A wealth of talent, passion and tenacity: An interview with the ACFE Board of Regents

The Board of Regents, representative of the rich diversity of the ACFE membership, contemplate the profession as the ACFE celebrates its 25th anniversary.

A smorgasbord of talent. That’s how Board of Regents member Michelle Brown, CFE, describes the board and the ACFE. “Whether the angle is education, law enforcement, accounting or law — we all bring to the table a common theme of deterring fraud. … That’s one of the great things about the ACFE.”

As we begin celebrating the 25th year of the ACFE, Fraud Magazine invited the board members to a relaxed, lively roundtable discussion at the 24th Annual ACFE Global Fraud Conference to consider the future of the fraud examination profession and the association that largely created it.

Representing three continents and several industries, the board discussed ways to train and encourage budding fraud examiners, the care and feeding of whistleblowers (or sentinels as the ACFE calls them), fraud deterrence and return on investment, C-suite responsibilities, fraudsters’ new methods and developing a passion for fighting fraud, among other topics.

Participants included: Richard G. Brody, Ph.D., CFE, CPA (vice chair), Douglas Minge Brown Professor of Accounting, University of New Mexico Anderson School of Management; Michelle Brown, CFE (treasurer); principal, Verizon Business; Roger Darvall-Stevens, MBA, MA, CFE (secretary), partner, Ernst & Young, Fraud Investigation & Dispute Services, Melbourne, Australia; ACFE Vice President and Program Director Bruce Dorris, J.D., CFE, CPA (advisory member); Bruce G. Dubinsky, CFE, CPA (assistant treasurer), managing director, commercial disputes, Duff and Phelps, LLC, Washington, DC; James J. Oakes, CFE (chair), global director, financial crime, for the Wynyard Group, London, U.K.; ACFE President and CEO James D. Ratley, CFE (advisory member); and Vice President and General Counsel John Warren, J.D., CFE (advisory member).

THE ACFE AND A NEW PROFESSION

When Dr. Joseph T. Wells, CFE, CPA, founded the ACFE in 1988, few auditors and accountants knew what to do with fraud when they discovered it. What a difference 25 years makes. Or even 20 or 10. “I think the ACFE created the fraud examination profession,” says Ratley. “The Fraud Examiners Manual was the first time anything was put on paper about fraud examination. …

“We had an attendee at one of our first early events who told me that ‘Until you started the association my kids would ask what I did for a living, and I didn’t know what to tell them. Now I know to tell them I’m a fraud examiner,’ ” Ratley says.

Within two weeks after the ACFE began offering the Certified Fraud Examiner credential, the post office was bringing in boxes of applications, he says. “They were hungry for that type of knowledge. …

“However, some members of the accounting profession would come to our training in the early years,” Ratley says. “Many of them were angry that their companies sent them. They didn’t want to be there. They said ‘Fighting fraud isn’t my job.’ A partner from what was then a Big 6 accounting firm told me that ‘When I see fraud I turn my back because it makes my job harder.’ ”

Ratley says that “ostrich head in the ground” attitude is no longer prevalent. “It’s taken years and years, but the ACFE has worked to change those beliefs. We’ve given outstanding professionals a way to solidify their existence as anti-fraud experts.”

Those fraud examiners who’ve earned the CFE credential have a leg up on competitors, says Dubinsky. “Last year we were contacted by a Fortune 100 company for a boardroom investigation from a whistleblower for an alleged fraud,” he says. “We lead with our pitch that our people were CFEs. They told us that was one of the reasons they hired us. They had other forensic accountants that had come on [to work the case] but they really weren’t fraud specialists. We got onsite and within a day and a half they had fired the other accounting firm — a very large accounting firm — who had been trying to investigate for six weeks. They just really didn’t have the mindset to investigate the fraud that we completed within a couple of days. The Certified Fraud Examiner is able to show companies great value.”

