ACFE Board of Regents interview

The members of the Board of Regents ruminate on fraudsters' new techniques, the future of the profession, benefits of the CFE credential, starting their own businesses and why they're still fraud examiners after all these years.

The members of the Board of Regents aren't novices. With 135 years of accumulated experience, they've climbed most of the limbs and branches of the Fraud Tree. Yet they're still excited about solving puzzling cases: discovering evidence, interviewing subjects, presenting results and testifying. They relish new techniques and technologies. They're savvy but not jaded. They rejoice in their successes and learn from their failures. Most of all, they love to share their hard-earned knowledge with other fraud examiners — in the classroom or individually.

The Fraud Magazine editors caught up with these busy anti-fraud veterans during the recent 26th Annual ACFE Fraud Conference as they discussed the profession that grew from the seminal ideas of ACFE founder and Chairman Dr. Joseph T. Wells, CFE, CPA, in 1988.

Participating board members included: Joseph J. Agins, CFE, ethics and compliance investigations director, Apollo Group, Inc.; Tiffany R. Couch, CFE, CPA, CFF, principal, Acuity Forensics; David C. Rule, MBA, CFE, CISM, CPP, managing partner, Xione Group, Ltd.; Alton Sizemore, Jr., CFE, CPA, CFF, president, Alton Sizemore & Associates LLC; and Gerard Zack, CFE, CPA, CIA, managing director, BDO.

(Comments have been edited for space and clarity.)

Fraud Magazine: Let's say a young business or accounting student comes to you and is interested in fraud examination. What do you tell them that they need to be a successful fraud examiner and how do you relate it to your own experience? 
Couch: I've been a guest lecturer at Washington State University, and I get a lot of people who want to apply to my firm right out of college. I say that I love that they're this interested in fraud examination and that they're getting training. I certainly never heard the word fraud in my accounting and business education — ever. But I usually have to break their hearts a little bit. I always recommend that they first get three to five years of professional experience in a traditional role, whether that's in an accounting firm or in private industry as an accounting manager or controller or something like that. That experience of understanding how tax and audit works plus how transactions work through an accounting department is going to make them a much better CFE and fraud examiner.

Zack: I also encourage them to aim for diversity in what they study. How about taking a writing class? It will separate you from the crowd and make you a better fraud examiner. Verbal and written communications and presentation skills are so important. I encourage students to get involved with the subjects they're uncomfortable with.

FM: Are we catching more fraudsters these days? Are we preventing and deterring more, or are we seeing more fraud occur? Or are we just better at our jobs so we can better find it?
Couch: Fraud is the second-oldest profession in the world. If there's money, there's money to steal. I don't think there's necessarily more fraud.

Sizemore: There are more people, so there's more corruption. Being a CFE helps to understand how people commit frauds and helps us catch more fraudsters. And ACFE education is helping us bring more awareness and creating more interest in the general population.

Agins: I think we're definitely seeing more fraud than we have in the past. I agree with Alton that the ACFE has heightened the overall awareness about fraud to the general population. The Report to the Nations and other historical data also helps companies to clearly understand that fraud is taking place in their organizations and if not addressed — whether it's hiring more CFEs or incorporating anti-fraud programs — then dollars will continue to fly out the window. Though some organizations may still have blinders on, most now realize that fraud is occurring and they need to aggressively pursue it. I also believe we are seeing increases in fraud due to advances in technology. Fraudsters are very aware of how to leverage technology to defraud. And, more and more we see a degrading ethical culture in which many feel it's okay to defraud a big company because it can absorb it. According to recent surveys in U.S. News and World Report, 80 percent of high-achieving high schools students admitted to cheating and 75 percent of surveyed college students admitted the same. This is who is eventually going to be working for your organization! So, I think we're creating an environment in which it's simply easier for people to commit fraud. Another reason we must have more CFEs.

FM: What frauds do you see on the horizon? 
Couch: I like to call it financial statement fraud "on main street." When I first started in fraud examination, the only financial statement fraud I saw was what I read about in the Wall Street Journal: Enron, WorldCom etc. This is changing. I'm seeing more and more financial statement fraud in privately held businesses. Anytime I saw financial statement fraud it was kind of a secondary fraud; the person was stealing money and they were cooking the books to help hide the initial fraud. Because of this recession, I think we're seeing more privately held businesses perpetrate frauds during this continuing recession...

