The Association that Generated a Movement

For the last few years, Wells had talked with criminologists and educators about the need for a new profession. He said an organization must be started to give eager auditors, accountants, law enforcement personnel and others the skills to fight and prevent fraud. 

 

These "corporate cops" would earn a Certified Fraud Examiner designation that would tell the world that they were serious professionals who meant business. They would no longer be dumbfounded by fraud, but they would apply principles learned through seminars, publications, and videos to not only detect and crack cases but hopefully deter future crimes. 

 

Wells told Ratley that they should start this organization. 

 

Ratley was silent for a long time. Wells could see the wheels turning in his head. "Joe, we absolutely have to do this!" Ratley finally said. 

 

They decided to plunge ahead. In June of 1988, the Board of Directors - Wells, Ratley, and Kathie Lawrence (a longtime colleague of Wells) - pooled their resources, formed the National Association of Certified Fraud Examiners, and appointed its first interim Board of Regents. 

 

The three would play to their strengths: Wells would formulate the ideas and communicate them through writing, Ratley would work closely one-on-one with members, and Lawrence would manage the whirlwind at headquarters. Total association novices, they had no idea that they were launching a speeding rocket that would invigorate, inspire, and exhaust them - all at once. 

 

The Association (its informal name before it became the ACFE), with its six employees, sent letters to potential fraud examiners throughout the country and was soon inundated with hundreds of calls. By August of 1990, the Association's certification committee had approved 2,639 CFE applications and had another 495 applications pending. That same month, the First Annual CFE Annual Convention in San Diego, Calif., drew 150 attendees. The first local chapter began in Austin and many more followed. 

 

In the 20 years since, the ACFE has grown into a diverse international group of nearly 50,000 members with almost 24,000 CFEs, more than 130 chapters on five continents, and an Austin headquarters staff of 70. More than 2,000 attended the 19th Annual Fraud Conference & Exhibition this year. 

 

GESTATION AND FRUITION 

Though the ACFE seemed to spring up almost overnight, its philosophical ideas had been brewing in Wells' imagination for years. 

 

Joseph T. Wells was born in the small town of Duncan, Okla., where his father and many of his relatives worked in the oil patches. His parents were divorced when he was 9, and his mother raised him. He was the first in his family to finish high school, and within two weeks of graduation he was on active duty in the Navy. 

 

After his discharge from the Navy, he worked a few years and then began to attend college part-time on the GI Bill. He eventually earned his accounting degree and CPA and worked for the predecessor to Coopers & Lybrand. But after two years, the tedium of adding huge columns of figures was mind-numbing, he said. 

 

A colleague suggested he apply to be an FBI agent. He did and was accepted. Wells spent four months in Quantico, Va., a year in El Paso, three in New York City, three in Jackson, Miss., and three in Austin. He then resigned to avoid still another transfer and settled in Austin. In just shy of 10 years, he had assisted in nearly 200 criminal convictions including that of former U.S. Attorney General John Mitchell for his involvement in the Watergate case. 

 

After Wells left the FBI, an attorney called him and said he wanted to hire him to consult with him on the defense side of a fraud case. That case led to another. And Wells & Associates, born on a kitchen table, was soon a booming business. 

 

"We had some fairly large corporate clients," he said. "And then we would offer companies advice on how to prevent white-collar crimes in the future." 

 

That move proved pivotal: shortly Wells & Associates was a multimillion-dollar consulting business. 

 

In 1984, a client asked Wells to conduct some fraud research - an entirely new area for the firm. While on a trip to California, he visited with Donald R. Cressey, Ph.D., then the chair of the sociology department and eventual graduate dean at the University of California at Santa Barbara. Cressey was widely known for his original research in white-collar crime. He was a student of Edwin H. Sutherland, a professor at Indiana University, where Cressey had received his doctorate. Sutherland coined "white-collar crime" and Cressey developed the well-known Fraud Triangle. Cressey took over Sutherland's seminal book, "Principles of Criminology" after Sutherland died. 

 

Wells and Cressey became friends and the ideas started flowing. "It was a very synergistic relationship; we fed off each other," Wells said. "He was totally academic and I had come from the field. He used to tell me that he learned as much from me as I learned from him, but I didn't see how that was possible." 

