Returning to Where it All Began

Talk about growth. In 1990, the First Annual CFE Convention (as it was called back then) drew about 160 anti-fraud professionals in San Diego. The 22nd Annual ACFE Fraud Conference & Exhibition returned to San Diego, June 12-17, but this time it attracted 2,300 participants — the largest so far. The ACFE has staying power, and the fraud examination profession has matured in just a few decades. Plus anti-fraud professionals are hungry for instruction and networking. As one attendee put it, "In a nutshell, the 2011 ACFE Fraud Conference was mind-dazzling! There was so much information to be gathered: peer suggestions gleaned during networking, formal classroom learning, publications, speaker presentations. The real challenge comes in going back home and putting all of this great information into practice."

Largest Anti-Fraud Group in the World

During the opening general session, ACFE President and CEO James D. Ratley, CFE, said the association has "continued to grow tremendously, despite current difficult economic conditions. We've added more than 5,000 professionals to our membership rolls, and with more than 55,000 members in more than 150 countries, we remain the largest anti-fraud organization in the world.

"We are increasing our efforts to expand and gain increased recognition of the ACFE globally, which will create more opportunities for fraud examiners everywhere," Ratley said. "In October of this year, we will hold our first Asia-Pacific conference in Singapore. I am fortunate enough to be speaking at that event, and while I am there, I will be visiting with chapters in Jakarta, Hong Kong, Shanghai and Beijing. We have experienced a steady growth in Japan and Europe as well."

Ratley also announced the new Corporate Alliance program, which is designed to support corporations by giving their teams access to ACFE tools, training and resources.

Dr. Joseph T. Wells, founder and Chairman of the ACFE, said the association's success "can be put into one simple word — quality. You see it first in the designation of Certified Fraud Examiner. We realized from the outset that if everyone could be a CFE, then no one would want to be. The standards are high, and they are set exclusively by the Board of Regents. … There is no ‘good ol' boy' network at this association. Any one of you who is a member in good standing is eligible to run for the board. … Since I am your founder, I take full responsibility for everything in the ACFE, good and bad. I also take responsibility for our overriding goal of being the best." (See "Dr. Joseph T. Wells Reflects on His Life and the ACFE's Success" at bottom.)

Cornucopia of Content  

From the Pre- and Post-Conference and the in-between Main Conference, attendees had their pick of diverse anti-fraud topics. Two favorite speakers led the Pre-Conference seminars. Cynthia Hetherington, president of the Hetherington Group, taught "Effectively Using Social Networks and Social Media in Fraud Examinations," and Don Rabon, CFE, president of Successful Interviewing Techniques, conducted "Advanced Interviewing: Detecting Deception in Words."

(Rabon later in the week received the ACFE's James R. Baker Speaker of the Year Award for his years as a high-rated ACFE faculty member. His areas of expertise include interviewing, rapport building, interrogation, persuasion, detecting deception, investigative reasoning and investigation discourse analysis. He is retired from the North Carolina Justice Academy, North Carolina Department of Justice, where he served as deputy director. For 33 years, Rabon provided instruction and assistance to investigators in 45 states and many foreign countries. He has also trained federal, state and local criminal justice personnel; NATO counterintelligence personnel; and private sector investigative, audit and corporate security personnel. He has authored four interviewing-related texts, and he appears in many ACFE online and self-study materials.)

During the Main Conference, attendees learned practical concepts at more than 60 courses in 11 different tracks, ranging from "Fraud Awareness, Prevention and Deterrence" to "The International Impact of Fraud."

Four popular speakers loaded Post-Conference participants with applicable anti-fraud information. Paul Zikmund, CFE, CFFA, senior director, forensic audit at Tyco International; and Ryan Hubbs, CFE, CIA, CCSA, PHR, senior manager of Matson, Driscoll & Damico, Forensic Accountants, led the Auditing/Investigating Fraud Seminar. Sheila Keefe, CFE, CPA, principal of BDR Advisors, LLC, taught "Fraud Risk Management." Jonathan Turner, CFE, CII, managing director of Wilson and Turner Inc., taught "Money Laundering: Tracing Illicit Funds."

Silent Auction Benefits Scholarships

The fourth annual ACFE Foundation Silent Auction raised more than $9,000 for the support of the Ritchie-Jennings Memorial Scholarship program. The mission of the nonprofit 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. 

Valuable General Sessions

Attendees took away some choice information from the general session speakers during the Main Conference.

Lanny Breuer Encourages Attendees

Lanny Breuer, assistant attorney general for the Department of Justice's Criminal Division, said during his general session message that the ACFE attendees and he have something in common in moving forward: "You care about rooting out and preventing financial fraud. …You face a range of pernicious financial crimes that we in the Criminal Division have devoted substantial resources to fighting. These crimes are extremely serious — they can wreak havoc on investors, threaten the integrity of our markets and financial institutions and even undermine trust in our political leaders."

