Corporate Fraud: A Manager's Journey

Corporate Fraud A Manager’s Journey K.H. Spencer Pickett John Wiley & Sons, Inc. iii Corporate Fraud i ii Cor...

Author: K. H. Spencer Pickett

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Corporate Fraud A Manager’s Journey

K.H. Spencer Pickett

John Wiley & Sons, Inc.

iii

Corporate Fraud

i

ii

Corporate Fraud A Manager’s Journey

K.H. Spencer Pickett

John Wiley & Sons, Inc.

iii

1 This book is printed on acid-free paper. Copyright # 2007 by John Wiley & Sons, Inc. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. Wiley Bicentennial Logo: Richard J. Pacifico No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, or online at http://www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at 800-762-2974, outside the United States at 317-572-3993 or fax 317-572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our Web site at http://www.wiley.com. Library of Congress Cataloging-in-Publication Data:

Pickett, K. H. Spencer Corporate fraud : a manager’s journey / K.H. Spencer Pickett. p. cm. Includes index. ISBN 978-0-470-11479-7 (cloth) 1. Fraud. 2. Fraud–Prevention. 3. Corporations–Corrupt practices. 4. Fraud investigation. I. Title. HV6691.P54 2007 658.40 73–dc22 2007004980 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1

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This book is dedicated to the people of the Isle of Wight, England

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CONTENTS

CHAPTER 1 The Funeral

1

CHAPTER 2 The Long Weekend

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CHAPTER 3 Snouter’s in Town

14

CHAPTER 4 Back to the Island

32

CHAPTER 5 Plans into Action

38

CHAPTER 6 Criminology at Bay

45

CHAPTER 7 The First Seminar

54

CHAPTER 8 Keeping Your Sox On

68

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Contents

CHAPTER 9 Trouble’s Brewing

75

CHAPTER 10 Getting Real

80

CHAPTER 11 The Story Unravels

84

CHAPTER 12 A Shot in the Arm

88

CHAPTER 13 The Story Travels

95

CHAPTER 14 A New Approach

102

CHAPTER 15 The Long Night

135

CHAPTER 16 A Meeting of Minds

142

CHAPTER 17 The Sunshine State

150

CHAPTER 18 Start at the Top

163

CHAPTER 19 In and Around Portugal

171

CHAPTER 20 Reporting Back

178

CHAPTER 21 Back in Portugal

186

CHAPTER 22 Making More Plans

198

Contents

ix

CHAPTER 23 The Heat is On

206

CHAPTER 24 The Presentation

213

CHAPTER 25 The Mystery Continues

225

CHAPTER 26 The Audit Committee Hears More

234

CHAPTER 27 Some Clarity at Last

261

CHAPTER 28 Getting Deeper

271

CHAPTER 29 Fraud Risk Awareness

282

CHAPTER 30 Family Affairs

299

INDEX

307

A

ll characters in this publication are fictional and any resemblance to real persons, living or dead, is purely coincidental.

This book provides a general introduction to fraud risk management. However, individual frauds are unique in terms of features and contexts and therefore, legal counsel should always be sought whenever investigating fraud or designing controls to guard against fraud.

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chapter 1

THE FUNERAL

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ill looked down at the glazed light-brown coffin as it slowly inclined its way down into the dark recesses of the grave. His eyes narrowed, and he thought of the time, only last week, when he had held his father’s hand and told him words of comfort as the sharp intakes of breath indicated the final moments. Bill had told his father that he would cherish the old man’s achievements—fighting his way out of hardship to buy his own house and raise his family. He promised to fulfill his own ambition and like his father, take a risk on new ventures when the time was right. Bill told him that he was the most wonderful person ever, until the breathing became so shallow that it was almost gone. And then Bill kissed his father’s cheek and saw the faint flicker of a smile whisk across the wrinkled face, and Bill continued to talk. He said that his grandchildren would be told about their grandfather and all that he had done in his long life. And then it was all over. Bill looked up from the grave and saw some of his neighbors, his tennis partners, a few old friends, and a group of colleagues led by his boss, Georgina, standing around the graveside. Each person eventually departed with a handshake or a pat on the back along with a few choice words of sorrow and condolence. His friend Jack stood like a soldier at the grave with his head bowed, hands behind his back, standing guard, his body rigid and still. Georgina came over to Bill and placed a hand on his arm as she mumbled. ‘‘Bill. Let me buy you a drink. I know you’ve not organized anything— you know, a wake or such.’’ 1

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Corporate Fraud: A Manager’s Journey

Bill nodded and replied, ‘‘Well, yes. That’s it, really. The last of my family. . . .’’ She guided Bill towards the high road with its sparkling lights, suggesting that drinks and laughter were on offer. Jack followed several paces behind, and the three of them sat around a small, dimly lit table towards the back of the bar. Bill stared at his hands as Georgina said, ‘‘Take as much time off as you like. I’ll update you when you get back.’’ Jack got up and headed for the bar. Georgina looked closely at Bill and continued, ‘‘Don’t worry about the new strategic transition project. Take time for yourself and your grief. I know you’ve a trip planned.’’ Bill seemed to slowly come out of his trance and said. ‘‘Yes. I’ve got this cottage in England. It was left to me by my aunt. So I plan to go out there and see what needs doing. But what happened at the board meeting yesterday? Wasn’t it about the big new change project we’re doing?’’ Georgina looked away and shook her head. ‘‘I just said don’t worry about work for a bit. Take your vacation and relax.’’ Bill smiled and rubbed his tired eyes. ‘‘I need to get back into things as soon as I return. Really I do. How did it go yesterday?’’ Georgina seemed unsure about what to do, as Jack returned and stood three drinks down on the table. Bill spoke again. ‘‘Really, I’m okay. Tell me how it went.’’ Georgina sat back and assumed her chief executive look with mouth pursed and eyes focused on Bill. She wore a tailored skirt and jacket that hugged her small but shapely body. She crossed her legs and said, ‘‘Okay. You get it your way, Mister Tough Guy. What’s your job title, Bill?’’ ‘‘Head of Corporate Planning.’’ ‘‘But what does it mean?’’

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The Funeral

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Jack gently stood up to give the other two some freedom to discuss their work issues, but Georgina grabbed his arm and pulled him back to his seat. ‘‘Jack, stay here. This may hit you as well.’’ Jack finally spoke, ‘‘But I don’t work for you. I’m okay to let you two talk shop.’’ Georgina sighed. ‘‘You know you do projects for Bill. And we may well need you on this one.’’ Jack sat down and sipped his drink. Georgina’s eyes flashed as she started talking again. ‘‘You’re Head of Mumbo, Jumbo, Bumbo. What you do, Bill, is take on our change projects and make them work. You’ve reviewed our internal controls, and you’ve got us set up with enterprise risk management, with help from Jack here. Right now, it seems that we urgently need to sort out our antifraud measures, and yesterday the board decided to throw this little baby at you.’’ Bill tugged at his left ear to make sure he was hearing okay before saying. ‘‘What about that compliance officer you took on last year? Isn’t that his job?’’ ‘‘Oh yes. But he works for Davis Middleton, the Chief Finance Officer (CFO). We need to widen the scope of things, and he’ll work for you to get a new fraud policy up and running. You know, policy, fraud response, staff-awareness seminars, and so on. The new chair of the audit committee reckons we need to do much more on this front. In fact, she said we were in the dark ages. I guess the truth is we are way behind. Look Bill, I’ll e-mail the minutes from the board meeting, and you can formulate a terms of reference for the project when you get back to work in a few weeks’ time. Jack, you can help, like you always do. You could start working with Snouter, our compliance man, and prepare the ground for when Bill’s back at work. Bill, when you get back from England you can get me a project brief and a budget for the work—okay? Look guys, I have to get back. Please accept my condolences for your great loss.’’

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And with that Georgina got up, laid a firm hand on Bill’s shoulder, and left. Her high heels clicked loudly as she swished out of the bar. Jack watched her move off with a smile on his face. ‘‘You know,’’ Jack said, still looking at her, ‘‘Georgie looks as fit as she was when we were at University together. By the way, this fraud job will be fine—I’ve got it covered. You know, I’ve got a background in fraud work, so we should be able to set things up quite quickly. When do you get back?’’ Bill gazed at his glass and snapped his head back; he looked up at the ceiling and smiled, saying to Jack, ‘‘I’m supposed to fly out Monday. With all that’s been going on, I’ve not thought about things much. Tell you what. It’s Saturday today. You stay with me and Ruth and the babies over the weekend, and we can do some background stuff. You can work with Snouter next week, and I’ll be back the following weekend. That way, when I’m back we can hit the ground running. Sounds good?’’ Jack frowned and visualized mountains of diapers and screaming babies before he finally said. ‘‘But Ruth’s just produced twins. Is that really a good idea?’’ Bill got up. ‘‘No problem,’’ he said. ‘‘You can help out when we get tired.’’ Bill walked towards the exit, and Jack grabbed and downed his drink in one gulp before following behind with a worried look fixed firmly on his face.

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chapter 2

THE LONG WEEKEND

B

ack at Bill’s house on Long Island, Jack slapped his bag down on the bed of the guest bedroom and looked through the window at the views over the back yard. ‘‘Nice room,’’ Jack thought as he strained his ears to ascertain when Bill’s baby twins would start crying. Nothing so far, all quiet. Not that he had a particular aversion to babies; he had raised his kids and he had enjoyed their baby days. It was just that he could not see how he and Bill were going to get any work done in such an environment. A sweet smell wafted upstairs, and Jack smiled as he recognized the smell of curried chicken, a old favorite from the days he had spent living in Jamaica with his wife when they spent a couple of years there so she could work for the University of the West Indies. Bill’s wife, being Jamaican, had certainly mastered the various dishes popular in that part of the Caribbean. He thought back to the time he had first met Bill, who was vacationing in Jamaica and who had been withdrawn and depressed. How he had shown Bill around the island, acting as tour guide, until Bill had met his wife’s friend and—bim, bam— fallen head over heels. Now that Jack had moved his family back to the States, he missed the little island. He went downstairs in the direction of the sweet aroma and found Jack’s wife in the kitchen stirring a pot. ‘‘You ready for it?’’ Ruth said with a beaming smile. Jack looked around and said carefully, ‘‘Where are the babies?’’ ‘‘Oh. They’re upstairs with Bill. When he’s home he spends all his time with them. You know he used to come home at lunchtime, say hello to 5

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them, and go straight back to work before I told him to stop being so silly.’’ Jack sat down, and Ruth slid a plate of curried chicken and rice in front of him. Jack tackled the meal like a man on fire and found little time to say anything more than, ‘‘Good food. You know your stuff, Ruth. This tastes so good.’’ Ruth smiled again and said, ‘‘Jack. You know, I really wanted to open up a small restaurant back home before I met Bill. Bill thinks I’ve forgotten about it, but I’m still gonna do it. Bet on it. What d’you think?’’ Jack seemed upset to have to stop eating and start talking, but found time to mumble, ‘‘If you keep cooking like this, babes, I’ll come to it every day.’’ ‘‘I’m serious about this. As soon as Bill comes back from his trip, I’m gonna start planning. I can bring my mom over to help. She’s the best cook I know.’’ Jack seemed reluctant to comment on what could end up as a domestic issue, and as he frowned, trying to think of some sort of useful but neutral response, Bill came bounding through the door, saying, ‘‘Hey guys. Food smells good. Can you take over the babies while I get stuck in?’’ At this, Ruth shrugged her shoulders and said, ‘‘Okay. I’ll take them upstairs and see if I can get them off to sleep.’’ She kissed Bill’s cheek and departed. Jack smiled and remarked, ‘‘You got it all, Bill. Wife, kids, lovely home. Congrats man. I know you lost your dad, but you have so much left.’’ Bill sat down and rubbed his eyes, ‘‘You’re right as usual. I didn’t know I could be so happy. I kinda don’t want to go away right now, but I have to check on this house. You remember Helen from last year’s conference over in England. She’s still on the Isle of Wight, looking after my cottage. Well, she e-mailed me and said it was looking good, and I sent her some money to fix it up a bit. But I really need to get over and check it out.’’

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The Long Weekend

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‘‘Absolutely. I was talking to my wife only last night about how we went to the Isle of Wight last year and you found out your aunt had left you a cottage. How is Helen?’’ ‘‘Apparently, she hasn’t left the island since she went there with us last summer. Remember how she met Peter on the island and now they’re like star-struck lovers. She’s a bit like me. She’s found her place in life. Real happiness.’’ Jack scooped out some more curry and sat back down. ‘‘I think we should get some work done on our new project.’’

Later that evening Bill and Jack sat in the den, and Bill poured out two drinks from a vintage brandy bottle. After giving Jack his drink, Bill pulled open a cabinet and took out a laptop, which he placed on a small coffee table. He switched it on and rubbed his hands together, saying, ‘‘Ruth says goodnight. She gets real tired with the kids. Good that she won’t have to go out to work for the next few years. It’s great that women are happy staying home with the kids. That’s what I like about her—she’ll make the best mom ever.’’ Jack swirled his drink around in his glass and was about to answer when Bill punched a key on the laptop and announced, ‘‘Fraud and such. I know that you’re up on things, Jack, but I need to get up to speed. Let’s log onto the web and see what’s out there.’’ The screen lit up, and Jack leaned forward while Bill typed in a random search using versions of the word ‘‘fraud.’’ Jack cupped his chin in his hands as Bill took charge. Bill flipped out a small notebook and pencil and said, ‘‘I’ve found what looks like a good web site. It says here that fraud covers loads of things from minor theft to significant financial misstatement.’’ ‘‘Yes,’’ Jack said, ‘‘I’ve been involved in a few cases, but they’re all different.’’

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Bill called up a new web site and asked, ‘‘When did you last do fraud work? You know, investigations and such?’’ ‘‘It’s got to be a couple of years now. I got some employee frauds referred to me when I was doing audit work back then. We gathered evidence and prepared files for our attorney. But I never did fraud awareness or anything on the fraud policy. I’m not even sure I ever saw a fraud-policy document.’’ Bill scanned through the latest web site and said, ‘‘Wow. There’s so much that falls under the fraud handle. Let’s see. There’s a list here that relates to dishonest or fraudulent acts: Forgery or alteration of documents. Misappropriation of funds—I guess that’s basically stealing stuff. Impropriety in handling or reporting of money or other financial

transactions. Profiteering from insider information. Disclosing confidential information.

There’s more here. Fraud can be: Bribery—that is, accepting or seeking anything of material value. Unauthorized use of computers. Irregular expense claims that don’t benefit the organization. For

example, putting in fictitious items in expense claims. Employees can also set up fictitious customers and divert company funds to themselves.’’ Jack slumped back in his chair as if thinking deeply about Bill’s list. He stretched and got up; then he approached the window. Bill looked up and asked, ‘‘What’s wrong?’’ Jack frowned for a second and then said slowly, ‘‘Have you got any beers in the fridge?’’ ‘‘Oh yeah. Go get one, and bring me one, will you.’’ When Jack had returned, he found Bill printing out some of the web pages. Bill said,

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‘‘Okay. Now tell me what’s wrong?’’ ‘‘Nothing. I just wanted a beer.’’ Bill returned to the laptop. ‘‘So we have a big canvas. Says here that employee fraud can involve: Misappropriation of the organization’s intellectual property, pro-

ducts, contracts, or customer information. Destruction or inappropriate use of assets.

This site shows that you can get external fraud that’s done against the company covering things like: Mail fraud. Wire fraud. Racketeering. Identity theft.

It seems someone could steal another person’s identify or even the identity of the company itself. Hang on, let me scroll down a bit. Right—you can be hit with: Telemarketing fraud. Espionage. Money laundering. Bankruptcy fraud. Health care fraud.

Seems that the problem here is where an outsider gets together with an employee and you get conspiracy, where they collude and plot against the company.’’ Bill stopped and waited for Jack to respond to this chunk of information. Realizing this, Jack clicked his fingers a few times and said. ‘‘Good. We can get a file of material together as background. But somewhere along the line we need to sort out what we’re doing here. What we’re actually after.’’ Bill reached for his beer and took a swig. He said,

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‘‘I’m gonna print out some background bits to take with me on vacation. But I see what you mean. We need a plan. What to do, where to start, and who to talk to. I know. Let me talk to Snouter and set up a meeting between you and him. Like I said, you do your prep with him, and we can kick it off when I get back. Let me see. I’ve got a list of everyone’s home numbers on my system here. Okay, Snouter’s real name is Snoutehouse—yeah it’s here.’’ Bill whipped out his cell phone and punched in some numbers while Jack went to the kitchen for another beer. ‘‘Snouter. Bill Reynolds here. Sorry to call you at home. I’m off for a few days, but I want to set up the new fraud project before I go. Yes, you will need to meet with my associate Jack who will be helping us.’’ When Jack returned he saw Bill sign off his phone call. ‘‘Any luck?’’ Jack asked. ‘‘It’s all looking good. Snouter’s up for it. He’s coming round tomorrow even though it’s Sunday. We can get some information from him, set up a work plan, and then I can get off for a few days. Well, for a week that is and then make progress when I get back.’’ Jack suddenly froze and mumbled, ‘‘I can’t stay here with the babies. It’ll look odd, kinda weird.’’ Bill laughed, ‘‘No shakes. Ruth’s mom is coming over tomorrow, to see the kids and help out while I’m away. So you can stay here and work. I’m so lucky, man. Ruth’s doing so well. She cares for the babies, and she’s always inviting friends round for dinner. Each time she cooks a couple of new dishes and always makes sure everyone has something special. It’s so impressive.’’ Jack shifted in his chair and asked, ‘‘Is Ruth going to stay home for a while? I mean, be a housewife?’’ ‘‘Isn’t it great. I got the job, the wife, and now the kids.’’ Jack shrugged his shoulders, ‘‘Yeah, I guess you’re right.’’ Bill slipped out of small-talk mode and got back into formal discussion,

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‘‘Before we leave things, can you tell me why companies don’t bother about antifraud measures and fraud policies?’’ Jack rubbed his hands together and searched for the right words. ‘‘Okay. I’ve worked for quite a few big organizations across the board. Public and private sector setups. Even an international charity. And you know, most of them don’t really care about fraud stuff. They know about the foreign corrupt practices act where their people can cause them problems when they get involved in bribery and irregular practices. But many top people see fraud as a bore. It means investigating and exposing weak controls. It means going back in time and not doing what they want, which is to constantly go forward. Many organizations have no effective fraud policy because fraud is so hard to deal with, and it’s so hard to get a successful prosecution. But if some employee gets off with a bit of extra cash and we can throw them out of the company and move on, then that’s what many people see as about right.’’ Bill held up his hands and looked surprised to see his friend so enthused. Jack swigged his beer and suddenly seemed tired from his extra efforts. Bill smiled and said, ‘‘It can’t be that bad surely.’’ ‘‘Perhaps not. I’m talking about a few years ago. But I do know at least one company that builds fraud losses into its budgets. But the impact of fraud as a problem is really getting worse. So check this—fraud is taboo, people don’t want to talk about it, and as far as I know, most companies see it as a civil matter and pretty much embarrassing all round. . . ,’’ Bill interrupted, ‘‘Have things changed? I mean got better since then?’’ ‘‘Some. SOX—you know the Sarbanes-Oxley Act that is supposed to sort out problems where big companies go bad—has meant companies are much more concerned about white-collar crime, and they’re more willing to employ all means like, say, hiring their own private investigators to fight fraud. Some say that this is about avoiding culpability, while others say we’re now waking up to the threat. You can easily find out about this threat, you know Bill. But you need to look at the right web sites. For example, the Association of Certified Fraud Examiners prepares

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a Report to the Nation each year, and the 2006 report argued that U.S. fraud is around 5% of annual revenues, which translates to $652 billion annually.’’ ‘‘You’re kidding.’’ ‘‘No way. Check the fraud examiners’ web site on acfe.com. And if you can look at the public accountants’ web site, they have an antifraud resource center on aicpa.org. Me, I tend to look at the Institute of Internal Auditors stuff on fraud at the iia.org. But let me ask you Bill, do you know about your current antifraud position? Fraud policies and such?’’ ‘‘Not really. I’ve seen this Snouter guy sniffing around, but that’s about it.’’ ‘‘I think we’ve got two main problems,’’ Jack continued, ‘‘the line between right and wrong has got blurred. Many companies don’t break the law, but they get into what I would call sharp business practices. So a bio-food company may play up the importance of, say, food-intolerance testing and try to create a bigger market for expensive foods and food substitutes that don’t really make much of a difference. The other thing is that some fraudsters are now claiming they’re badly treated by their company and that’s why they took money or assets to even things up. Or, say, borrowed money that they thought they could pay back, so in their book no one is really affected much. So take a company that’s seen as pretty unethical and throw in staffers who feel things are not fair and bingo, you get a potent mix.’’ ‘‘Okay, I get it. But whatever you say, people must be scared of going to jail—surely?’’ ‘‘Agreed,’’ Jack replied. ‘‘But where fraud is seen as easy to get away with, then it’ll grow. Some frauds aren’t investigated at all. Also, any redress may be cumbersome and costly. Where people gang up and collude it can be hell to discover what really happened—say, where forged invoices were approved by an insider.’’ Ruth appeared at the door and said, yawning, ‘‘Sorry to interrupt boys. Bill, where’d you put the spare bottles?’’ Bill jumped up, kissed Ruth’s forehead, and went through the door in search of baby bottles. Ruth frowned at Jack and asked,

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‘‘You two still at it?’’ Jack laughed and replied, ‘‘You know Bill. I’m ready for bed, but your old man is just a workaholic. He wants to know everything there is to know about fraud.’’ Ruth laughed and said, ‘‘Spot on. Remember when we caught that security guard back in Jamaica? When I managed that hotel? He’d been stealing our drinks for ages, and we didn’t know until we kept watch.’’ ‘‘Oh yes. Me and Bill in action—real machos. . . .’’ Ruth started to walk away and called out, ‘‘I’ve left a dish in the kitchen. Jerk lobster. Try some and let me know what you think.’’ As Ruth got to the door, Jack stood up and said softly, ‘‘I know what you’re doing, you little minx.’’ Fluttering her eyes, Ruth replied, ‘‘Who, me?’’ ‘‘You’re gonna have to come straight on this restaurant thing, Ruth. You know that.’’ As Ruth stepped through the door she whispered, ‘‘Don’t worry. Like my old ma used to tell me ‘Man smart, but woman smarter.’ I’ve got a plan. . . .’’ Bill bumped into Ruth outside the door and, dropping two baby bottles, grabbed her and held her tight. He looked into her eyes and said, ‘‘Sweetheart, this is great. You and the kids, and now I’ve got this exciting new project.’’ Ruth kissed him lightly and said, ‘‘Yes darling, we are on our projects. Goodnight.’’ Bill smiled broadly and winked at Jack as he threw him a beer and ripped open his own can.

