ACCT 410610: Fraud Examination

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ACCT 410/610 Fraud Examination

• An NDSU course developed taught by
• Thomas A. Buckhoff, Ph.D.,CFE, CPA
• Class Session 12
• November 13, 2002

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Quote for the Day

• Persons involved in criminal activities do not
  flaunt their indiscretions in the faces of law
  enforcement officials. They try to hide what
  they are doing. And some of the webs criminals
  weave are very complex.
• Source IRS text, p. 216.

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Quote for the Day 2

• The fraud report should include all findings,
  recommendations, conclusions, and corrective
  actions taken.Particular care should be
  exercised to ensure that the general tone of the
  report is neither accusatory nor conclusive as to
  guilt.
• Source Fraud text, p. 207.

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Agenda for Today

• Fraud assessment questioning (FAQ)
• Credentials fraud
• Guest Speaker Joe Jovonovich, Retired DEA
  Agent, PI, and Fraudwise Senior Consultant

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Fraud Assessment Questioning

• Is a non-accusatory interview method designed to
  elicit information about
  potential fraud matters.
• Can provide much information for assessing
  fraud risks and finding specifics.
• Since lying is unnatural to people, a good
  interviewer can identify liars.

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FAQ Case Study

• Any one of 125 employees working for a university
  bookstore could have been responsible for a huge
  shortage (20 of net income) of inventory. After
  all efforts to obtain direct evidence failed,
  management turned the case over to Loren, a
  Certified Fraud Examiner, to interview employees
  one by one.

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In-class Role Play

• FAQ Case Study
• Cast of Characters
• Loren CFE
• Charlene Supervisor, 38th person interviewed
• Solomon Cashier, 45th interviewee

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Epilogue

• Armed with a possible suspect, Loren went to the
  county clerks office and found out that Solomon
  had acquired a 165,000 condo and paid for a new
  car that had no liens--both admirable feats for a
  college student. Faced with this evidence,
  Solomon confessed to stealing and selling
  300,000 in textbooks over 2 years.

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Academic/professional Credentials Fraud

• Sometimes the question is not Who-dun-it? but
  Who is the Who who-dun-it?
• Credentials fraud is far more prevalent than most
  believe.

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Prevalence of Resume Fraud

• Based on 2.6 million job applications verified by
  Avert, Inc.
• 44 lied about work experience
• 41 lied about education
• 23 fabricated credentials or licenses

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Resume Fraud Examples

• John Baker
• On his application, lied about felony conviction
  for stealing 193,000 from previous employer
• Stole 71,000 from current employer by forging
  signatures on checks

• Paula Ross
• On her resume, lied about her educational
  background
• Stole 2.04 million from current employer via
  fictitious vendor scheme

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Lying on resumes considered OK by majority of job
seekers

• What should happen to employees who get caught
  lying about their education on their resumes?
• Source Monster.com 2002 Forum (Total votes cast
  43,164)

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Degrees R Us

• No diploma? No problem. Online diploma mills
  will peddle cum laude parchments to anyonefor
  a fee, giving new meaning to a B.S.

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Diploma Mills

• According to the FBIs DipScam task force, over
  500 fake universities sell thousands of bogus
  credentials to dishonest people wanting to pump
  up their resumes.

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Types of Resume Fraud

• Embellishments
• Reaching
• Shading or tuning
• False Statements
• Claim degrees not earned
• Claim professional credentials not earned
• Claim experience not obtained
• Omissions
• Felony convictions should be included on job
  applications

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Jeffrey Papows, President of Lotus Development
Corp. (IBM)

• Claims
• Orphan
• Doctorate from Pepperdine Univ.
• Marine Corps Aviator
• Military Captain
• Tae kwon do black belt

• Reality
• Parents still alive
• Doctorate from non-accredited school
• Military Air Traffic Controller
• Military Lieutenant
• No black belt in tae kwon do

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Sandra Baldwin, President of the USOC

• Misrepresented the school from which she obtained
  her B.S. and listed a Ph.D. she never finished.
• Result Resigned

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George OLeary, Head football coach at Notre Dame

• Falsely claimed he played football for UNH and
  earned masters degree from NYU.
• Result Resigned

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Academic Credentials Fact of Fiction?

• The credentials of Dr. Larry James Falls, a
  psychologist employed by the Ministry of Health
  in British Columbia, come under a cloud of
  doubt.
• Video segment
• Is Dr. Falls being truthful? How do you know?

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Dr. Falls Resume

• BFA degree from York University
• Bachelor of Social Work degree from
  Dalhousie University
• Master of Social Work degree from
  the University of British
  Columbia
• Ph.D. in Clinical Psychology from UCLA
• Registered member of the College of Psychologists
  of British Columbia
• Member of the American Psychological Association

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The Reality of Dr. Falls Credentials

• He had no education beyond high school.
• He paid a drug addict 250 to produce the degree
  certificates and the forged letter.
• Confronted with the evidence, Falls argued
  that his work/life experiences qualified him for
  the position.

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Court Proceedings

• Mr. Falls was charged with the following
  counts
• Defrauding the Government of British
  Columbia of value in excess of
  1,000.
• Falls was paid 70,000 per year for five years
  before the fraud was discovered.
• Uttering a forged document
• Falls pleaded guilty to both counts and served
  six months in prison and two years on probation.

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Conclusions

• FAQ is useful in both fraud prevention
  and detection.
• Overstatement of academic and/or
  professional credentials is an
  increasingly serious problem.
• Employers must independently verify
  applicants credentials.
• Employees who misrepresent their credentials are
  a high fraud risk.
• Conducting pre-employment background checks
  can increase profitability by minimizing losses
  due to employee fraud and abuse.

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Northern Exposure Testing Fraud Theories

• Financial statement analysis and review of
  canceled checks.
• Undercover surveillance.
• Invigilation.
• Fraud assessment questioning of all employees.
• Confront target in admission-seeking interview.

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Northern Exposure Invigilation Results
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Northern Exposure Admission-seeking Interview

• During the fraud assessment interviews, several
  employees fingered the manager as the primary
  fraudster.
• Undercover surveillance confirms manager is
  stealing.
• Manager confesses in admission-seeking interview.

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Northern Exposure Epilogue

• Several employees either quit or are terminated.
• Evidence is turned over to law enforcement for
  prosecution.
• Employee dishonesty insurance claim is filed.
• Many changes are made to business process.

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Guest Speaker

• Joe Jovonovich, Retired agent from the Drug
  Enforcement Agency, Private Investigator, Senior
  Consultant for Fraudwise.

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Fraudwise, LLC

• Specializing in fraud detection, investigation,
  and prevention consulting services
• Senior Investigators
• Thomas Buckhoff, Ph.D., CFE, CPA
• Thomas OHalloran, MBA, CFE, EA
• 2974 Southgate Drive
• Fargo, ND 58103-3524
• 701-231-8512
• www.fraud-wise.com