Tackle fraudsters by nurturing in-house expertise
By Rosie LombardiNews Retail fraud Site content Top Stories
No one really knows the true magnitude of business losses due to fraud, as the vast majority of incidents aren’t reported to authorities.
But the statistics collected by the Austin, TX.-based Association of
Certified Fraud Examiners (ACFE) based on the 1,134 cases investigated
by members in 2006 are nevertheless hair-raising. American
organizations lose about five per cent of their annual revenues due to
fraud, and occupational fraud is becoming increasingly difficult to
detect ”“ the typical time elapsed to detect a scheme is 18 months.
“I would say about 75 per cent of companies don’t report the crime
externally,” says Marty Musters, director of forensics at
Mississauga-based NCI Inc., an IT security provider.
“Technology presents more opportunities for fraud as systems grow more
complex, and more people have access to them today,” says Musters. “I’m
seeing more crimes of theft of intellectual property, and people
running private businesses on corporate networks.”
But most companies prefer to terminate fraudsters rather than to
prosecute them to avoid negative publicity ”“ so doing background checks
on staff isn’t enough to suss out the bad apples. In one notorious
case, a CFO defrauded a succession of seven U.S. companies before a
company finally laid criminal charges, says Gary Butler, director of
the centre for financial services at Toronto-based Seneca College.
“Companies were embarrassed they’d hired this guy so they fired him ”“
but his employment contracts called for him to get letters of reference
on termination. These fraudsters often get the opportunity to move on
to new companies and do it all over again. Under-reporting is a huge
problem in the industry. And in Canada, privacy laws prevent disclosure
of personal information, which can open the door to more fraud.”
As a consequence, organizations are increasingly concerned to have the
right in-house expertise to root out fraud schemes before they escalate
into full-blown fiascos such as Enron, Worldcom and Bre-X. And
legislation such as Sarbanes-Oxley and Bill C-198, which holds senior
management more accountable for their organizations’ financial
workings, is spurring changes in corporate culture. “CEOs are being
more pro-active about ensuring no fraud is happening, and this means
they need staff who are looking for it,” says Musters.
Organizations seek anti-fraud troops
As a result of this confluence of forces, demand for the Certified
Fraud Examiner (CFE) designation provided by the ACFE is growing, says
“Every time there’s a major fraud case in the news, senior managers
grow more concerned to have adequate resources on hand, and they reach
out to institutions like ours,” he says. “Organizations are crying out
for more resources.”
Corporate CFEs are qualified to take on a range of fraud-busting
responsibilities. They’re typically responsible for identifying
enterprise risks, finding methods to detect fraud, developing audit
tests and investigating fraud cases with the proper methodology, says
Bob Davies, CFE instructor and program coordinator at Seneca. “The code
of conduct calls for us to be brutally objective, as it could be anyone
in the organization perpetrating fraud ”“ look at Conrad Black,” he says.
In-house CFEs have a symbiotic relationship with external consultants,
says Musters. “They have a good understanding about how to look for
potential fraud, and once they suspect or find it, they call in
accounting or computer experts to confirm it and help build a case.”
CFEs also help prepare the case for police investigations, says Davies.
“Only a small number of fraud cases are prosecuted. Unfortunately, the
police often don’t have sufficient resources to handle these cases.”
But he explains a case that’s well-prepared by a CFE doesn’t
necessarily increase its chances of being prosecuted. “Crown attorneys
decide whether to go forward if it’s a significant case that will
generate a public forum. If they do, they’ll subpoena the evidence
found, so the chain of custody needs to be maintained.”
The CFE designation also qualifies an individual to act as an expert
witness in court, he says. “This means CFEs can offer opinion evidence,
as distinct from fact evidence, and educate the court about the issues
under consideration. For example, instead of just testifying they saw
Smith do something, they can say, ”˜I found Smith’s transaction unusual,
and based on my experience, I can’t find any logical business reason
Last but definitely not least, the CFE designation offers many
career-boosting benefits to corporate security, internal audit, and
other staff, says Butler. “There’s a 30 per cent mark-up for people with
the certification, according to the ACFE’s salary survey. Organizations
everywhere need diligent people looking over their transactions
internally, so your chances of getting a good job with an excellent
salary are better.”
Musters adds there’s no relationship between the increase in demand for
CFEs and avoidance by organizations in reporting fraud to authorities.
“It’s typically the CEO’s call to report or deal with it internally,
and the CFE does the same job in any case.”
Path to CFE certification
Seneca is the only educational institution in Canada to offer the CFE
Exam Review course, which provides the training needed to write the
ACFE’s exam and obtain certification, says Butler. About 100 people
with backgrounds in corporate security, internal audit, loss prevention
and law enforcement have taken the course since Seneca started offering
it in 2006.
Seneca has exclusive rights with the ACFE to offer the CFE course in
Ontario, but people across Canada attend the course, says Butler.
“There are other institutions that offer the course in Chicago and New
York, but these are structured as five-week courses, with four hours
class-time weekly. We offer a compressed two-day version of the course
that delivers the 20 hours of instruction over a weekend at our Markham
campus to minimize travel, and we also provide it on-site if an
individual company has sufficient numbers.”
Seneca’s CFE exam preparation course is offered every two months, and
its $1,395 fee covers off all materials and costs associated with taking
the course, the final CFE examination and obtaining the certification.
But the actual certification is granted by the board of regents at the
ACFE, not Seneca College, explains Davies.
The course covers off the four main bodies of knowledge required by the
ACFE. The criminology and ethics section helps participants understand
the drivers and rationales in fraud. The investigation section delves
into interviewing techniques and how investigations should be
conducted. The legal section looks at the structure of the Canadian
legal system, and how to collect and disclose evidence. The financial
statements section explains their basic underlying accounting
principles, and the types of fraud committed via intentional
misstatements and omissions.
The exam preparation course is only one component of the certification
process, says Davies. Participants must file an application for
certification with the ACFE which includes two passport photos and
three letters of recommendation attesting they have at least two years’
experience in the fraud detection industry.
The course provides four practice exams for each body of knowledge, and
students must complete all 1,500 questions before receiving the online
key that enables them to take the final ACFE online exam, which
typically takes about 10 hours to complete.
If they pass the exam, Seneca submits the participant’s CFE
application, supporting documentation and exam results to the ACFE’s
board of regents, who make the final determination to provide
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