Breuer focused on four areas that the Criminal Division tackles: health care fraud, insider trading, investment fraud and public corruption. "The Fraud Section of the Criminal Division has a unit dedicated to the investigation and prosecution of Medicare fraud crimes, and over the past year, this unit has participated — along with U.S. attorneys' offices across the country and multiple federal and state law enforcement partners — in the two largest health care fraud operations in history," he said.

"As fraud examiners … you are often tasked with auditing the work of others, including, sometimes, your superiors," Breuer said. "In that role, you have a special responsibility, and one that I know you take seriously. Indeed, in many organizations, you are all that stands between a successful fraud, and disciplinary, or, ultimately, criminal action. And I want to impress upon you how important your responsibility is."

Breuer offered attendees three suggestions: trust your instincts, do not be intimidated and contact the Justice Department because it is committed to prosecuting financial fraud. "We do not hesitate to bring charges or go to trial when circumstances warrant, and you should not hesitate to let us — or our partners at the Securities and Exchange Commission or the Commodity Futures Trading Commission — know about misconduct that you find."

John Walsh is Now Catching Con Men, Identity Thieves and Fraudsters

During his general session talk, John Walsh, former host of television's "America's Most Wanted" (the program recently ended its long run), said he is changing his crime-fighting emphasis.

"When I first started doing ‘America's Most Wanted' I tried one show on white-collar crime … and I got so many responses from our viewers who said forget about white-collar crime. White-collar crime — that's just real sophisticated rich guys ripping off other rich guys. It's a victimless crime, etc." Many of his viewers told him to keep pursuing the rapists and serial killers, he said. "And I thought, maybe they're right. Fraud can't touch people the way crimes against their persons can. But I looped back to it in the most dramatic way."

In 1998, somebody hacked Padres baseball player Tony Gwynn and destroyed his life. Walsh said they stole his credit cards, transferred his Major League Baseball pension to their accounts and took out second mortgages in his name, among other crimes, all in two days. "So I did that piece, and people were touched … They said if it can happen to Tony, it can happen to me."

Walsh then told attendees about an experienced con man who killed one of Walsh's close friends and then stole his assets. And it was not the first time he had done it. Now Walsh was flaming mad. So he started profiling international con men and began catching the worst of the worst.

Walsh is a partner with TLO, a technology company. "Now I'm going on in the next phase of my life. I'm going to focus on the real threat to this country. …The guys I went after had guns. Now the [bad] guys sit in dark corners with computers. … There are people around the world with no rules and no boundaries who are out to destroy our way of life." 

Delving into the Heads of Hardened, White-Collar Criminals

Dr. Joan Pastor, psychologist and a general session keynoter, said real psychopaths have the ability to think outside the box. "Potentially … the hardest thing for us to do is to get inside the mind of a criminal." Pastor said ultimately anybody is capable of committing fraud. "However, the average person does not want to commit crimes unless they're forced to," she said. "Most people have a conscience; most people try to do the right thing. … But I want to talk about the not so average person: the 5 to 7 percent hard-core white-collar criminal."

Pastor (www.jpa-international.com and www.jpaforauditors.com) described a profile — five key characteristics — of this type of criminal. She zeroed in on one characteristic: personality disorders. Those with antisocial personality disorder are the socio- or psychopathics. She said that almost 40 percent of those in prison are in this category.

White-collar criminals who have the narcissistic personality disorder believe that they are special and lack empathy — the inability to step out of their own worlds, she said. Sometimes, because they can be naive, they might actually talk fully about their crimes in interviews. Pastor contrasted that with those with the antisocial personality disorder. "They understand what you are feeling; they just don't care. Even though they know that they will be committing pain, they know they're going to be robbing your pension funds, they know that people will be losing their jobs and their homes due to the crimes they commit…the lack of conscience is there."

In this society of entitlement, narcissism is now the norm. "But the truth is, we can change," she said. The way to do that is via "spaced repetition": communicating your message throughout your organization in many different ways, such as ethics training, anti-fraud marketing and executive videos.

She said one company lists on its employee badges the chief audit executive contact information, phone numbers for the hotline and legal counsel and a description of how much fraud costs its organization every year.

Pastor said observing body language in interviews is important. But because hard-core white-collar criminals are savvy, she encouraged attendees to concentrate on the auditory level: words that are used and vocal modulation and pacing, which criminals cannot easily change to feign innocence.

Pastor said that applying psychological techniques in our fraud examinations could be fruitful when we need to burrow into the minds of hardened, white-collar criminals. 