 

In one of their many conversations, Cressey observed that fraud perpetrators were becoming too sophisticated for the average law enforcement officer, investigator, lawyer, auditor, or accountant. A new profession, he suggested, needed to be established that would combine the best skills of all these occupations to match the complicated white-collar, waste, and abuse schemes. 

 

In 1985, Wells & Associates and Cressey began The Institute for Financial Crime Prevention to study white-collar crime prevention and provide education for business and government. In 1986, Wells met with W. Steve Albrecht, Ph.D., CFE, CPA, of Brigham Young University (BYU). Albrecht was one of a small group of anti-fraud experts. (He's now associate dean and Andersen LLP Alumni Professor of Accounting of BYU's Marriott School of Management.) 

 

"Steve and I were teaching a course on fraud in a little town outside of Oakland, Calif., and we started talking about Cressey's idea over dinner one evening," Wells said. "Steve asked me what this new corporate cop would need. I thought for a moment and then said that he's got to be part auditor, part investigator, part lawyer, and part psychologist," he said. "He has to know something about the law, evidence gathering, and accounting. And he must know something about the criminal mind. And so right there in that conversation, without me knowing it at the time, the structure of the Certified Fraud Examiner program was born and the basics of the CFE's common body of knowledge were established." 

 

Unfortunately, Cressey died unexpectedly in 1987 before he saw the full fruition of his idea. But Wells and Ratley had that Gregor Building porch conversation and then gathered advisors to form their strategies. "Our first planning meeting in Austin was an event to remember," Albrecht, the first president, recalls. "Chairman Wells' main theme was that he was going to create a high-value organization that would be extremely service-oriented and that people would want to be part of. He said he would quickly refund any person's membership fee who didn't think they were getting value for their money." 

 

In June of 1988 the Board of Directors formed the National Association of Certified Fraud Examiners as an unincorporated association and appointed the interim Board of Regents: Albrecht; David L. Battle, CFE; Giacomo J. Bologna, J.D., CFE; Kathie Lawrence; Gilbert Geis, Ph.D., CFE; John J. Hickey, CFE; Jack Robertson, Ph.D., CFE, CPA; and Wells. The Certified Fraud Examiner application, standards, Professional Code of Ethics, and Uniform CFE Examination were devised that year. 

 

The Board of Regents established initial minimum standards for certification under an advanced standing program: good moral and professional character, a recognized degree from an institution of higher learning, at least two years' employment in a related field, and actual experience detecting, preventing, or investigating fraud. 

 

In those early days, this association - the new kid on the block - had its doubters. Jack Robertson, then a professor of accounting at The University of Texas at Austin, said that a skeptical representative from another financial association came to Austin to vet this unusual group. "His interim oral report was, 'I cannot imagine how you all can get this organization off the ground in the 18 months like you think. At our association, this kind of effort takes at least five years to plan and put the mechanisms in place to operate.' We thanked him, received his written report, and proceeded anyway," Robertson said. 

 

EDUCATE THE PEOPLE 

The first Fraud Investigation Symposium, June 5-9, 1989 in Austin attracted 160 attendees. Speakers included Wells; Albrecht; Bologna; Robertson; and Geis, all original authors of the Fraud Examiners Manual (FEM). (Subsequent authors included Ratley, Nancy Bradford, CFE, CPA, a member of the first Board of Regents; and W. Michael Kramer, J.D., CFE, a longtime advisory Regent and ACFE contributor.) The Symposium covered the four main areas for those preparing for the exam. 

 

The first Uniform CFE Examination was administered on Oct. 16 and 17, 1989. The exam was composed of four parts with 125 multiple-choice questions each. Stephan Hanns, CFE, CPA, received the highest score and the ACFE's first Walker Award, named after Morris R. "Red" Walker, CFE, CPP, an accomplished fraud examiner who died that year, and the first Cressey Award was presented to Dr. John Braithwaite of the Australian National University in Canberra. 

 

The FEM was published in 1990 as a study aid for the exam. Then as now, the manual is organized in four volumes: Financial Transactions and Fraud Schemes, Law, Investigation, and Criminology and Ethics. (The FEM is also now published in Canadian, UK, Australian, Hong Kong, and International editions.) 