Darvall-Stevens agrees with Dubinsky. “A client will recognize that if you submit a proposal for anti-fraud work and you’ve got CFEs as part of that team, that’s a competitive advantage,” he says.

“I see more and more requirements for CFE qualifications in job postings at least outside the U.S.,” says Oakes. “Corporations around the world now recognize the CFE credential as an essential component for applicants, he says.

“The CFE credential is being recognized in the courts a lot,” says Dubinsky. “I testify quite often. The elevation and awareness of the credential in the judicial sense has really helped recognize the ACFE and the anti-fraud profession. … Fifteen years ago as a CPA I could qualify on fraud issues. Today you can’t. You need to have the CFE credential to distinguish you from others in that forum. It’s really raised the bar.”

Brown says that “the ACFE has laid the foundation for anti-fraud training so that other organizations [for accountants and auditors] are now offering similar anti-fraud curriculum. This discipline has become a profession because of the efforts of Dr. [Joseph T.] Wells [ACFE founder and Chairman] and Mr. Ratley.”

ATTRACTIVE PROFESSION FOR STUDENTS BUT NO INSTANT FRAUD EXAMINERS

Brody says that accounting — at least the anti-fraud component — is “now sexy for students. The number of accounting majors was way down, but more have entered the field because they want to learn about fraud. …”

Anti-fraud education from the ACFE, whether via its seminars and materials, or through its free higher-education Fraud Examination 101 course has changed the auditing profession, Brody says. “All the education we’re getting from the ACFE is filtering down to the universities. …

Richard Brody, Ph.D., CFE, CPA	Roger Darvall- Stevens, MBA, MA, CFE	Bruce Dorris, J.D., CFE, CPA	Bruce Dubinsky, CFE,CPA
James D. Ratley, CFE	James J. Oakes, CFE	John Warren, J.D., CFE	Michelle Brown, CFE

“When I started in the fraud world, I don’t know how many [higher-education] schools offered fraud examination classes but it was probably 10 and now it’s hundreds because of the ACFE’s commitment to education at the university level,” Brody says. “So I think even employers are starting to take notice because we’re exposing our students to anti-fraud concepts. If you don’t offer fraud examination classes people are asking why not.
“Graduating students now probably have more anti-fraud training than the seniors, the managers and the partners they’re working for,” he says.

“For years and years we’ve said that we [auditors and accountants] are not responsible for fraud,” he says. “Now we know we can’t turn a blind eye to it, and that’s what we tell our students.

“As educators, we also tell them that even if they get the proper training they’re not going to become fraud examiners overnight. So many students graduate and immediately want to be a fraud examiner or forensic accountant,” Brody says. “I have to tell them they need to develop their skill sets first. … So even if you’ve been out of college for six months and you decide that you want to be a fraud examiner you’re still probably not ready. This isn’t an entry-level profession per se. You need to develop skills — get public or private accounting experience, governmental experience, and then you can move into it.”

Higher education institutions appear to be reading from the ACFE’s playbook. Dubinsky says that he has been approached by a major university, which has received support from a U.S. Department of Justice grant, to study white-collar crime. The university “is planning to combine the criminology section with sociology and accounting and put them into one program for students,” he says.

“Students who were on the accounting track, up until recently, didn’t learn about criminology, or law enforcement or cyber security because an accounting curriculum didn’t have time to teach them. It will be interesting to see where academia goes with that to get students ready to come into the real world,” he says.

TRAINING YOUNG STAFFERS

So let’s say that newly minted college students — eager to be fraud examiners — spend four or five years preparing in an accounting firm, with a governmental agency or in law enforcement. When bonafide fraud examination departments eventually hire them, what do they need (besides experience), and how can companies train them?

“I was at a meeting of the Institute of Fraud Prevention,” said Warren. [He’s also president of the IFP, an industry/university cooperative research center dedicated to multi-disciplinary research, education and prevention of fraud and corruption. - ed.] “And there were a lot of research proposals from academics about studying the concept of professional skepticism. They wanted to ask if skepticism is a genetic attribute or are some people just naturally more skeptical than others? The sense I got was some firms believed that young auditors just don’t know how to be skeptical or ask tough questions in an audit interview. The consensus was that that’s the hardest thing to learn. How do you train fraud examiners to be more skeptical?”

