, 2020 | CPE: 24
DEC CONVERSATION WITH A
17 FRAUDSTER
Online Webinar
December 17-18, 2020 | CPE: 2

NOV AUDITING FOR INTERNAL

NOV PROFILES OF FRAUDSTER CASE
10 STUDIES
Virtual Seminar
November 10, 2020 | CPE: 4
NOV SCAM PROOF YOUR LIFE,
12 PSYCHOLOGY OF FRAUD AND
SCAMMER TACTICS
Online Webinar
November 12, 2020 | CPE: 2
19 FRAUD
Virtual Seminar
November 19-20, 2020 | CPE: 16
DECEMBER 2020
DEC FRAUD PREVENTION
1 Virtual Seminar
December 1, 2020 | CPE: 8

NOV VIRTUAL CFE EXAM REVIEW

16 COURSE
Virtual Seminar
November 16-19, 2020 | CPE: 32

DEC INVESTIGATING CONFLICTS

10 OF INTEREST
Virtual Seminar
December 10-11, 2020 | CPE: 8

Calendar subject to change.

For information or to register, visit ACFE.com/training

Which Online Event is
the Best Fit For You?
It is our top priority to keep you up-to-date on the latest in fraud by providing cutting-edge, relevant training.
We also understand that the in-person benefit of networking with other attendees is an important element
to staying up-to-date on the latest in anti-fraud trends and best practices. We are adding new online events
every day keeping these goals in mind.

We now offer a wide selection of different types of online events.

Below you’ll find a guide for choosing which type of online event best suits your training needs.

Online Webinar Virtual Seminar

Online webinars are typically 100 minutes and offer up to
2 CPE. We offer a wide range of topics ranging from lead-
ership skills to data analytics. This is the perfect option if
you are looking for a shorter, more specialized training.
We are offering several different types of virtual seminars
ranging in length and number of CPE credits. Virtual
seminars vary in length ranging from 4-16 hours. In ad-
dition, many of the in-person seminars we typically offer
have been converted into a virtual format. We are adding
new virtual seminars every day, so keep an eye on the
calendar for updates. This is the perfect choice if you are
looking for in-depth training on a specific topic and need-
ing to earn more CPE.

Virtual Seminar Workshop Virtual Conference

The virtual seminar workshops are longer and offer
more CPE. Most importantly, these workshops are very
interactive. You will interact with other attendees and
the instructor in these workshops. This is the perfect
choice if you are looking to receive the benefits of net-
working with other attendees and the instructor while
learning in a hands-on environment.
Virtual conferences are a great way to get the many
benefits of attending a live conference, from the com-
forts of your own home. You should attend the virtual
conferences for many sessions which offer a large
range of topics, often specific to the region in which the
conference is held. Many conferences offer ways to get
the added benefit of virtual networking, more CPE and
on-demand session recordings after the conference.