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chapter 3

SNOUTER’S IN TOWN

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unday crept in quietly as the household slowly stirred and came to life. This awakening was signaled by two soft crying sounds as two babies demanded the attention of two tired parents. Jack heard the muted sounds from across the landing and stretched. He had been told to help himself to a shower and breakfast and treat the house as his own. After washing and dressing, Jack found his way to the kitchen and heard voices as he approached what really was the center of the house. On opening the door he was confronted by a scene of domestic bliss—Bill holding one baby with a bottle that was being carefully drained and Ruth holding the other baby over her shoulder while humming a vague melody. Ruth waved Jack forward, ‘‘Come in, Jack. Help yourself. Everything’s set out in the warmer. Choose what you want; fresh juice is in the fridge. Want coffee?’’ Jack held up his hand as Ruth appeared to be starting to get up, ‘‘Hey, morning all. Please don’t get up Ruth. I feel like I’m in a hotel; look at all this food. Or should I say restaurant since. . . .?’’ Ruth interrupted Jack with a cough and did get up, placing her baby in a basket and telling Bill to bring the other baby upstairs for their bath. Jack selected his meal and sat down. Bill returned shortly after and poured two cups of coffee. ‘‘Right buddy,’’ he said, ‘‘when you’re ready let’s get some work done.’’ Jack munched through his ham, pancakes, and eggs and pointed to his throat indicating that he needed time to respond. After a gulp of coffee, he eventually spoke, 14

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‘‘You know what? I’m going for a walk, a jog—I mean a stroll. Look, let’s take a little time out. Perhaps. . . .’’ Bill clicked his fingers, ‘‘Course. Sorry, I get it. I need to slow down. How’s the exercise stuff. You still doing martial arts or what you call self defense?’’ ‘‘Absolutely. It’s break time today. But most days I get in a workout plus a walk. I’ll step out after I’ve done justice to Ruth’s breakfast. I’ll be back in an hour, and we can start again. Good?’’ Bill checked his watch and made a brief mental calculation, and then hesitated before saying, ‘‘I think Snouter will be here by the time you get back. So yes, that’ll work.’’ Jack focused on his meal and used sign language to suggest agreement with this plan. When Jack had gone, Bill logged onto the Internet again and printed out more pages about fraud. Through the window Bill caught a glimpse of a figure moving amongst a group of trees that stood towards the back of open grassland behind the house. The shadow darted around and finally moved towards the back door in a sliding motion with his long jacket flapping in the breeze. A crumpled hat hid the man’s face, and Bill stared as the shape came into focus and a sharp rap on the back door rang out. Bill was confronted by a short, tubby man in his late forties with dark greasy hair. His large face was wrinkled with worry lines, and one side hung down as though he was constantly grimacing. His baggy gray suit made him look even shorter. Snouter thrust out a large and very hairy hand and said, ‘‘Hey Bill, I’m Snouter; seen ya around.’’ ‘‘Hi. Yes, you get around most parts of the business.’’ Snouter sniffed and looked around, as it was clear that he was not an expert in making small talk. Bill placed a hand on Snouter’s back and guided him into the house. Snouter looked around as he was led into the den and was just about to slump down on the coach when Bill stopped dead and said,

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‘‘Tell you what. Let’s go through to the kitchen and grab a coffee. You hungry?’’ Snouter smiled broadly and nodded. As Snouter selected his meal from the various dishes simmering in the food warmer, Bill studied him and then said, ‘‘How come you knock at the back door?’’ ‘‘Oh. That’s me,’’ Snouter replied, ‘‘Whenever I get to a new house I like to check round back and see what’s around. Get my bearings, so to speak. . . .’’ Bill could not think of a suitable reply, and after a few seconds he simply said, ‘‘When you’re done, bring your coffee back to the den, and we can start work. I’ll get the laptop out.’’ Snouter nodded, and Bill left him to work on a rather large plate of food that now sat in front of him on the breakfast table. Bill was working through a web-based article that argued that many fraudsters were very pleasant and likeable and used their personality to gain trust that they would then breach. Snouter shuffled into the room and sat down on the couch, balancing his coffee cup on a small side table. Bill looked up from the laptop and said, ‘‘Okay. You know we have to beef up our fraud policies. And that you’ll be helping me with this. My associate Jack will be with us in a while. But tell me something about yourself, Snouter.’’ Snouter slurped his coffee and then put the cup down with a rattle. In a slow, high-pitched voice he replied, ‘‘Okay, sure. I haven’t been with the company long. I started last year as the compliance officer.’’ ‘‘What does that involve?’’ ‘‘Just checking things across the business. I make sure people are doing things right. Like procedures and authorizations and so on. I visit each local office in turn and check that compliance is okay. Oh and I’m also the fraud liaison officer. Any problems come to me, and I deal with them.’’ ‘‘Such as?’’

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Snouter leaned forward, and his eyes flashed as he started to get excited, ‘‘Well. I had a couple of guys from the Dallas office making bad overtime claims. I got a tip-off and checked their movements, and bingo, they were pretty much scamming us.’’ ‘‘Do you get many frauds?’’ ‘‘Nah. I get people calling me up and moaning about their job. One crazy guy in accounts thought we were getting too much money paid into one of our bank accounts. I told him that fraud is about losing money not gaining it. And he shut up.’’ Jack walked into the room, and Snouter stopped talking. Bill stood up and said, ‘‘This is my associate, Jack Durham.’’ Snouter wiped his hands on his trousers and shook hands with Jack. Jack smiled back and made a mental note to wash his hands at the earliest opportunity. Bill continued, ‘‘Snouter was just telling me about himself.’’ Jack sat down and waved a hand in a rolling motion, and said ‘‘Please do go on.’’ Snouter sipped some more coffee and assumed his high-pitched delivery, ‘‘I was a private investigator for many years back in Ohio. Mainly divorce and shoplifters and stuff like that. Anyway, things were slow, so I moved to New York. But I don’t have a license to practice here, so I did some small jobs for some of the accounting firms. You know, checking on businesses and people. General stuff. Anyway, I heard that your company wanted someone to cover compliance work and I shot in my resume and here I am. Oh, by the way, I’m sorry to hear about your sad loss, Bill.’’ Bill nodded and gestured that Jack should lead on this, at which Jack said, ‘‘What have you done so far on fraud awareness?’’ Snouter seemed confused, and Jack continued,

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‘‘I mean have you developed anything for staff to get them in tune with antifraud measures?’’ Snouter laughed and seemed relieved at this rephrasing of the question, ‘‘Got it with me!’’ He said with glee as he took a DVD from his jacket pocket and placed it down on the coffee table. ‘‘I’ve been hard at work. This is the online fraud resource that I finished a few months ago. It’s watched by all new employees in the company.’’ Bill seemed impressed, ‘‘Great,’’ he said as he picked up the DVD and slid it into the laptop’s DVD drive. As the DVD booted up, soft music played and the words, ‘‘Dirty Dawn Does It All!’’ appeared. Snouter reached for the eject button and flipped out the DVD and inserted a new one that he had taken out of another of his jacket pockets. ‘‘Sorry, fellas. This is the right one.’’ Jack laughed, and Bill looked embarrassed as the new image sprang into life. A fuzzy picture of Snouter appeared on the screen and as it came into focus all three men stared at the screen. A fairly smart-looking Snouter in suit and tie, with his hair slicked back and face freshly shaved, delivered the following video message: Welcome to the company. My name is Snoutehouse, and I am head of compliance. My job is to make sure what’s supposed to happen does really happen— in the right way. You are eager to get into your new jobs and that’s great. But I need to deal with our position on fraud and irregularity. As the compliance officer, I deal with fraud issues. And I hope you use this short video to help you understand the importance of getting fraud under control. I have a three-step approach: Step 1. Be aware, Step 2. Be careful, Step 3. And be good. Let’s look at number one—Be aware. Fraud is big business, and employee fraud is growing. I see fraud as:

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The use of deception to obtain an advantage, avoiding an obligation or causing loss to another party.

Be aware of its impact, and understand that you need to be part of the solution and not the problem. Let me turn to the next part of our model—Be careful; anything can happen, and when it does, many people are shocked. I’ll illustrate this point with a short story from my time as an investigator. In one bank a senior manager cheated it out of 5 million dollars. This manager manipulated the bank’s loan process by pretending that customers were applying for loans that he paid into false accounts. He generated so much new business through the scam that he was twice named manager of the year and got huge performance bonuses. He was a well-liked man who lived in a modest house and had a modest lifestyle. He was also highly trusted by all who worked with him. The scam only came to light by accident when the bank installed a new computer system. The fraud ran for over seven years, and he created nearly a hundred new accounts. Once he had achieved such high performance, his new targets meant he had to continue the fraud to survive. In the end he was fabricating new loans to pay the interest on existing ones that he had also fabricated. The last part is about your behavior—Be good. You need to be good— at all times in all ways. Here’s some Dos and Don’ts: Don’t break the law. Don’t deceive or mislead. Don’t allow conflicts of interests to affect decisions. Don’t use company resources for private use. Do comply with laws and procedures. Do install good procedures. Do seek approval where necessary. Do record reasons for decisions. Be honest, impartial, and evenhanded. Seek value for money in the use of company resources. Keep good records where appropriate.

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Okay. That’s about all I need to tell you today. To summarize: 1. Be aware, 2. Be careful, 3. And be good. So if you know about any wrongdoings tell me, and if you are thinking of doing anything wrong, don’t, cause I’ll find out and we have a zero tolerance policy for fraud. Here’s my number and my e-mail address on screen. You can reach me through these contacts, and if I’m not around, leave a message and I will get straight back to you. Goodbye from me and see you around. Goodbye. Snouter clenched his fists and let out a short chuckle before saying in triumph, ‘‘Well? What d’yah think of that?’’ Bill raised his eyebrows and said thoughtfully, ‘‘I like it. It’s short and to the point, and it covers most of the ground. Jack?’’ Jack seemed unsure and looked towards the ceiling for inspiration, ‘‘It’s not bad. Yeah, it does touch most things. Well done, Snouter.’’ Snouter rubbed his unshaven chin and a sharp scraping sound accompanied this motion. Bill grimaced and said, ‘‘We will need to tidy it up. Snouter, has this been issued yet?’’ ‘‘No. I got it done when this fraud stuff started to come up at audit committee meetings. The Chief Finance Officer’s seen it and signed it off, but it’s not gone to the audit committee or anywhere else.’’ Bill looked pleased, ‘‘Okay. Needs smartening up, but it could work. What about the fraud policy?’’ Snouter seemed surprised at this question, and his voice rose even higher as he replied, ‘‘It’s there. It’s all in the video. Zero tolerance, behave well, and report anything untowards. Oh, and be alert. . . .’’ Jack stepped in,

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‘‘We will need to do some sweeps. Say, run a few fraud-detection exercises.’’ Bill agreed, adding, ‘‘Yes. Here’s the plan. I go off for my trip to England—you know the Isle of Wight—and check on my cottage. It’s a long story, Snouter. I have to look at a cottage given to me by my deceased aunt. Anyway, that’s beside the point. Jack, you work with Snouter and tidy up the video. And write out a fraud policy—something brief and punchy. You all run this fraud detection sweep and see if you can find any problems with fraud and abuse. Jack, check out the compliance program, and see if it can be improved. I get back and look at what you’ve come up with, and we get it up to the audit committee as our response to fraud risks. Sounds good?’’ Jack replied, ‘‘Okay with me. But how are you gonna know if it’s okay?’’ ‘‘I’ll beef up on things while I’m away. I have this file of material I downloaded from the Internet. If your video fits with my brief research, then I’m sure I can pass it.’’ Snouter nodded his agreement and went to eject the DVD. Bill said quickly, ‘‘Can I take it with me?’’ Once again, Snouter nodded vigorously and added, ‘‘Yep, of course.’’ Jack got up and stretched his arms out wide. Bill stood and said, ‘‘Look, I appreciate you working with me on a Sunday. I have to pick up Ruth’s mom from the airport. I’ll be a couple of hours. You know, the only people I would ever trust to look after the babies are Ruth and her mom. How about you stay a bit Snouter and have dinner with us when I’m back?’’ Snouter was just about to ask what was on the menu when he stopped himself and said, ‘‘Yes, I’m good with that. Jack and me can chew through a few things while you’re away.’’ Jack laughed,

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‘‘So long as you come for a walk with me first. I gotta stretch my legs again.’’ Bill started towards the door, saying, ‘‘It’s settled then. I’ll be back in an hour or two.’’ Jack jumped up and said to Snouter, ‘‘A stroll?’’ Snouter nodded without enthusiasm. ‘‘Not too far and not too fast.’’ Jack shouted up towards the top floor that they would be out for a while and back soon. The two men walked slowly towards the woods and Jack breathed in the slightly damp air. Snouter conserved his breath and did not appear to be in a talkative mood. After some minutes Jack said, ‘‘You like doing fraud work?’’ ‘‘Yep. I wanted to be in the FBI when I was young and silly, but that didn’t work out. But compliance and fraud is fine by me.’’ ‘‘Doesn’t it get to you? The greed and dirty deeds.’’ ‘‘Nah. People have a go, it’s human nature. I try to track down as much as possible. Some get away, and others don’t’’ ‘‘Have you had any failures yet?’’ ‘‘You know what it’s like. Most times you know something’s wrong, but there’s no trail to follow. I know a lady who skimmed off big amounts from loads of contracts. She took bribes day and night. But I couldn’t get her; she was just too smart. You move on, and some of the clowns are so high up that you can’t touch them anyway. Junior people are easier to zap. But when everyone knows the top dogs are crooks, then others have a go.’’ Jack stopped to examine a very old oak tree. He scanned the hills and said, ‘‘You have to believe in your work, though.’’ ‘‘Oh yeah. I do what I can, but it’s not easy. I hope the video helps a bit.’’ Jack said suddenly, ‘‘You married?’’

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‘‘Was, but she left. I mean usual story. Me working late; wife gets bored, and she just takes off, if you see what I mean. . . .’’ Jack looked embarrassed and started back for the house. Jack’s knock on the door was answered swiftly, and Ruth greeted the two men with a smile and said sweetly, ‘‘Dinner’s ready. You can wash up upstairs, if you like, and join us in the kitchen. Snouter shrugged off the offer to wash and went straight to the kitchen and was greeted by the sight of Bill and Ruth’s elderly mom seated at the large dining table talking and laughing loudly together. He saw a small, elderly West Indian lady wearing a smart blue dress that made her look like a regular sweet old granny. Bill waved Snouter forward and said, ‘‘Say hi to Mrs. Madoc, Ruth’s mom. . . .’’ The old lady smacked Bill smartly on his forearm and chuckled out, ‘‘Stop it Bill. Just call me mama Bess. Everyone does.’’ A smiling Snouter shook hands, and as he sat down Jack came in and greeted mama Bess, as he already knew her from the time he had spent in Jamaica. Shortly after, Ruth came in and joined the party. Ruth had organized the usual huge combination of dishes, which she gently placed in the middle of the table with an instruction that everyone should help themselves. Jack poured drinks from a large bottle of wine that had been his contribution to the proceedings, and the group were soon tucking in to the rather appetizing food and drink. Ruth topped up the wine glasses and asked her mother, ‘‘How was the flight, ma?’’ Mama Bess screwed up her face and said in a disdainful voice, ‘‘I’m not too fussy about the flying. You know that. It looked like the food came straight out of the freezer. Tough like a. . . .’’ Ruth looked edgy and tried to move the conversation on as she could see her mother was getting into a warlike mode. Her mother was the sweetest person she knew, but she was on some kind of new medication,

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and when she got onto a vexed topic she was terrible. Unfortunately, mama Bess had just got into her swing, ‘‘One ugly gorgon man next to me had his arm spread over the arm rest and pushing into mine. I asked him to excuse, and he just gave me a bad look. So I raised my voice and told him ‘move over, you not just obese— yu a beast.’ and two-twos he quickly moved his arm. Some people you see. He was a living hog, no manners from morning. . . .’’ Ruth gasped and quickly clapped her hands and announced, ‘‘Who wants pie? Apple pie with cinnamon and glazed cherries?’’ Bill looked up from his plate and said, ‘‘My gosh. How do you find time to conjure up this great food? You must have spent all day cooking, sweets?’’ Ruth smiled, bowed graciously, and said, ‘‘All things are possible. With ma here I can do even more.’’ Jack opened his mouth to speak but closed it as Ruth gave him a glare that, for a split second, turned her into the image of her feisty mother. Mama Bess turned to Snouter and asked, ‘‘Are you a friend of Jack or Bill?’’ Snouter suspended his fork midway from his mouth and looked displeased at being interrupted, ‘‘Oh no.’’ he stuttered, ‘‘I work with them. I mean I’m gonna work with them soon. Say next week and for a bit. . . .’’ ‘‘What’s your real name?,’’ mama Bess asked. Snouter frowned for a while as if he had forgotten his name but then said, ‘‘Herbert Snoutehouse. But everyone calls me Snouter.’’ Mama Bess looked shocked. She pushed out her bottom lip and said, ‘‘Utter foolishness, you. . . .’’ Jack came to the rescue, ‘‘We’re all doing work on Bill’s company’s fraud policies.’’ He said, ‘‘Antifraud training and fraud detection and such. It should be real exciting, mama Bess. Snouter here’s our chief investigator and our compliance officer.’’ Bill looked at Snouter and said,

