Tag Archives: fraud waste and abuse

Getting Out of Your Own Way

One of the most frequently requested topics for ACFE lead instruction concerns the art of fraud interviewing, one of the most complex and crucial disciplines of the many comprising the fraud examination process. And at the heart of the interviewing process lies communication. As we all know, communication is the process of effectively sending and receiving information, thoughts, and feelings. First and foremost, an effective interviewer is an effective communicator and being an effective communicator depends on building rapport. According to the ACFE, if you don’t establish rapport with a subject at the outset of the fraud interview, the possibilities of your spotting anything are very low. Rapport is the establishment of a connection between two individuals that is based on some level of trust and a belief in a relationship that is mutually beneficial to both parties.

The interviewer who thinks s/he will find a cooperative subject without making a connection with that individual is in for a disappointment. Rapport is determined by our attitude toward the subject. Just as we as interviewers use our powers of perception to “read” the subject, the subject reads us as well. If s/he senses condemnation, superiority, hostility, or deceit, you can expect little but superficial cooperation from any interaction. Besides, above all else, as the experts tell us, we are professionals. As professionals, personal judgments have no place in an interview setting. Our job is to gather information empirically, objectively, and without prejudice towards our subjects. Why do we identify with and speak more freely to some people? We are naturally drawn to those with whom we share similar characteristics and identities. Techniques and tools are important, but only to the extent that they complement our attitude toward the interview process. So, effective communication is not what we do – it’s who we are.

And along with rapport, the analysis of the quality of the interaction between both interview participants is critical to the communication process. An interview is a structured session, ideally between one interviewer and one subject, during which the interviewer seeks to obtain information from a subject about a particular matter. And just as we signal each other with voice pitch and body language patterns when we’re sad, angry, delighted, or bored, we also display distinct patterns when trying to deceive each other. Fortunately for those of us who interview others as part of our profession, if we learn to recognize these patterns, our jobs are made much simpler. Of course there is no single behavior pattern one can point to and say “Aha! This person is being deceptive!” What the professional can point to is change in behavior. Should a subject begin showing signs of stress as our questions angle in a certain direction, for example, we know we have hit an area of sensitivity that probably requires further exploration. If you interview people regularly, you probably already know that it is more likely for a subject to omit part of the story than actually lie to you. Omission is a much more innocuous form of deceit and causes less anxiety than fabricating a falsehood. So even more importantly than recognizing behavior associated with lying, the interviewer must fine tune her skills to also spot concealment patterns.

ACFE experts tell us that each party to a fraud interview may assume that they understand what the other person is conveying. However, the way we communicate and gather information is based in part on which of our senses is dominant. The three dominant senses, sight, hearing, and touch influence our perceptions and expressions more than most realize. A sight dominant subject may “see” what you are saying and tell you he wants to “clear” things up. An auditory dominant person may “hear” what your point is and respond that it “sounds” good to him. A touch dominant person may have a “grasp” of what you are trying to convey, but “feel uncomfortable” about discussing it further.

By analyzing a subject’s use of words, an interviewer can identify his or her dominant sense and choose her words to match. This helps strengthen the rapport between interviewer and subject, increasing the chances of a good flow of information. Essential, of course, to analyzing and identifying a subject’s dominant senses are good listening skills. Effective communication requires empathetic listening by the interviewer. Empathetic listening and analysis of the subject’s verbal and nonverbal communication allows us to both hear and see what the other person is attempting to communicate. It is the information that is not provided and that is concealed, that is most critical to our professional efforts.

By developing your listening abilities, practicing them with others with whom you communicate every day, the vast array and inexhaustible variations of the human vocabulary are bound to strike you. The most effective way to communicate is with clear, concise sentences that create no questions. However, the words we choose to use, and the way that we say them, are limited only by what is important to us. A subject, reluctant or cooperative, will speak volumes with what they say, and even more significantly, what they don’t say. Analysis of the latter often reveals more than the information the subject actually relates. For instance, the omission of personal pronouns could mean unwillingness on the part of the subject to identify himself with the action.