Free Members-Only Webinar Virtual CFE Exam Review Course

Free webinars are only available for ACFE Members.
This is a benefit for ACFE members to receive CPE, free
of charge. These are 50-minute webinars, that cover a
specialized topic. This is a great option for an on-the-go
ACFE member who wants to attend a webinar and learn
the latest, without having to cut into your work schedule
too much.
Virtual CFE Exam Review Courses are a great opportu-
nity to get the many benefits of attending the CFE Exam
Review Course, virtually. This live course allows you to ask
the instructors questions, and interact directly with other
attendees. This is a great choice for you if you’re looking
to earn your CFE credential, and need hands-on training to
help you pass the exam on your first try.
 I’M A CFE
Priti Amin, CFE
Vodafone Business fraud
manager at Vodafone Group
When Priti Amin, CFE, was
young she knew she wanted
to do something that helped
others because honesty, trust
and personal integrity were
important to her. Those values
compelled Amin in her journey
to fight fraud. Within Vodafone
Group, a global technology
communications organization,
Amin is the Vodafone Business
fraud manager. She’s responsi-
ble for managing fraud risks for
the entity, its products, services
and customers.
Interview by Dick Carozza, CFE
I was born in the city of Mbarara in
the western region of Uganda. My
family came to the U.K. when I was
about two or three years old as part
of the expulsion of British Asians by
the then President Idi Amin (no rela-
tion, I might add!) and settled in the
city of Leicester where I grew up.
I spent a lot of time outdoors when
growing up, playing with other kids
usually on our bikes or tennis. I also
enjoyed reading and was always —
and still am — into crime and thriller
books.
68 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020
When I was little, I wanted to be
a nurse but discovered early on
that I didn’t really get on with sci-
ences! At the very basic level, I knew
I wanted to do something that helped
others. Honesty, trust and personal
integrity are values I have held in high
regard from a young age.
Previously, I worked in consulting
for around 14 years, initially pro-
gressing through the internal audit
profession and subsequently branch-
ing off into fraud investigations and
management. I managed and led on
a portfolio of clients delivering both
proactive and reactive fraud services,
reporting to the CFOs and, ultimately,
the audit and risk committees.
In my current role, within a global
technology communications orga-
nization, I lead on delivering fraud
management activities, specifically
for the enterprise part of the busi-
ness. I am responsible for managing
the fraud risks to this entity, its prod-
ucts, services and customers. I have
led on developing and driving a fraud
management program. My team and
I deliver fraud risk assessments across
the entity, which inevitably means
FRAUD-MAGAZINE.COM
managing stakeholders at operational
and executive levels.
We support local markets and
business functions across the globe
in managing all significant fraud
incidents affecting our business cus-
tomers, and we work closely with our
investigations team.
My interest in fraud was sparked
at a very early stage in my career.
As a junior internal audit assistant in a
local government body, I was regu-
larly asked to help with the legwork
of investigations. My first involvement
really opened my eyes to how cre-
ative some people can get when they
put their minds to it!
The more I became involved,
the more I wanted to know. I was
intrigued about different types of
frauds, what had allowed the frauds
to happen, what motivated people to
commit fraud and how they avoided
detection.
When I moved to consulting, I
was keen to develop myself further in
the fraud field and was lucky enough
to join the fraud investigations team,
even though my primary role was in
internal audit.
One of my earlier cases, upon win-
ning a new health client, involved a
member of the public using fraudu-
lent identities to register at various
medical practices to obtain prescrip-
tion painkillers — controlled drugs
— fraudulently.
The individual had been doing
this for several years. Previous inves-
tigations through other third parties
had not been successful. I worked
extensively with the local controlled-
drugs liaison officer, the U.K. border
agency and several medical practic-
es in the region where the individual
had registered, to gather evidence
of the timeline of the fraud, the
types of controlled drugs they were
obtaining and following various lines
of enquiries.
A pattern started to emerge
concerning their behavior and the
methods utilized. While they had
used various identities, they had used
the same address. The case involved
accessing medical records through
the correct protocols, plus obtaining
witness interviews from the medical
practices, doctors and pharmacists to
piece together the quantity that had
been obtained and the cost to the
health authority.
My client took the decision
to prosecute and was successful. In
court, I felt sorry for the individual.
Even though they came from a large
family, not one of them was in court.
The individual had become depen-
dent on drugs and committed the
fraud for personal usage; desperation
had led to creativity in how they got
hold of them.
I first heard of the ACFE back in
2007. I became an associate mem-
ber because I wanted to broaden
my knowledge and skill set in fraud,
and I took advantage of the ACFE’s
I believe all feedback is a gift; it allows us the
opportunity to improve ourselves further but
can also provide recognition of any positive
contribution, which can drive encouragement
and motivation.
wealth of information and resources.
It offered an opportunity to expand
my network and connect with like-
minded individuals across the globe. I
also joined the ACFE UK Chapter and
attended various conferences and
training events. In 2015, I committed
to achieving the CFE credential by
that summer, which I did.
The CFE has broadened my knowl-
edge and built upon my experience
in the fraud arena. It has provided
me with new tools and methodol-
ogy for conducting proactive fraud
management activities such as fraud
risk assessments, using data to detect
financial statement fraud, enhanc-
ing my interview skills and using the
correct inflection during interviews. It
has made a difference because of its
international context and being able
to connect with fraud professionals
who share the same passion to fight
fraud.
My advice for fraud examiners is
you must think like a fraudster to
prevent and investigate frauds.
Trust your instincts and intuition
in investigations. To focus on the
evidence and the facts, and always,
always follow the money. In inter-
views, listen more than you speak and
just as importantly, observe.
In non-investigative interviews
— such as fraud process reviews
— be tenacious and keep asking for
clarification if you don’t understand
the information being communicated.
Never underestimate the impor-
tance of effective internal controls in
fraud prevention.
Learn from each case and expe-
rience whether that means enhancing
or honing a particular strength or
learning what may have worked bet-
ter. I believe all feedback is a gift; it
allows us the opportunity to improve
ourselves further but can also provide
recognition of any positive contribu-
tion, which can drive encouragement
and motivation.
My family is my greatest achieve-
ment. Without their support and
understanding, I most definitely
would not have been able to progress
in my career. Fraud investigations are
demanding and time-consuming at
the best of times. Balancing this with
professional studies, travel and three
kids needs special people to support
and stand by you.
I enjoy long walks; they give me
time to switch off and take in the
natural surroundings, which we don’t
always appreciate. I also like to so-
cialize with friends and family. n FM
Dick Carozza, CFE, is editor-in-chief of
Fraud Magazine. Contact him at dcaro-
zza@ACFE.com.

FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020 FRAUD MAGAZINE 69

 ACFE NEWS

Second ACFE COVID-19 report finds 77% have seen overall fraud increase
Of the anti-fraud professionals sur-
veyed for the ACFE “Fraud in the Wake
of COVID-19 Benchmarking Report,
September 2020 Edition,” 77% have seen
an increase in the overall level of fraud
as of August, compared to 68% who’d
observed an increase when the ACFE
published the first COVID-19 report in
May.
 Ninety-two percent of the survey
participants expect the overall level of
fraud to continue increasing over the
next 12 months. Forty-eight percent
expect this increase to be significant.
Participants said the top fraud
risks, based on current observations and
expected increases, are: (1) cyberfraud
(2) unemployment fraud (3) payment
fraud (4) fraud by vendors and sellers.
Thirty-eight percent expect an
increase in their overall anti-fraud
budgets over the next year, while 14%
expect a decrease. Here are notable
changes to specific budget areas:
• 42% expect a decrease in budget for
travel for anti-fraud staff; 23% expect
a significant decrease.
• 33% expect an increase in budget for
training/professional development
for anti-fraud staff. However, 28%
expect a decrease in this budget item.
• 56% expect their level of anti-fraud
staffing to remain about the same;
30% expect an increase and 14%
expect staffing reductions.
A majority — 68% to 76% — say
that preventing, detecting and investi-
gating fraud are more difficult now than
before COVID-19.
An inability to travel is still the
No. 1 challenge in combating fraud.
But more people are citing conducting
remote interviews as a current top chal-
lenge for them, moving this up to the
No. 2 spot.
Download the report at ACFE.com/
covidreport.

Timothy Alan Pearson
Timothy Alan Pearson, a former
executive director of the Institute for
Fraud Prevention, and a colleague and
friend of many ACFE members, passed
away July 28 in Savannah, Georgia,
from complications of COVID-19. He
was 63.
Dr. Pearson was born on June 13,
1957, in Madison, Wisconsin. A lifelong
academic and educator, he earned his Bachelor of Science,
Master of Professional Accountancy and doctorate from the
University of Wisconsin-Madison.
He worked as a professor of accounting and in college ad-
ministration for more than 30 years — first at the University
of Wisconsin-Eau Claire, then at West Virginia University and
finally at Georgia Southern University.
At the time of his death, Dr. Pearson was director of
the School of Accountancy and Professor of Accounting at
Georgia Southern University. He was an expert in forensic ac-
counting and served as editor for multiple academic journals,
published numerous peer-reviewed articles and secured mil-
lions in grant funding, according to his colleagues.
“Tim was a dear friend, gentle as a teddy bear, always
positive, hard to rattle, a person who never said ‘no,’ ” said a
former colleague, Dr. Richard A. Riley Jr., CFE, CPA, Louis F.
Tanner Distinguished Professor of Public Accounting at West
IN MEMORIAM
Virginia University. “When I arrived at WVU as a newly mint-
ed Ph.D. and WVU faculty member, and became frustrated
with my dissertation, Tim jumped in to help get it published,”
Dr. Riley said. “It’s hard to imagine that I’ll never be able to
talk with him again.”
“Tim was a very special person,” said Patricia Johnson,
MBA, CFE, CPA, visiting assistant professor at Daemen Col-
lege. “He was kind, knowledgeable, a true professional who
always had time to talk. His quiet sense of humor and genuine
concern for people stand out in my memory. It was a privilege
to know him. I will miss him.”
“Tim Pearson was charitable and kind in his interactions
with everyone, and an unassuming, self-effacing leader,” said
Dr. Sridhar Ramamoorti, CFE, CPA, CIA, associate professor of
accounting at the University of Dayton. “A quintessential fam-
ily man, we need more ‘gentle giants’ like him in this world. I
was fortunate and blessed to know him.”
“Tim was a friend to everyone,” said Dr. George R. Young,
CFE, CPA, director of the Florida Atlantic University School of
Accounting. “He had an easygoing manner that made all who
encountered him feel very fortunate. I will miss him.”
Dr. Pearson is survived by his wife of 35 years, Lori; and
his four children, Nathan, Joshua, Skylar and Samuel; plus his
granddaughter Violette; Samuel’s partner, Cassidy; his broth-
ers, Dave and Bill; and his sisters, Pegge and Judith.