FM: Though technically we're not in a recession. 
Couch: Yes, but lots of my clients still struggle to get and maintain bank financing.

FM: What kind of clients are we talking about here? 
Couch: Small- to medium-sized businesses who have lines of credit or who have bank loans that are dependent on certain financial ratios to be able to maintain their good standing. And I've been called on numerous financial statement fraud cases where the companies defrauded the bank by cooking their books to make sure their covenants are correct to ensure they either maintain or keep their loan or line of credit.

FM: Are those businesses seeing more fraud as a result?
Couch: Not only the banks, but I've had a couple firms where the CFOs or CEOs are cooking the books to maintain their salaries and benefits. Again these are small- to medium-size companies. We're not talking about huge publicly traded companies.

FM: So as fraud examiners do you need to realize that this is the new normal? Are we always going to be on the edge of possibly falling off the bridge, and we have to adjust our techniques for that?
Couch: We look at how individuals are affected by pressure — that leg of the Fraud Triangle. But we should also ask about a company's pressure. Are its shareholders, angel investors and banks pressuring it?

Zack: I think that if there's a downside to fraud awareness, it's that it's kind of like violence in movies: people become numb to it. People aren't necessarily less ethical now; they're just more accepting of it. Employees sometimes say, "Oh well, fraud happens. It's just part of doing business."

Sizemore: Companies insure for it and then kind of ignore it. And audit companies don't decide to prosecute because it's just not worth the time and effort. I agree — the cost of doing business now.

The area that I see is growing exponentially is cybercrime. You've got the Zeus virus, for example, that affects banks. I had a case recently where a company that was a client of a bank in which employees inadvertently downloaded an invading software on their business machines that allowed Zeus to be implanted and steal all the information from all of the computers and deliver it through the network back to a server that fraudsters were monitoring. They got all the bank information, and they wire transferred $980,000 to the Agricultural Bank of China. The money's gone and there's nothing they can do about it. Hundreds of thousands of computers are infected with just Zeus alone. We're 15 months behind the bad guys in combatting these viruses, Trojans, worms and other computer infections.

Rule: There are no international boundaries anymore. I deal with cross-border security and data breaches all the time. I often see targeted attacks from disgruntled employees or those trying to gain competitive intelligence. My last two investigations involved cybercriminals who knew that the CFO had left the country and used social engineering to pose as that CFO to make false transactions in invoice and payment statements.

You've got to keep reading and learning to stay ahead of the cybercriminals. We share bulletins detailing the latest scams with an international group of colleagues.

Sizemore: Organizations such as InfraGard, which is sponsored by the FBI but run by IT people at various companies, organizes technical people who share information and actively monitor the Internet. They alert organizations that construct preventive barriers.

Couch: And the beauty of the ACFE is that all of us with these diverse backgrounds can share information on the latest cybersecurity methods with other members at conferences like these.

Agins: Speaking of networking, I've learned a tremendous amount from those I've met at conferences like this — things I wouldn't have learned otherwise. I advise fraud examiners to continue to meet people and share best practices. I could spend weeks trying to find the person who handles fraud at some other large organization or I could simply go to an ACFE conference and meet that person.

You've got to keep reading and learning to stay ahead of cybercriminals."

FM: Three of you have your own businesses and one of you had his own business and recently re-entered the corporate world. I don't remember in recent past history that a Board of Regents had that many present or past sole proprietors. You've been through the trenches. Members always have the questions, What do I do next? Do I go out on my own? Is that smart idea? Do I go back into the corporate world? Talk about those issues.
Couch: Having your own business is not for the faint of heart.

Rule: That's for sure. The dollars don't always add up.

Couch: For me, coming from a traditional CPA practice, everybody said you're crazy. They said, "You need to do tax, you need to have audit clients. You can do fraud when you get it." Then how the heck are they going to know I'm a fraud examiner? Or a forensic accountant? Don't be afraid to set yourself apart as doing this kind of work. Because people are going to know that's what you do.

If you have a fraud examination practice, you need to plan for feast or famine. For us it's not just one project but 18 projects at once, and then there will be very little.

We now level out cash flow by taking on retainers and saving money when we have a period of "feast." We also understand that if we have 18 projects or four projects we must continue to market ourselves so the phone will continue to ring.