Oakes said he learned from patient executives. “For the past 20 years, I’ve been in the financial services sector. I’m not a banker; I was an ex-cop. But I had to learn by working with experienced senior banking internal audit and investigative specialists and product experts so I could understand and be a better investigator. It also requires a mixture of skilled specialists to get the right team together.”

Darvall-Stevens says training of young fraud examiners is vital “but no one person is expected to know everything. We have a multidisciplinary team. It’s a matter of knowing what avenues of investigatory inquiry to use and having people teach each other.”

Dorris says that young employees must be given the freedom to ask if they don’t understand something. “When you’ve got a chief financial officer who’s been there 30 plus years, and I’m a 27-year-old fraud examiner, I might not have the confidence to ask him to explain some concepts.”

Dubinsky believes that senior staff can more easily impart information and confidence to junior employees by working together on teams. “When we did the investigation of a board of directors, we had senior and staff people in a war room that we set up in the company’s conference room,” he says. “We had white boards to show link analysis. The senior people taught the younger people what to do and why we were doing it. Then our younger people made presentations to the senior people in the war room so we could see what they were thinking. It’s the only way to really train them to understand what we’re doing. It’s a challenge to transfer the ‘gut feeling’ that often only comes through years of experience, but this process goes a long way.”

Brown says ongoing, regular training for her organization is paramount. “For both the employee just out of college and the seasoned professional there’s a benefit to education. First-time career seekers haven’t been clouded by the ethics of other companies, and that’s a great benefit to corporate ethics development.” She explains that young employees will be indoctrinated into a culture that has already been established whether that culture is good or corrupt.

“So it’s a good practice to provide training that will set new parameters or replace inappropriate ideals set by other employment experiences,” Brown says. “It’s like that child raised in a household that sees a certain activity or behavior frequently, and it becomes the norm for them so they don’t question it. Training allows for generated awareness of what is expected.

“Training in my organization is welcomed and encouraged,” she says. “Actually, it’s a requirement that becomes a part of performance expectations.”

DETER, DETER, DETER

Dr. Wells built the ACFE on a handful of solid principles, but most prevalent was that a company should work tirelessly to prevent and deter fraud. A fraud that never happened saves an organization the most money, right? However, Ratley says that until Enron most companies didn’t emphasis deterrence.

“After Enron, non-fraud examination personnel saw what fraud could do to a firm and its people,” Ratley says. “Enron educated a lot of people who didn’t know about fraud.” Demand for the ACFE fraud prevention seminar and materials exploded. “Of course, the U.S. Sarbanes-Oxley Act passed after Enron. Now when I taught the prevention course I’d see scared CFOs and CEOs sitting in the audience!” he says.

Warren remarked that in the early days of the ACFE, members complained that they “could not convince their clients or employers that fraud was a risk. It used to be that nobody wanted to admit that it was a threat. It was the company down the street. Now there’s a general acknowledgement that everybody has a fraud risk and the question is, what do we do about it?”

Darvall-Stevens says that after the ACFE instituted models for prevention, detection and response, organizations in Australia and the Asia pacific region followed suit with their standards.

“One of the things I’ve seen in the ACFE’s Report to the Nations and nowhere else is the category of average dollar savings due to fraud controls. And that’s exceptionally valuable for organizations or to convince clients to have prevention methods in place,” Darvall-Stevens says. “You can actually show a business case that if you have these controls in place it’s going to mitigate losses. No guarantees, but it’s likely to reduce a whole range of costs associated with fraud.”

Warren then asks, “How do you demonstrate return on investment [ROI] on prevention? Because you can’t show what the frauds that you prevented would have cost. Is that still a battle?”

