"Our current economic environment demands that practitioners stay current on the latest fraud examination techniques," said James D. Ratley, CFE, president of the ACFE.
That's just what they found at the 20th Annual ACFE Fraud Conference & Exhibition July 12-17 in Las Vegas, according to attendee evaluations collected at the event.
As one attendee mentioned in his conference evaluation, "The ACFE Fraud Conference is like an energy drink for your career. I went away feeling rejuvenated." Another attendee said she'd paid for the conference out of her own pocket because her employer wasn't covering out-of-town travel. "I'm delighted to say that I got more than my money's worth," she said. "I wish I had discovered, and known about, the ACFE earlier in my career."
GROWTH DESPITE RECESSION
Ratley said when business takes a downturn, more fraud is exposed. "It was always there, but when the economy is good, fraud is easy to cover up," he said. "During the recession, more are becoming anti-fraud practitioners. We've added more than 5,000 to our membership rolls in the last year alone, and with nearly 50,000 members in more than 125 countries, we remain the largest anti-fraud organization in the world."
Ratley said this year's event, which focused on fraud risk assessment and prevention training, was the largest in ACFE history.
"This is quite a feat in light of the current difficult economic conditions in the United States and abroad," Ratley said during the opening general session at the conference. "It reflects the strength of our industry and the dedication and commitment to excellence of our members."
SERVING AS A REGENT
Joseph T. Wells, CFE, CPA, founder and Chairman of the ACFE, lauded the efforts of the Board of Regents: Peter Callaway, CFE, CAMS, Board chair; Delena D. Spann, CFE, M.S., CCA, vice chair; Martha McVeigh, CFE, secretary; Jonathan Turner, CFE, CII, treasurer; and Bert Lacativo, CFE, CPA, second vice chairman. (Advisory members are Ratley; Scott Grossfeld, CFE, CPA, ACFE chief executive officer; and John Warren, J.D., CFE, ACFE vice president and general counsel.)
"These five [elected] members are solely responsible for admission standards to the ACFE," Wells said. "Being a regent is the highest honor members can bestow on one of their own. Although being elected is intensely competitive, it is open to every member in good standing; there is no 'good ole boy' network here. Regents volunteer their time; they are not compensated except for expenses."
Wells encouraged all CFEs to consider "whether or not you wish to make a contribution by throwing your hat in the ring."
FOUR TROOPERS
During the event Wells also honored four members who have attended all 20 annual conferences: Nancy Smith Bradford, CFE, CIA, CPA (Certified Fraud Examiner No. 1); Joseph R. Dervaes, CFE, CIA, ACFE Fellow; A.T. "Chief" Schwyzer, CFE; and ACFE President James D. Ratley, CFE.
"To each of you, you have greatly honored the ACFE, and you deserve our gratitude," Wells said.
TRAINING AND MORE
Fraud examiners gathered valuable anti-fraud knowledge from more than 60 educational sessions in 11 parallel tracks that were geared specifically toward fighting fraud in a down economy. Workshops ranged from "Fair Value Fraud - Heightened Risk in a Global Economic Crisis" and "Jekyll and Hyde: the Duality of Man and the Interview Process" to "Finding Digital Evidence on Cell Phones, PDAs, and Blackberry Devices" and "Leveraging the Power of Your Data to Uncover Fraud."
Attendees learned additional anti-fraud concepts at the two pre-conferences, "Fraud Prevention in Difficult Economic Times," taught by Gerard Zack, CFE, CPA, ACFE Fellow, and "The Fraud Examiner as an Expert Witness," taught by D. Bruce Dorris, J.D., CFE, CPA, CVA, and Frank Wisehart, CFE, CPA, CVA.
The three post-conferences included "Auditing and Investigating Fraud Seminar," taught by Ralph Q. Summerford, CFE, CPA/ABV, CIRA, CVA, and Hugo Holland, J.D., CFE; "Professional Interviewing Skills," taught by Don Rabon; and "Computer-Aided Investigation: Internet Tools for Fraud Examiners," taught by Cynthia Hetherington.
The second annual ACFE Foundation Silent Auction raised nearly $21,000 for the support of the Ritchie-Jennings Memorial Scholarships. The mission of the ACFE Foundation is to increase the body of anti-fraud knowledge and to support future anti-fraud professionals worldwide through the funding of scholarships, endowments, research, and other educational projects. The nonprofit ACFE Foundation works to encourage students to pursue careers in fraud examination.
