Who Commits Fraud?

The latest Report to the Nations on Occupational Fraud and Abuse compiled demographic information on more than 1,400 fraudsters. The findings indicate that the majority of occupational frauds (78%) were committed by staff at the managerial or employee level. But, not surprisingly, the frauds committed by owners and executives had the highest median loss ($500,000).

Some 7% of the fraudsters were in their first year on the job, and 53% had been with their organizations for more than five years. The longer the fraudster was with the company, the larger the losses typically were. Similarly, 52% of perpetrators were ages 31–45, but older fraudsters tended to cause larger losses. These figures coincide with the finding that greater losses are associated with fraudsters with higher levels of authority — and, in turn, more opportunity to commit costly fraud schemes.

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$35M GI Bill fraud tied to N.J. university, feds say

By Tim Darragh | NJ Advance Media for NJ.com 
on April 22, 2016 at 8:30 AM, updated April 22, 2016 at 8:34 AM

NEWARK — A Pennsylvania man who allegedly schemed with former officials at Caldwell University was charged Thursday with plotting to defraud a program that funded the education of veterans who served in the armed forces following the Sept. 11, 2001 terrorist attacks.

According to a criminal complaint, the fraud involved tricking veterans into thinking they had enrolled in accredited university classes when they actually were taking courses developed and taught by an online correspondence school.

Continue reading at www.nj.com.

Fraud Risks, Methods Differ for Small Businesses

By Mike Rosten, Special to the Las Vegas Business Press:  Year after year, the Association of Certified Fraud Examiners reports that small businesses, those with fewer than 100 employees, are victimized by fraud more often than larger companies. The association’s 2014 Report to the Nations states, “Small businesses are both disproportionately victimized by fraud and notably under-protected by anti-fraud controls, a combination that makes them significantly vulnerable to this threat.

”The association also says median losses for small businesses are at $154,000 per case reported, which isn’t much less than the $160,000 median loss for large entities (more than 10,000 employees). But when the losses are calculated as a percentage of revenue, their overall financial impact is much greater to small businesses.

Small businesses often have one employee who covers multiple job duties, to save money or because one job responsibility may not justify the expense of hiring a full-time person. This can invite trouble.

For example, in 2014 a former office manager for an electrical company in Oklahoma City was sentenced to 27 months in prison and required to pay back about $308,000 stolen through forgery and signing false tax returns. This office manager was responsible for paying the company’s bills, depositing checks into the company bank account, and maintaining the company’s books and records. As a trusted employee in a small company, the individual was given multiple job responsibilities and left alone without significant supervision, which created an opportunity for fraud.

Besides the disproportionate financial of effect fraud, small-business owners also face different sort of risk than their larger counterparts. The association says check tampering occurred in 22 percent of the small-business cases they reviewed compared with 7 percent of cases in larger companies. Also, payroll and cash schemes occurred twice as often in small businesses as larger organizations.Armed with this information, small-business owners should consider implementing these anti-fraud controls:

Add an anonymous fraud hotline: Tips are by far the most common detection method, and employees account for almost half of the tips that uncovered the fraud cited in the association’s report. Make it easy for employees to report any red flags they might see.

Add additional employees. Put them in areas such as accounting, operations and sales – departments where fraud is most often committed. Divide duties: Require a different person to issue and sign checks or require two signatures per check.

Implement surprise audits: Conduct them regularly if adding an additional employee is not a possibility.

Mandate vacation time for employees. Employees who are unwilling to skip a day of work may be hiding something.

According to the Small Business Administration, small businesses make up 99.7 percent of employers in the United States. Unfortunately, the many small businesses that contribute positively to Southern Nevada’s employment and economy are disproportionately at risk for losing money because of employee fraud.

Even with the above-listed internal controls listed in place, there is still a risk for fraud. If an organization suspects an employee is stealing, a professional certified fraud examiner can be hired to investigate the financial records to assess the loss and suggest ways to tighten internal controls to prevent a recurrence.

Michael L. Rosten, a CPA and certified fraud examiner, directs the forensic accounting and litigation services at Piercy Bowler Taylor &Kern, which includes fraud investigations. He can be reached at mrosten@pbtk.com.

States Have a Great New Weapon Against Fraud: Big Data

By Jeffrey Stinson,

Stateline

November 20, 2014

Indiana began a big crackdown on identity crooks this year and the results are startling: The state has saved Hoosier taxpayers $85 million so far by not paying out bogus tax refunds. The savings come from using research firm LexisNexis’ giant database to verify the identities on state income tax returns. By spotting false or stolen identities, the state can determine which returns are concocted and block the fake refunds.

The Indiana Department of Revenue’s identity-matching effort is indicative of the types of data-driven programs most states have undertaken to combat an exploding number of sham tax refund filings, false Medicaid and unemployment claims and public assistance fraud that can cost taxpayers billions of dollars.