70 FRAUD MAGAZINE NOVEMBER/DECEMBER 2020 FRAUD-MAGAZINE.COM

Fraud Magazine associate editor leaves ACFE Pacific NW Chapter
After 6½ years with the ACFE, endeavors and find new profes-
honors Dervaes by
Fraud Magazine Associate sional challenges. naming student
Editor Emily Primeaux, CFE, “I’ve met hundreds of CFEs scholarship after him
has moved on to other creative from around the world over the
opportunities. years. Your passion for rooting The ACFE Pacific
“I couldn’t have asked for out fraud and corruption has Northwest Chap-
a better associate editor,” says made my time with the ACFE so ter Board recently
honored Regent
Fraud Magazine Editor-in-chief fulfilling,” Primeaux says to the members.
Emeritus Joseph
Dick Carozza, CFE. “She showed tremen- “I’ll miss talking to you in person at ACFE
R. Dervaes, CFE,
dous enterprise in reporting for her cover- Annual Global Fraud Conferences and other CIA, by naming its
story articles, and her editing skills were events, and I thank you for allowing me higher-education
excellent,” he says. “She transformed the opportunity to help in your dogged student scholar-
Fraud-Magazine.com and developed a pursuit of truth and justice.” ship after him in recognition of his
great FM app. Emily contributed podcasts Primeaux began her career as a 7th service to the chapter. Dervaes was the
and was a fastidious project manager for grade English teacher and athletic coach chapter’s founding president in 1993.
He served in that position and as presi-
other ACFE endeavors. We’re going to in 2008. In 2010, she moved to Dublin,
dent emeritus on the chapter board for
miss her greatly.” Ireland, and worked as the volunteer
25 years.
Primeaux says working on the maga- programme officer at Suas Educational
“Joe Dervaes is a true legend in the
zine and with the ACFE has been a high- Development, a nonprofit with a goal of fraud-fighting world,” says Mike Nurse,
light of her career. “Under the mentorship tackling educational disadvantage in In- CFE, president of the Northwest Chap-
of Dick Carozza, I was granted opportuni- dia, Kenya and Ireland. ter. “He has left a legacy that continues
ties to interview headline-makers, hone In 2011, she moved to Gibraltar to to touch people’s lives every single day. I
my skills as a writer and editor, and help work as the news and onsite marketing couldn’t imagine a more appropriate
contribute to the global fight against coordinator at Tradimo, a company that honor for Joe because the scholarship
fraud,” she says. “It wasn’t easy deciding to teaches laypersons how to trade in finan- represents the continuance of every-
leave the ACFE — and certainly not during cial markets. At the beginning of 2014, thing he has dedicated his life to —
a worldwide pandemic — but after learn- Primeaux moved to Austin, Texas, and education and the fight against fraud.” 
ing so much, I was ready to tackle new began with the ACFE shortly after. Dervaes was chair of the ACFE
Board of Regents for three years. In
1999, he became the first ACFE Fellow.
The ACFE presented him with its highest
Nigrini questions calculations in Benford’s honor, the Cressey Award, in 2003. In
Law article; author responds 2004, he joined the ACFE Foundation
Board of Directors. In 2007, he received
Mark J. Nigrini, Ph.D., a well-known Benford’s Law advocate, contends that in the ACFE Outstanding Achievement
the May/June 2020 Fraud Magazine article, “Benford’s Law still works: Practical in Community Service and Outreach
applications for finding fraud in a business scenario, by Venkat Kesha Pillai, CFE, Award. He was a longtime author of the
“Fraud’s Finer Points” column in Fraud
ACA, that the chi-square test statistic wasn’t calculated correctly. Nigrini says in
Magazine.
the page 39 table, the observed frequency and the expected frequency columns should
“I was so pleased to be notified by
show the actual and the expected counts, and not the actual and expected percent-
the ACFE Pacific Northwest Chapter that
ages. See Nigrini’s Excel file showing his calculations in the online version of this the board had changed the official name
article at Fraud-Magazine.com. of its student scholarship program to
Pillai responds, “With respect to the method of working out the chi-square test the ‘Joseph R. Dervaes Scholarship,’ ”
statistic, as you [Nigrini] have observed, I went by the difference in frequencies (not
CONTINUED ON PG. 73
CONTINUED ON PG. 73

