Michael Pocalyko, CFE

Michael Pocalyko found his passion for fighting fraud when a troubled public company asked him to join its board as a fixer. Since then, the CEO of SI — a Washington D.C.-based intelligence and cyber-sector professional services company — has investigated numerous cases involving governments, corporations, executive misconduct and board-level improprieties. Pocalyko warns that fraudsters are more sophisticated than ever before and to anticipate fraudsters’ creativity.

I was born and raised in Pennsylvania’s Lehigh Valley, in Bethlehem, home to the famed Bethlehem Steel Corporation, and I was a union steelworker during college. My grandparents were Hungarian and Ukrainian immigrants who came to the U.S. and Canada in the early 1900s. My family valued higher education and other-directed service. Growing up, I was a competitive swimmer, newspaper journalist and Eagle Scout.

I thought I wanted to be a doctor or a scientist, but my less-than-stellar performance in organic chemistry in college dissuaded me from that. Instead, I became a writer and Navy pilot, then an investment banker. I specialized in advanced technology as the CEO of Monticello Capital and chaired the boards of a biotechnology company and two international environmental engineering companies.

My company SI — “Special Investigations” — is on the cutting edge of anti-fraud and cyber-assurance operations. This is the golden age of fraud, so we are focusing our efforts on it. I recruit and run gifted teams of professionals, overseeing fraud investigations for federal and state governments, corporations, boards of directors, universities, banks, private equity firms and wealth managers.

My fraud investigations often involve executive misconduct, corporate board impropriety, or transaction frauds, or are “inspector-general-type’’ investigations of organizations making major changes after life-altering frauds. I’ve also conducted whistleblower-generated inquiries and sexual impropriety investigations, which often correlate strongly with fraud.

This might sound counterintuitive, but when you first uncover fraud, don’t do anything until you’ve thoroughly assessed the situation. Fraud mitigation requires calm, solid business advice; executive skill; fiduciary experience; and outstanding psychological, forensic, procedural, IT and audit skills — exactly what CFE training emphasizes.

I’ve also learned how critical cultural awareness is in fraud prevention, financial control systems and investigations. The cultural identity of a society plays a prominent role in preventing fraud, and adapting to a culture is key to finding and empowering incorruptible people even in the most bribe-ridden places.

My fraud-busting life began in the Pentagon, but fraud fighting became my passion when a troubled public company brought me on as a corporate director and audit committee chair. The company was a global manufacturer and government contractor debarred by the U.S. Department of Defense. The founding chairman was under indictment, and the new chairman was the third guy in six months to hold that job. My predecessor died in office. The executive suite was reeling from lawsuits. You get a lot of freedom when you’re a fixer in those circumstances, and in two years, the company emerged a success. That experience showed me how imperative it is to know all the methods fraudsters use and to integrate fraud controls at every level, including the boardroom.

Anti-fraud professionals need a brutally realistic cynicism while thinking beyond established boundaries. You can’t just “build a case,” because when you do, you’re too narrowly focused and neglecting new frontiers that fraudsters are exploiting.

Recently, I oversaw a case in which the company did everything right but was still defrauded. The firm’s internal controls were exceptional, so the fraudster, a relationship manager, conspired with a client’s accounts payable manager to pay him separately along with the company’s invoices. He stole $58,560 in 10 months but was caught after his company’s controller noticed that the client’s net margins were declining consistently. He was fired but not punished for the fraud and never repaid the money, because the amount he stole wouldn’t be worth the high legal fees for a civil judgment. And, it would be difficult to get a criminal conviction based on the amount of his theft. Unfortunately, fraud is escalating because the dollar amount for the threshold of materiality — where it makes economic sense for an organization or prosecutors to act — is increasing substantially.

There are two lessons I share with clients and corporate boards. First, fraudsters are much more sophisticated today even though their innate character is the same. They’ve adapted to the virtual environment better than companies have. Corporate overreliance on information systems and artificial intelligence works to the fraudster’s advantage. Second, most firms rely too much on existing cyber controls, making them vulnerable to the incredible creativity of cyberfraudsters.

My brother, Paul Pocalyko, CFE, CPA/CFF, was one of the first Certified Fraud Examiners. He is an expert in construction fraud, introduced me to the ACFE and encouraged me to take the exam.

Fraud fighters must be expansive in their inquiries. Anti-fraud professionals need a brutally realistic cynicism while thinking beyond established boundaries. You can’t just “build a case,” because when you do, you’re too narrowly focused and neglecting new frontiers that fraudsters are exploiting. Fraud is all about social psychology but preventing it and rooting it out require exceptional technical, investigative and managerial skills.

My greatest achievement in business was the growth of Monticello Capital and its two portfolio companies, Advanced Environmental Resources in the United States and Erdevel Europa in the European Union and Saudi Arabia. I’m planning to repeat that success in SI with our special investigations and SI cyber business units. My other notable achievement was publishing a bestselling novel, ‘’The Navigator,’’ in which fraud across generations was a major theme.

When I’m not working or writing, I’m hiking in Shenandoah National Park or sitting on the terrace, watching the mountains.

Jennifer Liebman is assistant editor of Fraud Magazine. Contact her at jliebman@acfe.com.