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‘‘You must have seen some interesting things in your time.’’ Snouter shifted in his chair and wondered whether he should tell his stock of stories. He looked around as four sets of eyes looked at him in anticipation. And then he said, ‘‘I was called in on one case where a helper faked cancer to get nearly $1 million from elderly clients. It’s crazy, cause she told one old bird that she had lung cancer to get cash, and then she goes and spends it on big vacations, cars, and expensive watches. She told her clients that she’d pay it back when she gets an inheritance from an old aunt. All made up, you know. She conned loads of old people out of their cash. She even encouraged one old man to drink so he got confused about things. She got charged and convicted in the end.’’ Ruth raised her eyebrows and said, ‘‘Wow, that’s bad.’’ Jack poured himself another glass of wine and pushed the bottle towards Snouter, determined that the huge bottle should be drained that night. Jack said, ‘‘Employees can be real bad. I worked on one case where a hospital boss stole $1.2 million in a big payroll scam through ghost employees. When he was caught, the jerk forged a colleague’s signature and blamed it on him.’’ Snouter attacked his wine and gulped it down as his eyes glazed over, and he suddenly remembered another old story, ‘‘Tell you what, Jack. It’s not just staff, sometimes it’s the top dogs. I checked out a cleaning firm that basically stole around $300,000 from its staffers. The staff had an hourly contractual rate, and the company paid them less and kept the difference. I think it added up to more than a million, but we couldn’t prove the rest. Biggest problem I found is bid rigging. It’s real bad.’’ Ruth asked, ‘‘What’s bid rigging?’’ Snouter quickly responded just as Jack was going to speak. ‘‘It’s where the purchaser, you know the company, invites offers for jobs or goods. Bidding companies get together and form a cartel and

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decide on who’s gonna win the bid. They take it in turns so that some make low bids or no bid at all. Sometimes the winner will pay off the other bidders.’’ Mama Bess make a sucking sound and said, ‘‘Happens all the time. Nothing new—people just too bad. Just the other day the rude boys were doing a new thing. They steal someone’s bank card and call them up pretending to be police and tell them they found the stolen card. And then they get the victim to tell them their password and guess what? In double-quick time they spend, spend, spend on the card. And the poor idiot thinks their card is out of action. Some people shouldn’t have bank cards; if it were me, I’d tell them. . . .’’ Ruth quickly came in, ‘‘Yes. I know it’s bad. I remember reading about one large company that was investigated for large-scale corruption. But hear the joke. This same company specifically said in its annual report that bribery is a criminal offense and they will not, and do not, pay bribes to anyone for any purpose. What a joke.’’ Jack continued the storytelling with relish. ‘‘Okay what about this. A European car company’s purchasing managers pocketed around $2 million a year from kickbacks from an auto parts supplier. Apparently, the payment of bribes is seen as normal in that part of the world. The CEO seems to have known about this for years. The relationship between the company and its suppliers was susceptible to corruption. And guess what? The purchasing people got cash, furniture, free holidays, and cushy jobs for their girlfriends. What a scam. . . .’’ Mama Bess who, as a firm church woman, normally frowned on drinking but who had been discreetly drinking wine all evening, thumped the table and said, ‘‘Thief is a thief. Most times them get away with it. Just last week one accountant man was supposed to give evidence in a big fraud case and he was abducted from the street by men posing as plain-clothed police. Up to now, they can’t find him. You’ll have a hard time sorting out fraud in most companies. Actually boys, yu wasting yu time.’’ Jack looked aggrieved, but then smiled and said,

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‘‘We’ll give it a go mama Bess. Trust me.’’ Mama Bess’s eyes flashed, ‘‘You know who is the worse at this? Fraud and corruption?’’ Everyone looked blank and waited for the answer. Mama Bess carried on, ‘‘The top man, dem. They are the worse. And yu know why you can’t catch them?’’ Again the assembled group waited. ‘‘Because dem smart. I had a job with one of them international hotels in town back home, and I knew something was wrong from day one. The boss man was a big-time crook.’’ Snouter used his sleeve to wipe a bit of food from his mouth and grimaced as he asked, ‘‘Did they have a compliance officer? At this hotel?’’ ‘‘Yes.’’ mama Bess said triumphantly. She blinked three times and then said, ‘‘A real cuffie man from outta Mocco. Use yu head Bill; for yu no born big.’’ Bill shrugged his shoulders, and Ruth suddenly got up, let out a nervous laugh, and said, ‘‘Okay, ma. Let’s go see the babies. They’ve been asleep for a while now. Up we get.’’ And with that Ruth led her elderly mother safely out of the kitchen and up the stairs. Bill asked Jack, ‘‘What was that all about?’’ Jack smiled, ‘‘No idea. I spent a couple of years in Jamaica, but when those old folks start talking, there’s lots of stuff I can’t understand. Anyway back to fraud stories. I feel that it’s hard to sniff out fraud, and it can have a major effect on our economy. Remember that car company in Japan? Their chief executive got ten years for fraud. He was guilty of fraud in securing bank loans, fabricating financial accounts to falsify assets, and embezzlement of company funds. You know, he had to forfeit goods and property worth

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around $20 billion. And when the verdict was read out, he collapsed in court.’’ Bill looked excited and said, ‘‘Yeah. I remember that one. But this is an international problem. When the FBI arrested that British online gambling tycoon, it wiped out more than £600 million off the stock exchange value of Internet gaming firms. Many cases fall over because they cannot go to court. And speaking of the FBI, just the other day, an arms dealer walked free after a multimillion dollar terrorist trial collapsed when FBI agents refused to reveal vital information about their ‘sting’ operation to capture a load of weapons involving undercover FBI agents.’’ Snouter was trying to recall his fraud stories and eventually said, ‘‘It is kinda bad. I had to help one poor soul who went abroad and rented out his house. Well, this tenant fella uses his driving license and bills to pretend he was the owner, and he actually sold the house and disappeared with tons of money. I helped an insurance company once. It seems that con men convinced a well-known jeweler to lend them their gems for an important film shoot to show off their jewels. And when this jeweler shows up, they robbed him. You just can’t be too careful these days.’’ Jack said, ‘‘That’s nothing. What about this. I know about a case where a junior bookkeeper making just $32,000 spent $2 million on online poker gambling, which he stole from his workplace. He was with his company for six years and was trusted, but it seems that he was addicted to fruit machines when he was a teenager. He was put in charge of company accounts and had authority to withdraw cash for wages. He paid fistfuls of checks into his own account. They only found out when the bills went unpaid. And when some data recovery software was placed on his computer, his web site visits became clear. The sad thing is that the company went bust as a result of this fraud.’’ Snouter grabbed Jack’s arm and shouted, ‘‘Nah, nah. I can beat that. What about a gang who reads death notices and then visit the deceased’s empty house, say as a prospective buyer?

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They then steal junk mail and the usual credit card offers and then apply for loans and cards. Or they just use the new identity to hide their own dodgy one.’’ Bill’s cell phone rang, and he got up and said, ‘‘I’ll take this outside.’’ Jack and Snouter continued to exchange old stories and seemed to come up about even in terms of the extent to which these stories demonstrated major failings in human beings all over the world. Bill came back into the kitchen and Snouter got up to visit the bathroom. Jack noted Bill’s serious look and asked, ‘‘Anything wrong?’’ ‘‘Not really. The opposite, I guess. That was Georgina on the phone. She tells me that she forgot to mention the Big Picture.’’ ‘‘Which is?’’ ‘‘Seems that the board is considering a new executive position. Director of Corporate Governance, or some such title. You know, a lead figure for integrated planning, audit, compliance, ethics, risk management, and all the fraud policy bits.’’ Jack frowned, ‘‘Which is good or bad?’’ Bill thought for a bit and said, ‘‘Georgina reckons the board members have had an eye on me. The stuff I’ve done on risk and internal control. I mean the stuff we did together; our projects. And she says that if I come good with this latest fraud thing, then the job’s more or less mine. Jack, I could make it as an executive on the main board. My dad would have been so proud. He told me to aim for the top. Ruth would keep house and look after the little ones if I get the big job. But she’s doing that anyway.’’ Jack jumped up and shook his friend’s hand, ‘‘It’ll work, bud. Well done.’’ ‘‘I’m not so sure. I’ve got to make this project work. It’s real crucial that. . . .’’ Snouter returned, and Bill immediately stopped talking.

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Jack glanced at his watch, and it was obvious that it was getting late. Bill stretched, and the two men looked at Snouter as a combined signal that the dinner party was more or less over. Snouter, however, grabbed his glass and poured out another generous measure of wine. He smiled to himself, sipped his drink and said, slightly drunk and to no one in particular, ‘‘God knows, I try hard enough.’’ Jack whispered to Bill, ‘‘Here we go. Don’t tell him we got a bottle of Jack Daniels in the den.’’ Snouter poured out some more wine, and his face became contorted as he spluttered, ‘‘They give me this compliance stuff. I got to check on every damn thing. And then people call me up and go on about what’s wrong at work, and I still got to do all the checks and deal with the nagging. . . .’’ Bill came towards Snouter and said, ‘‘Slow down fella. What’s the problem?’’ Snouter seemed to find it hard to focus, rubbing his eyes with his fists. He said slowly, ‘‘The old gal’s right. Mama Bess. Most people are up to no good, but I can only do what I can.’’ Looking concerned, Jack asked, ‘‘Do you know about any cover-ups at work, Snouter?’’ ‘‘Nah, not really. Just people moaning and calling me up. It gets to me sometimes. And that crazy guy from Records, and the wrong income he keeps going on about. He calls me every few months or so and talks absolute crap.’’ Bill took charge. He said, ‘‘Look, I think we’d better call it a day. I gotta get ready for my trip tomorrow. Let’s recap. Jack; you and Snouter tidy up the video. Get me a frauds policy, and have a look to see whether you can find any problems— say, any undetected frauds. I get back next week, and we wrap this up into a package for the audit committee. And that’s that.’’ Jack replied,

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‘‘Yep. That’ll work.’’ Snouter slumped over the table and mumbled, ‘‘Blah, blah, blah—whatever.’’ Bill turned to Jack and said, ‘‘I’ll get Snouter a cab.’’ And with that Bill left the kitchen and Jack looked at the figure of Snouter, his head resting on his arms which were spread out over the table and a small bald patch showing on the top of his head. Jack shook Snouter’s shoulder, ‘‘You okay?’’ Snouter sniffed and muttered something incomprehensible. Bill returned, ‘‘Okay, Cab company’s line is tied up. I’ll drive Snouter to the cab office and then sort out my suitcase. Jack, help yourself to whatever you want, and I’ll see you—ermm, in a bit.’’ With that, Bill and Jack helped Snouter to Bill’s car, and Bill gunned the engine and swung out into the dark night with Snouter strapped into the passenger seat, gazing blankly out of the car window. Jack watched them depart and went up to his room, which luckily had its own attached shower, to retire for the night.

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chapter 4

BACK TO THE ISLAND

B

ill sat back in his plane seat and eased off his shoes. His long legs had just about enough room, and he fiddled in his pockets before pulling out a typed itinerary. JFK to London, Heathrow airport, taxi to City airport, and a light aircraft to Sandown airport on the little Isle of Wight. Should be okay, he thought as he examined the times and connections once more. He closed his eyes and relaxed. His mind drifted through a wild assortment of memories and ideas. He recalled the trip early last year to London with Jack and how they had attended a huge conference on enterprise risk management (ERM). The way they had befriended Helen and Maria at the conference, when he had realized that these two women knew so much about ERM. How they had persuaded the girls to join them on a trip to the Isle of Wight so that Bill could visit his aunt, who turned out to have died some months earlier. The four of them had a bit of an adventure at the time, and Bill smiled as he visualized Helen as she found true love with a guy who lived on the island. He recalled the cottage at Freshwater Bay that had become his property on the death of his aunt. It was this cottage that he had come to check on. Helen would meet him at the airport and get him across the island to Freshwater. He thought of Helen from Hong Kong—what a goodlooking girl. And the lovely Freshwater Bay—what a place. He remembered how the sea was engaged in a constant battle with the hotels and houses set around the bay. When the tide came in and the wind was up, the waves roared against the sea walls and splashed everyone who got 32

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too close. He could picture Helen sitting by her precious bay and gaining inspiration from her surroundings. Bill drifted off to sleep and dreamt that he was presenting a report on fraud to the audit committee and the committee members were laughing and shouting out ‘‘trash,’’ ‘‘nonsense,’’ and words like that. Bill floundered as his presentation flunked. He woke with a start and shivered. Damn it! He thought. Had he done enough on this fraud project? He was just about to analyze his position when the pretty brunette sitting next to him leaned over, tapped his knee, and said in a soft English accent, ‘‘You need to order lunch.’’ and pointed to the hostess who was coming towards them. Bill jerked into action, said, ‘‘Sure thing,’’ and proceeded to do as he was told.

Bill waved at Helen, who was walking quickly towards him at the tiny airport at Sandown. She had not changed a bit. Neat, small, and attractive with her almond-shaped eyes looking sharp and intelligent. He grabbed her hand and gave her a brief hug. ‘‘You look so good and happy too, he said. Helen laughed, swept her long black hair from her face, and took his arm as they marched towards the exit. ‘‘Where’s your boyfriend, Peter?’’ ‘‘Oh. He’s off the island this week on business. He wants to expand the hotel so he’s off to London to present his plans to some possible backers. How’s Ruth and the babies?’’ ‘‘Excellent. At home, doing well.’’ Bill jumped into the passenger seat of Helen’s small car, and they were soon chugging along the coast towards the cottage. Bill studied the spectacular views of the island’s east coast as dramatic white cliffs with blue swirling seas swept into view, to be replaced a few minutes later with rural scenes of fields, sheep, and large cattle on the inland side of the island. They passed small touristy towns with much quieter villages in between. Helen talked about her new life, her spontaneous decision to

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remain on the island and give up the fast-lane banking world that she had flourished in back in Hong Kong. Her instinctive choice of a partner had proved so right. Bill smiled as he listened to Helen’s account of her newfound happiness and how she reveled in the fact that she had not even left this small island since she first came to it last year. The car soon swept down the cliffside road, into Freshwater Bay, and Bill glanced at his cottage as they passed it and stopped at the hotel nearby. Helen waved Bill forward as he strained his neck to look at his cottage, and she said sharply, ‘‘Leave the cottage for a bit. It’s real late, so let’s get you into the hotel and you can check it out first thing tomorrow.’’ Bill grudgingly agreed, and he soon found himself in a nice-looking suite at the front of the hotel, with instructions to come downstairs as soon as he was unpacked.

Bill sat opposite Helen in the well-laid-out hotel lounge bar and glanced around at the young men and women dressed in smart black outfits, flitting around serving guests. He waved his hands in the general direction of the bar and said, ‘‘This is so impressive.’’ Helen laughed out loud, ‘‘If you weren’t here I might be running round just like my team. It’s Peter’s dream come true. A smart hotel with fancy fittings and happy guests. But actually, I really don’t do a lot most days.’’ ‘‘Why’s that?’’ Helen looked embarrassed, ‘‘What I mean is, I focus on my risk management work most times. Tell me Bill, what project are you on? I know you’re a projects man.’’ Bill leaned back as a young man placed a plate of ribs, fries, and a fresh salad in front of him. He licked his lips in dramatic fashion and said slowly, ‘‘Well. The latest big idea is fraud. Corporate fraud prevention and so on. You up on that?’’ ‘‘A bit. You know I was into venture capital, takeovers, and mergers, but now I’m doing risk management software with Maria. Or, at least

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helping out. I do know a bit about criminology and detection. We used to assess smaller companies before launching our takeover bids. And among other things, we were on the lookout for fraud. But I never got into it too much.’’ Helen suddenly snapped her fingers and almost shouted out, ‘‘Hang on. I just remembered. Maria’s coming over in a few days, so we can check up on progress with our risk management work. We meet up every now and then, and since I told her I didn’t really like to leave the island, she comes here. I think she looks forward to her trips here. She’s pretty hot on fraud stuff. Yes, I remember now—she covers that aspect of the software.’’ Bill tucked into his meal and recalled his first meeting with Maria. He was naked, standing outside her hotel room, having been accidentally locked out and mistaking Maria’s room number for Helen’s. He shivered as he suddenly thought that it would probably have been worse, standing naked in front of Helen. Helen seemed to read his mind and asked, ‘‘What’s wrong. Maria is absolutely fine with you, you know that. Both undressed or fully clothed.’’ Bill choked on his ribs and dabbed his mouth with a tissue. ‘‘Funny,’’ Bill said, ‘‘But it’s real good that Maria’s into fraud. I gotta do a little research while I’m away from work, and she may have a few ideas.’’ Bill finished his meal and Helen grabbed his hand and said like an excited schooler, ‘‘Come with me. The bay should be roaring right now.’’ They left the lounge and walked down into Freshwater Bay; in the dark, the raging sea sounded like a hundred angry lions. They walked across to the railings that surrounded the seawall and looked down into the dark seas as the white surf swirled around, gushing alternatively backwards and forwards. A few tiny red and blue lights were glinting over towards the right of the bay, and Bill pointed towards them. ‘‘What’s that? Those lights over there,’’ he asked. Helen squinted her eyes.

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‘‘Okay,’’ she replied. ‘‘Those are a couple of local guys fishing. The lights are attached to the rods. They stay out there for hours and usually come back with a couple of fish. It’s a recreation thing, really.’’ In the dark Bill could not see Helen’s face, but he could feel her contentment. Before he could stop himself he said, ‘‘You’re really happy here, aren’t you?’’ ‘‘Bill, this is the first time I’ve found anything real. My parents are coming over at Christmas to meet Peter. Things are just great. How about you?’’ ‘‘Same. Home is great, but work is demanding. Let me tell you what I plan for the fraud project, and you tell me if it sounds right.’’ Helen listened as Bill explained the fraud project in detail and the tasks he had set Jack and Snouter. Helen nodded as he relayed the importance of the initiative. As Helen stared up at the myriad of stars that circled the bay, Bill finally finished his summary. As he stopped talking, Helen tapped his left shoulder and said, ‘‘You know, I still track stock markets and financial currency flows. It’s just something that when it’s in your blood, you can’t let go. I buy and sell a little here and there, and I tell you this Bill; there’s a rumor that your company’s trying to get on the New York Stock Exchange later in the year. That’s why they are setting up governance structures. Compliance units, audit committees, and now this fraud policy project—they all fit in with this objective. It’s real important they get it right.’’ Bill laughed, and the sea spray lightly showered him and Helen, as he said, ‘‘Unbelievable. That is so unreal. You’re here on this little island, and you know more about my New York business than me.’’ Helen wiped the sea water from her face and laughed back, ‘‘It’s a global, web-based world now. No borders—just business, goods, and money moving around the world. Look, you must be tired. I could stay here all night, but I guess you want to get some rest. We’ll look at your cottage tomorrow. Okay?’’ ‘‘Yep. I could use some shut-eye. But tell me, Helen, do you think my project plan’s okay?’’

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Helen pursed her lips, ‘‘Well I know that we use to run lunchtime fraud sessions for high-risk parts of the business. That’s really the accounts, investments, and purchasing departments. We hosted a buffet lunch and then spent about an hour discussing fraud and its impact. I wasn’t involved in that, but I know it happened in my old company now and again.’’ Bill looked upwards at the stars. ‘‘Okay,’’ he said, ‘‘sounds good.’’ Helen continued, ‘‘And I know that we used to check new companies that we were interested in for their investigation standards—how they carried out internal inquiries and complaints handling. We wanted to see a written document, some kind of set standard.’’ Again, Bill pondered these ideas while Helen continued, ‘‘Apart from those two things, your plan seems fine to me.’’ Bill seemed relieved and said, ‘‘I’ll e-mail Jack tonight about your ideas. Tell you what, when we’ve done the cottage thing, perhaps I can talk to Maria when she gets here. You think she’d be okay with that?’’ ‘‘Sure thing.’’ At that, they both turned and walked slowly away from the roaring bay, and Helen looked briefly at Bill’s profile set against the full moon that had now appeared. She saw a look of fixed determination and remembered her time at work, when the business was all-consuming and she could not see beyond her day job. That was Bill right now. But maybe he could be happy at the same time. At least he had a pretty wife and kids that he could come home to each night to counterbalance the high-stress job. Yes, it seemed that Bill had finally got his life sorted out.