FRAUD-MAGAZINE.COM NOVEMBER/DECEMBER 2020 FRAUD MAGAZINE 71

 CPE QUIZ No. 153 (November/December 2020, Vol. 35, No. 6)
The Fraud Magazine CPE quizzes are now available
online only. Please visit ACFE.com/FMQuiz or view
the CPE Quiz form on the next page for more
information on how to earn your 10 CPE.
1. According to the opening case in the article, “Fraudulent
T&E reports can indicate greater ethical lapses,” the author:
A. Was investigating a manager’s hotel receipts only.
B. Noticed a trend that all figures in the manager’s meal re-
ceipts were round numbers.
C. The author determined that the manager had forged the taxi
receipts to the tune of a couple thousand dollars.
D. Recommended that the manager be given a reprimand only.
2. According to the article, “Fraudulent T&E reports can
indicate greater ethical lapses, be sure to flag”:
A. Expenses that are submitted as out of pocket.
B. Spending that’s right above the receipt threshold.
C. Expense reports approved within a long time of submission.
D. Expenses with Disapproved Merchant Codes.
3. According to the section, “Samantha’s story,” in the article,
“Set fire to your ‘emotional intelligence,’ ” Samantha:
A. Worked graciously with her coworkers without any friction.
B. Rejected critiques from her colleagues and quit.
C. Had to be willing to ask and answer some really tough
questions about herself.
D. Over time, ultimately didn’t change and became a bad
example to her people.
4. According to the article, “Set fire to your ‘emotional intel-
ligence,” perfectionism can be our biggest strength, but, in
the blink of an eye, can become our biggest weakness.
A. True.
B. False.
5. According to the article, “Dusting your data for fraud’s
fingerprints”:
A. Fraudsters tend to steal in dissimilar ways.
B. All of the fraud types considered in the article are
financial statement frauds.
C. One of the six common number patterns considered is
“Odd and even numbers.”
D. Rapidly rising numbers refer to transaction totals that
increase at an abnormally high rate over time.
DO NOT SUBMIT THIS FORM. Log in to your My Transactions page after purchasing the Fraud Magazine Quiz
! set to submit your answers or record your answers on the answer sheet and submit online when you are ready.
72 FRAUD MAGAZINE MAY/JUNE 2019 FRAUD-MAGAZINE.COM
6. According to the article, “Dusting your data for fraud’s
fingerprints,” fraudsters with accounting authority can
use intentional duplicate payments in occupational fraud
schemes.
A. True.
B. False.
7. According to the article, “Predication or not?” Regent
Victoria Meyer, CFE, FCCA, said:
A. “Predication is just a fancy word for having a justifiable,
business reason for doing what you are doing.”
B. “The source of an allegation in establishing predication is
very critical,”
C. “Most of the huge fraud cases I’ve investigated had few
red flags.”
D. “In Europe, we tend to talk about ‘suspicion’ of fraud and
‘justification’ for our actions.”
8. According to the article, “Predication or not?” Kelly Todd,
CFE, CPA, said:
A. “We begin each engagement as an assessment.”
B. “The decision to investigate is not an all-or-nothing
endeavor.”
C. “We often start a private-sector investigation without
knowing exactly what we are investigating.”
D. “If there is predication, I believe that we have the respon-
sibility to follow the threads wherever they lead.”
9. According to the article, “Best defense is a good offense”:
A. The Anti-Fraud Playbook includes 20 Plays, organized into
10 phases.
B. The vital backbone of an effective FRM program is a matu-
rity assessment.
C. The bulk of fraud risk is unidentified and lurking beneath
the surface.
D. Identify all the suspicious employees in your organizations.
10. According to the article, “Best defense is a good offense,”
like most things in FRM, a one-size-fits-all model for pro-
moting fraud awareness doesn’t exist.
A. True.
B. False.
 CPE QUIZ