“The battle is still there,” Darvall-Stevens responds. “Especially now because of the global financial crisis that seems to be continuing. There’s competing priorities for money spent so it’s an ongoing discussion all the time.”

Dubinsky says that C-suite executives, post-Enron, are identifying and acting upon their risks. “They realize that wearing an orange jumpsuit is not a good thing. There are studies that say that incarceration is not a deterrent to fraud, but I think that with the visibility of the cases and the fact more C-suite executives are going to jail I think that it has at least activated awareness,” he says.

“And the shareholders’ suits that are being brought against the C-suite have really cost companies a lot of money. You add all of that together and the willingness or the necessity to spend on fraud prevention is now elevated out of internal audit where it used to sit for years,” Dubinsky says.

“Senior managers wanted to do right before but didn’t know what to do,” Ratley says. “They didn’t understand the importance of spending money on prevention and risk analysis and risk management.”

Darvall-Stevens says some of his work colleagues wrote a Fraud Magazine article, which asked who “owns” the proactive and reactive responses to fraud. (See “Who Owns Fraud?” by Dan Torpey, CPA; and Mike Sherrod, CFE, CPA. — ed.)

“The education process is ongoing because there are different stakeholders who may have responsibility for preventing fraud in the organization,” Darvall-Stevens says. “We all know that everyone in the organization has a role to play but it could be the CEO, the CFO, the head of legal, compliance, risk, internal audit, assurance — the list goes on.”

Brown says that many organizations’ departments are converging to prevent fraud but especially IT and anti-fraud services. “The healthiest organizations can’t work in silos like they did in days past,” she says. “Risk permeates all departments and they have to sit at the table together to prevent fraud regardless of who ultimately signs the quarterly reports.”

“Many small businesses can’t relate to what happened to Enron,” says Brody. “They say, ‘That can’t happen to me.’ But I know when I make presentations I have an unlimited number of examples to give about organizations where the response is always, ‘I can’t believe that person did it! I trusted him or her the most!’

“The ACFE has been so good about getting the word out that the person most likely to commit fraud is the hard-working employee who never takes vacations — who looks like the person next to you.

“In my anti-fraud presentations I ask how many in the audiences think there’s no fraud in their companies, and a lot of hands will go up. And I say, ‘Wrong, wrong, wrong,’ and they’ll get mad. But every organization has fraud — no matter the level. And all must prepare to deter and prevent it,” Brody says.

Dubinsky says that many large corporations are now requiring fraud prevention programs and often receive some tangible financial returns. “If a claim comes in on a whistleblower’s or shareholder’s suit and there’s a fraud prevention program that’s been in place and there have been reasonable attempts to comply with it internally, there’s a lower deductible on the premiums on the coverage,” he says.

“And of course in terms of values compliance programs for prevention, you have the Foreign Corrupt Practice Act [FCPA],” Warren said. “I know a member who said 10 years ago most of his practice was FCPA investigations; now it’s almost all FCPA compliance. It’s totally shifted to understanding the risks and the value of prevention. However, small- and medium-sized businesses are behind in this; it’s probably a resource question as much as anything.”

WHISTLEBLOWING AS A PREVENTATIVE MEASURE?

Darvall-Stevens says that whistleblowing is still an important way to prevent large and future frauds. “Whistleblowing legislation is exploding worldwide along with programs for encouraging and managing whistleblowers,” he says. “Of course working to keep their anonymity is very important.”

Warren says, “It’s disappointing how much we rely on whistleblowers.” He recounted how the day before he had to buy an electronic item in Las Vegas for the ACFE Global Fraud Conference and then couldn’t use the ACFE’s credit card to pay for the taxi ride back to the hotel because the card company’s anti-fraud software had shut down the card because of supposed suspicious activity.

“It’s too bad that other industries aren’t that good at real-time monitoring,” Warren says. “Then we wouldn’t have to rely so much on whistleblowers.”

