The ACFE and its members evolve

When ACFE President and CEO James D. Ratley, CFE, looked out over the record 2,600-plus attendees at the 24th Annual ACFE Global Fraud Conference in Las Vegas he saw a much different group than he did during the first conferences and seminars. “I think back to the early days of the ACFE when much of our training was attended by middle-aged males, many of whom were senior employees in their companies,” he said during the opening general session.

“Today’s Certified Fraud Examiner has evolved into one who is younger, more diverse and oftentimes, better qualified to deal with the ‘electronic age,’ ” Ratley said. “It may be hard to believe, but when we started the ACFE, there was no Internet, email or cell phones, and the business community was excited about the newest technology available: the fax machine.”

Well, those days are long gone. While many members have some history on their minds as we begin to celebrate our 25th anniversary, Ratley reminded attendees that “just over 1,000 of today’s members were not even born when we started the ACFE.” That number grows every year as our ranks swell — the ACFE now exceeds 66,000 from more than 150 countries.

CORNUCOPIA OF GENERAL SESSION SPEAKERS

During the conference, Preet Bharara, the U.S. Attorney for the Southern District of New York, challenged attendees to step back from merely concentrating on the law of fraud and help develop a culture of integrity that will deter it. The ACFE honored Bharara with The Cressey Award for a lifetime of achievement in the detection and deterrence of fraud.

Allan Dodds Frank, one of the nation’s top business investigative correspondents, favorably compared CFEs with hard-hitting reporters. The ACFE presented Frank with the Guardian Award, presented annually to a journalist whose determination, perseverance and commitment to the truth has contributed significantly to the fight against fraud.

Chris Mathers, a former undercover agent for several Canadian and U.S. federal agencies, spoke about the “continuum of criminality” — how a small crime can lead to large ones.

Actor Stacy Keach, narrator of CNBC’s “American Greed,” described many of the show’s fascinating frauds and one that affected his family.

Shi-min Fang, the recipient of the ACFE’s 2013 Cliff Robertson Sentinel Award, spoke about his efforts to expose medical malpractice in China.

And finally, convicted fraudster and former Enron CFO Andrew Fastow explained how he rationalized his crimes that helped lead to the company’s collapse.

STRIVING FOR THE BEST, NOT THE LARGEST

“I am … proud to report that the ACFE remains the largest anti-fraud organization in the world,” said Ratley. “Our goal has never been to be the biggest, just the best. But because of that philosophy, we’ve continued to grow without compromising our standards, and that has made us the biggest. …

“We are diligent in our efforts to gain increased recognition of the ACFE globally, which creates more opportunities for fraud examiners everywhere,” Ratley said. “In October 2013, the Asia-Pacific Conference will be held in Singapore. Earlier in the year, our European Fraud Conference was held in Prague, and we held training events in Jakarta, Shanghai and Melbourne,” he said. “We are currently planning a new lineup of training events for Europe, Canada and the Asia-Pacific region that will be held during 2014. And we have added staff whose primary duties are to help us keep pace with our ongoing global responsibilities.”

Ratley also highlighted the Corporate Alliance program, launched during last year’s Annual ACFE Global Fraud Conference. “Membership in the Corporate Alliance denotes a commitment to the fight against fraud and provides your company with exclusive training opportunities as well as savings on ACFE seminars, self-study courses and on-site training,” he said. “And the feedback that we are receiving is that training staff across many job functions to be able to identify the red flags of fraud is quickly becoming an overall compliance program best practice.”

  

PASSING OF A GIANT

Dr. Joseph T. Wells, CFE, CPA, founder and president of the ACFE, recognized the presidents of the ACFE: Ratley, who has been with the ACFE from the beginning; Dr. Steve Albrecht, CFE, CIA, CPA, who “helped bring the idea of the ACFE to fruition in our formative years”; and Toby J.F. Bishop, CFE, CPA, FCA, “who aided us considerably in our growth.”