PREDICATION, CONTINUED FROM PG. 45

the investigation is complete. He agrees with Kessler

The Fraud Magazine CPE Quiz has moved to an online self-
that the private sector can have more objectives than
study format, making it easier for CFEs to earn 10 ACFE
just prosecution.
(non-NASBA) CPE. CFEs can earn 10 CPE by taking quizzes
Predication to establish truth online after reading featured articles in Fraud Magazine.
The CFEs agree that they must establish predication
or strong suspicion of fraud and justification for their
actions. But, above all, as Njiru says, they don’t solely Visit ACFE.com/FMQuiz and follow the steps below:
conduct fraud examinations just to confirm existence
of fraud but to establish the truth. “Demonstrating
1. Select the Online Fraud Magazine CPE Quizzes by year
facts as a fraud examiner, whether fraud exists or
not, is critical in addressing various parties’ concerns,
from the dropdown*.
saving organizations from reputational damage and
creating high-performing teams,” he says. n FM 2. Click the “Add to Cart” button and complete the
checkout process.
Dick Carozza, CFE, is editor-in-chief of Fraud
3. Read featured articles in Fraud Magazine that corre-
Magazine. Contact him at dcarozza@AFCE.com.
spond to the year of the quiz set you purchased.

NIGRINI, CONTINUED FROM PG. 71 4. Access your quiz set by logging into your ACFE.com
count) between the observed (actual) and those ex- account, clicking on the “My Transactions” tab and
pected (advocated by principle of Benford’s Law) and clicking on the quiz set you purchased.
correspondingly worked out the degrees of freedom
at 1% and 5% level of statistical significance for the 5. Pass 5 of 6 quizzes with a score of 70% or higher and
acceptance or otherwise of the null hypothesis,” Pillai receive your CPE certificate instantly via email.
says. “I contend there is no real difference between
count and frequencies. So long as the percentages
total to 100, mathematically, it should not matter. It is For more information, please review the “CPE Info”
bound to give the same eventual results.” See Pillai’s
and “FAQs” tabs or contact a representative:
further Excel chi-square test calculations in response
to Nigrini’s contentions in the online version of this MemberServices@ACFE.com
article at Fraud-Magazine.com. n FM
(800) 245-3321 / +1 (512) 478-9000
Secure online chat service
PACIFIC NW, CONTINUED FROM PG. 71

Dervaes said. “I have always known that the future of

the ACFE rested with future generations of university
students who pursue fraud studies. And, that is why
supporting student scholarship programs would be- *Quizzes will be added to the current year’s set as issues of Fraud Magazine are published.
CPE can only be obtained from the current year’s quizzes after the fifth quiz is made available
come an important part of my professional life. While in September.
on the chapter board, I was pleased to lead the effort
Please Note: The Fraud Magazine CPE Service CPE credits apply only to the CFE status and
to launch our scholarship program for students who
not to any other professional designations. Fraud Magazine CPE is not registered with the
were studying fraud examination at universities in National Association of State Board of Accountancy (NASBA).
Washington state.”
The ACFE collects and stores your personal data in the U.S. to provide member services and
Dervaes retired in 2006 after 42½ years of fed- fulfill transactions requested by you. For a full explanation of your rights regarding how we
eral, state and local government audit service. At his store and use your data, visit ACFE.com/privacy-policy.aspx.
retirement, he was the audit manager for special in-
vestigations at the Washington State Auditor’s Office
where he was responsible for managing the agency’s
fraud program. n FM
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