‘This is a battle, and we’re fighting side by side’

When the ACFE talks about its members fighting fraud in the trenches, Jim Ratley, CFE, has been a soldier in the war from the beginning. He talks about that porch conversation, things to do Monday morning and helping create a profession.

If Jim Ratley hadn’t cleaned out his bulging wallet in 1985, the history of the ACFE would have been quite different.

Ratley, then a police officer in the internal affairs division of the Dallas Police Department, occasionally would be pulled out to manage fraud cases. He liked the work, so he was intrigued when he read an article about someone named Joe Wells, who owned a financial investigative firm in Austin. He cut out the article, folded it, stuck it in his wallet and forgot about it.

“About three months later, my wallet had gotten cumbersomely thick so I went to clean it out, and I saw the article,” Ratley says. He called Wells, traveled to Austin on a Saturday, and they met. “My main question was, ‘Can you really make a living doing this?’ ” Ratley says. “There was little emphasis on investigating fraud back then.” After several more meetings, Ratley eventually accepted Wells’ offer to be an investigator with Wells and Associates.

The year before, Wells — seeking to learn more about anti-fraud principles — traveled to California to meet renowned white-collar criminologist Donald R. Cressey, Ph.D. (the creator of the Fraud Triangle), then the chair of the sociology department and eventual graduate dean at the University of California at Santa Barbara.

They became fast friends. During conversations, they agreed that fraud perpetrators were becoming too sophisticated for the average law enforcement officer, investigator, lawyer, auditor or accountant. Someone needed to establish a new profession that would combine the best skills of all these occupations to match complicated white-collar, waste and abuse schemes.

About the same time Ratley signed on, Wells and Cressey began The Institute for Financial Crime Prevention to study white-collar crime prevention and provide education for business and government.

In 1986, Wells was teaching a course with W. Steve Albrecht, Ph.D., CFE, CPA (who would become the ACFE’s first president). They later talked about what a new “corporate cop” would need to fight fraud, and the idea for the Certified Fraud Examiner credential began to form in Wells’ mind.

“One morning in 1988 Joe and I were out on the front porch of the Gregor Building [part of the ACFE Global Headquarters in Austin, Texas], and he described his idea of the CFE credential,” Ratley says. “I had never had an idea pitched to me that I embraced as solidly as I did that. The minute he told me about his vision I knew it would work.”

Fraud Magazine spoke to Ratley in his office at the ACFE’s Global Headquarters in Austin, Texas.

FM: Can you talk a bit about the very early days of the ACFE?
JR: One morning, a little while after we talked on the porch, I came into Joe’s office and said, ‘The idea you had for this CFE credential has been on the shelf long enough. We need to move on that.’ So I went up with a ruler and yellow legal pad and drew up the first CFE application. I took my yellow legal pad to a printing company. We did a test mailing of 400 pieces. We sent it to 200 investigators and 200 auditors. Shortly after, one Sunday morning at around 5 o’clock — then as now, Joe would get into the office very early — he excitedly called me to tell me that we got 16 applications. After that, they seemed to never stop. Soon we formally announced the program, and the National Association of Certified Fraud Examiners formed in June of 1988 with an interim board of regents.

At that time, Joe, Kathy Lawrence — Kathy Elmer back then — a longtime colleague of Joe's at the FBI, and I were the three main forces. We had a staff of six. Joe was the master of the plan, but I was the front person. I was the one who talked with most of the people who called in with questions. About three weeks after we started the program, I averaged out to 103 calls a day. It was just overwhelming success.

FM: What were some of the ACFE’s policies you first devised?
JR: We set forth some basic policies that are still in effect today. First, everything we did would be professional, top of the line and geared to professionals. Second, we decided that this was going to be an association that catered to the membership. Our member services department staffers can handle problems when members call. They don’t just transfer members to voicemail. Third policy — anybody who spends a nickel with us, if they aren’t 100 percent satisfied they’re guaranteed to receive a complete refund.

When someone calls with a complaint, and we’re wrong, we admit our error. We don’t always have to be right, but we always have to be there and let them talk to us. When someone points out our flaws, we’ll work to fix them.

FM: Why has the ACFE succeeded and prospered?
JR: I think one of the major reasons is that Joe and I at that time had never been active members of any type of association, so we didn’t know how they did things. But we also weren’t tainted by the ways other people were running their groups and presenting their seminars. We went back to what we decided on the first day on the porch. Again, everything was going to be done for professionals and conducted in a professional manner. We’re not looking for those who will be just satisfied with the training; we’re looking for those who say this is the best training they’ve ever been to, and these are the best anti-fraud products they’ve ever purchased.

I think the other reason we’ve prospered is because we’ve always had the common sense to listen to our members and let them tell us what they want. We have the ACFE Advisory Committee. We routinely send its members courses that we’ve written and ask them to review them. We also send them questionnaires to ask them what we can do to be better for them.

FM: Do you have educated guesses on looming fraud problems that aren’t even on the horizon yet (or are just peeking over the edge)? What new plans do organizations need to protect themselves from the “next big thing”?
JR: Here’s the thing that people need to realize. There are no new frauds. Every fraud that’s perpetrated has been perpetrated before. The ACFE has catalogued every fraud in its Fraud Tree. What we see now are new methods to perpetrate the old frauds. For example, the Ponzi scheme is still one of the most popular fraud schemes. It doesn’t cost anything to perpetrate, and it’s been going strong even before Charles Ponzi did it.

With electronic communication, fraudsters can commit crimes in any part of the world, and it’s almost impossible to prosecute them because of differences in jurisdictions and laws.  