Sizemore: During even the most difficult times when you're so busy, you need to continue that marketing, go to ACFE meetings, let people know you're there. Develop your one-on-one contacts and get involved in the business side of social media such as LinkedIn so people at least see your name.

Zack: One of the things I struggled with early on in my practice was the reluctance to say no to an engagement that wasn't really in my area of concentration. But you need the money, so you're tempted to take it. It took me a while until I would say to myself, "I'll stay in the famine mode because this just isn't the kind of engagement that I want to be doing."

Sizemore: It's very important that you don't overstep your boundaries. You have certain things that you're good at and that you can be recognized as an expert in, but if you get out of your area you're going to get yourself in hot water quickly, and it can backfire on you.

Zack: Even if it's something that you could do. When I had my business [Zack now works in a large firm. – ed.], I could do audits and make a comfortable income, but I was bored with auditing. That's why I needed to stop doing them.  I had to cut that cord with the audit world and do nothing but fraud work.

Couch: And now, I'm eight years into my business, and I have a base. They know who to call. The other advice I have, is once you get an engagement, do a great job because everybody is going to know your name and they're going to call you next time. One lawyer is going to talk to another lawyer, and business owners are going to talk to each other. But the minute you don't do a great job that will spread like wildfire.

When our clients are victims of fraud, it's a really difficult time in their business life. It's never happened to them before. They really see us as navigators who can help them through the whole process. Sometimes I wish I also had a counseling degree. A husband and wife who run a small mom-and-pop shop are devastated because one of their workers stole $2,500. They're crying and asking, "What's wrong with us? We trusted her!" But I also interviewed the crying CEO of a publicly traded company. One of his employees stole $1.4 million. He's crying and asking, "What's wrong with me? I trusted this guy!" It's so important to deal with our clients on the emotional, caring level and then become the trusted expert to figure out what happened, where and how much, and then walk them through the process.

Sizemore: And it's important to give them a product they can use to accomplish their goals. One of the things I think is tremendously important when you get an engagement is to ask what are the client's expectations? What do you think I can do to help you? Their expectations may be too high, and you — as a counselor — might need to explain to them how the process works and what you think you can accomplish. Never make any promises. Tell them what could happen, and give them suggestions and how you can help them. You can say, if that meets their expectations, then you'll be happy to work with them.

Couch: If you're going to hang your shingle, especially if you come from a firm, you're going to lose that camaraderie. It's important to build your own network. So make sure you're not afraid to pick up the phone and ask for help from other CFEs or bounce ideas off them. 

Agins: If someone is considering hanging their shingle they first need to have an honest conversation with themselves and ask if they're a self-motivating person — able to get up every day and be productive. Can I work by myself and not have these people around to bounce ideas off against or have the buzz of the office environment? At my company, I don't telecommute regularly because, personally, it's hard for me not to be in the work environment. I feel like I need to be there. I like the team atmosphere and having everything there such as our forensics team right down the hall. When you are working for yourself you may not have this.

Couch: If you want to own your own firm, you have to ask, can I handle attorneys and their emergencies? And always being on call? Can you handle sitting in a deposition like I did on Wednesday, listening to an attorney call me all of these nasty things that had nothing to do with me and attempting to get on record that I had somehow done everything wrong? Can you stand that heat? Can you handle having your work torn apart?

Agins: Can you practice good customer service? You have to be out there selling yourself. You have to be vibrant and you have to be meeting people all of the time. If you're not that type of person, you may be setting yourself up for failure because you can no longer simply sit at your desk and do reviews anymore. You now have to be the face of the company.

Rule: If a person isn't entrepreneurial enough to start off with, he or she will not succeed. You have to be self-motivated and determined to make that first step. You have to be hungry enough to go out and get the work. And then you build the team, the support staff and the administration. I now have two offices and five full-time staff. You have little time for yourself; on Wednesday I flew from Hong Kong to Singapore. Thursday I was in Macau. Friday I came to Baltimore. I'd love to get a regular paycheck every now and again. There are peaks and troughs and sometimes more troughs than peaks.

Sizemore: You have to enjoy being the boss. You have to like going out and talking to people. You have to like talking to the attorneys, and you have to look forward to the depositions. You get into your own business because it's in your blood. If it's not, you probably should take a job elsewhere.