 

Soon the Association began offering seminars such as Financial Institution Fraud, Insurance Fraud, Contracts Fraud, and Fraudulent Financial Reporting. It produced numerous self-study videos and workbooks including the popular 20-hour "Cooking the Books: What Every Accountant Should Know About Fraud," which featured an interview with the infamous Barry Minkow of the ZZZZ Best Carpet Cleaning Service case. 

 

ACFE ACCELERATION 

The Association began to pick up speed: 

• The first elected members of the Board of Regents began their terms in February 1990. They were: Albrecht; Bradford; Thomas D. Hubbard, Ph.D., CFE, CPA; Kramer; Gary A. Palmquist, J.D., CFE, CPA, CIA; Lee Jackson Shockey, CFE, CPA, CISA; Donald K. Wall, CFE, CPP; and Wells (advisory). 
• The Auditing for Fraud seminar debuted in October of 1990 and Report Writing in February of 1991. 
• In July 1991, the Association developed Professional Standards and Practices. 
• Geis became the second president in 1992. (Toby Bishop, CFE, CPA, became the third president in 2002 and Ratley was appointed the fourth president in 2006.) 
• In April 1992, CFE candidates could now use computers to study for the Uniform CFE Examination through a rigorous preparatory course and then take the examination. 
• In December 1992, the admission by Advance Standing was terminated. 
• In January 1993, the Association dropped "National" in its name to reflect international membership. 
• The first international conference outside North America was held February 1993 in Sydney, Australia. 
• The first Report to the Nation was published in 1995. 
• The ACFE's Web site began in the first part of 1996. 
• On Aug. 1, 2000, Joseph R. Dervaes, CFE, CIA, was the first to be awarded Fellow status. 
• The Board of Regents adopted a new code of professional standards in February of 2001. 

 

Since those early days, the ACFE has expanded into Canada, the United Kingdom, throughout Europe, Australia, Japan, and many other regions of the world. Several U.S. federal governmental agencies now officially recognize the CFE certification as an important hiring qualification. 

 

Seminars and conferences of every kind are offered from Indianapolis to Melbourne; Vancouver to Hong Kong; Detroit to Johannesburg. The ACFE has become a leader in providing free fraud examination courses to colleges and universities throughout the world. And it awards thousands of dollars each year to higher-education students through the ACFE Foundation and the Ritchie-Jennings Memorial Scholarships Fund. 

 

A MEMBERS' ASSOCIATION 

"From the beginning, Chairman Wells has insisted that everything we did was going to be top quality and legitimate," Ratley said. "We decided that this would be a members' organization," Ratley said. "We were going to assist them in any way we could." He said that as long as he's affiliated with the ACFE it will never have a machine that answers members' calls. 

 

"Getting to deal and interact with these members is one of the most enjoyable things I do," Ratley said. 

 

Wells said much thought goes into the smallest detail. "That includes such trivia as the name badges worn at our events," he said. "Plus we differ from other associations in that we are not run like a bureaucracy. We constantly seek input from the membership, but decisions are not made by a committee," Wells said. 

 

"In a typical non-profit association, volunteers get together and discuss things to death. Then they go home and get back to putting bread on the table," Wells said. 

 

"They typically do not have a vested interest in the outcome of their decisions, which helps explain why they often make very poor choices," he said. 

 

"The ACFE is a business, not a charity. This is the way we feed our families. That ensures we make the right decisions for the right reasons to the ultimate benefit of our members." 

 

Regent Emeritus Isabel M. Cumming, J.D., CFE, first met Wells in 1987 at the National Joint Conference on White-Collar Crime. 

 

"He was brimming with excitement. ... He was telling everyone about his idea to start a group that could actually train people to fight fraud on a nationwide basis," she said. "I attended the Investigator Conference in early 1994 in New Orleans and it pretty much changed my life. I became a Regent in 1997. It was a wonderful year and I made some lifetime friendships. In fact, when my youngest son, Joseph Jett, was born in June of 1998, I decided to name him after one of the most influential men I have known - Joseph Wells." 