Examine Company Public Records to Find Shenanigans

"Everyone in this room — if you had just taken a basic accounting class — would have been able to spot the fraud in Enron months and perhaps years before it was revealed," said Howard Schilit, Ph.D., CPA, author of "Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports," during his general session message.

Schilit, a former accounting professor, said the last year Enron was traded as a public company was in the fall of 2001, so its final annual report was for the calendar year 2000. "The audited financial statements reported at just a shade over $100 billion — a pretty big number. Only seven companies in the U.S. have ever reached that illustrious $100 billion-dollar club."

So Enron said it had grown in just one year from $40 billion to $100 billion. That impressive number was a major flying red flag. Schilit looked at the Enron results over the previous five years. What stood out was a 150 percent increase in sales from 1999 to 2000. Going back to 1995, he said, its sales were less than $10 billion. So, in less than five years, its sales increased from $10 billion to $100 billion. He looked at the other six companies in U.S. history that had entered the $100 billion-dollar club, and he found that most of them — such as General Motors and Ford — took at least 25 years to gain their membership cards.

"Once you identify a company that looks unbelievable, and you can hone in on the specific accounts — in this case it was sales — you're 95 percent in the promised land! Because you're now asking the right questions," he said. "Enron's sales figures were impossible. No company has ever grown from $10 billion to $100 billion in a five-year period before or since, and in my humble estimation, nobody will."

Schilit is the founder and chief executive officer of the Financial Shenanigans Detection Group LLC, which alerts its clients to accounting chicanery. 

A Perpetual Asterisk After Her Name

Convicted embezzler Diann Cattani grew up in a large, wholesome family in small-town Idaho and attended Brigham Young University on a volleyball scholarship. After graduation, she wanted to break free so she moved to Atlanta and began working at a small human-resources consulting firm. She married and had two children. However, none of that inoculated her from becoming a fraudster, she told conference attendees.

Her firm gave Cattani more responsibility as business manager, consultant and facilitator. "I had a lot of autonomy and little oversight," she said. Cattani cut and signed the checks and reconciled the bank account; she signed and reconciled the payroll accounts. "If you're not seeing any red flags," she told the attendees, "you've wasted the last few days."

Her step over the line into the gray area of rationalization began when her travel agent accidently charged a vacation Cattani was going to take to Cattani's corporate credit card. Cattani thought "on my next paycheck, I'll pay it back." But she ended up writing off the vacation as a business trip.

And then her bonuses began to decrease. "I helped build this company. Why aren't I getting my share? I started to get disgruntled. …Greed was a powerful motivator. I became addicted to a certain lifestyle."

Cattani slowly ramped up her crimes. She used the business' American Express card for personal expenses, and she set up dummy invoices payable to herself, among other crimes. "The pressure was building up," she said. "I was home one day, and Oprah [Winfrey's talk show] was on in the background. She said to this person, ‘You cannot be a whole person with that kind of secret. You cannot be the parent those children need with that kind of burden.' I looked at my two daughters, and that's when it just hit me I was not a whole person."

The next day, she walked into her boss' office and told him she had been stealing from him. Cattani thought she would be able to work something out with him. However, he decided to prosecute her.

Cattani soon was in three courts: civil, criminal and divorce. And then she discovered that she was pregnant. Cattani was convicted and sentenced to 18 months for embezzling $500,000 over four years. Two days after her divorce was final, she delivered her baby boy. Six weeks later she surrendered to prison.

She said she had noticed in the ACFE conference guide an asterisk after her name in the speakers' list. (The asterisk referred to the statement that the ACFE does not compensate convicted fraudsters to speak at conference events.) "How apropos! I live my life today with an asterisk by it all the time. … The ramifications last a lifetime. …I've lost everything of tangible value."

However, Cattani said she still has her health, family and speaking opportunities that hopefully will "give somebody a takeaway that will help [listeners] and somebody else."

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

Sidebar 1: Dr. Joseph T. Wells Reflects on His Life and the ACFE's Success  

Dr. Joseph T. Wells, CFE, CPA, founder and Chairman of the ACFE, formally released his autobiography, "Fraud Fighter: My Fables and Foibles" during the annual conference. "It is the most difficult thing I've ever written because it is so personal," Wells said during the opening general session. "For those who think you know me, think again. I was determined when I agreed to write this book that it would not be a whitewash, and it isn't."

Wells said readers will find that he made many mistakes along the way to his calling. "You'll find out I wasn't born with a silver spoon in my mouth. Quite the opposite; I came from a broken family, and there were times when I was young when there sometimes wasn't food to eat or a permanent roof over my head. People in this generation may have a problem even conceiving that, but it is true."