Dr. Wells gave a special tribute to Dr. Gil Geis, CFE, the second president. “This is the first Annual Conference he has missed since 1992,” Dr. Wells said. “That’s because Dr. Geis passed away last November 10 at the age of 87. At the time of his death, Gil was the world’s pre-eminent white-collar criminologist, a great scholar and my close friend.

“He helped develop the underlying philosophy of the ACFE, which can be summed up in two sentences,” Dr. Wells said. “First, people in a civilized society must be punished for their crimes even though the deterrence effect is far less than we’d like. Second, the key to reducing crime is to prevent it from happening in the first place. Yes, as ACFE members, you are responsible for investigating possible fraud cases. But more importantly, you have a key role in preventing them.

“Prevention begins with education. That’s why you’re here,” Dr. Wells said “But you have a greater responsibility than just educating yourself. Fraud cannot occur without an uninformed victim, be it an individual, a company or a governmental agency. So you are also responsible for educating them. My duty is to help you with that effort by forecasting what is on the fraud horizon over the next few years.” (See Dr. Wells’ forecasts in sidebar 3 at bottom.)

OVERFLOWING CONTENT

Attendees had their pick of diverse anti-fraud topics from the Pre- and Post-Conference and the in-between Main Conference.

Three excellent speakers led Pre-Conference sessions. Jean-François Legault, CFE, vice president, assistant director of high tech investigation, JPMorgan Chase, spoke on “Intellectual Property and Personal Information: Investigating Loss, Leaks and Theft.”

Vincent Walden, CFE, CPA, partner, Ernst & Young, taught “Taking Data Analytics to the Next Level.”

Don Rabon, CFE, president, Successful Interviewing Techniques, led “Persuasive Interviewing Techniques.”

During the Main Conference, attendees learned practical concepts at more than 70 educational sessions in 12 tracks. Tracks ranged from “Fraud Deterrence & Detection: Stopping Fraud Before It’s a Problem” and “Emerging Trends & Issues: How Fraud & Anti-Fraud Efforts are Evolving” to “Legal & Ethics: Critical Issues, Critical Decisions” and “Case Studies: Preparing for the Future by Learning from the Past.”

Four excellent speakers taught the three Post-Conference sessions. Ryan Hubbs, CFE, CIA, CCSA, PHR, forensic audit manager, Halliburton, and Alton Sizemore Jr., director of investigations, Forensic/Strategic Solutions, PC Fraud & Forensic Accountants, team-taught the “Auditing/Investigating Fraud Seminar.”

J. Aaron Christopher, CFE, CPA, assistant dean, California Baptist University, taught “Tracing and Recovering Fraud Losses.” Gerry Zack, CFE, CPA, CIA, CCEP, president, Zack, P.C., taught “Uncovering Fraud with Financial and Ratio Analysis.”

BHARARA SAYS ETHICS HAS TO RESIDE IN A COMPANY'S MARROW NOT JUST MANUAL

“The lesson in history in general and in corporate scandals specifically is that you can’t simply legislate a culture of integrity,” said Preet Bharara, the U.S. Attorney for the Southern District of New York, during the Monday working lunch. “You cannot will it into existence by simply wishing for it, nor can you instill it in the workplace with even the best drafted compliance policy or the most thoughtful statutory regime or the best fraud examiners around.”  

Preet Bharara, the U.S. Attorney for the Southern District of New York, addresses attendees on Monday. Bharara received the ACFE’s prestigious Donald R. Cressey Award for a lifetime of achievement in the detection and deterrence of fraud.

Bharara, who received the ACFE’s prestigious Donald R. Cressey Award for a lifetime of achievement in the detection and deterrence of fraud, challenged attendees to step back from merely concentrating on the law of fraud and help develop a culture of integrity that will deter it.

He said that simply “issuing periodic and formalistic admonitions” won’t necessarily encourage even good people in the workplace to come forward the moment they suspect the books are being cooked, the numbers are being faked or the customers are being cheated.