One final note of caution. If you ask the experts about the biggest impediment to an effective interview, they will probably give you a surprising answer. Most experienced interviewers will tell you that often the greatest impediment to a successful interview is the interviewer. Most interviewers use all of their energies observing and evaluating the subject’s responses without realizing how their own actions and attitudes can contaminate an interview. In fact, it is virtually impossible to conduct an interview without contaminating it to some extent. Every word used, the phrasing of a question, tone, body language, attire, the setting – all send signals to the subject. The effective interviewer, however, has learned to contaminate as little as possible. By retaining an objective demeanor, by asking questions which reveal little about what s/he already knows, by choosing a private setting and interviewing one subject at a time, s/he keeps the integrity of the interview intact to the best of her ability.

The Masquerade – There Will Be Fraud

west_indian_day_carnival“We are honored to have this guest post from our Richmond Chapter member, Rumbi Bwerinofa, CPA/CFF. Rumbi is a Director of the Queens/Brooklyn Chapter of the New York State Society of CPAs and a member of the NYSSCPA Litigation Services Committee. She is the editor of TheFStudent.com, where she discusses financial forensic issues.”

My husband is working on a photographic project, documenting the New York City West Indian-American Day Carnival. This Carnival, also called the Labor Day Parade, is, arguably, the largest parade, street fair or festival in North America, with estimates of between one and three million people attending the festivities. It certainly is the biggest cultural event of the year. With thousands of participants involved in being parts of parading groups, bands and floats, preparations for the Carnival begin months in advance of the big day. Last Friday my husband invited me to attend a Mas Camp with him. I went along, completely clueless about what a Mas Camp is and what happens when people go to a Mas Camp. It was a great opportunity to tag along and get a sense of what he has been doing. Plus, I love Caribbean cuisine and he had promised dinner.

I learned that the parade is made up of floats surrounded by teams of costumed revelers that are known as masqueraders. The floats and masqueraders are dressed and decorated according to a theme and together they form a masquerade band, or mas band. In the months before Carnival, the band leaders set up a mas camp where people can sign up to be part of the mas band and order costumes. As I walked around the couple of mas camps that I visited, I saw various masquerade costumes on display with prices disclosed on signs close by. In addition to time and effort, people invest a substantial amount of money into their costumes and being a part of a mas band. Costumes run into the hundreds and, for some, thousands of dollars. For that kind of money, the revelers expect to receive a well-made costume that looks like the advertised version that they ordered and to be a part of a band that parades down Eastern Parkway in this celebration of Caribbean history and culture. But, where there is money, there will be fraud.

As I marveled at the themes, costumes and their prices, I noticed a yellow sign hanging on the entrance to the mas camp, which was a store front. The man giving us the tour of the mas camp explained that it was their certificate. The West Indian-American Caribbean Day Association (WIADCA) organizes and holds the Carnival. Mas band leaders attend meetings called by WIADCA and police precincts where they are told the rules and regulations of the parade, in order to preserve the spirit and safety of the parade. Mas bands are registered with WIADCA and issued certificates that they must hang in a visible location. This is so that, before anyone spends money at mas camp, they can check to make sure they are with a valid mas band and not a scam out to take their money and run. The certification gives assurance that the mas band will meet certain standards, will produce their costume and will be there on Labor Day morning for the march up Eastern Parkway. People can check with WIADCA, who keeps a register of all certified mas bands and they can also take complaints to WIADCA who in turn can discipline or decertify mas bands that do not abide by the rules and regulations.