Couch: There are so many opportunities for CFEs. I teach the Principles of Fraud Examination course. We get so many different kinds of people with different backgrounds. From educators to bank employees, law enforcement, prosecuting attorneys. Somebody will come up to me and say, "Thank you for helping me with the accounting stuff. I'm not an accountant. I began as a bank teller. I worked my way up through the bank, and now I'm in audit." There are so many opportunities for CFEs. I say the sky is the limit.

Rule: I'm currently the president of the ACFE Singapore Chapter. I was also a past president of the Hong Kong chapter. I deal with a lot of new people coming into ACFE. The first thing I tell them is you need to broaden your horizons, and you need to understand what fraud really is. A lot of techies are now coming in because they have to deal with technology crime, and they want to know what's going on. I also see a lot of interest from people in internal audit and purchasing departments.

FM: Why are you still fraud examiners?
Couch: I like helping people. It doesn't matter which side I'm working on. I thrive on these complex financial puzzles — not only being able to put them together but being able to explain to people — whether they're lawyers, judges or jurors even the business owners themselves. I just enjoy unraveling this complicated thing that has happened. I love being to translate all of that complicated information into a way they can understand.

Sizemore: The other side of it is — and I can understand where you're coming from — I try to accomplish the same thing from the victim's standpoint by putting the bad guy in jail: making the case, knowing what it's going to take to prove the motive and the opportunity.

Couch: I represent defendants all the time, it's not that I'm representing the bad guys. The attorney says this one thing about the defendant. The government says that. But what really happened?

Sizemore: Everybody deserves a defense. And they deserve a good defense. But there's a line I don't cross. The defense attorney says to me, "We know your reputation, and we know you're going to tell us the truth. We want to know what our client has really done."

Couch: Early in our business, I had the chance to land a six-figure case. The defense attorney says, "My client has been accused of this crime. I would like you to testify that all these transactions were okay and normal." I didn't take the case because if the attorney is already telling you what to testify to, you've sold your soul. What Alton is saying, is that attorneys know that they can either hire you or retain you to say what they want you to say, or they're going to hire you for your expertise and to just present the evidence. It doesn't matter which side you're on if you're going to be that neutral person — that fact finder.

Zack: The good lawyers stay clear of that. They won't tell you to testify in any particular way.

We once had to explain what a CFE was. Very seldom now."

Sizemore: It's a professional credential that lets people know that you have the requisite background, training, experience, knowledge and education to be able to accomplish required tasks in fraud examinations. It adds to your résumé but it's also something you're very proud of. The ACFE has the most amazing training in the world. That's what really sold me on the organization to begin with. They're like-minded people who that have this desire to know more about fraud examination and to study it and share information. The networking is just phenomenal — to be able to reach out and get help in the area you need it. The CFE is becoming more nationally recognized as a professional credential; people know that those who hold it know what they're doing.

Couch: I always say the CPA license gets me in the door, but the CFE credential seals the deal every single time. I'm the owner of a small business where the only thing we do is forensic accounting engagements. The CFE completely sets me apart, especially if I'm being compared against other experts. And it helps during depositions or trial testimony. Where else but the ACFE can someone get training on collecting evidence, interviewing suspects, writing a fraud report, etc. unless you're in the FBI academy or in law enforcement?

Sizemore: And the credential helps judges make decisions about your credibility and whether to designate you as an expert. The FBI and a host of organizations accept the CFE as a professional credential.

Zack: We once had to explain what a CFE was. Very seldom now.

Rule: It's beginning to become more of a prerequisite now — certainly in the commercial world. The CFE credential is now recognized in a lot of countries outside the U.S. and certainly within Asia. Hong Kong and Singapore are picking up on it a lot more. That goes for police and government agencies as well; the ACFE Corporate Alliance and Law Enforcement Partnership has taken that to the next level. And people want it.

Agins: In any large organization, you will experience a lot of wrongful termination suits. Those who had been terminated and/or their counsel may question the credibility of the investigation, the process, the report itself and, of course, those who conducted the review. They'll ask, "Who are these corporate investigators and what kind of qualifications or training do they have that gives them the ability to conduct investigations? Why should we trust these reports?" The CFE credential helps answer that question and helps to bolster our credibility. The CFE is the gold standard of the industry. It builds not just your résumé but that of your department and ultimately your organization.

Dick Carozza, CFE, is editor-in-chief of Fraud Magazine. His email address is: dcarozza@ACFE.com.