Build Anti-Fraud Culture

Anti-Fraud Professional’s
Guide to Building an AntiFraud Culture
April 23, 2013
Special Guest Presenter:
Peter Goldmann, MSc., CFE

Copyright © 2013 FraudResourceNet™ LLC

About Peter Goldmann, MSc., CFE



President and Founder of White Collar Crime 101

Publisher of White‐Collar Crime Fighter
Developer of FraudAware® Anti‐Fraud Training
Monthly Columnist, The Fraud Examiner,
ACFE Newsletter

 Member of Editorial Advisory Board, ACFE
 Author of “Fraud in the Markets”
Explains how fraud fueled the financial crisis.


About Jim Kaplan, MSc, CIA, CFE
 President and Founder of AuditNet®, the global resource for auditors
 Auditor, Web Site Guru,
Internet for Auditors Pioneer
Recipient of the IIA’s 2007 Bradford Cadmus Memorial Award.
 Author of “The Auditor’s Guide to Internet Resources” 2nd Edition


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

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4

Today’s Agenda
 Introduction
 The Auditor’s Role
 Fraud Statistics
 Why People Steal
 Tone at the Top
 Communicating Integrity
 HR Policy: Compensation, Performance Reviews,
Team Spirit, Career Opportunities
 Ethics Policy, Compliance Policy and FRAUD POLICY
 Training to Support Culture
 Your Questions

The Auditor’s Role
 1200: Proficiency and Due
Professional Care
 1220: Due Professional Care
 2060: Reporting to Senior
Management and the Board
 2120: Risk Management
 2210: Engagement
Objectives


Fraud: The Big Picture
According to major accounting firms, professional fraud
examiners and law enforcement:

 Fraud jumps significantly during tough economic times
 Business losses due to fraud increased 20% in last 12
months, from $1.4 million to $1.7 million per billion dollars of
sales. (Kroll 2010/2011 Global Fraud Report)
 Average cost to for each incident of fraud is $160,000
(ACFE) Of Financial Statement fraud: $2 million
 Approx. 60% of corporate fraud committed by insiders
(PwC)
 Approx. 50% of employees who commit fraud have been
with their employers for over 5 years (ACFE)

7

WHY INSIDERS STEAL

The Fraud Triangle
PRESSURE

FRAUD
OPPORTUNITY

RATIONALIZATION

Creating a Fraud Diamond: GREED!

8

Rationalization
Rationalization often based on poor
corporate culture:
“I deserve the stolen money because my boss
abuses me”
“ I was unfairly passed over for a promotion”
“ I haven’t gotten a pay increase in five years”
“ I haven’t had a performance review in three
years”
“ The guys at the top are doing it, why
shouldn’t I?”
“ They just laid off half of my department. I’m
probably next”

Tone at the Top: Key to
Corporate Culture
ACFE Guideline:
“Tone at the Top refers to the ethical atmosphere that is
created in the workplace by the organization’s leadership.
“Whatever tone management sets will have a trickle-down
effect on employees of the company. If the tone set by
managers upholds ethics and integrity, employees will be
more inclined to uphold those same values.
“However, if upper management appears unconcerned
with ethics and focuses solely on the bottom line,
employees will be more prone to commit fraud because
they feel that ethical conduct is not a focus or priority
within the organization.”

Polling Question 1


Speaking of The Bottom Line…
… Long before Greg Smith quit and skewered GS in
NYT and his book, there Was “Goldman Sachs
Elevator Gossip” (Twitter Acct: @GSElevator):
“The lottery is just a way of taxing poor people who don't
know math.”
“If you can only be good at one thing, be good at lying…
Because if you're good at lying, you're good at everything”
“The fact that most people are too stupid to know how dumb
they really are is the fabric holding our society together.”
“Without question, Michael Milken has done more for
humanity than Mother Teresa”

Back to Wall Street:

July, 2010: GS pays $550 million to US Government
for deceiving clients regarding subprime mortgagebacked “toxic” derivatives.
 2011: Blankfein gets a 14.5% compensation boost.

On a Positive Note…

Source: Ethisphere

Polling Question 2


Assessing Tone at the Top
 Does management dismiss “minor” misconduct?
 Does management monitor comments and criticism in
social media and other online venues to identify views of the
organization’s culture that could suggest poor tone at the top?
 Does the organization use annual employee surveys to
gather information on their employees’ engagement with the
enterprise and to monitor trends. (These surveys can be
conducted internally or performed with the assistance of an
independent advisor)?
 Is TATT a regular meeting agenda item for audit
committee, risk management or compliance executives -to share observations and perspectives regarding
management activities, communications, and style?
continued…

 Does the organization conduct exit interviews? Some
departing employees, concerned about burning bridges,
may be unwilling to mention ethics and integrity issues that
may have contributed to their departure. Others may
welcome the opportunity to discuss their experiences, but
may provide this information only if asked.
 Does the organization assess customer complaints?
Monitoring trends in customer feedback may provide insight
into the entity’s culture.
Example: The swift and open handling of grievances may
indicate an entity is dedicated to compliance and ethics, while a
pattern of inadequate responses to customer grievances could
suggest characteristics among management that research has
associated with anti-social activities such as fraud.

Jonathan Macey, Yale University’s new book, “The
Death of Reputation”:
“Not a single US financial institution ranks among the
world’s 20 most reputable institutions.”
Macey’s point: Financial institutions have such a negative
culture that they have destroyed their once-stellar
reputations as ethical, trustworthy entities.
The 2008 financial crisis is the most dramatic recent
example of poor culture leading to widespread fraud
(and destruction of reputation).