Wells said he was ridiculed for only owning two shirts, for having divorced parents and working as a part-time janitor to make ends meet.

"Rather than making me bitter, [the ridicule and derision] had a different effect. I pledged to do my best. We've all heard the saying, ‘What doesn't kill you just makes you stronger.' Luckily, that is what happened to me."

Wells said that he never had the goal of building the biggest anti-fraud organization, just the best. "Ironically, I didn't realize in 1988 when this all started that tens of thousands of you wanted the same thing — an organization you were truly proud of.

"I stand before you today immensely proud. I'm proud of what I started but what you have built. It is you, not me, who makes the Association of Certified Fraud Examiners great. And it is you who will carry on after I'm gone. Long live the ACFE!"

Sidebar 2: Sentinel Award Goes to William McMasters, who Exposed Original Ponzi Scheme

During the closing general session, the ACFE presented its Cliff Robertson Sentinel Award to William McMasters 90 years after he exposed Charles Ponzi's infamous scheme and endured public criticism and possible legal retribution for his courageous determination.

McMasters' granddaughter, Faith Dickerson, Ph.D., accepted the award on his behalf. "In late July of [1920], my grandfather, by now a well-known publicity man, received a call from the president of a local bank asking him to meet with Charles Ponzi. My grandfather had never heard of Charles Ponzi until he received that call," Dickerson said. [See "The Man Who Time (Almost) Forgot."]

However, McMasters soon became suspicious so he told Ponzi "that they were going after big publicity — they would go to the district attorney and invite the authorities to scrutinize Ponzi's operation to ensure its solvency and legality," Dickerson said. At this meeting, McMasters proposed that it would be a gesture of good will if Ponzi allowed a CPA to go over his books.

McMasters also suggested that Ponzi stop taking in any more money. Ponzi complied. McMasters worked out a ratio of Ponzi's liabilities to his assets, Dickerson said, and it became clear to McMasters that Ponzi's scheme was fraudulent. He decided that if he did not expose Ponzi, no one would.

McMasters wrote an article in The Boston Post, which reported that Ponzi was $2 million in debt and that he had never made any money in international exchange. Many didn't believe the story when it was printed. "Even the … district attorney told my grandfather that Ponzi might not be a fraud, and that he — McMasters — could go to jail for criminal libel."

Throughout the next week, Ponzi investors demanded their money back. Finally, a week after the exposé, the district attorney seized Ponzi's office. The Boston Post then revealed Ponzi's criminal history in Montreal, and the next day Ponzi surrendered to federal authorities. He later pleaded guilty to mail fraud. He was subsequently imprisoned and later deported to Italy.

In 1921, the Pulitzer Prize for journalism was awarded to The Boston Post, which took credit for hatching the plan from the start to expose Ponzi. McMasters received no share of the credit, Dickerson said, and never even saw the Pulitzer medal.

"To you," Dickerson told the attendees, "I am grateful. … I know that he would feel delighted, honored and redeemed at your recognition of his whistleblowing feat."

Sidebar 3: ACFE Award Recipients

The ACFE presented awards to members and others during the Annual Conference:

• Cressey Award: Prof. John C. Coffee Jr., LL.B, LLM
• Sentinel Award: William McMasters (accepted posthumously by his granddaughter, Faith B. Dickerson, Ph.D.)
• Certified Fraud Examiner of the Year: Timothy R. Reddick, CFE, CPP, PCI
• Chapter of the Year: Mexico City Chapter, accepted by Chapter President Juan Portal, CFE, CIA, and Vice President Muna Dora Buchahin Abulhosn, CFE, CGAP
• Hubbard Award (for the outstanding feature article published in Fraud Magazine in 2010): Cheryl B. Hyder, CFE, MT, CPA, CVA, CFF; and Christine L. Warner, authors of "Death Fraud: This Identity Theft is Alive and Kicking"
• Outstanding Achievement in Outreach/Community Service: Jay A. Dawdy, CFE, CMA
• Educator of the Year: Richard E. Hurley, Ph.D., J.D., CFE, CPA
• James R. Baker Speaker of the Year: Don Rabon, CFE
• 2010 Walker Award (for the person receiving the highest annual score on the CFE Exam): James Cafirma, CFE, CIA, CPA
• Newsletter of the Year: Middle Tennessee Chapter, accepted by Chapter Secretary Bethany Dorris, CFE

Sidebar 4: Mark Your Calendar for the 2012 Annual Conference!

The 23rd Annual ACFE Fraud Conference and Exhibition will be held June 17-22, 2012, at the Gaylord Palms Resort & Convention Center in Orlando, Fla.

During this year's networking reception, Michael Varnum, CFE, won the all-expenses-paid trip to the 23rd Annual.

We'll see you in Orlando!

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.