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chapter 5

PLANS INTO ACTION

B

ack in New York, Jack grimaced as he looked around the dingy office that had been assigned to Snouter. He was sitting in the basement of Bill’s headquarters at a small desk that just about accommodated two chairs. Snouter’s office was lit by two strips of ceiling lights, which cast their shadows across the room like a scene in a low-budget horror movie. Jack sniffed the air as if expecting to find a rancid smell, which existed more in his imagination than in reality. He sat back in his chair and tested its strength as Snouter came into the room with two steaming cups of coffee. ‘‘Hey Jack. Grab this!’’ Jack set his cup down on the desk and watched Snouter as he slid into his chair and clasped his hands together looking straight at Jack. Jack picked up his coffee, took an experimental sip, and said, ‘‘Let’s get a list together.’’ Snouter looked around and grabbed a single sheet of paper and a pen. ‘‘Shoot,’’ he said in his high-pitched voice. ‘‘Right. The tasks. . . .’’ Snouter interrupted, ‘‘I can get this—It’s simple. . . .’’ Jack held up a finger and said, ‘‘Hold up, Snouter. I just got an e-mail from Bill, and we have some new things to do. Okay, we need to redo the video—your little fraud video. I need to check your compliance program, and we need to draft a fraud policy. Oh yeah, and see if we can find any current frauds.’’ 38

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‘‘Agreed.’’ ‘‘But the new tasks. We have to—hang on let me read out the e-mail.’’ Jack grabbed a document from his jacket and read, ‘‘Run a lunchtime fraud briefing for the procurement team in New York, and write out our approach to investigations.’’ Snouter wrote these items down and then gulped down his coffee and said, ‘‘What’s that about?’’ Jack scratched his head, ‘‘Just some more tasks, which shouldn’t be a problem. Okay, the video. Plug in the DVD and let’s watch it again.’’ They watched in silence as Snouter told his viewers about his compliance role and how we all need to be aware, be careful, and be good. Snouter warned of the growing dangers of fraud and told his story about a fraud case he had been involved in. As before, he closed with his contact details for those who might have information on possible frauds. The video ended, and Jack broke the sudden silence by reaching for his coffee and then saying, ‘‘My background is pretty much investigations from the audit perspective. But as a staff orientation session I can’t see anything wrong with your video. It’s not real slick, but if it were it could put people off. It’s straight down the line and focused.’’ Snouter nodded. Jack stared at the blank computer screen and continued, ‘‘You think we should sharpen it up?’’ Snouter rubbed his unshaven chin, and a sharp scratching noise rang out as he said, ‘‘To be honest, it’s done. The video is finished, and the two marketing people who helped me do it are back in their Dallas office. Davis Middleton, the CFO, has signed off on it, and I’m not sure I could change it even if we wanted to.’’ Jack stood up, replying, ‘‘I’m fine with it. Let’s report to Bill that we examined it further and it fits the bill. Task one completed.’’

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At that, one of the strip lights started to flicker and Snouter reached for a broom and started to knock it gently. Jack reached for the doorknob and said, ‘‘I gotta get out of this office. It’s making me feel tired. Let’s get out and discuss the other tasks. Bring your laptop.’’ Snouter gave the light one last tap, and it shut down altogether. He switched off the laptop and thrust it into a bag and said, ‘‘Let’s go.’’

At a nearby diner, Jack and Snouter sat in a booth. The laptop whirled into action as Jack switched it on and hovered over the keyboard. Snouter looked nervously at his watch and, using an even higherpitched voice, said, ‘‘How long’s this work gonna take. I got to get back to my compliance work. I’m supposed to be in Boston sometime this week.’’ Jack looked up from the laptop. ‘‘Snouter, we need to get something straight. Bill needs to get the fraud project done, and you work for him now.’’ Snouter looked hurt and said, ‘‘But that’s when Bill’s back. I mean, I start with Bill when he’s back at work. But I still gotta do the visits and checks for the Chief Finance Officer. I give him a monthly update on all my visits and checks.’’ Jack jabbed his finger at Snouter and asked, ‘‘What do you actually check?’’ ‘‘Inventories, payments, expenses, new accounts, and written complaints and other things on my audit program. I have to get to each local office once a year.’’ Snouter’s voice reached an even higher note as he continued, ‘‘And it’s hard going, pal.’’ Jack sat back, ‘‘Okay. Cool it. It’s just that we have to take time out and review things. I’ll talk to Davis Middleton, the CFO, about that. Oh, I got to call

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the procurement manager and set up this lunchtime session—the fraud awareness session.’’ Snouter looked down at his burger and sulked as Jack pulled out a phone list and punched some numbers into his cell phone. He spoke to the procurement manager and got full agreement to meet with his team, tomorrow lunchtime, to do the session. Jack then punched in another set of numbers and got the CFO. He explained that Snouter was needed to support the work commissioned by the audit committee and that without Snouter’s participation the antifraud program would suffer. Jack patted Snouter’s shoulder to cheer him up and said, ‘‘Your CFO seems like a nice guy. He couldn’t have been more helpful. He says that the compliance results get reported to the audit committee, and if they want to embark on other things then they would understand that it would delay compliance work. Like I say, a real nice guy.’’ Snouter nodded, and although he seemed to have cooled down he said, ‘‘Yeah. He’s okay as long as I get the compliance plan done.’’ Jack thought about all the places he could be right now and sighed. ‘‘Right, Snouter. Let’s take your video and extract the policy issues.’’ Snouter quoted as Jack typed on the laptop, ‘‘We defined fraud as the use of deception to obtain an advantage, avoiding an obligation, or causing loss to another party. We have three requirements: 1. Be aware, 2. Be careful, 3. And be good. ‘‘Write down the personal standards as Don’t break the law. Don’t deceive or mislead. Don’t allow conflicts of interest to affect decisions. Don’t use company resources for private use.

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Do comply with laws and procedures. Do install good procedures. Do seek approval where necessary. Do record reasons for decisions. Be honest, impartial, and evenhanded. Seek value for money in the use of company resources. Keep good records where appropriate.

Finally, put in that if anyone knows anything going on they will need to report it straight away. Oh, and end with the fact that we here are on zero tolerance, as far as fraud and irregularity goes.’’ Jack typed frantically and eventually said, ‘‘Let’s put the zero tolerance thing right at the start.’’ Snouter nodded, and for the first time that day he smiled and looked relaxed. Jack seemed pleased too, and spent a few minutes tidying up the wording. ‘‘This is great. We’re on day one, and we have the video and the fraud policy done. Snouter, we’re a team my friend.’’ Jack rubbed his hands together and smiled again as he called the elderly waiter. He started to order two beers, but Snouter stopped him and asked for the check and then said, ‘‘Don’t worry. Let’s go to the Z Bar instead. I think they have a wider selection of beers.’’

Snouter led the way, and the two men were soon seated in a busy but cozy mid-Manhattan bar. Snouter got two beers and laid them down on the table. He pulled out a fresh sheet of paper and said, ‘‘Forget the laptop. Let’s just write it down. Tomorrow’s fraud session. What do we do?’’ Jack asked, ‘‘Have you done it before?’’

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Snouter drank at his beer and sneered, ‘‘Nah. But to me it’s about our policy. Let’s take them through our fraud policy. Yes?’’ Jack had taken hold of the pen and tapped it against his lips, ‘‘Agreed. We tell them what fraud is. Hold on, let’s list it: 1. Define fraud and explain our definition 2. Zero tolerance and why this is important 3. Snouter—your role and your compliance checks. Tell them about that 4. Fraud stories and a few more examples Okay what next?’’ Snouter finished his beer and was looking longingly at the waitress who had her back to him. He snapped out of his trance and said, ‘‘What next? The three rules come next: be aware, be careful, and be good.’’ Jack wrote. He turned to Snouter and continued, ‘‘Let’s go over the ‘be good’ part and ask for feedback. You know the ‘don’t break the law,’ ‘don’t deceive,’ and all that. Say, ask them whether it’s easy to keep to these standards. It could be a team exercise.’’ Snouter shouted out, ‘‘Miss, two more beers, sweetheart.’’ Jack was about to say something when Snouter jumped in, ‘‘We close with the hotline. We say, ‘Call me if you know anything bad.’ I mean, ‘if you know whether anything bad is happening.’’’ Jack whipped the paper off the table as the waitress thumped down two large glasses of beer. Snouter grabbed his drink and attacked it eagerly. Jack sat back and dropped his pencil down onto the table, ‘‘We’ve done it. It’s done, buddy.’’ Snouter excused himself and went off in search of the men’s room. Jack opened the laptop and started typing quickly, looking at the words he had scribbled down. He worked through the notes and soon had a document that looked quite impressive. After he had finished, he looked

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around for Snouter and saw him at the bar gulping down a new large glass of cold beer. Jack shouted out, ‘‘Snouter—get over here.’’ Snouter finished his beer and came over with two fresh glasses of beer and banged them down. He slumped into his chair and looked annoyed. Slurring his words he spouted out, ‘‘Yes. We’ve done it alright. But what about me? I got to do one hundred checks a week. It takes all my time, and when the fools call me up and complain about their boss, I don’t have time to do anything. What should I do—go tell off their boss? It’s a joke. I’m tied up in string, and it’s getting worse.’’ Jack looked at Snouter and said, ‘‘Cheer up. We have a plan, and remember I’m going to look at your compliance program after we’ve got the first seminar out of the way. We’ll make sure it’s sensible. Now I’m going to take off and e-mail this session plan to Bill. We’ll do the compliance program on Thursday, but tomorrow morning let’s focus on the fraud awareness lunchtime session and—Oh yes, we can look at investigations standards after that. Yes? You ready?’’ Snouter relaxed in his chair and said, ‘‘I’m okay. Leave me here, and I’ll find my way home.’’ Jack got up and placed a hand on Snouter’s shoulder and walked out of the bar. He looked back at Snouter and saw a man hunched over his seat, staring at the backs of his hairy hands.

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chapter 6

CRIMINOLOGY AT BAY

H

elen drove skillfully through the country roads outside of Freshwater on the way to the marina at Yarmouth, with Bill sitting quietly beside her. Before they got to Yarmouth, she turned off on the left into a narrow lane with various neat and tidy houses dotted along either side. The road got increasingly narrow until it opened up into a large parking lot surrounded by a series of buildings that appeared to be from a bygone era. Helen parked the car and said to Bill, ‘‘This is Fort Victoria. I only discovered it a few weeks ago.’’ Bill got out of the car and looked around before asking, ‘‘What is it?’’ ‘‘It’s an old fort that was built in the 1850s as a part of England’s maritime defenses. The actual barracks were demolished some time ago, and now it’s preserved as an historical site.’’ Bill stretched his large frame and looked around at the small museums and what looked like an aquarium built within the fort walls. They both walked through a large arch into a grassy cliff top area with wide views across the sea to Lymington on the mainland. A beach was visible towards the left, and children ran around on the grass while several men and women stood immobile, fishing alongside the low cliff. Helen guided Bill towards a cafe with tables and chairs placed outside, and as Bill sat down she went to buy tea and cakes. Bill pulled out the e-mail from Jack and read the fraud policy and the sessions for today’s fraud awareness seminar that Jack and Snouter were planning for the 45

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purchasing staff. It looked okay. They were making good progress, so perhaps he could relax a bit and enjoy this short break. Helen came back and carefully placed a tray laden with cups, a large teapot, and various sweet cakes and cream. Bill smiled and asked, ‘‘You practicing for motherhood?’’ Helen blushed and poured tea while Bill watched her. She finally said, ‘‘Well what do you think of the cottage?’’ Bill’s mind went back to the morning, when he had finally looked through the cottage that now belonged to him. ‘‘Small, cozy, and cluttered, with a massive untidy garden—but real cute,’’ he answered. Helen stared out to sea and said, ‘‘What do you want to do then?’’ ‘‘I want it gutted. I mean we can store my aunt’s nice things, strip out the furniture, and do it up as a holiday cottage.’’ ‘‘Excellent. My opinion too. You can rent it out to tourists, and you can use it whenever you want. How about you choose the furnishing later on from the Internet, and I’ll organize the rest. Just tell me what you want to keep and, you know, color schemes and such. We’ll need to sort out the giant garden, it’s so overgrown’’ Bill shrugged his shoulders, saying, ‘‘You choose—design, furniture, color scheme. Do it like the hotel, and I’ll just put stickers on what should be stored. I really trust your style, honestly. I’ll bring Ruth and the kids next summer, and you can surprise us.’’ Helen accepted this commission, and they sat back in a comfortable silence to enjoy this time out. Helen looked at Bill, who had raised his face to the sun and had his eyes closed. She thought that he had finally switched off from work. Excellent. She vowed to bring her boyfriend here, and hoped that this would happen to him too. Bill shivered as he suddenly remembered his big fraud project. He opened his eyes with a start and said,

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‘‘Oh Helen, you said you know a bit about, um, crime?’’ ‘‘Criminology. Why people misbehave.’’ Bill closed his eyes again. He continued, ‘‘Tell me about it. It could come in useful. That is, if you don’t mind.’’ Helen sighed and tasted one of the cakes. ‘‘Here we go,’’ she thought, ‘‘back to basics.’’ ‘‘Right, sir. You know about my work on acquisitions. I used to buy going concerns that fitted with our portfolio. We looked all around the world, and it soon became clear that the worst fraudsters didn’t rob companies; they just bought companies to do their dirty work for them. I had to spend more and more time examining the background of new clients—say, from Eastern Europe—and some of the new emerging economies. Deception is about seeking to gain an unfair advantage, and now business is so much more complex and things move so quickly, you can get burnt if you’re not real careful. I had a checklist of danger signs.’’ ‘‘Which are?’’ ‘‘Well, let me see. Things like, say, an understaffed internal audit unit, vague accounting policies, poor basic controls, real fast global expansion. Things like that. And there really is a need for much better fraud risk management. You can’t just go on face value. Some people start out good but drift into fraud, say because of debt or an expensive lifestyle—you know, school fees, mortgages, and the rest. It soon became clear that people can go bad, and no one can be trusted absolutely. I analyzed one company and found that the CEO was a crook. When I confronted him, he said that he was expecting it. He had so much debt that he dipped into corporate funds, and when he had paid off his debt, he just continued. He bought himself fast cars and went on exotic vacations.’’ Bill was now sitting up straight and concentrating on Helen’s messages. He leaned forward and said, ‘‘Seems that some people get up to all sorts.’’ Helen sat back and thought about it. ‘‘There’s a tool developed by Dr. Donald Cressey called Cressey’s fraud triangle. It works like this. There are three main factors that underlie corporate fraud.’’

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Using her fingers to count, she continued, ‘‘1. Perceived opportunity—say, to solve a personal financial problem by being trusted and then violating this trust. 2. Pressure—say, to deal with an unsolvable financial problem by spending more than you make. 3. Rationalization—where the crime seems to the fraudster not to be a crime at all. Often, they argue that they’ll pay it back or they feel that they’re underpaid by their employer. This last point is important, as it may be that people who have always been trusted may go bad but will justify it to themselves. Scary, isn’t it? Some people confess when they find that the crime can’t be rationalized.’’ Bill folded his arms and replied, ‘‘I see what you mean. Right and wrong get blurred. Yes, it is scary when you put it like that.’’ ‘‘Things were pretty simple in the past,’’ Helen said, ‘‘I would look at a business and decide whether we could finance it, partner it, take it over, or whatever. But now the first thing I have to ask is whether it is as it seems. I evaluated one vehicle-repair company, and I couldn’t understand why it made such a loss when it was well set up to succeed. Anyway, in the end we found out that the purchasing manager had adjusted the stock-control system so that inventory reports were unclear. Then he replicated his company’s repair service firm in his own garage and diverted inventory to run his most profitable private business.’’ Bill tugged at his ear to make sure he was hearing properly. ‘‘You mean something pretty severe could be happening in my own company and we wouldn’t know?’’ ‘‘What I’m saying Bill is that you must take your risk management process seriously. Remember that guy at the London conference we went to last year who was banging on about fraud issues in risk management. You need to make sure threats like fraud risks are bolted down. But the real good fraudsters—sorry, I mean the real bad fraudsters—get hold of your risk strategy and develop their own counter-strategy. The

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purchasing manager in my example knew that accurate reports would expose his scam, so he developed his own way of managing the risk of getting found out. It’s rough out there, Bill.’’ Bill got up and said, ‘‘Lets walk a bit.’’ They strolled along the path that bordered the sea and looked at the dozens of boats and yachts that drifted by, blown by the sea breezes. Bill shoved his hands down into his pockets; after a while he asked, ‘‘How do we deal with the problem? I mean, how did you cope?’’ Helen shrugged her shoulders and responded, ‘‘I’m not in that game anymore. But when I was, I developed a checklist to assess companies against the risk of fraud. Put your notepaper on this bench, and I’ll draw my model for you (see Exhibit 6.1). ‘‘I assess the potential impact of fraud by looking at things like the value of assets at risk—whether these assets are portable and easy to convert, whether the company operates in a volatile country that has a history of fraud and scandal. I score the company high if it has a high inherent fraud risk. Then I look for possible control weaknesses, such as a board dominated by a few people with disproportionate personal interests in stock values, possible management override of controls, and no ethical direction from the top. Where there is also a weak audit and compliance process, I score the company as having high possible control 6.1

Fraud: Danger Zone Inherent Fraud Risk

EXHIBIT

DANGER ZONE

Know Control Weaknesses

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weaknesses. Companies that operate in high-fraud-risk ventures and also have poor controls end up at the top right-hand corner of my model, which I call the Danger Zone. I tend to stay far away from these sorts of companies.’’ Bill looked carefully at the model and asked, ‘‘Can I have this—for work?’’ ‘‘Oh sure. It’s pretty straightforward.’’ Bill studied the scratched model further and said, ‘‘I agree, it’s logical and easy to use. But there is one item that is a little complex—what you call the management control override.’’ Helen was starting to feel tired and wanted to get back to Freshwater Bay and meditate on the sea, as she did most evenings. She looked at Bill’s eager face and continued her explanations, ‘‘Yes. The override thing is tricky. Basically, the design of controls, the governance structures, and the published standards can look great on paper, but the reality can be quite different. People can override controls, and the higher up the tree, the more this can happen. Accounting standards can be in place and corporate rules may say who does what to ensure that these standards are observed. The external auditors review the accounts, but if rules are broken or simply got around, the published financials may be misleading. I guess that where personal fortunes are more or less based on performance and where executives are on shortterm contracts and big incentives, then you have to ask how decisions are made—because they are right or because they suit the decision maker? It’s not just financials that are at risk. I know of one case where hospital doctors were encouraged to write down pneumonia for cause of death when in fact it was due to a cross-infection called MRSA. This was to stop a rise in reported cases, which then meant missing clean-up targets. But it’s the financial statements that are so easy to fiddle. You can fabricate stuff or just fix adjustments or accounting period allocations to skew the results. And there’s more—I’ve seen it all.’’ Helen spotted a dark cloud moving towards them and said, ‘‘We’d better get back. The hotel manager’s good, but I like to be around when Peter’s out.’’

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Bill did not move and seemed transfixed by Helen’s comments. He said slowly, ‘‘It can’t be all bad. What’s happening to straighten things out?’’ Helen sat back down, ‘‘Lots. Audit committees, Sarbanes-Oxley, international accounting standards, and more.’’ Bill smiled, ‘‘Explain.’’ Helen got up again and said sweetly, ‘‘Not now. We’ll get together later, and I’ll give you my views. But let’s have a break, please?’’ Bill got up and bowed deeply, ‘‘My lady, let us go,’’ he said, as the dark clouds seemed to be positioning themselves right above them.

Later that evening, Bill found himself in a bar with Helen, overlooking Freshwater Bay. Because it was raining, Helen agreed not to stand outside tonight. Helen swirled her glass and said dreamily, ‘‘Whenever Peter goes away, I miss him so much.’’ Bill smiled, and Helen continued, ‘‘He’s asked me to marry him.’’ Bill started, ‘‘And. . . ?’’ Helen drank her wine, and when she raised her eyes they sparkled with delight, ‘‘And when he gets back I’m going to accept.’’ Bill reached over and hugged his friend. ‘‘That’s wonderful,’’ he blurted out, pulling back when he realized several elderly customers were now staring at them. Helen blushed and said, ‘‘I shouldn’t have told you, since he doesn’t know my answer yet. Keep it a secret?’’