“Getting people to listen and report and sound alarms and seek advice requires more than email reminders,” Bharara said.

Dubbed “The Street Fighter” by TIME Magazine in 2012, Bharara has gained a reputation for vigorous prosecutions.

He’s already had many satisfying convictions, but he said it would have been better for employees to come forward before these crimes came to light. In most of the big cases his office has prosecuted “there were many, many, many good people who were honest and law-abiding who suspected something bad was going on and sounded no alarm,” he said.

“We need to figure out … how to make people feel comfortable coming forward and make sure they’re not going to be punished. … And even be rewarded,” he said.

“How will you satisfy yourselves that the institution you advise or work for is a place where people are comfortable elevating ethical issues?” Bharara asked. “A place where company protections for blowing the whistle are not just in a company manual but in the company’s marrow.”

Bharara said the long-term solution for every firm is to create a corporate culture that openly permits dissent, duly fosters candor and cultivates and even rewards integrity.  

JOURNALIST DESCRIBES SYMBIOTIC RELATIONSHIP OF FRAUD EXAMINERS AND REPORTERS 

“While … [ACFE] members may not exactly be soul brothers and sisters of investigative reporters, we are at least first and second cousins,” said Allan Dodds Frank, one of the nation’s top business investigative correspondents, during the opening Monday General Session. “Over the years, I have been lucky enough to meet and work with many fraud investigators, and I can safely say we share some attributes, perhaps most notably that making money is far from our only motivation.”

Frank, a contributor to The Daily Beast and a special correspondent for Newsweek, compared the symbiotic relationship among fraud examiners and investigators of all stripes with in-the-trenches reporters and regaled the attendees with colorful war stories. The ACFE also presented Frank with The Guardian Award, given annually to a journalist whose determination, perseverance and commitment to the truth has contributed significantly to the fight against fraud.

“Most reporters, and, I suspect, most people who become fraud investigators, law enforcement officers, prosecutors, forensic examiners or compliance officers subscribe to the notion that justice is important. We need fair play and honest transparent behavior to protect individuals and society. We need equal enforcement of the laws,” Frank said.

“Maybe together we can create a new model about how fraud examiners can work with responsible professional journalists. … Maybe a few of us can get together and do a new reality TV series about fraudsters. Why should the guys noodling for catfish and trapping alligators with their bare hands have all the fun?

“Since we are all students of human behavior, my wish is that you can help me answer this question: ‘Who are the crooks today?’ ” he said.

MATHERS’ ‘CONTINUUM OF CRIMINALITY’ LEADS TO ACCELERATING FRAUD

“I spent my entire life in the company of criminals,” said Chris Mathers, the Tuesday morning General Session speaker. “Two things I learned: People do not steal your money to save it. And … people typically do not resort to criminality late in life. It’s not like taking up golf. It’s something you do from the very beginning.

 "If the second statement is true … how do you explain things like Enron? How do you explain when people went to good schools, came from good families and never had any criminal tendencies, all of a sudden start doing such dastardly things? I have a theory: the continuum of criminality. … You start with something really small. Something innocuous. … And then you embark on the continuum [until] you’re doing really bad things.”

Mathers is the founder of CHRIS MATHERS INC. His firm specializes in fraud, money laundering, terrorism and organized crime issues. He spent most of his adult life working undercover for the Royal Canadian Mounted Police (RCMP), the U.S. Drug Enforcement Administration (DEA) and the U.S. Customs Service.

He writes about his experiences posing as a gangster, a drug trafficker and a money launderer in his book, “CRIME SCHOOL: Money Laundering.”

“Popular culture has impacted everyone — young and old, particularly young people, and changed their view of the world vis-a-vis their ethics and moral structure,” he said.

“What has changed? … This popular culture has given people a rather bizarre sense of entitlement. And that is what ultimately leads to criminal activity. A requirement for immediate gratification [and] the affectations of wealth. … People want to emulate what they see in popular culture.”

