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©2015 Association of Certified Fraud Examiners, Inc.

WELCOME C-Suite’s Dirty Little Fraud Secret

Roger Darvall-Stevens, CFE

Partner, National Head of Forensic Services

RSM Bird Cameron

Presentation Subject Header

Connected for Success

C-Suite’s Dirty Little Fraud Secret

Presented at the 2015 ACFE Asia-Pacific Fraud Conference

Thursday 5 November 2015

By Roger Darvall-Stevens MBA MA CFE

Partner, National Head of Fraud & Forensic Services, Australia

RSM

Email: [email protected]

PH: +61 3 9286 8279 / +61 421 056 683


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About Your Presenter – Roger Darvall-Stevens

• Partner at RSM and National Head of Fraud & Forensic Services in

Australia

• Over 25 years forensics experience in forensic investigations,

accounting/fraud examination, and anti-fraud services to corporate

and government clients in all industries

• Licensed investigator in multiple locations across Australia and New

Zealand

• Former police detective (areas include fraud, counterterrorism)

• CFE and Regent Emeritus (board member on the ACFE global

Board 2012-2013)

• Melbourne Australia ACFE Chapter President

• Trained and practised in advanced interview techniques

• Presenter at international and local conferences/seminars and

author of many articles and publications

• Roger’s qualifications include: – Master of Business Administration (MBA), Master of Arts (Criminology) degrees

– Graduate Certificate in Fraud Investigation

– Bachelor of Arts degree majoring in police studies and sociology

• Prior to joining RSM, Roger’s previous experience includes: – Partner with a ‘big 4’ for 13 years in their global Fraud Investigation & Dispute Services team

– Investigations Manager for AAMI Insurance

– Corporate Security Investigator and trainer for Ford Motor Company of Australia Limited

– Policeman and detective for 12 years with the Victoria Police Force in Australia


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Agenda

• Who are the ‘C-Suite’ or ‘C-Level’?

• Acknowledgement of fraud and next steps

• What do the statistics say?

• Motivations

• Case studies

• What can be done?

• Questions?


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Fraud by CEOs, CFOs, and others in the ‘C-suite’

is a dirty little secret, which is rarely discussed but

happens with disturbing regularity.

It is one of those once in a lifetime events that

seems to happen regularly!


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Who are the ‘C-suite’ or ‘C-level’?

An organisation’s most trusted executives, usually beginning with

the letter “C” or “Chief,” including:

– Chief Executive Officer

– Chief Financial Officer

– Chief Information Officer

– Chief Risk Officer

– Chief Compliance Officer

– Chief Operating Officer

– Chief Human Resources Officer

– Chief Marketing Officer

– Chief Administrative Officer

– Chairman or owner


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Acknowledgement… Then What?

• Once it is acknowledged that fraud is committed on occasion by

the C-suite, the next step is to address what can be done to

mitigate the risk and provide confidence that blind trust should

never be and, is not, a control.

• Everyone should be accountable and subject to appropriate and

proportionate checks and balances.


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What do the statistics say about who commits

fraud and their motivations?


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What Do The Statistics Say?

The most recent survey from the Association of Certified Fraud Examiners

(ACFE) revealed that:

“The higher the perpetrator’s level of

authority, the greater fraud losses tend to

be. Owners/executives only accounted for

19% of all cases, but they caused a median

loss of $500,000. Employees, conversely

committed 42% of…frauds but only caused

a median loss of $75,000. Managers

ranked in the middle, committing 36% of

fraud with a median loss $130,000.”

[Source: Association of Certified Fraud Examiners (ACFE) 2014, Report To The Nations on

Occupational Fraud and Abuse: 2014 Global Fraud Study, USA]


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[Source: Association of Certified Fraud Examiners (ACFE) 2014, Report To The Nations on Occupational Fraud and Abuse:

2014 Global Study, USA]


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2014 Global Fraud Study, USA]


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[Source: Association of Certified Fraud Examiners (ACFE) 2014, Report To The Nations on Occupational Fraud

and Abuse: 2014 Global Fraud Study, USA]


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2014 Global Fraud Study, USA]


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Motivations

Motivations for fraud of the owner/executive category, which is the

closest category to C-suite, are captured in the top nine behavioural

fraud red flags as follows in order of prevalence:

