Exposing Fraud

IAN ROSS MS, CFE, CICA, IAiP, is Regional Director: GIF Consultora, Full Associate of the International Academy of Investigative Psychology and an Accredited Expert Witness. He is a highly respected global trainer specialising in financial fraud, investigative interviewing skills, money laundering and corporate corruption.

Preface xiii Foreword by James Rately xv About the Author xvii Acknowledgements xix Structure and Method of the Book xxi Opening Thoughts xxi Approaching Counter ]Fraud Work xxii Chapter Specifics xxii Finally xxiii 1. Cutting through the Maze 1 Introduction 1 1.1 What is Fraud? The Most Debated Question 2 Perceptions and representations of fraud 4 Definitions, key distinctions and informing elements 6 The mens rea of Fraud 6 Misrepresentation. Practicalities 7 Conveying the misrepresentation 7 Definition of fiduciary duty 8 1.2 Other Distinctions 9 Intent 9 The difference between misrepresentation and a hoax 10 1.3 Lying, Fraud and the State of the Mind 10 Lying and the problem with words 11 Ethnicity misunderstood: the chasm between belief and actual criminal deception 13 1.4 Cutting through the MAZE 14 The Three Cs 14 1.5 Distinguishing and Overlapping: Fraud and Money Laundering 17 Money laundering: the mens rea 19 Politically Exposed Persons - a reference 22 Trade ]based money laundering 23 1.6 Now Adding Corruption Linking to Fraud 25 Key distinctions (fraud and corruption) 25 Coercive practices 27 Collusive practices 27 1.7 Legislation Summary 27 Definitions: Comparatives 28 Africa - Middle East - Malaysia - South Africa 28 Sharia law 29 The role of Sharia principles regarding the choice of governing law 30 Insurance and the law: a special mention 31 The United Kingdom Fraud Act 2006 33 Bribery Act 2010 (UK) 34 United States - Definition of Fraud 35 Foreign Corrupt Practices Act 1977 (FCPA) 36 Sarbanes-Oxley Act (USA) 36 Dodd-Frank (USA) 36 Other Fraud Related Legislation 37 1.8 Evidence 37 Evidence - law in itself. Not a free for all game to ensure prosecution 37 Basic Principles of Evidence for Fraud Investigators 38 Format 38 Evidential sources, classification and practicalities 38 Evidence (definition) 38 Burden of Proof: Criminal 39 Burden of Proof: Civil 40 Criminal Evidence 40 Direct 40 Primary and secondary 41 Circumstantial 41 Hearsay 42 Forensic 42 Other fraud ]relevant incidental evidence 44 Electronic (digital) evidence 44 Volatile Data 44 Witness Testimony 45 Whistle blowing - witnesses nonetheless. 50 Whistle ]blower Retaliation and Criminal Charges 50 Expert Witnesses. Who are they? 50 Accreditation and representation 51 Chapter Summary 53 2. Concepts and Dynamics of Fraud 55 Introduction 55 2.1 Costs of Fraud - Including the Hidden Ones We Don t Like to Mention 56 2.2 It is Not Enough to Know What Fraud is - Know Your Business! 59 2.3 The Varying Psychologies of Fraud 65 Why fraud is unique as a crime 65 Victims and victimhood (in fraud) 65 A cluster of informative dogmata to help to advance conceptual thought of fraud and fraud offenders 68 Important Distinction 68 Two distinctly different approaches to fraud offending 68 Narcissist leadership and inevitable Fraud 70 Impulsive fraud 70 Impulsive Decision Making and Working Memory 72 Systemic fraud 73 The Difference between Fraud and Mistake, Under the False Claims Act 76 Organised fraud? 77 Fraud offender profiling 79 Profiling: where it lies in fraud 79 Profile differences between theft and fraud offenders 81 Why do good people do bad things? 82 Predictive modelling? 84 2.4 Contexts, and Leading to Cross ]Activities of Fraud 85 Golden Rule: Follow the behaviour, not just the type of fraud 85 Financial Fraud - corporate contexts and entities 86 Business Assets 86 Intangible Assets and Intellectual Property Theft 86 Intellectual Property Theft 87 Trade Secret Theft and Corporate Espionage 88 Financial Statements 90 Beneish Model 95 Accounting 96 Other Fraud Attacks against Banks 101 Shell Companies 102 Ghost Employees 103 Inventory Shrinkage 104 Fraudulent Conveyancing 104 Procurement - a mains scenario reconciling fraud and corruption 105 Procurement - Fraud Definitions: Recap 106 Healthcare 112 Other instances of Healthcare fraud 