LexisNexis, the conference's platinum sponsor, sponsored the July 14 working lunch featuring Harry Markopolos, CFE, CFA. EthicsLine, a gold sponsor, was the sponsor of the July 14 networking reception at The Bank. Other conference sponsors included FraudAware, Stevenson University, Fraud Magazine, and Fiserv. The Ethics and Compliance Officers Association, Fiduciary & Investment Risk Management Association, and the Society of Corporate Compliance and Ethics were conference supporters.
SAVVY ANTI-FRAUD TIPS
Michael Chertoff is known as the second secretary of U.S. Homeland Security, but before he accepted that appointment he had a full-time career as a fraud fighter. During his opening keynote address, he discussed future key fraud issues and trends, the need for synchronized anti-fraud global standards, and the growing threats of identity theft and cyber fraud.
Chertoff said fraud fighters need to align and synchronize accounting and fraud examination standards in a global environment "so we don't have these seams or these black holes" where fraud can occur.
"More and more of our assets and wealth are tied up in our identity," he said. "It's crazy to have a system where we have so many of our assets tied to our Social Security numbers when [they] are one of the weakest protections against fraud you have. ... So we have to come up with a new protection and model to deal with identity management.
"About two years ago we put together a very comprehensive cyber-security strategy in the [U.S. federal] government," Chertoff said. "I'm pleased that President Obama is continuing to push this forward. Some of this has to do with national security issues, but some of it has to do with fraud. When I was secretary [of Homeland Security], the Secret Service announced the largest identity fraud case that had been prosecuted in history.
"Something like 40 million credit card numbers were thieved by people intercepting wireless transactions with retail outlets and there a was a global ring, which used these PINs and numbers to download millions of dollars from people's bank accounts. This issue of managing the security - particularly with respect to insiders - of our cyber assets is going to be a critical area for this organization and for everybody involved with fraud investigations to deal with.
"You all have plenty on your plate," Chertoff said. "Looking at the size of this audience and the scope of this organization, and the energy and leadership shown by the people [Board of Regents] on this dais, I'm confident that you are up to the job."
Chertoff also had comments for ACFE Chairman Wells.
"It's a real privilege to be in the presence of [ACFE Chairman and founder] Joe Wells," he said. "I know what an outstanding job he did in not only forming the organization, but writing about the issue of fraud."
ROBUST ECONOMIES AND DOWNTURNS
Chertoff compared how fraud affects a robust economy versus a sluggish economy.
"In a robust economy, it's my belief that you actually have more sustained, complicated fraud often because a robust economy is fueled by some change in economic arrangements," he said. "Everybody gets all excited about making more money and people wonder why they're not making as much as the next person, and ... people start to wonder how they can exploit the new techniques for nefarious purposes."
However, Chertoff said when the robust economy begins to falter, the tide is high and all the litter and debris that was underneath the surface winds up on the beach. In an economic downturn some are laid off and "some of them decide on the way out the door that they're going to steal a little bit for themselves, whether it's because they feel desperate or whether they're angry at their employers."
Chertoff used an expression from the Bible, "There's nothing new under the sun" to describe the current fraud situation.
"When we began to see stories about fraud in the subprime mortgage market I had one of these deja-vu all-over-again feelings," he said. "I remember back in the late 1980s and early 1990s we had savings-and-loan fraud. And that involved some of the same techniques though not as elaborate and complicated and perhaps not as economically significant. ... Of course, we swore we would never let this happen again. We put mechanisms in place to try to deal with the problem ... and we're seeing the same type of problems arise again."
Chertoff said we should try to do the things that will change the laws and enforce and reinforce our regulatory structures to "make sure that we are catching some of the people who are abusing some of the mechanisms that were invented over the past 10 years.
"The real essence of dealing with fraud is not fraud investigation, but it's fraud prevention," he said. "It's setting up the mechanisms and processes that make it harder to commit frauds upfront, rather than chasing the fraud and the fraudster's money after the fact."
CONTROVERSIAL ANDERSEN DECISION
Chertoff spoke briefly about the U.S. federal government's controversial decision to prosecute the Arthur Andersen accounting firm for destroying documents related to the Enron frauds. The firm was eventually dissolved, which resulted in the loss of 26,000 jobs. The U.S. Supreme Court overturned the conviction and the case hasn't been retried. Chertoff was head of the criminal justice division of the U.S. Department of Justice during that time.
"[Andersen] basically took the position that, 'We're too big to prosecute; we're too big to fail. We want to do a consent decree with the SEC. We won't admit wrongdoing and that will settle the case,'" Chertoff said.