“It depends on the type of fraud,” Dubinsky said. “Fraud may be intricately embedded in very complex transactions. There may be side deals going on and quid pro quos; when does it go from a quid pro quo to fraud? It’s not always black and white. But for fairly simple credit card fraud, data mining will work to detect suspicious activity. So it has its place.”

Darvall-Stevens says the ACFE’s training on whistleblower management has been valuable. “If you can manage a whistleblower so you don’t actually have to use them — if you can find evidence in another area — it reduces the potential harm the whistleblowers can sometimes experience.”

Oakes, who also operates an independent fraud examination firm, Financial Crime Risk Ltd. in the U.K., says that two potential whistleblowers in the banking sector had contacted him because their companies had pushed them into signing nondisclosure agreements. “They’ve had real concerns about whether they should or shouldn’t,” he says. “Obviously, it’s difficult to counsel that they should because the effect is usually career death. …  

“The whistleblower process is highly worthwhile. It is used a lot within the financial services sector. The potential whistleblower comes to us with a particular concern. Perhaps his manager is forcing him to share a password because it takes too long for the IT department to issue a new password. In more serious cases, we look for other evidence of criminal activity on the basis of what the whistleblower has told us rather than exposing the individual,” says Oakes.

LOOMING FRAUDS AND METHODS

Brown says that intellectual property (IP) fraud is a hot crime now and increased cyber security is the defense. “Every business has the potential to employ unscrupulous moles who use their positions and access to steal intellectual property. Information is what everyone wants. Our digital age with social media and the rise of digital anonymity has become like lighter fluid. It’s so easy for someone to find willful perpetrators who are willing to use their access to take information and then broadcast it under pseudo-identities.”

“Michelle is right. That’s what you hear out there,” says Dubinsky. “At conferences, government officials and businesses say it’s a huge threat. They say that one of the big targets of theft of IP are U.S.-based law firms.” He says some patent attorneys, for example, have terabytes of their clients’ information residing on their computers just waiting to be taken.

“One of the hottest topics for us in servicing clients in anti-fraud areas is foreign bribery and corruption,” says Darvall-Stevens. “Of course, there’s increased regulations globally or renewed enforcement — the FCPA, the U.K. Bribery Act, equivalent legislation in a number of different countries. Again, a couple of my colleagues wrote a Fraud Magazine article about using the fraud triangle in data analytics to discover keywords in emails to detect mostly foreign bribery and corruption red flags where motive, opportunity and rationalization link up.” (See “Fraud Triangle Analytics,” by Dan Torpey, CPA, CITP; Vince Walden, CPA, CFE; and Mike Sherrod, CFE, CPA. — ed.)

“Fraud typologies really aren’t changing, but the methods are,” says Oakes. “New technologies including electronic payments such as Bitcoin allow someone sitting in eastern Europe to attack accounts in Florida, and the money will be transferred to Australia and then go to Kazakhstan or wherever.

“Banks are introducing new types of technology to detect the interruption between their banks and the client,” Oakes says. “Bank systems in Europe will send an SMS message to you when you do an online transaction, and you can confirm the transaction with a code number. But now there’s malware that will divert your online transaction from your phone to the fraudster’s phone who will respond to the transaction,” he says.

“We are seeing a paradigm shift in the mode of attack in the financial services sector as a result of the massive shift in financial transactions via Android phones,” Oakes says. “One European bank saw mobile phone traffic move from 100,000 to 4 million users within a month. This growth is being repeated on a daily basis.”

ATTRIBUTES OF A SAVVY FRAUD EXAMINER

One of the last questions they pondered was, “What advice would you give to someone considering a fraud examination career?” Answers included: be absolutely passionate about the profession, be driven by a mission, have integrity beyond reproach, develop an inquisitive mind, have exceptional communication skills and don’t be afraid to ask the tough questions no matter where or to whom it leads.

Actually, all are excellent characteristics that the members of our Board of Regents already model as we enter the next quarter century.

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

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