New E&Y Survey: 1 in 5 Employees in EMEIA Aware of Financial Manipulation in Last Year

AUTHOR’S POST

Mandy Moody, CFE
ACFE Social Media Specialist

Many surveys, numbers and stats make their way into my email every day, but a recent report left me speechless. Ernst & Young released the results of a fraud survey that found that one out of every five employees in EMEIA (Europe, Middle East, India and Africa) were aware of financial manipulation in their company in the last 12 months. Add to that, 57 percent believe bribery and corruption are widespread in their country.

For those of us in the anti-fraud profession these numbers may be shocking, but they aren’t surprising. We read and hear every hour about a new fraud perpetrated, caught or prevented. But, as the number of cases grow, so do the number of convictions, arrests and frauds thwarted.

Just as fraud isn’t isolated to a specific culture or country, neither is fraud prevention and detection. There is one aspect of the upcoming 24th Annual ACFE Global Fraud Conference that I am truly proud of. While it is being held in Las Vegas and many of the attendees are from North America, we also welcome anti-fraud professionals and speakers from more than 60 countries around the world.

For those of you coming to Las Vegas next month, here are a few events to look for if you are traveling from another country:

• The Opening Ceremony includes an impressive procession of flags for countries represented at this year's event. Each flag is carried by an attendee from that country.
• First-Ever International Attendee Reception: Held Sunday, June 23, 7- 9 p.m. in conjunction with the Welcome Reception, this inaugural reception gives you an exclusive opportunity to connect with other anti-fraud professionals from your region and beyond.
• Breakout sessions dedicated to addressing global fraud challenges.
• International Chapter Representative Meeting: Leaders from the international ACFE chapters are invited to a special gathering to exchange ideas on chapter development and growth, and review common goals shared by the ACFE.

Find more information and the full Conference Agenda at FraudConference.com.

The Most Common Multi-scheme Fraud Cases

GUEST BLOGGER

John Warren, J.D., CFE
ACFE Vice President and General Counsel

Readers of the ACFE’s 2012 Report to the Nations are probably familiar with the statistics we compile on the frequency and cost of the 11 most common occupational fraud schemes: financial statement fraud, corruption, billing schemes, expense reimbursements, check tampering, payroll fraud, cash register disbursements, skimming, cash larceny, theft of cash on hand and non-cash misappropriations. But one thing that probably does not receive enough attention in our study is how fraudsters tend to commit multiple forms of fraud within a single case. For instance, an employee who is committing a billing scheme may also be involved in payroll fraud, check tampering, corruption or some other form of misconduct. 

We looked at the data from our last two Reports to see how often fraudsters engaged in multi-scheme crimes, and we found that the results were very similar for the two data sets. In 2010, 40 percent of frauds involved multiple schemes, while in 2012 the number was 43 percent. Furthermore, the distribution of cases involving two schemes, three schemes or more than three schemes was remarkably consistent.  

Based on the data shown above, it appears that we can expect around 40-43 percent of occupational frauds to involve multiple schemes. If that is the case, then how can we make use of this information to improve our ability to detect multi-scheme frauds?  The first thing we would like to know is whether certain types of schemes tend to be associated with one another.  For instance, if we know that people who commit payroll fraud are likely to also commit billing fraud but not as likely to engage in the theft of non-cash assets, then that can help us focus our examinations on the most likely areas of risk. 

In the table below we have presented the three most common companion schemes for each of the 11 occupational fraud categories. (This data is based on cases from our 2012 study). For example, in the first row we can see that 49.5 percent of fraudsters who committed financial statement fraud were also involved in some form of corruption; 25.7 percent were misappropriating non-cash assets; and 21.9 percent were involved in a billing scheme. 

The bottom line is, whenever you uncover fraud committed by an employee, manager or executive, there is a very good chance that the fraudster’s misconduct extends beyond the first scheme you identify. CFEs should keep the data shown here in mind during their examinations and run appropriate tests and reviews to identify all forms of fraud that a perpetrator may be committing.  

Closing the Gaps in China’s Laws and Regulations

INTERVIEW WITH LEO F. GOODSTADT, CBE, JP

Former Head of Hong Kong's Central Policy Unit, author and research fellow of the Hong Kong Institute for Monetary Research; keynote speaker at the 2012 ACFE Asia-Pacific Fraud Conference, 4-6 November in Hong Kong

You plan to speak on China’s dysfunctional banking system and its need for reform despite years of attempts. What role do anti-fraud professionals play in changing that trend?

The progress of banking and financial reforms in China has been repeatedly undermined by problems of law enforcement. So much of banking is based on trust, and its products are mostly book entries – computer transfers from one account to another – that fraud is a constant danger. This threat is best controlled when governments have effective, proactive regulatory and supervisory systems. Fraud thrives when banks, their owners and executives ignore the need to avoid illegal and improper behaviour. Before the switch from central planning and total state control over every aspect of life in the late 1970s, the Chinese banking industry had been simply the government’s paymaster and bookkeeper, as well as offering a safe savings bank to the nation’s citizens. Over the last 35 years, the leaders of the banking industry have been struggling to build, virtually from scratch, the legal systems, the regulatory infrastructure and the banking professionals needed by a national economy which has become the second largest in the world. Wherever a gap still remains in the law or the regulatory apparatus, the door remains ajar for the fraudster; and the temptations are large. The risk of detection is limited by defects in legislation, supervision and management. You see this in the way the nation’s leaders regularly complain in public.

What is unique about the group of fraud-fighters you will address in Hong Kong?

Hong Kong’s record in eliminating malpractice in business and government is extraordinary. In the late 1960s, it introduced some of the most draconian legislation in the world against misconduct by business executives and officials in order to stamp out corruption. In 1974, the battle was won almost overnight when the community made plain that it would accept nothing less than zero tolerance of all dishonest and corrupt practices in the public sector. Quite soon, the same standard was applied to the private business world. Thus fraud fighters have a great advantage in Hong Kong in that they have total community and government support. The Independent Commission Against Corruption ensures that law enforcement agencies are open to investigation if they are suspected of engaging in corrupt conspiracies to conceal fraud. Hong Kong’s increasing importance as the international financial centre meeting China’s needs and matching New York and London in its standards means that the professional and supporting services for business expect to comply with world-best practices when it comes to due diligence, compliance and accounting procedures.  

What do you most hope attendees will take away from your address?

The basic message of my presentation is the determination of China’s leaders to create a modern, competitive and stable banking system, free from fraud and corruption, no matter how long it takes to overcome the obstacles. The goal is to achieve the integrity and efficiency the public expects to be able to take for granted from its bankers. But the banks cannot escape from the constraints that the rest of the economy and society in general face. Throughout the reform decades, it is encouraging that China’s central bankers and regulatory officials have consistently drawn public attention to the financial system’s failings and never sought to create a false sense of security among the Chinese people.

Read more about Professor Goodstadt and the other keynote speakers at this year’s ACFE Asia-Pacific Fraud Conference.