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‘‘Oh yes, certainly,’’ Bill said quickly and thought hard about how to change the subject. He became serious once more and said, ‘‘You were telling about the kind of corporate fraud that’s out there.’’ ‘‘Of course. I promised to talk about my approach. You’re right. You recall seeing President Bush broadcasting his concerns about fraud in the economy a few years ago. The Enrons and WorldComs had just broken, and it was clear that a couple of dominant managers could bring down a huge company. Most business failures were due to bad strategic decisions, followed by attempts to cover up these problems. But sometimes it’s just about pure greed and insolence. I used to track all the major stock markets, and the U.S. approach was about using a big stick to enforce good governance to make sure companies could deal with an aggressive executive—or corporate misreporting. The sanctions are real heavy now, and corporate people can go to jail for behaving badly. Having tough audit committees oversee corporate accounting and audit practices was considered crucial to preventing corporate fraud. This move worked alongside a strong code of ethics, where all employees were deemed accountable to act within the code and keep it real. The idea was to tackle fraudulent financial reporting, misappropriation of assets, and basic corruption. So the audit committee starts by looking at executives’ incentives and figuring out what really motivates the top team. People are starting to ask U.S. corporations less about their profits and more about whether they are making a positive contribution to society over and above just more jobs and wealth creation.’’ Bill tried to make out the shape of the bay through the windows. He suddenly felt very tired and realized he was missing his wife and the new babies. Worse still, he was finding it hard to concentrate on Helen’s words of wisdom. He blinked his eyes hard and said, ‘‘Is it working out? This big new change?’’ Helen laughed and replied, ‘‘You’re dropping off. What have I been saying?’’ Bill scratched his chin, ‘‘Uh, bad managers, corrupt business, and the solutions. Right?’’

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Criminology at Bay

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‘‘Just about.’’ Bill looked relieved and said, ‘‘That’s great. Thanks for the rundown. Let’s get a drink. Hot tea?’’ Helen pursed her lips deeply and, for a spilt second, in a weird sort of way, looked just like Bill’s mother-in-law. ‘‘Hang on, big boy. You wanted to know about this. And I’ve not covered accounting standards and Sarbanes-Oxley.’’ Bill looked afraid while Helen thumped the table, ‘‘And Maria’s here tomorrow and she’ll take over as our fraud expert. But I want to tell you about my side—regulations!’’ Bill looked around for help, and an elderly lady sitting next to Bill said, ‘‘Do as she says, dear. It’ll be much easier, you’ll see.’’ And Bill smiled wearily. ‘‘Sit down.’’ Helen ordered, ‘‘I’ll get the tea and you get ready to listen.’’

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chapter 7

THE FIRST SEMINAR

J

ack looked at Snouter and was thankful to note that his suit was clean and he had shaved properly for once. The two men sat on their chairs facing a semicircle of empty chairs that would soon be full of purchasing personnel. Jack nudged Snouter and said, ‘‘Great idea of yours. Recording the seminar digitally. We’ll give a copy to Bill and show him what progress we’ve made. And we can put the thing on the intranet so that we can get other groups to log on. Is the camera on?’’ Snouter looked pleased with himself as he mumbled, ‘‘You bet. See that red light blinking? It’s up and running, baby.’’ A young man with long hair drifted into the room, and Jack waved him towards the chairs and said, ‘‘Please take a seat.’’ He flopped into the first chair, and thereafter an assortment of people arrived, and each found a seat. An older man came in and sat down. He was short and round and when he had tucked his legs under his chair, he smiled broadly at Snouter. Young and old alike shuffled in their seats; some engaged in small talk, while others looked around at their close and not-so-close colleagues. When each chair was filled, Jack stood up and faced the group of about twelve people. ‘‘Erh-hmm. . . .’’ Jack cleared his throat and looked around; he continued, 54

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‘‘Many thanks for giving up your valuable time to come here today. My name is Jack Durham. I’m a freelance consultant, and some of you will know the compliance officer, Mr. Snouthouse, whom most people know as Snouter. Anyway, Snouter reports to Bill Reynolds, your corporate planning officer, who is going to be in charge of the fraud policy. We are here today to have a brief look at the corporate fraud policy and discuss the importance of good fraud prevention. May I ask you to identify yourselves, from left to right, please?’’ A nervous-looking man in his late forties wearing a crumpled gray suit said, ‘‘Johnson. Steve Johnson from contract control.’’ A middle-aged woman said, ‘‘Amy Stryphos.’’ One after the other, each person announced his or her name, some doing so dramatically while others simply whispered. The tenth person, a slim Indian man, looked surprised when his turn came, and he said, ‘‘Dhiru Madrass. Not procurement, document retention sir.’’ Snouter snapped to attention and said instinctively, ‘‘Oh, it’s you.’’ A strange silence descended on the group. Jack waved at the next person, who obliged with name and rank. When this warming-up process was finished, Jack sat down and Snouter stood up and looked worriedly at the group members. He paced up and down a few times as if deciding what to say and then said in his high-pitched voice, ‘‘Can anyone here come up with a good definition of fraud?’’ Silence ensued, and people started looking at each other. After a while a large woman with a stern attitude offered up her views, saying, ‘‘It’s the fat cats creaming off the fat.’’ Snouter ignored this comment and after a bit of a wait he glanced down at a sheet of paper he was carrying, and said, ‘‘Fraud is the use of deception to obtain an advantage, avoiding an obligation or causing loss to another party.’’

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Snouter looked around at the assembled persons who were either frowning or scratching their heads. He rubbed his hand together and abruptly sat down. Jack leapt up and looked around the group. He smiled broadly and said, ‘‘We are aiming at zero tolerance. There is no leeway, and we will prosecute all offenders. It is Snouter’s job to check compliance at all company sites, and you may well see him around. Fraud is serious, and I will let Snouter tell you how it can hurt a business.’’ Snouter stood back up and grinned. Then he said, ‘‘I know of one case where a finance staffer stole over $500,000 from her company to fund her addiction to gambling. She blew $90,000 of her own money; and then she stole company funds, as she had a special password that allowed her to funnel money into five different accounts. She had actually been headhunted for the job even though she had three convictions for dishonesty as a teenager. At work she was a trusted and liked employee, and her boss shared his password with her many times. She made transfers as payments to suppliers but paid them into her own account. In the end, she had no idea what she had taken, but she reckoned it was due to her gambling disease, not greed. The judge still gave her a custodial sentence.’’ The audience looked scared and Snouter asked, ‘‘Any comments on this case?’’ Again there was silence until Dhiru asked, ‘‘Did anyone blow whistle?’’ Snouter asked, ‘‘What do you think?’’ Dhiru shrugged and waited for an answer. The long-haired youngster shouted out, ‘‘Did she confess?’’ Snouter smiled; with his hand behind his back, he simply walked up and down for a few minutes and eventually said, ‘‘The auditors found her out.’’ Jack jumped up and said,

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‘‘Many thanks, Snouter. Let’s go over our basic fraud model, which is 1. Be aware, 2. Be careful, 3. And be good. ‘‘The ‘be good’ bit is interesting. It means: Don’t break the law. Don’t deceive or mislead. Don’t allow conflicts of interest to affect decisions. Don’t use company resources for private use. Do comply with laws and procedures. Do install good procedures. Do seek approval where necessary. Do record reasons for decisions. Be honest, impartial, and evenhanded. Seek value for money in use of company resources. Keep good records where appropriate.’’

Jack let these words sink in and then said, ‘‘We have covered a lot of ground today, and I thank you for your time. Let me ask Snouter to say the final words.’’ Snouter stood up, wiped a bead of sweat from his forehead, and said, ‘‘Remember—be aware, be careful, and be good. And if you know of anything suspicious, then give me a ring or e-mail me. My contact details are on the flipchart behind me. Don’t be afraid to talk to me. Many thanks, and goodbye.’’ With that, the group slowly got up, and each person drifted towards the door. A couple of them took the time to say farewell to Jack and Snouter before departing. Jack grinned broadly, grabbed Snouter’s hand, and gave it a firm shake before saying, ‘‘Well done. It’s in the bag and on film.’’ Snouter spun around and took the disk out of the camcorder and slipped it into his pocket, saying,

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‘‘I’ll e-mail this video to Bill, and how about we meet up in say ten minutes and celebrate?’’ Jack laughed, ‘‘You’re on. I’ll be downstairs in ten.’’

The manager of the Z Bar waved at Jack and Snouter as they came in and sat down. These two dudes were fast becoming his best customers, and he considered them from a distance and wondered whether they were gay. He quite fancied Snouter. Snouter approached the bar and said, ‘‘The usual, Freddy.’’ This order assumed that the manager, who could not for the life of him recall what they drank, knew what to do. He quickly considered this dilemma and said, ‘‘Try something different. What about a cocktail?’’ Snouter sneered, ‘‘Just two beers. Why experiment?’’ Freddy sniffed loudly poured two beers and said, ‘‘Why not experiment sometime?’’ Snouter thanked him and moved back towards Jack, trying to make sense of this conversation. By the time he sat down he had given up this task and noticed the animated look on Jack’s face, who seemed pleased with having run his first staff seminar. Snouter placed down the beers and said, ‘‘Here we go.’’ And with that the two men started their celebrations in earnest. Jack told Snouter about his freelance consulting projects and the time he had spent in Jamaica when his wife had worked with the University of the West Indies. Snouter described how he had always been interested in detective work but how he now found the compliance role tedious. The two men had a lot in common, and it was turning out to be quite a session when Jack’s cell phone rang.

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He grabbed the phone and grunted a series of ‘‘Yes, yes, yes,’’ before turning to Snouter and saying, ‘‘How about coming back to my place? I mean Bill’s place. Ruth said she and her mom had cooked an entire menu and they want us to try it out.’’ Snouter went into a dreamlike state as he considered this, the perfect end to the day; he visualized the tantalizing dishes that he had sampled the last time he had visited Bill’s place. The bar manager got a good tip, and he thanked Snouter with an engaging smile.

On the train to Bill’s house the two men made an effort to engage in serious conversation despite the beers that they had earlier consumed. Jack flapped his hand around as he boasted about their progress to a nodding Snouter, ‘‘We’ve done the video. I mean you’ve done it, okay. We’ve done the fraud policy. We’ve done the seminar.’’ Snouter joined the game and in his squealing voice said, ‘‘And we’ve done—uh, we need to do the investigation thing—the standards.’’ Jack ignored this interruption and continued, ‘‘We need to do the investigations standard. And I need to check your compliance programs. And I—we need to run some sweeps. I got some fraud detection software for this. And then that’s it.’’ Snouter responded again, ‘‘Yes. Bill’s back at the weekend and we can be finished by then. What a great achievement, huh? What a wonderful thing for us and everyone, right?’’ Jack’s chin sat on his chest and he was snoring softly. Snouter said almost to himself, ‘‘I hope this seminar doesn’t mean I get any more stupid phone calls. Informers, and sneaks, and telltales. Jack. . . . ’’ He nudged Jack’s shoulder, and Jack blinked his eyes open.

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Snouter mumbled, ‘‘I hope that clown stops calling me. He’s done the seminar, and he knows about fraud now. So he can give me a break, can’t he?’’ Jack agreed and drifted off again.

They arrived at Bill’s house and were greeted by Ruth and her mother, who stripped off their jackets and insisted they go upstairs, wash up, and then get seated in the dining room for their dinner. Jack and Snouter swayed upstairs holding tightly to the railings and were soon back at their seats in the dining room. The table was formally set with decorations, place mats, and a variety of steaming dishes laid out in the middle. Snouter needed no prompting, and he soon spooned portions from most of the dishes onto his plate and got started on the meal. Jack was a little more discreet and attempted polite conversation as he chose his selection with care. Ruth and mama Bess sat back and watched the two men consume their meal with pleasure. They looked at each other in triumph as silence descended on the room, broken only by the sound of munching and comments about how good the food tasted. Jack stopped only to pour wine for all four parties and after a while sat back and said to Ruth, ‘‘You really shouldn’t have gone to so much trouble.’’ Ruth smiled and said, ‘‘No bother. I like to try out different things. Oh hang on; the babies are crying, please excuse me.’’ And with that she got up and left. Mama Bess studied the two men for a minute and then said, ‘‘How you getting on at work boys?’’ Snouter finally stopped eating and replied through a full mouth, ‘‘It’s great, thanks. We got this fraud thing licked.’’ Jack agreed and asked if he could go upstairs to say hello to the babies.

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‘‘Go on Jack,’’ mama Bess laughed, ‘‘Just knock first in case it’s feeding time.’’ When Jack had gone Snouter poured himself another glass of wine and asked, ‘‘Did you cook some of this?’’ ‘‘Some yes. Like it?’’ ‘‘Absolutely.’’ Mama Bess moved next to Snouter and asked in a soothing voice, ‘‘Do you have a family, Herbert?’’ Snouter’s eyes glazed over, and he seemed to shrink. He answered, ‘‘I used to, but she’s gone. She and the girl walked out months ago.’’ ‘‘For good?’’ Snouter shrugged his shoulders. Mama Bess bit her tongue and asked, ‘‘Why’d they go? What did you do to them, son?’’ ‘‘It’s what I did to me that’s the problem. Shirley said that I hadda stop drinking or she’d go. And I said I couldn’t, and she went, and that’s about it.’’ Mama Bess reached over and gently took Snouter’s hand; she lifted the full glass of wine from it and put it to one side, saying, ‘‘You see how easy it is?’’ Snouter looked away, embarrassed. Mama Bess stared at him and repeated, ‘‘Do you see how easy it is?’’ Snouter closed his eyes and folded his arms across his chest in a defensive gesture, ‘‘It’s not easy. It’s too late.’’ Mama Bess screwed her face into a tight ball and was just about to say something really rude to Snouter when Jack came bounding in. He called out, ‘‘Snouter. Let’s go to the den and do this investigations standard thing. Yes?’’ Snouter jumped up in double-quick time and almost pushed Jack through the door while Jack shouted over his shoulder,

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‘‘Thanks for the meal, mama Bess.’’ Jack handed Snouter a pen and said, ‘‘Okay. let’s brainstorm and set out an approach to investigating fraud and complaints and such.’’ Snouter caught the pen and said, ‘‘How about we make it a ten-point plan. To keep it simple?’’ ‘‘Yes. Ten it is then.’’ Snouter began to warm up to the task and asked, ‘‘How did you start your investigations?’’ Jack closed his eyes and thought for a few seconds while Snouter had his pen poised over the paper. Jack then said, ‘‘When I get a referral I open a file and record: 1. 2. 3. 4. 5. 6.

Source of referral Name of suspect or suspects Chronological order of events so far known Details of possible witnesses Relevant legislation and type of infringement Contacts and location of possible evidence

Then I would get together a draft investigation plan and get it agreed on by the company attorney.’’ Snouter mumbled, ‘‘Slow down a little. Okay got it. Six points will do—you don’t always have to get to ten. When I start an inquiry, I always say the suspected fraud can be due to an error or not, and what seems like an error can be a fraud; say someone exceeding their authorization limits.’’ ‘‘Yes,’’ Jack agreed, ‘‘that needs to be checked out. There’s no point launching into action when it’s just a simple mistake. I tend to use a general rule that I call ‘follow the money’ to find out what really happened.’’ Snouter continued writing and spoke while writing some more points, ‘‘It’s important,’’ he said, ‘‘that we follow a professional process and use proper standards. When a case comes up, we should appoint a lead investigations officer. I start by making sure we don’t alert the suspect

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about our inquiry. It’s important to get the facts right as people are really innocent until they can be proven guilty. One thing to work out is who does what and whether we need more resources or a full team . . .’’ Jack interrupted, ‘‘Oh yes. I take the point that you need to make sure whether or not you need to go for it. I tend to carry out an initial investigation to define whether there are reasonable grounds for suspicion and whether we need to launch a full investigation.’’ ‘‘Agreed,’’ Snouter said. Jack continued, ‘‘This initial report could then go to, say, the CEO or CFO, and we would consult other senior people and then design a detailed investigation plan. We’d also see whether we need to suspend the employee or not. But if we suspend, then the inquiry goes public and we cannot be undercover. And when it’s public we need to make sure the available evidence is protected; that it’s not contaminated, lost, or destroyed—in other words, we need to secure the evidence. You getting all this down, Snouter?’’ Snouter was getting tired, but he nodded and said, ‘‘One thing we haven’t talked about yet is the need to check controls for immediate changes. Something must have broken down for a fraud to happen, and we will want to fix it quick and protect our assets. Agreed?’’ It was Jack’s turn to nod while Snouter continued, ‘‘And we have to have a detailed record of the investigation in chronological order—you know, the conversations, discussions, documents examined, tests carried out, all key decisions made, and so on.’’ Jack got his point in, ‘‘We’ll need something on interviewing standards to make sure the work is done in a fair and proper manner. Actually, to make sure it’s done in accordance with the law. Say, covering fact-finding interviews, witness statements, and interviews with the actual suspect. Any standard would have to cover reports to the panel. What I mean is we appoint a panel consisting of, say, the attorney, the chief auditor, the head of Human Resources, and other senior people. And then this panel would receive

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regular reports on progress and plans. We also need to cover reports to law enforcement and to work with law agencies.’’ Snouter started to look worried. He observed, ‘‘You know there’s so much to cover. We haven’t even looked at rules on ensuring that all staff cooperate with the inquiry and stuff like recovery action.’’ ‘‘And don’t forget some of the detail,’’ Jack said, ‘‘like carrying out background checks into people and local or even bigger businesses. Internet searches can help with images, names, addresses, organizations suspects belong to, and phone numbers. I access lots of the regulatory files from licensing agencies, US department of labor, the Securities Exchange Commission, and various financial crimes enforcement networks. Many times, I’ve tracked down Social Security numbers used by suspects and details of relevant financial transactions that way.’’ Jack stopped talking and suddenly said, ‘‘There’s also the sexy side. When you have a complex case that doesn’t make sense, I’ve used critical thinking.’’ Snouter looked impressed and asked, ‘‘What’s that?’’ ‘‘Well it’s like you examine the motive or the opportunity, find out who benefits and how the fraud was committed—when and where and what happened to the monies. You can examine the groups that are implicated, any sensible conspiracies, whether the thing was planned or opportunistic, and what was the modus operandi and the type of victims. I’ve been able to work out whether something was an inside job or whether it relied on accessing a computer and whether set controls were interfered with. When you have a fraud with buckets of random data you can shift through the volume by—hang on Snouter, let me list these for you and you write them down: Setting out the key issues driving the investigation. Defining a few key questions. Working out a method of attack using technology and some

intuition.

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Defining what information we need and who owns it and where

it is. Working out how best to collect, store, and analyze said information. Taking a kind of top-down approach by starting with the really big

issues.’’ Snouter wrote this down, but his expression suggested that he was unconvinced, and Jack quickly added, ‘‘I used this approach to check out a corruption case. We looked at data relationships between contracts awarded, assessment procedures, and possible bribes paid. I had another case where I found links between an accountant, an architect, and a financial consultant to uncover a big scam where business grants were being paid to fabricated businesses. So long as you have the right data in the right format, it can be analyzed to tell the story.’’ Snouter stopped writing and stretched his fingers. He said jokingly, ‘‘Do you remember that case with the Hollywood private eye working for the big stars who ended up in court on charges of illegal snooping. Apparently, the allegation was that he tapped phones and as a result gained an unfair advantage from—what did they call it?—confidential, embarrassing and/or incriminating information gained from illegal snooping. The funny thing is that the private eye was hired by a small film studio, but this studio was owned by a huge media company, and under Sarbanes-Oxley, top CEOs now have much more responsibility for what their people are up to.’’ It was Jack’s turn to look impressed, but it was getting late and Jack tried to close proceedings by saying, ‘‘Wow, you know about Sarbanes-Oxley. Okay, getting back to our work, I guess we need to set standards on things like: Opening a case file. Maintaining confidentiality. Securing key documents. Gathering other evidence—for example, from files, desks, online

data, office calls, and forensics.