 

Regent Emeritus James E. Whittaker, CFE, said he constantly hears from colleagues that the ACFE is professional, dedicated, and contemporary. 

 

"There are a number of organizations that offer fraud training, reference materials, etc., but the ACFE is by far the cream of the crop," he said. "It's amazing to me how the ACFE has grown in 20 years! Especially when you consider it was originally only those three [Wells, Ratley, and Lawrence] and they had the foresight, stick-to-it drive, and work ethic." 

 

Regent Emeritus E. James Burton, Ph.D., CFE, CPA, said that he's particularly proud of the ACFE's training, Fraud Magazine, and the Report to the Nation. 

 

"The growth of the organization into an international force is testament to the scope of the problem," Burton said. "Perhaps even more telling is the fact that official accounting pronouncements now even use the word 'fraud' and recognize accountants' responsibilities in this arena. Before the ACFE, this was not so." 

 

Lawrence emphasizes that it was more than just three people who built the ACFE. 

 

"In reality, there are many, many people who have worked tirelessly and made significant contributions that were necessary for the success of the ACFE," she said. "I believe that the most significant thing we have done is to create an organization that could serve as the voice and an important tool for the anti-fraud movement that is the life's work of many people. Our thanks and service is to them, and our work is in recognition of them." 

 

Lawrence said the ACFE has succeeded because it was the right idea at the right time. "Chairman Wells accurately perceived that there was a huge community of professionals involved in fraud detection, deterrence, and prevention who had no vehicle for recognition of their work or for communications between them that could help them do their jobs," she said. 

 

CFE CREDENTIAL DELIVERS 

Wells, Ratley, and Lawrence agree that the CFE certification is still the ACFE's main attraction. "Employers know that an interviewee with a CFE possesses a high level of expertise," Ratley said. "They now have a professional with standards. And if they don't follow those standards our Board of Regents will investigate to see if that person still deserves to be a CFE." 

 

Lawrence said no other trade group - accountants, security professionals, law enforcement - have the interdisciplinary approach that's most appropriate when it comes to fraud. 

 

"When the ACFE was born 20 years ago," said Bruce A. Dean, J.D., CFE, CPP, a former chair of the Board of Regents, "few could have imagined that it would grow to become the largest and finest anti-fraud organization on the globe. Chapter by chapter, state by state, nation by nation, the ACFE has emerged as the undisputed leader in our field." 

 

Michael M. Ryman, CFE, an early Regent, said he remembers telling Wells over breakfast in Washington, D.C., during the first days of the ACFE that the CFE concept was brilliant. 

 

"The experiential objectives of the CFE, as distinct from the auditing and investigations process, forced a 'legitimate union' of the necessary skills, knowledge, and abilities needed to get the job done - namely effectively fight fraud," Ryman said. "It professionalized fraud fighters." 

 

Ryman said that he agreed with Wells during their breakfast that the U.S. fraud problem was a freight train coming down the tracks. "The ACFE stepped up to the plate," he said. "Our founder was especially effective with this leadership, writing, business savvy, and strategic thinking. He took on the audit and accounting profession with the mighty pen and they succumbed." 

 

"The CFE credential wields weight today not just because of the efforts of ACFE staff but because of the integrity of Certified Fraud Examiners from the beginning," said ACFE CEO and CFO Scott Grossfeld. 

 

"Members can be proud of displaying the ACFE shield because it represents a strict code of professional conduct and bona fide qualifications," Grossfeld said. 

 

Regent Emeritus Martin T. Biegelman, CFE, ACFE Fellow, said that the CFE credential is the gold standard in fraud examination worldwide. "Fraud examination has become a respected profession thanks to the ACFE and the widespread designation of the CFE credential," he said. 

 

Wells said that when he was earning his accounting degree - he graduated in 1970 -"fraud" was considered somewhat of a dirty word. 

 

"What I learned in class about the subject would have fit in a thimble with enough room left over for your finger," he said "Only after I entered the FBI and started working cases did I realize that fraud wasn't just numbers; it is only one element of proof. Fraud is lying and cheating and the fraud examiner must prove those elements." 

 

He said the public has always expected that accountants and auditors have a major role in detecting and deterring fraud. 