How Bad Can Culture Get?
According to one of thousands of civil and criminal cases
against Bank of America, its subsidiary, “Countrywide in
2007 invented, and Bank of America continued, a
scheme known as the "Hustle" to speed up processing of
residential home loans. Operating under the motto ‘Loans
Move Forward, Never Backward,’ mortgage executives tried
to eliminate "toll gates" designed to ensure that loans were
sound and not tainted by fraud”
Source: U.S. ex rel. O'Donnell v. Bank of America Corp et al, U.S,
District Court, Southern District of New York, No. 12-01422.


Can Reputation Be Repaired?
According to Advertising Age, Bank of America switched ad
agencies specifically to repair image: “WPP will now be
responsible for the rollout of a new strategic positioning -- or
what Bank of America was internally calling the
development of a "North Star" that would signal to Wall
Street and consumers that it's a new day at the bank,
helping to repair the company's tarnished image.”
Macey: “I’ll believe it (improved culture) when I see it”


Getting Culture Right BEFORE It’s
Too Late


Communicating “Culture”
Top management must:
 Set standard of “zero tolerance” through actions (no
bribe-paying, no book-cooking, no embezzlement, no conflict
of interest, etc)…
Reinforce with:
 Emphasizing integrity in key communications….
 Annual reports
 Press releases
 Internal communications with employees
 Implementing awareness training


HR Policies Critical To Anti-fraud
Policy
 Competitive (or over-competitive) compensation
 Regular, thoroughly researched and fair/unbiased
performance reviews
 Ample opportunity for career/professional
advancement
 Emphasis on an management implementation of
team-based work processes
 Frequent staff meetings with open exchange of ideas
for process improvement, grievances and other
suggestions
 Regular fraud awareness training


Polling Question 3


Policy Problems…And
Solutions
Ethics Policy, Compliance Policy & FRAUD POLICY
Organizations often have ethics and/or compliance
policies …
Myth: These policies cover fraud detection and prevention
Reality: Most ethics and compliance policies cover only:
 Harassment
 Discrimination
 Regulatory compliance (banking rules, safety regulations,
employment regulations, etc
 Conflict of interest/gifts policy
 General dictate about complying with all laws and regulations

MOST POLICIES NEVER MENTION “FRAUD”

Solutions

Sample Anti-Fraud Policy
http://www.toronto.ca/audit/fraud_policy.pdf


Polling Question 4


Solutions
Formal anti-fraud policies
also should call for:
Formal training of all employees
in fraud schemes, red flags and
responsibility for reporting
wrongdoing
Aim: Not just to catch fraudsters,
but to continuously underscore the
culture of “Zero Tolerance”


FRAUD AWARENESS TRAINING
OPTIONS, FREQUENCY & FORMAT
WHOM TO TRAIN …
IDEALLY: Everyone in the
organization
1) Managers to build sense of
importance of the training and
urgency of instill positive antifraud culture throughout
2) All others
Note: Content for each group may
vary: Example: Financial Statement
Fraud for Managers Only

OPTIONS, FREQUENCY, FORMAT
WHAT TO TRAIN: Create Detailed Outline. Example…

Sample Fraud Awareness Training
MODULE I: INTRODUCTION
Objectives:
 Present a foundation of awareness for Detecting, Preventing
and Reporting fraud.
 Educate ABC Bank employees that fraud is more than
dollars stolen from the Bank: Fraud damages ABC Bank’s
reputation which results in lost customers which directly impacts
everyone directly. It can also draw unfavorable and potentially
costly regulatory scrutiny/enforcement action.
Continued….

OPTIONS, FREQUENCY, FORMAT
WHAT TO TRAIN… Continued….
Fraud affects YOU: When fraud occurs it can result in:
 Reduced pay increases
 Reduced benefits
 Limited promotion opportunities
 Layoffs
MODULE 2: How fraud is committed
MODULE 3: How to recognize red flags
MODULE 4: How to report tips
MODULE 5: Consequences for committing fraud &
Conclusion

HOW TO TRAIN?
 In-house classroom instructor
(from I/A, Legal or Compliance)
 Outside classroom instructor
(Fraud investigator, fraud expert, forensic
accountant, university professor)

 On-line (E-Learning)
 On-line—Webinar
 Intranet (Internal E-alerts)
 In-house newsletter
ALL TRAINING SHOULD BE CUSTOMIZED TO YOUR
ORGANIZATION’S CULTURE, BUSINESS PROCESSES, ETC


WHEN TO TRAIN?
 Full training once per year
 Quarterly or bi-monthly
seminars or refresher
Webinars
 Monthly E-alerts
 Full training for all new
hires


Polling Question 5


Questions?
 Any Questions?
Don’t be Shy!


Coming Up Next Month
 Fraud Detection and Prevention
Techniques Using Excel May 8
 Fraud Risk Assessment: Key to Highly
Effective Anti-Fraud Controls, May 9
 Fraudulent Documentation: Fraudsters’
Secret Weapon ... How to Disarm Them
May 29
 http://www.fraudresourcenet.com


Thank You!

Website: http://www.fraudresourcenet.com
Jim Kaplan
FraudResourceNet™
800-385-1625
jkaplan@fraudresourcenet.com
Peter Goldmann
FraudResourceNet™
800-440-2261
pgoldmann@fraudresourcenet.com


Build Anti-Fraud Culture

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