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Obtaining search orders. Using suspect computers. Documenting all suspicions. Initiating covert surveillance. Suspending employees. Questioning, interviewing, and taking statements. Freezing funds. Using outside experts. Generally making sure things are done fairly and confidentially.’’

Snouter also looked tired and said, ‘‘I’ll type this up tomorrow. I think we can get to a summary, but it’s hard to get a detailed document going. We may need to get someone in to do it unless you want to give it a go, Jack.’’ Jack looked at the notes. He said, ‘‘I could write something on this. Six key pointers, and then I could beef up bits here and there. Just principles but not detailed notes. We could apply to the Certified Fraud Examiners and see if we can buy into their standards. There’s no point reinventing the wheel.’’ Snouter agreed and added, ‘‘We could get a kind of summary off to Bill, right?’’ ‘‘Right. Let’s list our most pressing factors.’’ As Snouter grudgingly grabbed the pen again. the door opened and Ruth appeared, ‘‘There’s someone at the door for you.’’ Jack and Snouter looked at each other, and each tried to figure out who this could be. Ruth continued, ‘‘He asked for Bill, and he says he works for Bill’s company. When I told him Bill was away he looked really worried, and I think you guys should find out what he wants.’’ Jack asked, ‘‘What’s his name?’’ ‘‘Oh yes. Dhiru something. A skinny Indian fella.’’ Snouter threw his hands over his face and cried out,

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‘‘Oh no, it’s that guy again. He’s the one who’s been bugging me for ages. Tell him you can’t help Ruth—please!’’ Jack held up his hand in a stop sign, ‘‘No,’’ he said, ‘‘that’s wrong. We need to see him. For one thing, how the hell did he find out your address, Ruth? Bring him in. I’ll be responsible for this, okay?’’ Ruth shrugged and said, ‘‘Don’t screw around, Jack. The guy’s scared, so just be straight with him. I’ll go get him. Oh by the way, which dish did you like most tonight?’’ Jack preferred the jerk pork, while Snouter declared that he was in love with the stew peas. And with that Ruth left. Snouter reached for his jacket, and Jack said, ‘‘Stay. Let’s hear him out, even if you’ve done that before.’’ The two men sat in silence as they waited for their visitor.

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chapter 8

KEEPING YOUR SOX ON

T

he rain had stopped and Helen had put on her jacket and insisted that they sit outside, close to the swirling seas at the secluded beach that was protected by the sloping cliffs and white rocks of Freshwater Bay. Bill was starting to see the attraction, and they sat in silence for a while as they admired the view; framed by a pale orange sunset that was starting to fall into place. Helen looked as though she was not going to talk at all, and Bill secretly hoped this would be the case as he closed his mouth firmly and enjoyed the silence. Two older men were leaning over the railings, chatting idly. Suddenly the sound of an engine became louder and louder as an orange lifeboat swung into view, carrying a small crew dressed in yellow waterproofs. It headed for the small lifeboat station on the other side of the bay whose bright lights suddenly sprang into life. A weird-looking mechanical device descended slowly out into the sea, and the lifeboat lodged itself onto this platform-like frame, which was then wheeled back into the boathouse with the lifeboat firmly attached. Helen and Bill watched this tranquil scene in silence, and Bill thought he could maybe persuade her to head back to the hotel, allowing him what would be a much-needed early night. Helen pulled her jacket round her and explained, ‘‘This is the western side of the island, and it’s sort of exposed. You should be here in the winter. The wind whips up, and it’s rough and tough—really exciting.’’ Bill smiled to encourage her to continue this relaxing conversation. He asked, 68

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‘‘Do you get on with the locals?’’ ‘‘They’re fine. They like visitors, and if you give something to the economy they’re happy with that. Well, they seem so with me. By the way, can I say that I am very sorry to hear about your dad.’’ Bill did not reply but just nodded and smiled, and Helen sensed that he did not want to talk about his experience. Helen continued, ‘‘Okay then, Bill; let’s get back to business.’’ Bill grimaced and became a little rigid as he realized that Helen was going to take him at his word. He was here to research fraud, and so be it. Helen licked her lips and said, ‘‘Where do we start? For me. . . .’’ Bill tried once more to break the spell and interrupted, ‘‘Surely you’re out of this fraud game, living here in this peace and quiet.’’ ‘‘Not at all. I told you I invest and play the worldwide stock markets. It’s what I’m good at. You know that I now go for the emerging economies like India and China, where per capita growth can be around 8 to 9%, and their populations are growing by over 2% each year. I go for growth markets like consumer banking, resources, gas, oil, iron, and so on, which is big shakes in those parts of the world. They are high-risk stocks, but you can get double the return over established markets if you’re very careful. But you need to make sure these investments are sound, and that is why good governance and good antifraud measures are crucial to making sure these companies are what they appear to be, their published results are reliable, and the board and management behave well. Where I have a large investment I get a local consultant to do a rating of the corporate fraud control arrangements.’’ Bill said, ‘‘I thought you were going to talk about SOX—you know, SarbanesOxley and all that.’’ ‘‘Well yes. But that’s for the New York Stock Exchange. SOX does help with fraud identification, but it’s harder still to change business culture. The huge penalties send out a strong message, but to me it really depends

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on the tone at the top. SOX has a lot of critics who say it’s too restrictive, but it has given us the benefits of: Boards that are more independent. Quarterly reports on the status of internal financial controls. Better whistleblower protection. Quadruple penalties for mail and other frauds.’’

‘‘But it’s harder to regulate for ethics, although companies now have to have an effective code of ethics in place. It’s really about dealing with over-excessive management and with under-involved boards, and problems being masked by unreliable financial statements. And it gets worse when these executives override controls, and this is where we need to rely on the non-executive directors to oversee what really goes on in the company. It’s not easy, because these complex financial transactions can often be used to hide expenditures and losses and even attempts to capitalize what should be basic expenditures.’’ Bill realized that Helen was expecting some sort of response so he said, ‘‘At least we’ve tackled it in the States.’’ Unfortunately, this only encouraged Helen to continue, ‘‘Oh yeah. But I buy stock over here too, and in the UK they have what they call the combined code, which says The board should maintain a sound system of internal control to safeguard shareholders’ investment and the company’s assets. It also means that the directors have to conduct a review of the effectiveness of the group’s system of internal control each year and report to the shareholders that they have done so. It’s not just controls over financial statements like in the States; the review also covers operational and compliance controls as well as risk management systems. In terms of the States, SOX, Section 404, requires an opinion on the effectiveness of internal controls over financial reporting, along with management’s responsibilities for establishing and maintaining adequate internal control over financial reporting as well as the framework used by management to conduct the required evaluation of internal control. This way the company has to carry out this assessment of internal control and disclose any material weaknesses.’’

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Bill shifted in his chair, and remarked, ‘‘You sound like an encyclopedia.’’ Helen laughed out loud, ‘‘I gotta write this stuff for the risk management software I’m doing with Maria. We have what we call pop-up information nuggets. The user sees a topic and can click on a pop-up for a brief account of its background, provisions, interpretation, and so on. And I’m the one who has to write them. So yes, funny guy, I have to be a bit of an encyclopedia, actually.’’ Bill raised his eyebrows and said, ‘‘I don’t see where this all fits in with fraud. Isn’t it more about corporate governance?’’ Helen shivered and hugged her jacket as a sea breeze swept past the two figures as they sat on a bench a few yards from the bay. She said, ‘‘Kinda. Governance is really about things like good directors, effective boards, transparent executive remuneration, accountability and audit, relations with shareholders, independent directors’ oversight, and being able to provide reliable disclosures on all these matters. Oh, it’s also about understanding and managing risks that can stop you from achieving or exceeding your performance goals and maintaining good governance. Fraud gets in the way of all of these things. That is, crooked directors, crooked accounts, auditors turning a blind eye to irregularities, and shareholders who are kept in the dark. Bad strategy happens and we just have to write it off, but bad behavior is not acceptable and someone has to be accountable for it.’’ Bill noticed that it was getting dark, but he felt that if they went back to the hotel, all these insights from Helen would stop. He perked up a bit as he visualized himself as a top-flight board member and said, ‘‘Don’t the company auditors sort out these things—bad accounts and crooked directors?’’ Helen thought about the question before answering, ‘‘Yes and no. The external auditors are supposed to assess the company’s own control assessment. But this isn’t easy. SOX requires the company’s management to be responsible for its control processes and

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the state of its financial statements. So management has to set up a Section 404 program to test that the controls that are in place actually work. Further, management must fix any material problems and then certify that this has been done. A control process cannot be effective if it contains a material weakness. All the auditors do is review what management has in place, if they can. But management needs to document all this, and that’s not easy. Some say that SOX is unmanageable. It is demanding, and the regulators are starting to soften their tone. Tell you what—the new trend towards using international accounting standards is starting to help investors access capital markets and get to a level playing ground. Damn it, I’m sounding like an encyclopedia again—sorry.’’ Bill laughed and responded, ‘‘No, no, no. You carry on; this is great.’’ Helen continued, ‘‘External auditors are useful, and SOX has shaken them up to make sure they are really independent. So unlike the old days, they cannot do other things for the company such as bookkeeping services, legal services, financial information systems design and implementation, actuarial services, management services, and, most importantly, internal auditing. Auditors have to be professional, and they are now monitored by the Public Company Accounting Oversight Board. The external auditor’s lead partner for each client is now rotated periodically, and the auditors’ report straight to the audit committee. To my mind, these developments make the audit service much tighter. ‘‘But the executives also have much more responsibility. The CEO and CFO have to personally review control certifications, and they have to make sure that, based on their knowledge of the business, there are no material misstatements that would render their financial information misleading. They also have to disclose to the auditors and the audit committee any material weaknesses in controls and any fraud that involves management or other employees who have a significant role in the company’s internal controls. Disclosures are pretty specific; they cover items such as off–balance sheet transactions and pro forma financial information, and there are now prohibitions regarding personal

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loans to executives and insider trading. But the main change is that there needs to be a Section 404 program in place, and management needs to include in its annual report on Form 10-k an assessment of internal control over financial reporting. But as I said, no amount of legislation can stamp out poor ethics; we can only do what we can. Ethics is mainly about behavior, and in some circles where targets are really hard to define we can get to what is a fail or cheat situation. Fraud is bound to happen where there are three forces in play, namely: 1. Huge incentives to perform. 2. Opportunities to override proper procedure. 3. Rationalization, with a slack reporting culture across all business lines.’’ Bill sighed, threw up his hands, and said, ‘‘So it’s all pretty bad then.’’ ‘‘Not really,’’ Helen replied, ‘‘forget the rules and control reporting. If you have a positive and supportive culture in place, you have a better chance of being fair. I know—let’s list the components of this culture: Fair rewards for fair behavior. Good participation from all staff. Appropriate compensation. Staff training. Career development. Effective communication. Sensible budgets. Good loyalty. No fear of bad news. Teamwork. Empowered staff. Robust promotion practices. Sound human resources policies. Good advice for difficult decisions with a help line and an ethics

officer.

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Sensible performance appraisal that also asks how the employee

has contributed to a good ethics culture. Reference checks for all staff.’’

‘‘And—and I’m so tired, and my throat’s sore, and I’m getting cold. You know, I come to the bay each evening and say a prayer for my uncle who died in China. He taught me that life is about more than just careers and money. It’s about the quality of the life you live.’’ Bill stood up a stretched his long legs and offered his hand to Helen. He said, ‘‘You’re right. Let’s head back.’’

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chapter 9

TROUBLE’S BREWING

S

nouter looked uncomfortable and squirmed in his seat as Dhiru entered the room and sat down in an upright armchair. He was very slim with shiny jet black hair that looked a little like a wig. His right hand shook a little, and when he spoke his voice seemed nervous. He said politely, ‘‘I am very sorry to be disturbing you tonight.’’ A silence ensued, and Jack quickly said, ‘‘Not a problem. You were looking for Bill?’’ ‘‘Yes.’’ Jack stood up and said, ‘‘Would you like a drink?’’ ‘‘Not really. Oh, but perhaps I might have a glass of water?’’ Snouter got up and went through the door saying he would get it. Dhiru sat back with his hands folded on his lap. Jack continued, ‘‘Bill’s away this week, but if it’s about work, maybe we can help you.’’ Dhiru shook his head slightly and then said, ‘‘Yes. I wanted to talk about fraud procedure. I understand that Bill is manager of this matter.’’ Snouter returned with the water, and after he gave it to Dhiru there was a strained silence while Dhiru slowly drank it in one go. Jack said, ‘‘Dhiru wants to talk about our fraud procedures. Carry on then.’’ 75

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Dhiru did so, ‘‘What is the whistle-blow procedure?’’ Snouter suddenly said, ‘‘How’d you know Bill’s address?’’ Dhiru’s hand started shaking again. ‘‘I am in records retention, and I have access to all files. I look up Mr. Reynolds’s address.’’ Snouter leaned forward and started to speak, but Jack stopped him by saying, ‘‘Okay there. Just tell us what’s wrong, Dhiru.’’ ‘‘I want to know the whistle-blow procedure.’’ Jack spoke, ‘‘People at work sometimes know that there is a problem, but they can’t see how they can expose it without getting themselves into trouble. One of the best ways to uncover fraud and cover-ups is to encourage people to come forward and tell what they know. The law is much stronger now, and people who blow the whistle are protected from harassment. In fact, we all have a duty to talk about problems and frauds when we have knowledge that they are happening.’’ Snouter added, ‘‘So long as the information makes sense and so long as it really does expose a problem and it’s not just a case of someone being confused or playing games. Or trying to get others in trouble for no good reason.’’ Dhiru thought about this for a while and then said to Snouter, ‘‘I told you my problem. Many times I tell you, but you take no action.’’ Snouter’s voice started to get even higher as he spurted out, ‘‘What the hell do. . . .’’ Jack stopped him again and said gently to Dhiru, ‘‘Let’s start again. You tell us about your concerns, Dhiru. From the top.’’ Dhiru looked even more nervous and then said in a remarkably strong voice,

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‘‘I work in records retention. My job is file documents, store them, copy them, and terminate them when they old. I must retrieve them when required and make sure only authorized person can see them. I work this job, but it is very simple work. I am fully qualified accountant, but because my English is not perfect, they put me doing low work.’’ He stopped and the three men sat in silence for a few seconds before Jack said, ‘‘Good. But what is worrying you?’’ Dhiru looked down at his hands for a second and then said, ‘‘I keep finance records. Not computer records, just documents. And I have seen income figures that is not right. It’s too much money coming in. . . .’’ Snouter interrupted, ‘‘I know about this. You’ve told me. And income is money coming in, and I can’t see how this can be irregular.’’ Jack looked sternly at Snouter and said to Dhiru, ‘‘Carry on, young man.’’ Dhiru looked as if he really wanted to be somewhere else but continued, ‘‘The money goes for charity fund to Portugal. The Sudan fund. But there is no spending record.’’ Jack asked, ‘‘What do you mean?’’ ‘‘The Sudan account is balancing. It has cash money in and then money goes, but it does not go for our company accounts. I ask for record to file all income and spend together, but no record for spends. I ask the auditors, and they said is holding account in Portugal so money only in and out—but not for our company record.’’ Jack looked confused and Snouter stifled a laugh as a strained silence rested above the group once more, like a rain cloud. Jack eventually asked, ‘‘What is this money? Where does it come from?’’ Dhiru shrugged his shoulders in a ‘‘don’t know’’ gesture. Snouter asked,

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‘‘Is it a fraud?’’ Again Dhiru shrugged. Jack asked, ‘‘Have you reported it to your manager?’’ ‘‘Yes. Snouter told me to report, and report was made and I told that it is holding account for donations. But it is not company business so not for our records.’’ Jack started to see a picture of what was happening and said, ‘‘But you have income records?’’ ‘‘Yes. But they were taken away as not company business.’’ Jack then asked, ‘‘What do you think is wrong?’’ Once again a shrug suggested that Dhiru was unsure. He suddenly stood up and said, ‘‘My job is done. I report and now I am going. Okay.’’ He walked towards the door and turned around and shook Jack’s hand saying, ‘‘Thank you for listening. Goodbye.’’ And with that he marched towards the front door and left. Jack scratched his chin and looked at Snouter. Snouter meanwhile paced the room looking for a drink. Jack said, ‘‘What was that all about?’’ Snouter laughed, ‘‘I told you about this job. I get this all the time. That Dhiru is off his rocker. Most of the time I can’t even understand what he’s saying anyway. I already checked out his story, and I just hope that that’s the end of it. Where’s the booze?’’ Jack opened a cabinet and produced a bottle of aged bourbon, ‘‘Ruth did say we should help ourselves,’’ he said as he poured out two shots. As Jack and Snouter sat back to enjoy the rest of the evening, the door opened and mama Bess popped her head around the door frame and said, ‘‘There’s some salt-fish fritters in the kitchen. You boys go help yourselves.’’

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Jack jumped up and marched toward the kitchen, while Snouter eased his stout body up, grabbed the bourbon, and headed for the door. Snouter looked at mama Bess standing by the door and watched her lower lip slowly curl right over so that it almost touched her chin, and as he walked towards her he felt slightly scared. As he got close she gently grasped the bourbon and placed it on a nearby table. Snouter looked sadly at the bottle, but the fierce look on mama Bess’s face stopped every thought of retrieving the bottle as he tried to slide past the scary old lady. It got worse. She stood her ground, and as he went past her she held his other hand. Using the same gentle motion, she slid the full glass of bourbon from his hand, and placed it next to the bottle. Again Snouter looked at mama Bess, and before he could complain she said sweetly, ‘‘Go get yu fritters and behave yuself, Herbert. I know you drink because you’re lonely, but if you don’t stop it, you’ll always be lonely. You a good man, and you can do so much better than that.’’

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c h a p t e r 10

GETTING REAL

B

ill relaxed at the cafe he had rediscovered on a nearby beach called Colwell Bay. He had come here last year with Jack, and they had sat at the same place and enjoyed the views across the spread of water between the island and the mainland called the Solent. Helen was busy at the hotel, and Maria was due in later on, so he was on time off. He opened his newspaper and scanned it for articles on fraud, as had become his habit since he was given the fraud project. According to Helen, it all had to do with ethics—the tone at the top and the way corporate bodies behaved. He turned his attention to ethics in business and soon found an article on how builders sell new homes. Apparently, there were tricks of the trade that in the end were pretty much unethical. According to the article, some house builders would remove internal doors to give a feel of more room. They would put in small furniture to make rooms look bigger and use expensive furniture that was not included in the selling price. Some even turned up the central heating to encourage shorter visits from viewers. Lights were turned on to make the property look brighter, and glass furniture was used to make it look bigger. Bill laughed and thought about the way people behaved to suit themselves. He thought about his own company and the last time ethics had been mentioned at work. Never, to his recollection. He thought about himself and whether he was ethical. Or whether he had set a good example to colleagues and staff. ‘‘Not really,’’ was his conclusion. His mind drifted as he moved away from the serious articles and looked at 80

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reports on celebrities and sports stars. Even this proved too much effort, and he soon put the newspaper down and simply looked across the sea at the small boats passing by in the distance. He might do like Helen and just stay here. Get the wife and babies over here, and just stay in his little island cottage for a while. Bill looked up and saw a large, middle-aged African lady marching towards him with a big smile on her face. She was tall and well built but healthy looking in a neat yellow trouser suit. This was Maria. Bill jumped up and a bear hug ensued that lasted some time as Maria greeted Bill and spun him around to give him a good look-over, saying, ‘‘You look good, Bill. Being a dad looks like it suits you down to the ground. Helen told me you had come here, and I thought I’d say hello before I start work with her.’’ Bill sat back down, ‘‘Coffee?’’ he asked. ‘‘No thanks. You know I have to get back and get busy. Helen told me you want me to look at your antifraud plan. Is that it?’’ Maria looked at the file resting on Bill’s table. ‘‘Yes. It’s all here—a DVD, a hard copy of the fraud policy, and most everything that we have on fraud. I want you to work with me on tidying things up.’’ ‘‘It’s all in this file, right?’’ Maria asked as she picked up the file. ‘‘Yep.’’ ‘‘Okay,’’ Maria said, ‘‘tell you what. I’ll take this file and get back to Helen. She has to be at a meeting in town later on. So I’ll be with Helen for a bit, then I’ll work through your file and say we get together later on to discuss.’’ Bill felt the power and energy of this dynamic woman and laughed. He said, ‘‘Sure thing. What time?’’ I’ll be at the hotel lounge say four or five o’clock?’’ Bill agreed and replied, ‘‘I’ll take a walk around the village and, well, just kick around, but I’ll be back by four.’’