113 Insurance 115 Telecom fraud 117 Revenue Share Fraud 118 Subscription Fraud 119 Premium Rate Service Fraud 119 Interconnect Fraud 119 Interconnect bypass - also known as GSM Gateway or SIM Box fraud 120 Prepaid Fraud 121 Fraud Directly Funding Terrorism 121 Cyberterrorism 125 Stand ]alone or peculiar fraud cases of note 126 2.5 Cybercrime and Fraud 129 Cybercrime: A new presence of fraud in the 21st century 129 Hacking 129 Alerts and triggers and Big Data 131 Phishing and Internet fraud 132 List of phishing activities 134 Bitcoin and cloud currency: Vulnerabilities 134 Social Networking as a Facilitator of Fraud 136 Privacy First: 136 How do online social communities work? 137 Victims becoming Fraudsters 138 Safety Culture 138 Preventative Measures: Practicalities Never give out your social security number 138 Fraud viz ]a ]viz Social Networking 139 Appendix to Chapter 2 Business Terminology 141 3. From fraud awareness to risk - a professional step 143 Introduction 143 Wake up Call - Impactive Case Study 144 3.1 Beyond the Definitions 147 Rational choice theory 147 The Fraud Triangle 147 Who Commits Fraud? 148 Risk assessing as opposed to investigation: The difference 148 Fraud Risk Assessment 148 Right to Audit Clauses 149 Pseudo ]stability 149 Handling intelligence. Handling information 150 4. Exposing Fraud: Fraud Investigation at Work 153 Introduction 153 4.1 What is an Investigation? 154 Investigation work: Is it really for you? 155 Comments on the questions in Self ]assessment 1: Investigation Notions 157 Comments on the questions in Self ]assessment 2: Avoiding Stereotyping 158 Do you think that there is a place for psychometric testing in our profession? 160 Keeping a Learning Log 160 Formats 161 About Roles (and job titles) 162 Auditors 162 Internal Control 164 Risk Managers 165 Journalists Informing Investigation 165 The psychological contract 166 4.2 Formalities and Investigation Goals 167 The Truth, but which version? 168 Versions of the Truth 169 How far do you go in an investigation? 169 4.3 Identifying the Essential Skill Set of the Fraud Investigator 170 Particular Talents and Skills 172 Where skill goes hand in hand with training 172 Advancing Skill: Lateral and Cognitive Thinking 177 Lateral Thinking Exercise (1) 180 Lateral Thinking Exercise (2). Fraud 180 Memory. The better half of intelligence 181 Memory Training 181 Observing Ethical Behaviour - not a rule, but a way of life! 182 Keeping an Investigations Log - a must! 183 4.4 Hands ]On 184 Respond - Do Not React 184 Knowing where to start 188 The capability list 189 Investigative Interviewing 190 The PEACE Model 190 SE3R - a tool of interviewing excellence 195 PEACE, SE3R and Identifying Unique Knowledge. 202 Resourcing 203 Scenarios 205 Unfamiliar cases 207 Catching the co ]accomplices as well! 209 Using IT to inform fraud investigations effectively 210 Data Analytics: Fraud 211 Data Mining 211 Data Analytics in Investigations 212 Associates and Mapping 212 4.5 Management of Investigations 213 Baselines of Investigation Planning 213 Receiving a case from someone else, or handing a case on 214 Managing a fraud investigation s caseload 215 Setting simple and clear team or organisational counter ]fraud efficiency 216 Team building skills are crucial to ensure effective investigations 217 Team Objectives of Fraud Investigation and Prevention 217 4.6 Assessing Your Skill Set 218 1 Appraising information 218 The Analytical Mind - Preparing Yourself 218 Appendix A: Sample response to Skill Assessment 224 4.7 Investigation Outcomes 226 Report Writing 226 Main Points of Note: 226 Avoiding bad duplicity 227 Structures and Formats 227 Content Not Form 227 How are reports read? 227 SAMPLE REPORT STRUCTURE 228 5. Training and Education 229 5.1 Training: What does it Mean to You? 229 Introduction 229 Academic Qualifications 230 In ]house training 230 Professional Accreditations: Fraud specific and collateral qualifications 230 5.2 Preparing Yourself for Exams 231 Multi ]choice exams 231 Multi ]choice questions - Specific Guidance 231 Essays 233 Typical Essay Questions ] Evaluation Format 233 Problem or scenario questions. The IDEA method 235 Final Summary 241 Bibliography 243