He said he asked one of the Andersen executives why the firm was unwilling to accept the deferred prosecution agreement or a small plea related to obstruction of justice.
"Here's what that person told me, 'In my world, a consent decree with the SEC [in which] you don't admit anything is a cost of doing business. We sign up to it we kinda take the hit and we move on.'"
Chertoff said that was probably the single worst argument he'd ever heard from a firm that was trying to avoid an indictment.
"Needless to say, treating sanctions as a cost of doing business tells me the sanctions are too light," he said.
CHASING MADOFF
Harry Markopolos, CFE, CFA, who blew the whistle on Bernard Madoff's huge Ponzi scheme, received the Certified Fraud Examiner of the Year award at the annual conference. During his general session message, Markopolos talked about one of Madoff's victims whose story still brings tears to his eyes.
Markopolos said that during a recent finance conference, the son of a Madoff victim thanked him for his nine-year investigative fight to expose the crime.
"But as he thanked me, I said, 'All we did was try; we weren't successful,'" Markopolos told the July 14 General Session lunch attendees. "But he said, 'That's OK - thank you for trying.'"
Markopolos said the victim's son told him that his father had invested in Madoff's firm in the mid-1970s. The son said not only had his father invested the family's entire savings, but that of his friends, family members, and clients.
"And that's what killed him. He died a broken man of heartbreak," the son told Markopolos.
Victims such as these motivated Markopolos and his team of three to search for evidence to give to the Securities and Exchange Commission (SEC). Though Markopolos is still highly critical of the SEC's past work on the Madoff case and former investigative methods, he said he's impressed with its current efforts. He said he's particularly pleased the SEC is adding more CFEs in partnership with the ACFE.
"[SEC Chairman] Mary Schapiro is on fire," he said. "She's changing that agency from the ground up and the top down."
Markopolos' quest began as a simple work assignment. He was a portfolio manager for an equity derivatives asset management firm in Boston when he was asked to analyze Madoff's money-making methods. He quickly discovered Madoff was running an old-fashioned Ponzi scheme. Madoff's scheme had "many thousands of direct victims, many millions of indirect victims. Charities, endowments, research grants - all wiped out overnight," he said to conference attendees.
Markopolos said Madoff "was allowing the feeder funds - the fund of funds - to collect the lion's share of the fees ... yet Madoff was doing all the heavy lifting. Madoff was the one falsifying all the accounts statements and sending them out every month.
"He was the guy taking in the money on transfers, wiring out the money, keeping track of the whole scheme. So he was taking the littlest piece and that was the beauty of Madoff. And that's why it continued for so long because he paid [feeder funds] so much they looked the other way."
Markopolos said he appreciates the ACFE's efforts in fighting fraud.
"Thank God for the ACFE, my most important professional association," he said. "I'd like to thank Joe Wells for this association. We're all Joe's proteges ... because we're carrying out the organization that he founded. We're his children, if you will. Without the ACFE, there would be no one to challenge the fraudsters."
EYES AND EARS FOR SUSPICIOUS ACTIVITY
U.S. Financial Crimes Enforcement Network (FinCEN) Director James H. Freis Jr., recipient of the ACFE's Cressey Award for a lifetime of achievement in the detection and deterrence of fraud, said during his general session address that "whether you are an internal auditor within a health-care company, a fraud investigator for a law enforcement agency, or a CPA working to guard against fraud within a not-for-profit organization, you all have one thing in common: As fraud detection and prevention professionals, you are the eyes and ears of your organization."
He said fraud examiners' interests in deterring and detecting fraud, in holding companies and businesspeople accountable, and in seeking restitution from those who perpetrate fraud are directly aligned with FinCEN's mission: enhancing U.S. national security, deterring and detecting criminal activity, and safeguarding financial systems from abuse by promoting transparency in the U.S. and international financial systems.
He said FinCEN works to achieve its mission by:
Freis said financial institutions recently have submitted a large number of Suspicious Activity Reports (SARs) to FinCEN, reporting increases in fraud occurrences - especially instances of mortgage loan fraud.
"One reason for these increased volumes of mortgage loan fraud SAR filings is that financial institutions that file SARs are getting much better at spotting potential fraud and are more aware of the types of mortgage fraud being perpetrated," Freis said.
He said one of the greatest obstacles FinCEN faces is that there is always a new scam, a new angle, or new opportunities for criminal actors.
