ACFE Fraud Report Fingers You

Posted on by Greg Kyte

My fraud IQ sucks. The Journal of Accountancy told me that when I took the "What's Your Fraud IQ" quiz in the August issue. I usually do pretty well. Not this month – 40 percent. I should've cheated. The answers are right there. But like you, I live my life according to a Code of Professional Conduct and am therefore committed to maintaining my integrity, especially when taking quizzes found in magazines. (According to Cosmo's "Are You a Good Flirt" quiz, I'm a "too-coy chick." I have so much integrity sometimes my penis falls off.) I am also committed to maintaining my competence. Here are some of the knowledge balls that I caught in my learnin' mitt.

According to the ACFE's 2012 Report to the Nations on Occupational Fraud and Abuse, in 35 percent of fraud cases, the perpetrator exhibited the behavioral red flag of living beyond his or her means; and 27 percent of fraudsters were experiencing financial difficulties. Those appear to be interesting statistics until you flip them around. Apparently 65 percent of fraudsters are living within their means, and 73 percent have no financial difficulties. Sounds like the typical person who commits occupational fraud is awesome at personal financial management. Dave Ramsey must be so proud of them. What kind of a-hole has plenty of discretionary income, no pecuniary shortcomings, and steals money from work? Either that pisses me off, or it's a completely useless data point.

The 2012 Report to the Nations also lists the following as characteristics of likely fraudsters: 
• In a staff-level position.
• Male. 
• Between the ages of 31 and 45. 
• Between one and five years of tenure at the victim organization. 
• The holder of an undergraduate degree.
• Employed in the accounting, primary operations, or sales departments. 
• First-time offenders.
 
Way to narrow it down to like half the people who work at every business. That list describes me, and since you're reading Going Concern, there's a good chance it describes you, too. But now that I know that I'm considered high risk, I'm going to keep a closer eye on me. Because according to the ACFE, I'm dangerous, and I'm a badass. And this is really my only chance to ever become a victim of profiling.
 
Apparently an individual attempting to conceal something may use and repeat oaths – statements like, "honestly," "to tell you the truth," and "I swear by the moon and the stars in the sky." It's no surprise that country singer John Michael Montgomery is a lying sack of crap, but it appears as though this also indicts individuals who say things like "verily, verily I say unto thee." Too far, ACFE, too far.
 
But there's more:
Deceptive individuals are much less likely to voice direct denials to an accusation, and their denials are more likely to grow weaker with repeated accusations, whereas an honest individual's denials typically will grow stronger. 
So, according to best practices, when you're conducting your next fraud interview, repeat the question, "You stole all that fucking money, didn't you?!?" at least four times, and measure the strength of the interviewee's denials with a Digital Denial Strengthometer. 
 
To tell you the truth, most CPAs get into accounting because they prefer the certainty of numbers and math. Honestly, we're not that good at things pertaining to human behavior. But I swear that we can get better as long as we realize that identifying behavioral red flags is a soft skill and not a checklist to find a bad guy.

 

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Note: The IRS Does Not Appreciate You Not Reporting Your Embezzlement Gains

Let this serve as a warning to any would-be embezzlers out there, if you steal, you better report it to the IRS.


42-year-old Collette Snyder of Timonium, MD pleaded guilty earlier this month to filing false tax returns in 2007 and 2008 after she neglected to claim over $382,000 embezzled from her former employer, Towson, MD-based Maple Leaf Title.

As part of her duties at the title company, Snyder had signature authority over the company’s operating, settlement and recording accounts, which allowed her to begin embezzling money from MLT accounts starting in 2007. She deposited company checks directly into her personal bank account, as well as made checks payable to her husband without his knowledge, forging his signature to deposit those checks in an account he was not aware of. At that point, Snyder had been an employee of MLT for two years.

Snyder took around $149,560 in 2007 and $232,968 in 2008. These embezzled funds were used to purchase jewelry, a BMW, trips, home improvements and private school tuition.

Because reporting this money to the IRS without it clearly declared on her W-2 (despite her writing “payroll” in the memo section of company checks she wrote out to herself) would have alerted authorities to the fraud, Snyder neglected to mention the ill-gotten gains. This resulted in an estimated tax loss of $115,529.37 for her 2007 and 2008 returns.

Due to the embezzlement by Snyder and MLT President Anthony Weis, MLT was unable to perform its duties as a provider of settlement services. With MLT’s escrow account drained, existing mortgage notes could not be paid off by MLT, meaning clear and free title could not be passed to the new lender and borrower of those notes. An insurance company that had issued title insurance policies to the borrowers guaranteeing clear title ultimately paid out $3.9 million to financial institutions that held mortgage notes.

Weis pleaded guilty to wire fraud, was sentenced to 78 months in prison and was ordered to pay restitution of $4,007,705, which includes the loss to the title insurance company and the expenses of the individual victims. He began his sentence in May of this year. The interesting part of this story is that Weis stole money intended for his clients’ real estate closings. And then Snyder stole from the company. Birds of a feather…

Snyder faces a maximum sentence of three years in prison and a fine of $250,000. U.S. District Judge Catherine C. Blake has scheduled her sentencing for February 3 , 2012 at 11:00 am.

“Mortgage fraud adds to the underground economy that erodes the integrity of our tax system and threatens the financial health of our communities. IRS Criminal Investigation is committed to ‘following the money trail’ to ensure that those who engage in these illegal activities are vigorously investigated and brought to justice,” said IRS – Criminal Investigation Special Agent in Charge Jeannine A. Hammett.

Sam Antar Wants You to Think Like a Crook

Sam Antar.jpgIn early December, the JDA gave us a little taste of how the mind of a crook works when she interviewed Sam Antar, the former CFO of Crazy Eddie’s.
We caught up with Sam again recently and in case you had decided that he had redeemed himself by speaking to universities, government agencies, and businesses telling those people how to detect fraud, Sam would take issue with that.
“I’m the same crook that I was when I was the CFO of Crazy Eddie’s. I haven’t changed. I got caught,” Sam told us. Sam doesn’t believe in redemption but he will tell you that he’s reformed, “A criminal is like an addict. You’re either in recovery or you’re not.”
In addition to his feelings on his past criminal behavior, Sam has strong opinions about the audit profession and how the current accounting curriculum does not adequately prepare young auditors for the masterminds they’re up against. “To catch a criminal, you’ve got to think like a criminal.”


Sam would never suggest that you all take a turn at white collar crime in order to become better auditors. That would disappoint your parents.
So what are his ideas? Here’s a few things to get you started:
• Sam believes that the current curriculum should be expanded to include criminology, criminal psychology, forensic accounting, and courses that focus on internal controls.
• With this expanded curriculum, an advanced degree program should be implemented for those students that wish to become CPAs.
• In addition, Sam believes that the CPA exam should be expanded to include a section dedicated to fraud.
We did some looking around and found that two schools: Carlow University in Pittsburgh and Franklin University in Columbus, OH both offer undergraduate degrees in Forensic Accounting and that two more: St. Thomas University in Florida and University of Charleston in South Carolina offer graduate degrees.
As long as white collar fraud remains front page news, there will be people asking “where were the auditors?” Right or wrong, that is the reality of the situation. You can fight it tooth and nail but ultimately the market will demand more forensic audits for high risk clients. Even if the odds of you finding a single fraudulent transaction in your entire career is nil, shouldn’t you be prepared for that chance?
Sam thinks so. And he convinced (or maybe just conned?) us. You still got it, Sam.
Photo by Buck Ennis for Crain’s New York and Investment News.