Related: How Big Data Can Stop Traffic Jams and More

Indiana’s results are proof that using data has a payoff. And they provide a tantalizing glimpse of the cost-savings states could get from applying a government-wide “big data” approach to combatting the fraudulent claims states face in an Internet age when identity theft is rampant. Indiana spotted 74,782 returns filed with stolen or manufactured identities as of the end of last month with its new identity-matching effort. Without it, the Department of Revenue caught just 1,500 cases of identity theft out of more than 3 million returns filed in all of 2013.

– See more at: http://www.thefiscaltimes.com/2014/11/20/States-Have-Great-New-Weapon-Against-Fraud-Big-Data#sthash.NEKYiF4g.dpuf

Whistleblower who got $6 million still on lookout for fraud

Arizona Daily Star: The Tucson woman who earned nearly $6 million as the whistleblower who uncovered overbilling at the Carondelet Health Network is launching her own effort to prevent health-care fraud.

“Providers are turning their heads, not wanting to hear about fraud, waste and abuse,” Jacqueline Nash Bloink said in an interview last week.

Continue reading at the Arizona Daily Star.

Certified Public Accountant and Certified Fraud Examiner Mike Rosten also used to go by another title: Private Investigator.  In some states, s are required to also become credentialed as a private investigator in order to perform  investigative work, so Rosten became licensed in the State of Texas in approximately 2000, a few years before moving to Las Vegas. The additional licensing and training as a private investigator has proved useful to Rosten during his 17-year career as a forensic accountant.

Magnifying glass

Both private investigators and fraud examiners must pay close attention to detail as they sort through mountains of data to identify documents and other information that is considered credible. Such information, whether incriminating or vindicating, will be useful to the courts, management, law enforcement or other users.  They also must perform background checks and follow the trail of a possible perpetrator. However, the fraud examiner operates in the business world and applies those same investigative skills primarily to financial data and associated records, whether to commercial disputes involving breach of contract, breach of fiduciary duty, alter ego considerations, etc., or to domestic disputes.

Rosten recently answered a few questions about his work as a private investigator.

Mike Rosten

Mike Rosten, CPA, CFE

 

What influenced you to become an accountant and certified fraud examiner?

I like to make order from the chaos that often is inherent with tracking down fraud. Substantive analysis of documents, background investigation, and sifting through details can seem tedious to some but I find it very rewarding and worth the effort when we find the piece of evidence that completes the puzzle.

 

How long were you a Private Eye in Texas?                

About four years. I didn’t keep up the designation once I moved to Nevada, but the investigative mind set remains the same.  CPAs in Nevada are exempt from private investigator licensing.

 

Were there any particularly interesting cases that you worked on?

A few assignments stand out in retrospect:Pursuant to a court-order, I was retained to determine amounts due between two Texas-based construction companies with interlocking boards of directors and ownership interests.  After combing through detailed accounting records, we issued a lengthy report stating our findings and conclusions.  That work product allowed counsel for the parties to fully resolve the dispute.

Another interesting case involved covert surveillance at a nightclub that paid rent, potentially based on a percentage of their business. The landlord suspected they were not reporting their true revenue in order to pay less in rent, so this assignment included physical observation procedures to document the number of patrons and corresponding cover-charges collected each night.  This was supplemented by daily deposit analyses from cash register close-out paperwork and funds tracing among bank accounts, including a variety of separate bank accounts established to process differing credit cards.

In a classic private investigator job, I was hired to investigate a personal injury and business lost profits from an alleged automobile accident. Using financial analysis and independent investigative techniques, it was determined that alleged losses were inflated through the shifting of business transactions among related multi-national businesses, which involved an overseas manufacturing plant. 

 

How did being a private investigator make you a better fraud examiner?

As a former private investigator, I bring a robust investigative mentality to forensic accounting and fraud investigation assignments starting with the background research stage of cases. This research has allowed me to be more effective in conducting investigations.   It also helped me learn to detect behavioral clues in potential fraudsters – there are often visual and verbal red flags that can help uncover an employee’s illegal behavior. My time as a private investigator was memorable and helpful in my overall career – in fact, I still carry my ID card (inactive) in my wallet as a reminder of the type of work I am doing every day.

Bloomberg: Early Tap of 401(k) Replaces Homes as American Piggy Bank

Premature withdrawals from retirement accounts have become America’s new piggy bank, cracked open in record amounts during lean times by people like Cindy Cromie, who needed the money to rent a U-Haul and start a new life.

Her employer, the University of Pittsburgh Medical Center, had outsourced Cromie’s medical transcription work. Cromie said the move cut her income by as much as 60 percent, at times leaving her with minimum-wage pay.

So, last year, at age 56, she moved about 90 miles from her home in Edinboro, Pennsylvania, into her mother’s basement. To make ends meet as she moved and then quit the job, Cromie pulled out $2,767 from her retirement savings.

Continue reading at Bloomberg: http://www.bloomberg.com/news/2014-05-06/early-tap-of-401-k-replaces-homes-as-american-piggy-bank.html