"Mortgage loan fraud and loan modification fraud are prime examples of fraud opportunities [that exist] in all economic conditions," he said. "When times are good, mortgage loan fraud emerges as an issue because there is a lot of money changing hands and it may be easier to get a mortgage with minimal documentation requirements."
Freis said when times turn bad, fraudsters will use loan modification and foreclosure rescue scams to prey upon innocent homeowners who are doing everything they can just to keep their homes.
Reports of identity theft are also on the rise, Freis said. According to a recent FinCEN report, from 2007 through 2008, there was a 28 percent increase in identity theft filings compared with 8 percent from 2006 through 2007.
"Identity theft had the third-highest percentage increase behind reports of wire transfer fraud and consumer loan fraud," he said.
On the international front, FinCEN serves as the financial intelligence unit of the United States and plays an active role within the Egmont Group, which is comprised of 116 Financial Intelligence Units (FIUs) from around the world that "work together to intensify international anti-money laundering collaboration and combat terrorist financing," Freis said.
"FinCEN also works with FIUs to refer information requests on behalf of U.S. law enforcement agencies hoping to obtain additional information from abroad in support of their ongoing financial crimes cases and investigations," he said.
GOOD ETHICS ISN'T OPTIONAL
Robert Rudloff Jr., CFE, CIA, likes to compare ethics to a houseplant.
"How do you really take care of a houseplant? You feed it; you water it. You talk to it once in a while," said Rudloff, vice president of internal audit for MGM MIRAGE, during his address to the annual conference on the importance of installing genuine ethics.
"You have to talk about ethics in the organization; it's a living thing in the organization," he said. "An ethics statement or an ethics policy is not something you put on paper and then stick on a shelf and dust off when something goes wrong. You have to pay attention to it. You have to feed and nurture it."
Rudloff said a firm has to assess its culture to discover possible ethics problems. He said every year his company asks its top 100 executives to complete an anonymous survey to discern the ethical environment and internal cultural trends. The survey asks such questions as: What are some risks? What do they see as some of the opportunities for failure in the organization? Where are the weak points?
He said part of the culture at his company also includes commitment to the marketing and gaming association's code of responsible gaming.
"We know there will be some people who go out onto our casino floor who may lose control and who may spend more than they can afford to lose," he said. "Our dealers and other casino employees are trained to recognize the issues around responsible gaming and try to steer them to help. Anywhere on the casino floor you can ask for information about Gamblers Anonymous and you can get the 1-800 number. It's available to our customers because we don't want to take that customer's last penny. We want them to come here, have a great time, enjoy the restaurants, the shops, the pool, the shows, the casino floor, and not go home with regrets."
He said more employees are taking advantage of the company's anonymous ethics hotline during the economic downturn.
"People are paying attention," he said. "When they're being asked to do more with less, and they see others not making the same sacrifice, they're paying attention."
Rudloff asked attendees if they've drawn their own ethical line in the sand that they won't cross.
"I know where my line is drawn; I left an employer because ... I wouldn't cross that line," he said. "I've talked to others over the years who've done the same thing. It's a very difficult move for some. But if you don't know where your line is drawn, you're always going to be challenged. It's going to be difficult for you."
Rudloff recommended the book, "Extraordinary Circumstances" by Cynthia Cooper, CFE, former vice president of internal audit for WorldCom, who blew the whistle on earnings overstatements. The book examines the "role internal audit played in detecting, investigating, and unraveling that WorldCom accounting mystery," he said.
"It's not just about what happened in that fraud; it talked about the people and the impacts on those people," Rudloff said. "There were people who were silent out of fear."
He said "boards of directors [are often] asleep at the switch" because they "are so interlocked with each other, they just took care of each other and weren't paying any attention to their organizations." And some firms think they can balance all the bad things they've done with donations to charities and foundations, he said.
He quoted an ancient Malayan proverb, "Don't think there are no crocodiles because the water is calm" as advice to impart to managers who are unwilling to authorize fraud investigations or admit the possibility that fraud can be afoot.
"We still deal with management all the time who don't think fraud exists in their organizations just because they haven't seen it," he said. "They trust all their employees and think every employee should be trusted. ... And then we come up and put the ripples in the water. And we make things a little messy for them, a little uncomfortable for them, because we're seeing the problems in the organization."
Rudloff cited some statistics from a 2006 study:
"These 2006 students are about ready to graduate from college; they're about ready to come into the workforces," he said.
Rudloff said "75 percent of college students reported cheating" in a 2007 study.
"Why do I bring this up? They have already graduated," he said. "They are working for us now. They're on our staffs and they're within our organizations."