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‘‘Great.’’ Maria squeezed Bill’s shoulder and said, ‘‘See you soon.’’ She tucked the file under her arm and marched off, her heels clicking sharply as she disappeared into the distance. Bill called the waiter and asked for another coffee and was glad to see the back of his file so that he could really relax and enjoy the sunny day that lay ahead of him. Or at least for a while, until he got back into work mode.

Bill approached Maria who sat in the hotel lounge with the files and various papers spread out in front of her. She had changed into a black outfit that looked good on the older woman. As he approached, Maria looked up and he called out, ‘‘Hi sexy.’’ Maria frowned, and her face looked like that of a prize boxer who was just about to finish off a weaker opponent. Bill slowed down and thought maybe calling someone sexy was not such a good idea. He eased himself onto a chair next to Maria and tried another smile. Maria grimaced and simply stared at him. Bill fiddled in his seat and tried to think up some sort of small talk or funny line as he started to feel hot under the gaze of this powerful woman. Just as he had an idea of making a joke about his being naked and locked out of his hotel room when he had first met Maria, she finally spat out, ‘‘Are you mad?’’ Bill froze and again could not find a response. Maria dropped a stack of papers she held in her hand onto the table and said, ‘‘Don’t answer that. You are mad. I’ve looked through the material you want to present to your audit committee and to be frank, it’s terrible.’’ Bill flopped back as he realized this scary moment was only about his fraud work and then said lightly, ‘‘You’re not impressed?’’ ‘‘Bill. . . .’’ Maria seemed to run out of words to describe her view. She continued,

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‘‘It’s simply awful. I sat through the video from your compliance man, and it’s hopeless. I watched the awareness seminar, and I’ve been able to get through all the paperwork. The fraud policy and the other bits you gave me.’’ She stopped, and for the first time for a while she smiled and touched Bill’s hand, ‘‘I’m sorry Bill. You’ve done what many companies do. It’s just that I’ve spent some time developing antifraud resources in Canada and the States, so I have a completely different spin on things. You know that I live in Toronto, but I’m originally from Nigeria. Anyway, back in Nigeria fraud is a huge problem, and I come from a background where we see antifraud initiatives as key to a successful economy.’’ Bill finally got a word in. ‘‘Let’s deal with this. I want a drink. Join me?’’ ‘‘Okay. Red wine is good.’’ Bill got up and thought about the situation. He could get mad with Maria and defend his work. But really he would be better off getting involved and working with this expert. By the time Bill returned with the drinks he was much more relaxed and prepared to make progress. Meanwhile, Maria had whipped out a slim laptop, and its bright screen threw a faint glow across her serious-looking face. As Bill approached, she flashed him a warm smile and said softly, ‘‘Helen will be here later on. But right now let’s get you back on the right track. Don’t worry Bill, it’ll be fun.’’

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c h a p t e r 11

THE STORY UNRAVELS

J

ack sat in Snouter’s office and thought about how oppressive it was. When he was an internal auditor he got put in all kinds of offices wherever he ended up on his travels. But at least his proper office was good. This place was horrible. Perhaps the management did not think much of Snouter. He was a bit odd. He looked like a hobo most of the time, and he drank far too much. Jack drank a bit but only a few here and there. But not all the time, and not to such an extent that he became spooky. Jack picked up Snouter’s compliance plan, and it was clear that it meant visiting all local offices during the year and carrying out pretty basic checks. In fact, it would appear that Snouter would be on the road most of the time and then only have a few days at each place before he could write a short report on any errors found. Snouter bounced into the room and threw himself on a chair. He said to Jack, ‘‘Hey, hey. You looking at my compliance program?’’ ‘‘Yeah. Looks tough. Your time is tied up in this work.’’ ‘‘Sure. I’m at it day and night. But it has to be done, and it pays the bills.’’ Jack flipped through the documents and said, ‘‘You check inventories, recordkeeping, orders. And you check work sheets, expenses, complaints, timesheets, and things like that.’’ Snouter looked pleased with himself and replied, ‘‘Sure. I take a sample, and the local manager gets a report on errors.’’ Jack stopped and observed Snouter for a bit. He was smiling and had bounced around the office with so much energy it was frightening. He was

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normally bored and slow, but he was different today. Jack ventured a question, ‘‘You okay?’’ Snouter’s voice raised an octave as he replied, ‘‘I’ve got more responsibility. I’m now the compliance and audit officer. And I’ve got a pay raise. When I start working for Bill, I think they may even give me a better office.’’ Jack shook Snouter’s hand, ‘‘Well done. You’re the auditor now?’’ ‘‘Yes. Great, isn’t it. The finance people authorized it yesterday, so let’s celebrate at lunchtime. I gotta go see someone, but I’ll be back in an hour.’’ And with that a new and improved Snouter bounced out of the office. Jack scanned through the programs and noted the locations and offices that Snouter had visited and had planned to visit later this year. He looked around, and seeing that there was no one nearby, slipped on a large pair of glasses that he found useful in dealing with small print. After half an hour, Jack called the accounts department, ‘‘Hello. Is the chief accountant available?’’ A young man’s voice on the other line said, ‘‘No, he’s out right now. Who’s calling?’’ ‘‘It’s Jack Durham. I’m working with Snouter on our compliance program. Can you get someone to come down and explain the income accounting system to me?’’ The man on the other side hesitated and then said, ‘‘Sure thing. What floor you on?’’ Jack looked around him, ‘‘Basement. Room 12.’’ Silence ensued until the voice said, ‘‘We don’t have a basement here. Where are you guys?’’ ‘‘New York, head office.’’ ‘‘Okay, finance is in Orlando. But Sarah’s over at your place in New York checking something, and she works in the income team. I’ll call her cell phone and see if she can see you. I’ll get her to call you in what, room 12?’’

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‘‘Yes, please. Absolutely. Thanks’’ After a few minutes the phone rang, and another voice spoke, ‘‘Hi, can I help you?’’ Jack went through the same explanation and was promised a visit from Sarah as soon as possible. Jack sat back and punched into the company intranet, typing ‘‘Portugal’’ into the key word search facility. After a few seconds a note popped up on what was called the Portugal office. It appeared to be a small site in Portugal that dealt with sourcing cork, which is an important natural resource common to that country. It was not clear whether the office was part of the main company or just a local outfit that partnered with the company. Snouter returned with two cups of coffee and as soon as he had put them down, Sarah from accounts knocked on the door and entered the room. She was in her early twenties and dressed in a smart dark-blue outfit with her hair tied behind her; she looked like an efficient and serious-minded young lady. Snouter looked surprised as Jack called out, ‘‘Hi. Thanks for coming.’’ He continued quickly, and before Snouter could speak, Jack added, ‘‘I need to find out a bit more about your income system so that I can help Snouter with his compliance work.’’ Sarah sat in the empty chair, forcing Snouter to stand by the filing cabinet. She seemed quite happy with this as she explained how income was recorded and described the system that accounts for the different sources and types of income accounts. After a series of muted nods and a murmured ‘‘go on,’’ Jack was finally able to say, ‘‘What about funds for the Sudan project?’’ Sarah laughed, ‘‘I don’t cover that. It’s non-business charitable cash donations that go into a special bank account.’’ Jack asked, ‘‘But how does it work?’’ Sarah looked up towards the ceiling and thought for a bit before saying,

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‘‘It’s something like this. Our partners and sponsors got together and decided to fund charity work in Southern Sudan, and they make donations. We—that is the company—just take the money in and get it out to charities. It is a sort of convenience, but it’s not business transactions as such. It’s just donations in and funding out.’’ Jack leaned forward and asked, ‘‘But it still has to be accounted for?’’ ‘‘Oh yes. We send the funds to our office in Portugal, and they forward the funds to the charities that build schools or medical centers or things like that in Sudan. The charity sends accounts and paperwork back to the people who made the donations. But like I say, it’s kept out of our system. We don’t want to pretend it’s our donation. It’s just people who do it want to keep behind the scenes. Is that it?’’ Jack thanked Sarah and watched her walk out the door in her confident manner. Snouter finally asked, ‘‘What was that about?’’ Jack rubbed his eyes and replied, ‘‘Just an idea. Snouter, do you visit any overseas offices as part of your compliance work?’’ ‘‘Nah. Nothing as exciting as that. Just the States and a trip to Canada now and again. That takes up all my time.’’ ‘‘But does the Portugal office fall in your turf.’’ ‘‘There’s not a lot that goes on there, and I think the manager makes returns that the accounts people examine.’’ Jack flexed his fingers and stared at the wall for a while. Snouter sat down, then stood up again and said, ‘‘Okay. Lunchtime, and drinks are on me. My promotion, remember?’’ Jack didn’t move. He simply said, ‘‘We need to talk to Dhiru again. In my opinion, something’s not right.’’ Then he watched a suddenly weary Snouter drop down into his chair and let out a huge groan.

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c h a p t e r 12

A SHOT IN THE ARM

M

aria sat back and crossed her arms over her rather large frame. She studied Bill, who was waiting for her to give her much-needed advice. She considered how to play this and then carefully launched into her part, ‘‘I’m not having a go with you Bill. But what you have given me falls down in a number of ways. How can I put this?’’ Bill bit his thumb and for a second looked like a schoolboy meeting the principal for the first time. Maria laughed, ‘‘Sorry, Bill. Really, I’m not getting at you. Why not type out what we do. Right, your approach suffers from these things: No lead role from the CEO and main board. No real fraud policy. No code of ethics as a platform for your antifraud program. No real strategy for getting a better understanding of fraud amongst

your people. No measurement of fraud and relevant targets. No way to build fraud risk into your risk management process. No links with national partners who could help you. No real fraud response plan. Parts of your business exempted from audit checks. No professional resource to keep driving fraud work. No standards for investigating problems and gathering evidence.

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A poor whistle-blowing procedure. No links to improving controls and combating fraud. No definition of respective roles in your organization regarding fraud.

It just goes on and on.’’ Bill typed quickly and then mumbled sarcastically, ‘‘So it’s not all bad then.’’ Maria ignored him and continued, ‘‘The worse thing is that you’re engaged in a project that isn’t even a real project. Let’s take this last point first.’’ Bill flexed his hands and continued typing while Maria warmed to her subject. ‘‘What you are engaged in is a big change project. You need to be clear about what you want. Another list. Ask yourself: Why are we doing it now? What are we trying to do? What are the objectives? How do we measure the benefits? What about the priorities? What do we need to do? What about a methodology for doing it? How do we know when we have arrived? How do we keep it vibrant? What are the risks of this project going wrong? What are the costs? What are the timing issues?

And the most important thing right now is—Who sponsors it?’’ Bill typed while Maria spoke, ‘‘This sponsorship thing is key. Who on the board is driving this project? And does the CEO set a lead? When you do tasks you need to ensure some sustainability to drive new ideas into the business. You’re doing a culture-change thing and need to mobilize the skills you have in your company. And your partners and associates need to be on board. Most developments get an online resource going and perhaps become a

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center of excellence in the matter at hand. From what you say, your mission is about getting into the stock exchange and meeting strict criteria—but this isn’t clear in your project. You haven’t set out your plan and made it both transparent and inclusive. And more than that, it’s not part of your overall risk management process. Your company needs to get a reputation for being tough and in the know, or it’ll be a target. So start with a blueprint of what you want to see, and then work towards it. Challenge what people are doing, and support them in developing new skills to adopt best practice in fraud risk management. Then stand back and see if your plan will work—you know, do a reality check. And get sponsor buy-in. Can I ask you, Bill, what are your stats on fraud and irregularity?’’ Bill looked up and stopped typing, ‘‘What do you mean?’’ ‘‘Look Bill. How much fraud do you currently have, and how many incidents have been reported this year?’’ ‘‘Oh, I see.’’ Bill started typing again and said, ‘‘Good question.’’ Maria looked at him, and he quickly added, ‘‘Sorry. No information on that.’’ ‘‘You need to assess the scale of things,’’ Maria said, ‘‘What is the industry norm, what are the national trends, and how big is the potential problem? That’s the problem with fraud—there tends to be no attempt to measure the extent to which it has been hitting your outfit. You can link with other companies and share best practices; you do realize that?’’ Bill simply nodded while Maria continued, ‘‘You need to pilot your approach in one part of the business. Pick a manageable site, where you can design things and roll them out later on. Measure progress and build on improvements. I’ve seen some companies use a vision or image to get the message across and then build on that. What you might aim at is combined fraud risk registers for all parts of the business and a way of assessing responsiveness. Give me your pen and let me draw my model of what this might look like.’’ (See Exhibit 12.1.)

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EXHIBIT

12.1

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Fraud Risk Model

Bill typed this out and said, ‘‘Excellent; tell me about this approach.’’ Maria responded, ‘‘The at-risk parts of an organization are its information, assets, financial statements, and contracts, including partnerships. You can carry out fraud risk assessments on these four areas and work out the impact of fraud. Determine whether fraud can occur, and whether it is likely to unless there are good controls in place. The high scorers in Impact and Likelihood sit in the middle of our model, which is what Helen and I have been calling the corporate Danger Zone. This danger zone needs to be tackled to ensure that fraud risks are kept at bay. But, in terms of a good fraud response project, the best thing is to set up a high-level steering board to help you set your project and assess progress.’’ Bill frowned, ‘‘We don’t want to go overboard.’’ Maria jabbed a firm finger in Bill’s chest, ‘‘Get real, man,’’ she said, ‘‘fraud is big business. The White House has been driving work on combating fraud for some time now. Your people, your corporate officers and directors, are directly accountable for what they do and what they don’t bother to do. And there are loads of new rules

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to protect small investors and move corporate accounting out of the shadows. If people don’t have confidence in your antifraud arrangements, then you may well go down. Fraud needs to be stamped on everywhere, and you have to be part of this or you’ll be exposed. On the other side, the fraudsters are getting really skilled and more organized. Some of these gangs are running their own companies, and these companies may be doing business with your company. Even many public-sector organizations suffer from major corruption. Helen must have told you all about this. Look Bill, fraud is the big risk for executives, for investors, and for all CEOs; it has to be right at the top of the agenda, even if the real work is done at business-unit level.’’ Bill looked up again and asked, ‘‘So where do we start?’’ Maria smiled, ‘‘A shortcut? I have a basic outline for fraud control. It runs along these lines. Are you ready to type? 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

Create a culture of honesty and high ethics. Consult stakeholders and experts in the field. Design a fraud risk management framework. Take employee screening seriously. Train employees, and define responsibilities carefully. Design a sound oversight process, and make it challenging. Keep communications open, and tell people what you’re doing. Look for warning signs, and support people who report problems. Get rid of ‘‘it will never happen to us’’ and ‘‘trust everyone’’ attitudes. Act on specific risks, and target obviously high-risk areas. Monitor unusual processes, outsourced operations, and big projects and new systems. Bone up on security, and plan for the worst contingencies. Resource your efforts, and give people time off to attend events. Keep it all vibrant and up to date by tracking growing fraud risk areas.

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15. Survey your employees, and assess their attitudes regularly. 16. Learn lessons real quickly, and follow up problems by improving controls. 17. Make compliance a real business issue. 18. Make it a journey for staff, and set clear markers. 19. Set head office targets and local priorities. 20. Remember that it’s a culture-change project so there may be some resistance. In fact, you can develop a risk register for the fraud project itself.’’ Bill closed his eyes tight and said as if in a trance, ‘‘Well, at least we have a compliance process.’’ Maria jumped on this and replied, ‘‘I’ve read your notes on this. Let me get this straight. Your man, Snouter, was taken on to check compliance. He reports to the finance people and gets his program from them. He then goes out to all your local offices and sites and checks that corporate standards are being observed. But he does not get out to the actual finance office in Orlando. He basically works for them, right? So the core finance systems are outside the loop. And this Snouter just does basic checks in the outback. That means the Orlando site is not examined, and some overseas bits are also outside the checks. Sorry, but that’s not a good system.’’ Bill saved his file and shut down the laptop. Maria let out a loud laugh and said in a broken voice, ‘‘You did ask, darling.’’ Bill slowly got up and shook each leg out in a dramatic manner. He inquired, ‘‘You got more of this?’’ ‘‘Yep. Lots more. I suggest we start again tomorrow. I’ll do some more work on this tonight and try to get it down to, say, ten top pointers. I know if I can get ten criteria for each of my ten pointers you can go away with a one-hundred-point plan.’’ Bill looked towards the bay and said, ‘‘I’m not going to be able to type up one hundred items.’’

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Maria agreed. Bill suddenly brightened up and then said, ‘‘Hey. How about I video your ideas; that way I can get a plan—this one-hundred-point plan—together when I get home.’’ ‘‘Okay,’’ Maria said, ‘‘that could work. I was thinking of developing some more ‘‘information nuggets’’ for my software. A few video clips might help here and there as part of our online resource.’’ ‘‘Excellent. I’m going to walk out to the bay, and I bet you ten to one, Helen’s out there on her bench, sitting by the sea.’’ Maria got up and put on her jacket while Bill swung the laptop bag over his shoulder, and they both strolled slowly down towards the bay. As they got closer, sure enough, they could just about make out the shadowy shape of a young lady sitting with her back to them on her favorite bench, facing the bay.

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c h a p t e r 13

THE STORY TRAVELS

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nouter produced a document and placed it down in front of Jack saying, ‘‘Here it is—Dhiru’s address. He lives in Brooklyn. We better call him and say we’ll swing by later on this evening. Jack studied the address. ‘‘I’ve already tried, and he’s not in today. Seems he’s not too reliable and takes time off now and again. Do we have a home phone or a cell phone number?’’ ‘‘Nah.’’ Snouter pulled up his sleeve that had flapped over his hand and glanced at his watch, ‘‘It’ll soon be time to quit, and the bars are open.’’ Jack checked his watch and said, ‘‘I’ve got to get back to Bill’s place. They’re cooking something new tonight, and I’ve got to give Ruth my opinion.’’ Snouter looked envious. ‘‘Bill is sooo lucky,’’ he said, ‘‘He’s got his wife and kids and even if the mother-in-law is knocking around, the ladies cook like crazy.’’ Jack laughed, saying, ‘‘That’s because they want to open a business. A restaurant, and Bill doesn’t know. He sees Ruth as a housewife, like his mom was. And he’s kinda old fashioned in that way.’’ Snouter raised his eyebrows,

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‘‘Wow! Life’s so complex. Used to be a man and wife could live together easy. Now it’s all about politics and such.’’ Jack got up, grabbed his jacket from the back of his chair and said, ‘‘I’ll pick you up later. Say, around seven. Then we’ll get to Dhiru and try to make sense of what’s happening. The way I see it is if something doesn’t smell right, then you need to sniff it out.’’ Snouter sniffed and looked unimpressed. He said, ‘‘See you at seven then.’’

Jack sat back at the dinner table and looked at his waistline, which seemed to have grown quite a bit over the past few days. Ruth and mama Bess were busy clearing away the remnants of the meal while discussing the merits of each dish. Mama Bess was complaining, ‘‘This one too hot for the Yankees dem. We shoulda tone down the peppers a little.’’ Ruth muttered that she would sort that out. Jack called his wife on his cell phone and made his usual daily report on all that had happened so far. Ruth returned, sat down beside Jack, and said excitedly, ‘‘I’ve seen a restaurant for sale. Not too far from here. Want to come with us to look at it later on?’’ ‘‘Sorry. I gotta go out now. I’ll see it tomorrow, perhaps. Have you spoken to Bill yet? About this restaurant idea?’’ Ruth kissed her teeth and said, ‘‘Don’t worry yourself, Jack. I’ll wait till he’s back and find a way of making it work. Bill just doesn’t understand that women are just as ambitious as men. He’ll have to learn.’’ Mama Bess came into the room and added, ‘‘When Bill gets back you two go away for the night. I’ll take care of the babies. You haffi sweeten the pill, darling.’’ Ruth blushed, stood up, and went towards the door, adding, ‘‘Got to see to the babies.’’ Mama Bess sat beside Jack and said,

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‘‘You staying home tonight? ‘‘No. I got to pick up Snouter later on and get somewhere over in Brooklyn.’’ Mama Bess screwed up her face and said, ‘‘I want you two to cut down on the booze. Snouter needs to fix up.’’ Jack looked surprised and said, ‘‘We don’t drink much. Just a few.’’ But mama Bess would not be moved. She replied, ‘‘Listen to me Jack. Cut it out. You need to help Snouter, and you doing the opposite. Cut it out—hear me!’’ Jack slowly got up and stepped back, fearing an attack from this little old lady. He replied, ‘‘Okay mama, will do. Well, I’ll do what I can, promise.’’ And he went through the door instinctively bending his head, in case mama Bess decided to land a blow on his retreating figure.

