10 accounting today | January 2017 spotlight accountingtoday.

com

Dispatches from the war on fraud

employee in the bookkeeping department
of a large school district, part of whose job
was to go through a DVD of cancelled checks
sent over by the bank, to make sure that the

Simple strategies for protecting your clients, and yourself payee, amount and number were right. She
wasn’t the fraudster, though — she retired in
perfect innocence, but her position was left
By Daniel HooD
unfilled, and “almost to the day,” according
When it comes to ways your clients can to Wilson, her boss the bookkeeper started
protect themselves, John Warren, a CFE stealing, because there was no one to check
and vice president and general counsel of the checks. The bookkeeper’s scam went on
the Association of Certified Fraud Examin- for almost eight years, siphoning off around
ers, goes right for what works: “Consistently, $400,000, and was only uncovered when the
the most effective way to detect fraud is tips bookkeeper fell ill and her replacement found
— between 40 and 45 percent of frauds that evidence of the fraud in her desk.
are detected are caught this way, and the next Many frauds only recur when certain cir-
closest method of detection only accounts cumstances arise. “Only forensic accountants
for 15 percent or so,” he said. Hotlines to al- look at disasters this way,” Blass said, “but
low employees to report potentially dodgy unfortunately, there’s going to be a deluge of
dealings can be hugely useful, but only about fraudulent insurance claims” related to Hur-
50 percent of companies have them, he said ricane Sandy in the Northeast. Earlier in his
— and even when they do, employees have career, Blass worked with the New York City
to know what they’re reporting. Department of Investigations, and said that
“Anti-fraud training is very effective,” said he had uncovered a lot of fraud related to the
Warren, who is also a co-author of the ACFE’s recovery from 9/11. “Disasters often bring out
Report to the Nations. “It seems obvious what the greed in some companies.”
a fraud would look like, and almost invari- The ACFE’s Warren noted that new whis-
ably, someone knows or suspects, but they tleblower laws are creating some unexpected
don’t report because they don’t know how, or issues: “Now staff have an incentive to take it
they aren’t sure that it’s wrong, or they don’t outside the company. That’s an exposure risk,
want to be seen as a snitch.” not a fraud risk,” he acknowledged, but it still
For those looking to protect their clients cated on is the protective value of an audit: “Companies spent a lot of money on new brings along with it reputational risk, poten-
— or themselves — from fraud, Randy Wilson “I’d like to let people know not to rely on an controls and external audits,” he continued, tial loss of market capitalization, and all the
has a sobering warning. outside audit or review or compilation as a “but the training and hotlines don’t cost that legal costs associated with an investigation.
“Fraud can’t really be prevented,” said Wil- protection against fraud,” Wilson said. “If much, and they are so effective that there’s Better, he suggested, to create hotlines and
son, who is a partner and national director you’re going to have a system to detect fraud really no reason not to have them.” implement training so staff are more likely
of fraud and fidelity services at Top 100 Firm earlier, it has to come from the company. Too to report fraud internally.
RGL Forensics. “You can try to detect it early often, I hear business owners say, ‘I thought THE LATEST TRENDS Warren pointed to data theft as a hot area
or in the normal course of business, but you my auditor was looking for fraud,’ but no, One of the reasons it’s so hard to prevent for fraud. While most of the focus is on exter-
can’t prevent it in its entirety.” they’re not. Accountants do themselves a fraud is that it keeps changing. While the pro- nal hackers — “We hear a lot about Eastern
A CPA and Certified Fraud Examiner disservice when they don’t make it clear to file of the fraudster may not change — “The European syndicates” — he said that he’s
(along with a number of forensics-related clients that they’re not looking for fraud.” garden-variety under-appreciated employee more concerned about a different poten-
credentials, including the American Insti- That may be a disservice, but there’s a ser- with access is always going to be there,” Blass tial risk. “What keeps me up at night is what
tute of CPAs’ Certified in Fraud and Foren- vice opportunity there, according to CPA and said — their methods and the vulnerabilities happens if an employee comes in intending
sics designation, and the American College CFE Alan Blass, the director of Fuoco Fraud of their victims are constantly changing. to steal data? What if they come in and sit
of Forensic Examiners’ Certified Forensic and Forensics LLC, part of the New York- and “We didn’t used to see schemes that were there for three or four months stealing data?
Accountant), Wilson is not suggesting that Florida-based Fuoco Group: “Most compa- that creative — we’re seeing more of them,” I haven’t seen a huge number of cases along
companies give up, or just resign themselves nies in need react by bringing in a forensic said Wilson. “There’s more awareness now — those lines, but it’s a big risk.“
to fraud — instead, he wants them to take a accountant to quantify the fraud and, if pos- business owners read about it. That just leads
more informed approach to the subject, and sible, retrieve lost funds,” he said. “Too few the employee to be more creative. If they have TECHNOLOGY
he wants accountants to help. “Business privately held small and midsized companies the motive and the rationale, they’re going to Of course, the overarching issue in much of
owners just don’t know what the risk really proactively hire a forensic accountant to re- find the opportunity.” fraud today is technology — as both an en-
is. One thing accountants can do is to educate view and test internal systems and controls As an example of a new opportunity, he abler of fraud, and a potent weapon against
clients about the potential for fraud,” he said, before a fraud occurs. Often a relatively small pointed to the downsizing of finance and it. “Just as people used the U.S. Postal Service
noting that the Association of Certified Fraud and inexpensive system, control, accounting accounting departments. “The economy is for mail fraud, now they use computers for
Examiner’s authoritative annual Report to the or reporting change could avoid the fraud or causing business to operate with fewer staff computer fraud,” said Christopher Cassar,
Nations on fraud estimates that 5 percent of accelerate its detection” — and a qualified — less people on accounting, finance, pur- IT forensic director at the FuocoTech unit of
business revenue around the world, or ap- accountant could help their clients by iden- chasing, and so on, so they have less ability the Fuoco Group.
proximately $3.5 trillion, is stolen through tifying the needed changes. to put in place controls and procedures for The pace of change in IT can make it dif-
fraud every year. “The average business own- “More companies are [having] anti-fraud double-checking,” he said. “That’s a risk that ficult to keep up, but he had a number of
er doesn’t know the magnitude of fraud and prevention assessments” performed by out- sometimes the business owner doesn’t un- current suggestions for companies to protect
they don’t realize it could be siphoning off siders, Blass said. “It’s money well-spent. derstand. They have to understand that they themselves.
funds for decades.” It’s tough for companies to analyze them- are giving something up when they do that.” Remind employees they’re at work.
One area they specifically need to be edu- selves.” He described a case that started with an See fraud on 44

010_ACTJan13 3 12/17/2012 3:08:05 PM