HOSPITAL ADMINISTRATOR RECEIVES SENTINEL AWARD
The ACFE presented the 2009 Cliff Robertson Sentinel Award to Pamela Meyer Davis at the 20th Annual Fraud Conference & Exhibition for her courage and tenacity in pursuing crooked state officials. The inscription on the award reads, "For choosing truth over self."
She certainly chose truth over self. Davis, who is president and chief executive officer of Edward Hospital in Naperville, Ill., near Chicago, detected in 2003 extortion from those on the Illinois Health Facilities Planning Board and with others connected with the building approval process.
Through the FBI, she conducted hidden surveillance that helped begin U.S. Attorney Patrick Fitzgerald's Operation Board Games investigation, which eventually led to the arrest and indictment of former Illinois Gov. Rod Blagojevich. Blagojevich's trial is slated for June of 2010.
"So one may ask, 'How is this [widespread extortion scheme] possible in what I still do believe is the best democratic nation in the world?'" Davis said to conference attendees. "The individuals who tried to extort Edward [Hospital] certainly didn't think of this overnight. They had honed their skills and actually their arrogance, which truly never ceased to amaze me. Why others did not stand up to them through the years, I don't know. And we'll never know why others went along with the schemes.
"The quote by Edmund Burke is very, very true in society today: 'All that is necessary for the triumph of evil is that good men do nothing.'"
AFTER THE LINE IS CROSSED
Aaron Beam, the first CFO and co-founder of HealthSouth, asked conference attendees: "Can you teach ethics?"
"Lots of people say that's silly," he said. "You're either ethical or you aren't. I think it's kind of like the pilot who landed the plane on the Hudson River. He was able to do that because he trained all his life to do it. He had gone through the scenarios: What happens if I lose one engine? What happens if I lose two engines? What are my alternatives? And when he was faced with that decision, he almost innately knew what to do.
"And I believe today, that if they began teaching ethics in college, at a very early age, and [to] people when they go into the financial world, they should tell themselves, 'Someday there's a high probability I'm going to be asked to be involved in a fraud and there's only one answer: Don't do it!'"
But Beam said he didn't receive that training. Instead, in an effort to please his boss, HealthSouth CEO Richard Scrushy, and Wall Street analysts, he succumbed to committing fraud by overstating earnings.
Scrushy was a charismatic, persuasive presence, Beam said, who convinced him to work for HealthSouth's predecessor, Lifemark.
"[After the interview] I went home and told my wife ... today I've met the most brilliant businessman I'm ever going to meet or possibly the biggest con artist," Beam said.
HealthSouth eventually became an enormous success, the darling of Wall Street.
"By 1995, the company was worth more than half a billion dollars," Beam said. "But it got harder and harder to make our numbers. ... Richard was so greedy; he wanted to be one of the richest men in the United States. ... And he could not bear the thought of the stock going down because it was really the foundation for all his wealth."
So, following Scrushy's direction, Beam and the auditors started getting close to the line until eventually they crossed it. Beam changed the numbers for four quarters, but he couldn't stand the pressure and guilt, so he quit. Years later, HealthSouth was caught and Beam was indicted. He pleaded guilty, testified against Scrushy, and served three months in jail.
"I'm [now] known as a felon, a fraudster," he said. "I embarrassed my family; my daughter and my wife went through a lot of pain, but they stayed with me and today I have a lawn-service business."
Today, he cautions others to learn from his ethical lapses.
Dick Carozza is editor-in-chief of Fraud Magazine.
Thank You for 20 Years of Dedication to the ACFE
A little more than 20 years ago, three intrepid fraud examiners pooled their resources to form what is today known as the Association of Certified Fraud Examiners. What started as a small group with a mission to educate examiners on how to identify and prevent white-collar crime soon became the No. 1 source for fraud prevention training and the issuer of the Certified Fraud Examiner credential, now considered the "gold standard" in the field of fraud examination.
Nearly 50 ACFE members attending the 20th Annual ACFE Fraud Conference and Exhibition were given a commemorative lapel pin and honored with a special champagne toast during the Welcome Reception for being among the first to recognize the potential for the association and to align themselves with its mission.
ACFE President James D. Ratley, CFE, raised his glass in toast to thank the honored members - all of whom have been with the association for 20 years - for their dedication and commitment to the anti-fraud cause.
The Association of Certified Fraud Examiners assumes sole copyright of any article published on www.Fraud-Magazine.com or ACFE.com. Permission of the publisher is required before an article can be copied or reproduced.
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