Law enforcement used to be reactive. Now we have to be proactive. For instance, before the electronic age you had to sit across from somebody and show your ID to borrow money. Now you can do it online without showing your face. Because of that, when indentity theft became a major problem victims had no place to call. They might call the local police department or the FBI, and nobody knew what to do with it. The ACE has trained examiners to be proactive. Once we see new methods, we immediately notify our members.

FM: How have organizations’ attitudes changed concerning anti-fraud practices in the last 25 years? Have you seen more emphasis on preventing fraud rather than just examining fraud cases? What trends do you see in anti-fraud practices?
JR: When we first started the association, fraud was a vulgar word to businesses. We actually had a CFE call right after he got his certificate and said his company would not let him put it on the wall because it had the word fraud in it. They didn’t want their employees to think the company suspected they were stealing from them.

Everybody had the “head stuck in the sand” attitude when we first started the ACFE. In those early days fraud prevention was a very, very tough sell because you’re asking a company to spend money on something that doesn’t produce revenue— in effect spending money on something they can’t see. In the early days of Wells and Associates we caught fraudsters, and a company would stop us right there. They didn’t even want us to write a report; they just wanted to fire the perpetrator and walk away.

But after Enron, WorldCom and the U.S. Sarbanes-Oxley Act, management and business owners became more attuned to addressing the problem, and they turned to us. And we’re ready for them.

We’ve added a new education track — data analytics — to our 25th Annual ACFE Global Fraud Conference, and it’s all aimed at fraud detection.

From our Report to the Nations we’ve found that the average lifespan of fraud is two years unless there’s a CFE on staff; then the average lifespan is 12 months. So prevention and deterrence tactics do work. These practical techniques aren't snake oil. They’re tried and true, and you can take them to the bank.

FM: How have you seen ACFE demographics change?
JR: The demographics have a done complete 180-degree change. When we first began our training, our participants were usually middle-aged, senior-level males. A woman in the audience was a real anomaly. But as the association grew, I saw that the training and the CFE credential appealed to more and more females.

And, over the years, we’ve gotten younger and more diverse by race and nationality. And we see more middle- and lower-level employees. This, of course, is great news because it means that the profession is vital, and we’re carrying on anti-fraud principles to the next generation around the globe. The movement isn’t dying; it’s thriving.

The ACFE has created a profession. The words fraud and examiner, of course, existed before the ACFE came along, but they were just never used together. Now every major fraud case that you can name in the last 20 years has had a CFE involved in its fraud examination.

FM: Is it true that fraud examiners today need to be high-tech quasi-experts, or is it good enough to depend heavily on the IT pros?
JR: It would be great if they could be high-tech experts, but I don’t think that will ever happen. Gaining the base of knowledge is one thing, but maintaining that level of expertise is almost an occupation in itself. Fraud examiners need to know what’s available and then they have a phone number of an IT expert handy.

I’ve met a lot of fraud examiners since the ACFE formed, and I’ve never met one who has every skill. You have to realize what you don’t know and realize it’s okay not to know everything and know when to bring in the experts.

FM: How do you keep a global viewpoint about the profession?
JR: The members require that you do that. I routinely speak in countries other than the U.S. Later this year I’m speaking in Athens: from there I’m going to Hong Kong. I’ll speak in Johannesburg later this year, and I’ll go to China one more time. So I’ve got to educate myself about the fraud problems in those areas. (Fortunately, I have a top-notch research department to help me with that.) But the thing that makes it easier for me is that a fraud is a fraud is a fraud. People in China, Athens and Hong Kong steal much the same way they do in America.

FM: How can the ACFE’s Corporate Alliance Program help anti-fraud efforts?
JR: If a company participates in the Corporate Alliance Program, it’s saying to its employees that fraud is no longer a background word; it’s going to face fraud head on.

I talk with a lot of fraud perpetrators. I see people — often very young people — who never intended to steal from their companies. They had a financial need, and the company often not only gave them the opportunity, they almost gave them the encouragement to perpetrate the fraud. They gave them control, custody of an asset, record keeping of that asset, and nobody ever paid any attention to them whatsoever. And eventually the person stepped in over their head.

I’m not saying that it’s the company’s fault because employees are responsible for their own actions. But organizations provide their employees with health care, with a 401K. Shouldn’t they provide them with internal controls as well? And the Corporate Alliance Program gives the ACFE the opportunity to spread that message to the nerve centers of the corporation. It assures those corporations that their CFEs will have access to the latest techniques on detection and prevention.

FM: You’re known for your enthusiastic and entertaining teaching. Regardless of the topic, what are the main things you’re trying to communicate to your audiences?
JR: When I first began teaching, I asked myself what I could give these attendees that they might walk away with. I came up with “Things to do Monday Morning” for every class. What can they do different on Monday morning in their offices that is going to make them more effective? They don’t need me to talk a lot about theory; they already know that fraud is a problem. They need me to teach anti-fraud techniques.

The last slide in any training I give has my email address, my phone number, my LinkedIn account information, my Twitter account. I want to continue a relationship with them. I routinely get calls and emails from attendees. When I’m not on the road, I’ll always pick up the phone and talk to them about their questions and comments. To me this is a joint effort. This is a battle, and we’re fighting side by side.

FM: What specific advice do you have for fraud examiners?
JR: Don’t let anyone else do your thinking for you. When you come into a fraud examination take a deep breath, calm yourself, and methodically do what you need to do regardless of outside pressures and influences. You have an important job to do for your organizations, your clients, your communities. Maintain your enthusiasm. And ask yourself: What can I do to make my profession better?

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

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