He cited some governments that require “facilitation payments” to perform basic importing activities. Clean companies are between a rock and a hard place; they will lose thousands of dollars because their shipments are held up because they won’t pay the small bribes that other firms are willing to pay as “the cost of doing business,” he said. “I learned a long time ago that you have to set your ethical path.”

Mathers said it was a pleasure speaking to so many like-minded pros rather than banking and securities execs “who don’t want to hear about this because they’re too busy trying to make money. It’s nice to be in a place where you can feel the heat coming off a group of people who are going in the same direction.”

KEACH AMAZED AT FRAUDSTERS' MACHINATIONS

As narrator of CNBC’s “American Greed,” actor Stacy Keach said that his show “has … given me an insight into the machinations of the lengths that people will go to, what they are willing to risk, in order to make easy money — more and more money. 

“As the song said, ‘It’s never enough, you always need more, and the simple truth is, you need more than before.’ I’ve also learned that many of these avaricious people, who are unquestionably breaking the law, have absolutely convinced themselves, in many instances, that they are victims themselves,” said Keach.

“American Greed” examines high-profile corporate and white-collar crimes, several of which were investigated by CFEs. In the series, Keach tells the stories of fraud, money laundering, embezzlement and Ponzi schemes.

With the aid of clips from the TV show, Keach reported on the illegal extravagances of Dennis Kozlowski and Mark Swartz of Tyco fame. “Kozlowski and Swartz were accused of giving themselves more than $150 million in illegal bonuses and forgiving loans to themselves, besides manipulating the company’s stock price.” Kozlowski used his stolen cash to buy $14.725 million in artwork, $6,000 shower curtains and $15,000 for umbrella stands.

Keach commended ACFE members for helping prevent and detect rampant fraud epidemics that are plaguing our lives. “Without you, we wouldn’t be able to catch the bad guys, and I commend you for it.” 

SHI-MIN FANG DESCRIBES THE TRIBULATIONS OF EXPOSING MEDICAL FRAUD

Shi-min Fang, the recipient of the Sentinel Award, said a Chinese TV channel recently aired a program, “A One-man War Against Fraud,” about his campaign to expose scientific misconduct in  China. “In China we don’t have an organization like ACFE, and I have to fight fraud individually. But this description is not very accurate. I do have many supporters, particularly, my wife,” Fang said. Juhua Liu and their child, Erzhan, were in the audience.

Fang, a biochemist and scientific writer, is president and co-director of “New Threads,” a publication and website that promotes Chinese culture to the general public.

When he began his crusade 13 years ago, he said he was surprised to see that “pseudoscience, fraud, misconduct and corruption were so widely spread in the Chinese scientific community and health industry, and no independent critical voices could be heard.” He now reports about 100 cases of suspicious activity per year.

“I do this work voluntarily,” Fang said. “I am a science writer. I earn my living by writing books, not by debunking fraud. Nobody pays me to do it. But somebody did pay trying to stop me. I have faced many threats, lawsuits, even attempted murder.”

He doesn’t believe that medical practice and fraud in China will dramatically improve any time soon. “In a country without democracy, rule of law and freedom of speech, an anti-fraud campaign is much [more] difficult than you can imagine, and international support is precious,” Fang said. “I deeply appreciate your recognition.”

FASTOW ADMITS GUILT BUT SAYS TODAY'S FRAUDS ‘MAKE HIM BLUSH’

 Convicted fraudster Andrew Fastow said he knew he was doing wrong but didn’t think at the time he was breaking any rules as Enron’s CFO. “I was prosecuted for not following specific rules in the financings,” Fastow said during the closing session. “I don’t think that’s the important reason why I’m guilty. I think I’m guilty and most egregiously guilty [by] engaging in transactions that caused a misrepresentation … to appear different to the outside world. …

“I knew that what I was doing was misleading. But I didn’t think it was illegal. I thought that’s how the game was played,” he said. “You have a complex set of rules, and the objective is to use the rules to your advantage. And that was the mistake I made.