 

"But in looking at the issue as far back as the 1980s, the auditing profession took the tack that there was an 'expectation gap' by the public and we should do something to correct that," Wells said. 

 

"In other words, the theory was for us to educate hundreds of millions of people on what the auditor couldn't do. Missing from these discussions was how the profession could better educate itself about the problem. It took accounting firms being sued into near-oblivion before this message was taken seriously," he said. 

 

Nancy Bradford, CFE, CPA, who is CFE No. 00001, was managing investigations in the internal audit department at Blue Cross Blue Shield in the late 1980s. Her department was transitioning from an audit focus to an investigative approach but couldn't find an association that could give concentrated anti-fraud training and a designation to accompany it. 

 

"Then one day we got a letter from Jim Ratley letting us know about this new organization that was strictly focused on white-collar crime and fraud. Not knowing who these people were we initiated an investigation," Bradford said. 

 

"We found out that indeed they were legitimate! We attended some of the ACFE training and we were impressed. After that, we worked to get all of our investigators to become CFEs." 

 

Regent Emeritus Joseph W. Koletar, CFE, DPA, ACFE Fellow, said that most people are justifiably proud to be a member of any profession. 

 

"Certainly there are benefits to being a CFE - professional credentials, enhanced status, better pay, career mobility, and recognition in the world of corporate America and an ever-increasing number of governmental bodies," Koletar said. 

 

"Without the ACFE, and the work of Joe, Jim, and Kathy - plus thousands of others - this would not have happened. Twenty years is an eye-blink in history, but the ACFE has become an accepted profession in that brief period of time," Koletar said. 

 

"The ACFE has enriched the lives of innumerable people - those proud to carry the designation; the organizations they either work for or serve; the owners, officers, and investors; and the public in general, which has a renewed sense of confidence because someone is watching the gates," he said. 

 

Dervaes, who joined the ACFE in February 1989, said the CFE credential said "is the best thing that has ever happened to my career in the anti-fraud profession. 

 

"Thanks to the vision of Chairman Wells and the leaders of the Association he has so carefully selected, CFEs around the world may now count themselves as members of the premier anti-fraud organization in the world," he said. 

 

Dervaes said that any significant contributions he's made to the fraud common body of knowledge wouldn't have been possible without the CFE certification. 

 

Regent Emeritus Pedro A. Fabiano, CFE, ACFE Fellow, said that a friend introduced him to the ACFE. "I read about the CFE credential and thought, this is exactly what I need!" he said. 

 

Fabiano knew the CFE credential would enhance his existing accounting, auditing, and investigative skills. At that point in his career he was conducting internal investigations for multinational companies. He was responsible for reporting to audit committees consisting of shareholders from different countries with various cultural backgrounds, he said. 

 

"The ACFE helped me bridge the culture gaps between countries and gave me a professional methodology; it provided a framework for investigations," he said. 

 

After attending an ACFE training event in Austin in 1996, Fabiano began the first ACFE chapter in Latin America. The U.S. Customs and Immigration Service recently granted him a work visa based in large part on his involvement with the ACFE. 

 

"In just 20 years, we've seen tremendous changes in fraud methods, regulations, compliance, anti-fraud technology, and global standards," Grossfeld said. 

 

"The ACFE is continually challenged to provide its members with the best in fraud examination training and materials so they can continue to excel in their careers," he said. 

 

"Our goal is to help anti-fraud professionals stay a few steps ahead of fraudsters. We do that by building on the ACFE's foundations and listening to our members to ascertain their needs," Grossfeld said. 

 

POISED FOR THE NEXT 20 YEARS 

The ACFE began with a good idea, propelled at an opportune time, fueled by desire and grit. The legacy of its founders is still being written, but in a short time they and thousands of members have created not only a movement but a solid profession. 

 

"The ACFE never has - and never will - be about the number of members we have," Wells said. "We've grown because we have done good work. We must ensure that continues and growth will take care of itself. 

 

"Hopefully, the ACFE will live on in perpetuity and have a meaningful impact on making the world a better place for ourselves, our children, and their children." 

 

Dick Carozza is editor-in-chief of Fraud Magazine.    

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