This is the way it works with CPAs and credentialed forensic accountants. When a person seeks the services of a qualified professional, getting their word or seeing a lot of framed certificates is all well and good, but it must all be backed up by something that can be verified. The professional bodies that govern these credentials have a code of conduct and professional standards that forensic accountants must abide by. The bodies also have coursework and testing that must be taken to attain and maintain the credential. These professional designations also have continuing education requirements to help ensure that a person holding a particular credential is up to date on the knowledge and experience required by the designation. You know how, on television, cops knock on someone’s door and flash their badges and how, sometimes, a person yells, “I want your badge number”? Well, the same goes for credentialed forensic accountant. Whether that forensic accountant is Certified in Financial Forensics (CFF), a Certified Fraud Examiner (CFE) or holds a different forensic specialization, that credential will have its own unique number that has been issued by the governing authority. This means that if someone claims to be a CFE, you can verify their information with the Association of Certified Fraud Examiners and confirm that they are accredited and that their credential is currently active. If you cannot independently verify their qualifications, then you shouldn’t trust them with your money or with investigating any financial forensic matter.

There are several advantages to working with a credentialed forensic accountant:

  • You can consult the standards and areas of expertise covered by the credentialing body and find out what body of knowledge your forensic specialist possesses. In this way you can focus on retaining the services of the right type of expert.
  • Should your expert provide substandard services, you can take your complaints to the credentialing body, which will investigate and resolve your issue.
  • Knowing that they could face disciplinary action, including suspension or revocation of their credential, is an incentive for the certified forensic accountant to behave in an ethical and professional manner, per the rules and regulations of their credential issuing body.
  • If you have a matter that ends up in court, having an expert witness who holds credentials that are pertinent to the matter at hand tends to hold weight with the judge and jury and lend more credibility to the testimony of the expert. I mean, when receiving a diagnosis, who would you trust – a doctor or someone who watches a lot of medical shows?

So, be it dancing and celebrating as a masquerader at Carnival or having a financial forensic matter investigated, don’t you want to be sure you are placing your investment and trust in the right hands?

Setting Up the Client Data Mine to Screen Out Fraud, Waste and Abuse

The process of developing a data warehouse of client information is a critical first step in the data mapping and data mining effort that has proved a challenge for fraud examiners and auditors setting out to utilize these tools for the first time.  Consider what we’d need if we were thinking about taking a vacation involving a long road trip.  First, we’d need some kind of vehicle to drive; we can’t really determine what kind of vehicle we need until we know how many people will be going with us (entities about which we’ll be storing information).   Then we’re going to need a roadmap (the data) to guide our trip.  We also need to be prepared for unforeseen events (data anomalies) along the way that don’t appear on the map.  Then, once we arrive at each of the various milestones along the way, we take in information from that stage of the journey and re-evaluate our route…it’s an on-going process.

So we can think of the implementation of a data mapping and data mining effort for fraud examination as an on-going process built on a foundation of operational or managerial auditing procedures; the process involves defining the data elements to be gathered, the collection of the data, the design of the tables and decision trees in which the data will be stored and processed by queries, and the on-going surveillance of the data.  The pre-condition here is that the data flows continuously as in health care, billing or quarterly updated financial applications.

Once a warehouse had been appropriately mapped and data mining activated, the ongoing activity is surveillance.  This is where auditor judgment proves critical.  Finding patterns in the on-going flow of data indicative of the presence of scenarios linked to fraud, waste and abuse is a skill which can be developed only over time and through experience with what “normal” data for the entity under surveillance should look like… how, in the company environment, should normal data look and what makes this data look “abnormal”?

This analysis is not a one-time event but an ongoing, constantly evolving tool for efficiently obtaining the intelligence to identify fraud and then alter controls to prevent such transactions from being processed in the future.  We’re not looking to recoup the losses from identified past fraud scenarios (pay and chase) so much as we’re looking to adjust our systems and controls through edits to prevent the data associated with such scenarios from even being processed in the future.

Simply put, we need to identify the anomalous output and study the hidden patterns associated with each anomaly; document the sequence of events leading to the offense; identify potential perpetrators; document the loss; and finally, adjust system edits so that the  processing pattern associated with the fraud does not recur.