“In 2000, I was awarded CFO of the Year,” he said. “My award this year is to be called Fraudster of the Year for ACFE. … I take full responsibility for my actions. I caused immeasurable damage.”

Fastow was one of the accounting masterminds behind a complex web of off-balance-sheet special purpose entities used to conceal years of massive losses at Enron. In 2001, the U.S. Securities and Exchange Commission opened an investigation into his and the company’s conduct.

Enron, once the nation’s seventh-largest company, declared bankruptcy in December 2001 after attempting to hide billions in debt and cover up failed ventures. The next year, a federal grand jury indicted Fastow on 78 counts including fraud, money laundering and conspiracy. In January of 2004, he pleaded guilty to two counts of wire and securities fraud. He completed a six-year prison sentence in December 2012.

Fastow said that the things that he and Enron did “are being done today and in many cases are being done in a manner that make me blush.” He said many companies are still placing much of their assets in off-balance sheet, offshore vehicles and in “special purpose entities.”

“I thought I was being clever; I thought I was being smart by doing these deals. But the filter I used was: Am I following the rules? Am I getting permission? The filter I never used was: Is this the purpose of the rule? Is this the point of the rule? Is this the right thing to do? And that’s where I made my mistake. And it was a very big mistake.”

Fastow said he lives with his mistake every day. “I carry my prison ID card around with me. And I take it out every morning as a ritual to remind me of all the people I’ve harmed,” he said.

(The ACFE doesn’t compensate convicted fraudsters.)

ACFE AWARD RECIPIENTS

In addition to the awards to Bharara, Fang and Frank, the ACFE presented awards to others during the Annual Conference:

• James R. Baker Speaker of the Year Award: Alton Sizemore Jr., CFE, CPA, long-time ACFE faculty member. This award is presented annually to honor an individual who has demonstrated the true spirit of leadership in communication, presentation and quality instruction. 
• Certified Fraud Examiner of the Year: Jeffrey Matthews, CFE. 
• Chapter of the Year: South Africa Chapter, accepted by Chapter President Marius Smit, CFE.
• Hubbard Award (for the outstanding feature article published in Fraud Magazine in 2012): “Find deviant behaviors, find fraud: Human resources issues could uncover worse crimes,” in the March/April issue, by Ryan Hubbs, CFE, CCSA, CIA.
• Outstanding Achievement in Outreach/Community Service: Diane Minch, CFE, CPA.
• Educator of the Year: Douglas E. Ziegenfuss, Ph.D., CFE, AGA, CGFM.
• 2012 Walker Award (for the person receiving the highest annual score on the CFE Exam): Alexander Juliano, CFE (who came from the Philippines to accept the award).
• Newsletter of the Year: Oregon Chapter, accepted by Chapter President Kevin Thomas. 

Dick Carozza, CFE, is editor in chief of Fraud Magazine.

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Sidebar 1: Sponsors make Conference possible

 The ACFE gives a special thank you to our gracious Conference sponsors. Ernst & Young, a gold sponsor, sponsored the attendee networking reception. Gold sponsor GlobalVision Systems provided the reusable water tumblers and name badge holders.

Silver sponsor EthicsLine, the official hotline of the ACFE, sponsored the welcome reception. Silver sponsor LexisNexis provided the Conference notepads. Stevenson University sponsored the educator reception.

We also thank our media partners, KYC360, Fraud Intelligence and Fraud Magazine.

Sidebar 2: Mark your calendar for the 2014 Global Fraud Conference!

The 25th Annual ACFE Global Fraud Conference will be held June 15-20, 2014, in the Henry B. Gonzalez Convention Center in downtown San Antonio, Texas, on the historic River Walk.  