1. Living beyond means 43.7%

2. “Wheeler-dealer” attitude 29.6%

3. Control issues, unwillingness to share duties 28.6%

4. Financial difficulties 25.2%

5. Unusually close association with vendor or customer 24.3%

6. Irritability, suspiciousness or defensiveness 15.5%

7. Divorce or family problems 15%

8. Excessive pressure from within the organisation 14.6%

9. Addiction problems (e.g., gambling, alcohol, drugs) 10.7%

(note: percentages exceed 100% as there are, in some cases, multiple red flags)

[Source: Association of Certified Fraud Examiners (ACFE) 2014, Report To The Nations on Occupational Fraud and

Abuse: 2014 Global Fraud Study, USA]


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Case Studies

Satyam Indian IT Company (2009)

Company founder and Chairman

Ramalinga Raju falsified revenue by

USD$1.5 billion and admitted this in a

letter to the company’s board. He was

found guilty along with nine others of

inflating the company’s revenue,

falsifying accounts, income tax returns,

and more.


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Case Studies

Bernard L. Madoff Investment

Securities LLC (2008)

Bernie Madoff, who was founder

and chairman of a Wall Street

investment firm, was sentenced to

150 years of prison and USD$170

billion in restitution for deceiving

investors out of USD$64.8 billion

through a Ponzi scheme.


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Case Studies

WorldCom Telecommunications

Company (2002)

Assets were inflated as much as USD$11

billion, and the company filed for

bankruptcy, with USD$180 billion in

losses for investors. Those involved

included CEO Bernie Ebbers who was

sentenced to 25 years of prison for fraud.


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Case Studies

Enron Energy and Commodities

Company (2001)

Shareholders lost USD$74 billion,

and the company filed for bankruptcy,

leading to the demise of the Arthur

Andersen accounting firm. Those

involved included CEO Jeff Skilling

(sentenced to 24 years of prison) and

former CEO Kenneth Lay (who died

prior to sentencing).


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Case Studies

• Confidential Case Study 5 to be displayed and discussed at the

conference


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Case Studies


conference


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Case Studies


conference


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What Can Be Done?

Boards, audit committees, and executive or senior management

have vested interests in confirming checks and balances to ensure

that the ‘C-suite’ leads the way with the tone from the top and with

ethical behaviour beyond reproach.

Key Checks and Balances Include:

• Develop tailored forensic or fraud detection procedures

• A forensic review that should:

– Focus on the C-suite

– Can be designed by reverse-engineering the intelligence gained in

understanding C-suite fraud red flags

– Use fraud-profiling


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What Can Be Done?

Fraud Profiling:

• Understanding the motivations and characteristics of C-suite

fraudsters, the industry, and businesses in which C-suite

executives operate, and then

• Developing forensic or fraud detection procedures to provide

insight into the fraud vulnerabilities or actual fraud that may be

occurring or is at a high risk of occurring in the near future.


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Examples of Forensic Procedures

1. Interview the C-suite executive

to understand fraud and

corruption control awareness,

as well as for family and

individual profile for

vulnerabilities.


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What Can Be Done?

2. Conduct forensic due diligence

background checks on the C-suite

executive and family that are either

publicly available (e.g., background

checks for other business interests,

social media sites) or with consent

where required (e.g., police checks) to

ensure that any conflict of interest,

perceived or actual, is managed.


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What Can Be Done?

3. Understand the systems-access profile of the C-suite executive

(e.g., transactions, approvals) and perform forensic data

analytics, including personal expenses.


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What Can Be Done?

4. Perform forensic IT analysis as required (e.g., Internet sites

visited, such as gambling websites, if corporate access allows)

or email review if required.


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If a C-suite executive objects to forensics or fraud

detection procedures, or a forensic review, I suggest that

this may be a red flag in itself and should cause concern

for the board.

No one, regardless of level or seniority in a business, is

beyond the checks and balances that mitigate the risks of

fraud and corruption.


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Contact details

Roger Darvall-Stevens

Partner, National Head of Fraud & Forensic Services,

Australia

T +61 3 9286 8279 / +61 421 056 683

E [email protected]


Our one-firm structure allows us to provide strong

connections and a focus on client relationships.

Clients can readily connect to our national and

international expertise and networks, our extensive

understanding of Australian business and to senior

advisors. With RSM Bird Cameron you really are…

Connected for Success

©2015 Association of Certified Fraud Examiners, Inc.

WELCOME C-Suite’s Dirty Little Fraud Secret

Roger Darvall-Stevens, CFE

Partner, National Head of Forensic Services

RSM Bird Cameron

c-suite’s dirty little fraud secret · pdf filec-suite’s dirty little fraud secret...

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