During this year's networking reception Donna M. Knapp, CFE, CPA, CITP, and Martha M. Rose, CFE, won all-expenses paid trips to the 25th Annual ACFE Global Fraud Conference. 

See you in San Antonio!

Sidebar 3: Dr. Wells: Amidst growing fraud trends, ‘Keep fighting the good fight’

Dr. Joseph T. Wells, CFE, CPA, founder and Chairman of the ACFE, is known for observing the anti-fraud lay of the land and offering his take on the emerging trends. During the opening general session, he highlighted some growing frauds.

“To begin, investment schemes and unscrupulous practices on Wall Street have continued to enrich the 1 percent at the expense of the 99 percent of the rest of us,” Dr. Wells said. “By every statistical measure, the rich are getting richer. With part of that wealth, those who earn their money dishonestly can buy some of the best legal defense available.”

However, he said he sees some hope on the horizon because the Securities and Exchange Commission has added several hundred CFEs to their ranks in the last few years and now has a promising new director, Mary Jo White, who is the recipient of the ACFE’s 2002 Cressey Award.

“A second fraud trend we’ll see over the next few years is a continuation of large financial statement manipulations by insiders of corporations,” Dr. Wells said. “Interestingly, a long time ago I predicted Enron and WorldCom before they had names. I simply said that, in the space of a few decades, the nature of investing had changed. No longer did people buy and hold stock because they believed in a company and its products. Share price became king. And it still is.”

He said that computerized trading using complex programs can buy and sell large blocks of stock in the blink of an eye. The quest for share price has in turn placed enormous pressure on company insiders to perform, he said. “It is this pressure, not inherent dishonesty, which is the root cause of financial statement manipulations. And in our quest to trim the cost of government, we’ve provided for fewer watchdogs at the exact time we need more.

“That means your roles as CFEs are even more important. You must help educate executives, management and staff the crucial part ethics plays in the survival of a business enterprise. I’m confident that you’re up to the task,” he said.

Dr. Wells said a third trend we should expect in the next few years is a continued rise in cyber crime. “We all know, or should know, that there is really no such thing as a secure computer — one that can’t be eventually hacked. We’ve all read of data thefts of millions upon millions of individual records. Most of these are committed by international gangs, which makes them exceedingly difficult to stop and even more difficult to prosecute.”

He said it’s not well known that small business has been increasingly made a target. As large organizations develop stronger controls over their networks and digital data, attacks on small enterprises have mushroomed, up more than 50 percent from 2011 to 2012 alone, he said. “What this means is that anti-fraud experts serving small businesses must educate them of the threat and encourage them to invest in the proper resources to reduce their vulnerabilities.”

Biometric technology is one possible way to mitigate cyber crime. “This science is already quite well developed but currently underutilized,” Dr. Wells said. “I can envision a day in the not-too-distant future where, in order to claim money or other resources, you’ll have to prove scientifically that you are who you say you are. 

“That system, had it been employed, would have prevented billions of dollars in recent tax refund scams,” he said. “And that’s just one example. Credit card and benefit frauds could be greatly reduced, too. As a matter of fact, nearly any fraud employing identity theft could all but be wiped out through the proper application of biometric resources. But using this technology must be balanced to protect the privacy of citizens.”

Dr. Wells said that another hope for reducing fraud is through additional research. “Despite the fact that fraud has cost us untold trillions in losses, we know surprisingly little about its root causes.”

He said that nearly 10 years ago, the ACFE helped establish a nonprofit anti-fraud think tank, the Institute for Fraud Prevention. Its sole mission is to raise money for original research grants. “Your company might be eligible to be a financial partner in this endeavor,” he said.

“Fraud will probably grow before it shrinks,” Dr. Wells concluded. “But take heart: If it weren’t for the efforts of you in the audience representing your 66,000 colleagues around the globe, the problem would be immeasurably worse. So keep fighting the good fight. To quote the ACFE anthem you heard this morning, ‘While we’re here in this time and place, we’ll help make the world a better place.’”

 

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