Jack rolled up outside Snouter’s apartment and wondered whether he could avoid parking and going into what looked like a pretty dingy place. Fortunately, he spotted Snouter peeping through his window, and he sounded the horn with two short blasts. Snouter seemed to disappear for ages until he suddenly appeared beside the car. Jack released the door lock, and Snouter slid into the passenger seat. Jack flicked on the vehicle navigation system, and the two men were on their way to visit that vital source of inside knowledge, Dhiru. It did not take long for the two men to arrive at the address that they sought. Snouter was surprised to see an attractive street with nice houses, some with small well-cut lawns outside. Jack studied the sheet of paper and said, ‘‘It’s this one,’’ pointing to a large house that appeared to have most of its lights off. Snouter considered the view and observed, ‘‘Looks like no one’s home.’’

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Jack leaned out of the car window and said, ‘‘Hold tight. There’s someone at the top window. Over there!’’ And pointed to a gray shadow that quickly moved out of view. ‘‘Where?’’ Snouter asked as he leaned across to see. Jack held his breath as he was confronted by a strong and unpleasant odor coming somewhere from Snouter’s body. Jack escaped by getting out of the car; he walked around to Snouter’s side, saying, ‘‘I did see someone. Let’s go check.’’ Snouter eased himself out of the car and stood next to Jack. They approached the house and kept a careful eye on the window that Jack had observed earlier. Jack rang the bell, and there was silence. He rang again, and the two men heard slow steps become louder as someone approached the front door. A lock was pulled back, and the door swung open, ‘‘Yes?’’ an elderly man wrapped in a large dressing gown asked. ‘‘We want to see Dhiru. The Indian guy,’’ Jack ventured while looking upwards towards the stairs. The old man scratched his short beard and said, ‘‘It looks dark up there, but I hear him moving around. You go check if you like.’’ Jack and Snouter moved inside the house, and the old man disappeared inside a door on the left. They went upstairs and soon came to a door that seemed to belong to the upstairs apartment. Jack rang a bell that was hanging off the door. No answer. Snouter said quietly, ‘‘Let’s go get a drink. There’s no one here.’’ Jack pressed his ear to the door and listened carefully. After a few minutes Jack rang again and said softly, ‘‘Dhiru. It’s Jack and Snouter from work. We want to see you.’’ No answer. Jack rang again and the old man from downstairs came out of his room and shouted up the stairs in quite a strong voice, ‘‘You gonna ring that bell all night?’’

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Jack and Snouter stood outside the door and waited. Jack moved his ear back to the door. He rang the bell again, and this time he heard a voice from inside say, ‘‘I am not well. Leave, please.’’ Jack put his lips close to the door hinge and answered in an equally soft voice, ‘‘Won’t take long. We just want to talk to you for a few minutes.’’ No answer. Jack and Snouter stood outside the door and wondered what to do next. Snouter had turned to leave when the door opened very slowly and an eye and half a small head appeared through the small gap. ‘‘What is it?’’ Dhiru asked. Jack said, ‘‘Can we come in for a bit?’’ The door opened fully, and Dhiru stood slowly back and waved the men into a room on the right; it appeared to be the lounge area, which was completely in the dark. They entered slowly, trying to make out the furniture, and heard Dhiru say, ‘‘Please sit.’’ Dhiru stood beside the window and opened the blinds some more, which brought some shadowy light into the room. Jack sat on a small chair while Snouter spread himself out on a sofa. Dhiru looked through the window down onto the street and suddenly cheered up, ‘‘Want tea?’’ he asked in a pleasant voice. The tea was declined, and Jack led the conversation, ‘‘We want to check out the things you’ve been saying about the charity money that goes to Portugal. For Sudan. Can you tell us a bit more about it?’’ Dhiru turned away from the window and laughed, ‘‘All has been said. I spoke of this, but it is okay now. No problem now.’’

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Jack looked at Snouter, who seemed to find this whole scene quite amusing. Dhiru now sat down and continued, ‘‘Yes. I am on the way now. So never worry.’’ Jack inquired, ‘‘What do you mean?’’ Dhiru flapped his hands around and replied, ‘‘I am back to my family in India. Time is enough now. Time for a good job with my uncle back home. Excuse me.’’ And with that Dhiru got up and shook hands with Jack and then Snouter. Jack said quickly, ‘‘You’re going home. Back to India?’’ ‘‘Yes. Tomorrow. Thank you for coming.’’ Snouter stood up, and Jack had to follow suit. Dhiru was walking towards the door and the two men followed slowly behind. Jack said, ‘‘But Dhiru. You wanted to tell us about the problems. And now you don’t want to talk anymore. Why?’’ ‘‘Not for you to worry. I must be with family in India. I miss wife and children. It’s too long time. Goodbye.’’ Snouter suddenly said, ‘‘Goodbye, my little friend. I’ll miss you,’’ and started walking out through the door. Jack stood still, not sure what to do, and Snouter touched Jack’s shoulder and said sternly, ‘‘Come on Jack. Let’s go.’’ Jack grudgingly followed Snouter out of the door. Back in the car, Snouter said, ‘‘Did you see the suitcases?’’ ‘‘Not really.’’ ‘‘In the bedroom. When I went to the door I had a peek, and he’s packing. So it’s not been all bad tonight.’’ Jack looked back up towards the apartment and considered the situation. When things happened that were odd he worried. When

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things were out of place he thought about the situation and worried. When. . . . Snouter interrupted these thoughts with an exclamation, ‘‘Why is he sitting in the dark? Told you he was nuts.’’ Jack thought some more. That’s it. That’s what is odd. Sitting in the car, Snouter said, ‘‘Let’s try Freddy’s bar.’’ Jack sat still and wondered. Snouter looked at him in despair. ‘‘And?’’ He asked. Jack put a finger up against his lips and said, ‘‘I’ve got a hunch. Let’s sit here a bit.’’ He looked at Snouter’s face twisted in a grimace and added, ‘‘Please. Just for a bit.’’ Rather than answer, Snouter signaled his agreement by throwing his head back against the head rest, closing his eyes, and falling quickly to sleep.

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c h a p t e r 14

A NEW APPROACH

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elen, Bill, and Maria sat on benches placed outside a large hotel that stood majestically over one side of Freshwater Bay. Bill looked around and noted that this venue was pretty nice, much bigger than Helen’s hotel, which was located further inland. ‘‘It feels odd sitting here,’’ Maria said, ‘‘Bill with his camcorder and us girls getting ready to perform. Real odd.’’ Helen assumed a snooty attitude and said, ‘‘I’m not really doing much on this. I mean I’m not the fraud expert; you are, Maria. In fact, I can’t stay too long; I’ve got to be somewhere soon.’’ Maria shifted in her seat and asked. ‘‘Okay. How’re we gonna do this?’’ Bill fiddled with the camcorder and said, ‘‘Hang on. Let me just get this thing right. I don’t want to miss any of this. Right, it’s ready. Maria, over to you darling.’’ Maria brushed down her skirt and tidied her hair, ‘‘Okay,’’ she said, ‘‘this is going to get a bit heavy Bill, so you’re going to have to concentrate hard. Ready to go for it?’’ ‘‘Camera’s already on,’’ responded Bill looking at his watch. Maria frowned and, looking straight at the camera, continued, ‘‘What we are saying is that when a company goes public and registers its shares on the stock market, it opens itself up to greater transparency. Investors need to know about the way the company is run and its values. And whether it has the important things under control. In terms of fraud 102

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matters, we know that the company in question has an orientation video that talks about zero tolerance and asks people to behave. And it says they need to report problems. But this is not enough. A whistle-blowing policy should be robust and allow for 24/7 contact, anonymity, clear roles and responsibilities, and ideally a facility that sits outside the company and its internal politics. ‘‘The fraud policy needs to be driven at board level, and it should reach out to all parts of the business. And it should be sophisticated enough to tackle highly skilled gangs as well as corrupt managers. But let’s leave the downside alone for a bit and look at what we can do to improve things. ‘‘I suggest we employ a ten-point framework, with each aspect having ten further components so that we end up with a hundred-point assessment model to use to gauge our response to the risk of corporate fraud. ‘‘So let’s set out the ten key issues that any good company really should address to get fraud under control. Actually, we can argue that versions of this tool can be applied across the board to all types of organizations, including government; private, non-profit bodies; and all the rest. So my top ten tips cover these topics: 1. Create a culture of honesty and a good reporting procedure. 2. Design a sound oversight process, and make it challenging. 3. Define all roles and build good buy-in from all stakeholders and experts in the field. 4. Design a fraud policy and a fraud response plan. 5. Develop a set of investigation standards, including interviewing and evidence gathering. 6. Train employees, and define new competencies. 7. Tighten up security, and plan for the worst contingencies. 8. Survey your systems, and assess weak areas. 9. Learn lessons quickly, and follow up problems by improving controls. 10. Design and implement a fraud risk management framework. ‘‘What we need to do is work through each of these items and go on to develop a further ten-point set of assessment criteria for each one. We are

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going to get into loads of detail, so you’re going to have to concentrate, okay? Who said learning new things is easy?’’ Maria made a slicing motion under her throat, and Bill shut off the camcorder. She flopped down onto her chair and said, ‘‘This is hard work,’’ Bill fiddled with the camcorder and said, ‘‘Hmm; it’s going to take a while to do.’’ Helen made her contribution, ‘‘I think it looks good. You carry on while I go and check on tonight’s dinner menu.’’ She got up, smiled, and made a quick exit. Bill sat beside Maria and patted her hand before saying, ‘‘Maria. I really appreciate this. Are you okay to go on?’’ ‘‘Oh yes. It’s just that I’ll have to take a break now and again. Okay roll ‘em.’’ With that Maria brushed down her skirt again and stood up, reciting to the camcorder, ‘‘1. Create a culture of honesty and a good reporting procedure. ‘‘Okay. We really need to start with the platform for all antifraud measures, and that is corporate ethics. So we need a good code of ethics and real buy-in across the business. The truth is, if everyone were honest there would be no fraud. No organization can guarantee that all its people are honest all the time. But it can take positive steps to do as much as it can. People tend to respond to what they see around them and the pressures of the day rather than to some dusty document called the ‘‘corporate code of ethics.’’ Once a powerful code is in place, it should be built into corporate values and in that way drive behavior. We set standards and make sure that anything that falls outside these standards gets reported, and this is where a good whistle-blowing procedure is important. Make it clear in the code that all employees must report suspected misconduct to federal regulators, law enforcement, members of congress, or at least to their supervisor.

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‘‘In fact, nearly half of all fraud is discovered through tip-offs. A good reporting line will handle issues relating to suspect business practices as well as fraud. But the truth is that one in five workers in the United States has personal knowledge of fraud in the workplace that many would report if they could use anonymous phone lines and a 24/7 independent and external resource. Work-based internal lines are less effective. It’s a good idea to make these hotlines available to workers, vendors, and contractors and make sure that they are staffed properly. Well-trained staff can interview people calling these hotlines, but voice-mail and e-mail are usually less effective. You can give each caller a unique identity number and password, but the truth is, most callers do not call back. Keep it confidential, and phone lines used properly can allow questions to be asked to avoid confusion. The Federal Sentencing Guidelines were strengthened in 2004, and they now recommend ethics training at all levels. ‘‘Sarbanes-Oxley, or what many people refer to as SOX, provides civil liability for companies that retaliate against whistleblowers. And SOX makes it illegal to discharge, demote, suspend, threaten, harass, or in any manner discriminate against whistleblowers. Executives can get ten years’ imprisonment for breach of this provision, so it is important that the board audit committees establish sound procedures for hearing whistle-blowers’ complaints. It is best to employ an ethics officer and make sure the audit committee is involved, so that all problems can be intercepted quickly and addressed. The external reporting hotline can be owned by a legal internal audit group or even by human resources, and it can cover such issues as: Employee fraud. External fraud. Employee mistreatment. Accounting irregularities. Workplace bullying. Employee theft.

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‘‘Ethics is about telling people what behavior is expected of them and what is not, and then making sure they all live up to these aspirations. Tell your people that you have the right tools to deal with whatever comes your way, and if something isn’t right, you can all do something about it. Whistle-blowing can be scary, but it is necessary, and it means that everyone’s voice matters. ‘‘In terms of the code of ethics, this is the platform for all antifraud work, and it should really cover such things as The purpose of this code is to promote an ethical culture. The principles on which this code is based cover integrity, objectivity, confidentiality, and competency. Employees should conduct themselves in a businesslike manner, which means no swearing, gambling, fighting, sexual harassment, or inappropriate computer access, and so on. The organization and its employees must comply with laws and regulations, and any breaches will not be condoned. Do not use your position for personal gain or where you have a conflict of interest. You must not accept gifts, kickbacks, favors, or entertainment that may influence you, or could be seen to be influencing you, in making business decisions. You must follow prescribed procedure for handling and recording organizational funds, records, and assets and make best use of company resources, including expense claims. You must act in good faith with due care and diligence. You should at all times promote ethical behavior. Any uncertainty about this code should be referred to your superior and/or the legal department. Compliance with this code is mandatory, and any breach may lead to disciplinary action, which may in turn lead to dismissal. ‘‘Give people feedback on the reporting line, and put up intranet notices on the way it has been used over, say, each quarter. That way people know that their reports are being taken seriously.

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‘‘2. Design a sound oversight process, and make it challenging. ‘‘Every good organization needs to have an effective oversight process in place. That is a process that watches over the day-to-day activities and makes sure the interests of all stakeholders are protected. It’s really about the governance structures that Helen has already discussed. So it’s about accountability, integrity, and openness. But governance is mainly driven by clear roles and responsibilities. Oversight really starts with a sound board and a sensible CEO. It’s hard to regulate for that. But the rules of the game are set out in tight regulations that seek to balance out the pressure for quick results and the temptation for fixing things, especially where executive compensation is tied to short-term stock prices. But governance is also about the way stakeholders challenge the custodians of their investments. The Sarbanes-Oxley Act states that The CEO and CFO of each issuer shall prepare a statement to accompany the audit report to certify the appropriateness of the financial statements and disclosures contained in the periodic report, and that those financial statements and disclosures fairly present, in all material respects, the operations and financial condition of the issuer.

‘‘And: It is a crime for any person to corruptly alter, destroy, mutilate, or conceal any document with the intent to impair the object’s integrity or availability for use in an official proceedings or to otherwise obstruct, influence or impede any official proceedings is liable for up to 20 years in prison and a fine.

‘‘There are financial penalties for bad behavior, and the Securities Exchange Commission is authorized to freeze the payment of an extraordinary payment to any director, officer, partner, agent, or employee of any company during an investigation of possible violations of security laws. Let’s go through some of the elements of a good oversight process. ‘‘Audit committees. These are now in the front line of fraud prevention. They should receive reports on fraud and be briefed about progress on major cases. They will want to assess the fraud

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risk management program and financial reporting system as well as the effectiveness of the reporting hotline. Audit committees have a key role in watching for any override of controls by senior management. The audit committee members need to understand the financial system and accounting policies as well as the governance process and the internal audit and external roles. This committee really oversees the entire governance process and fraud control arrangements by understanding: The company’s fraud history. Basic fraud concepts. Ethics awareness in the organization. The fraud assessments that should be happening across the organization. ‘‘Audit committee members should get lots of training to discharge their roles, and they need to understand the types of frauds that are common in the industry in question. They will want to evaluate their internal audit set-up and make sure that the audit charter makes sense and that the auditors operate according to professional standards. This is much the same as their oversight of external audit. In terms of fraud, the audit committee can get a lead by demanding regular summary reports on: All frauds classified by type and severity. Fraud trends and reports from fraud-prevention networks. Fraud planning areas. Internal audit reports on weak controls. Noncompliance issues and other incidents. Hotline reports and subsequent action taken. Case report summaries on prosecutions, civil remedies, and disciplinary actions. Resources employed in investigations. Case losses, impacts, and recoveries. Staff awareness training. Relevant guidance issued to management. Control improvements and redesign.

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‘‘As such, it is crucial that the audit committee includes, in its terms of reference, an element that includes reviewing the CEO/ CFO disclosures (on Forms 10-K and 10-Q certification process) regarding problems resulting from poor controls or significant employee fraud. Good audit committees are alert to fraud risks and are often skeptical. They listen and ask tough questions as well as assess financial results. More than that, they need to understand the impact of excessive expectations, particularly where management has a significant financial interest in an entity’s performance and, for example, personally guarantees corporate debt. It is a good idea to get the audit committee to undertake an annual selfassessment of its performance and ensure that this assessment covers its role in reviewing and encouraging all aspects of the fraud control arrangements. It’s sad, but many audit committees have missed a trick, and they haven’t thought to tie themselves into a clear antifraud and corporate ethics role. What I am saying is that if the audit committee does not do all these very demanding things, there will be gaps in its oversight of fraud control. ‘‘The audit committee can ask itself how the board can gain assurances regarding the way people behave at work and whether they live up to the set ethical standards and antifraud measures. This assurance question introduces the importance of internal auditors in bringing together the organization’s ethical assurance processes and reporting a rounded picture of the state of play. We’ll talk about internal audit later on. ‘‘External audit. External audit is now in the front line of fraud control, given that external audit will assess the arrangements for managing fraud risk. The board and audit committee should talk with external audit about these issues. Auditing Standard SAS 99, Consideration of Fraud in a Financial Statement, has had a powerful impact. People expect auditors to uncover fraud, but it’s not that easy. Auditors can use models to assess the corporate fraud protection process, and many auditors use fraud specialists on bigger audits. Good auditors are able to brainstorm the risk of

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fraud, discuss fraud awareness with management, design unpredictable audit tests, and, most importantly, watch out for management override. The main issue is that they now need to exhibit professional skepticism in their audit work. In practice, the external auditors may well kick-start the fraud risk assessment by suggesting that it happen. Auditing Standard SAS 99 says that the external auditor should now: Put aside the view that management is necessarily honest. Work out how a major fraud could be committed. Ask managers if they are aware of fraud and solicit their views on fraud. Use unpredictable audit tests. Check management control override in terms of financial statement fraud. Be real strict about signing off accounts. Use tests that include surprise audits and inventory and revenue checks. Assess the organization’s approach to fraud control, especially relating to financial misstatement. ‘‘Although SAS 99 acts as guidance only, it should represent a minimum coverage, and firms may need to explain why its advice has not been followed. Another important auditing standard is AS 2 on internal control. Its use has been reviewed by the Public Company Accounting Oversight Board, and it seems that there is still a challenge in making more progress, as some of the findings include: Failure to integrate audits of internal control with audits of financial statements. A bottom-up approach with detailed testing but not companywide controls. Poor consideration of unique risk factors of each company as a result of using a checklist approach in dealing with low-level areas. Failure to walk through the entire system.

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Insufficient evaluation of compensating controls. Inadequate testing of controls over financial statement pre-

sentation and regulatory disclosures. ‘‘Internal audit. Internal auditors review controls and generally have a good knowledge of fraud so that they can build these considerations into their risk assessments. They will review the control environment in place, including ethical standards. Internal audit teams can also become quite proactive, and they are starting to look for fraud using, say, automated interrogation packages, which get reported straight to the audit committee. Internal audit can act as a quality assurance process by reviewing standards used by the company’s investigators as well as its overall fraud control arrangements. The internal auditors are independent and carry out both assurance audit and consulting work. It’s all about adding value to help improve an organization’s operations. ‘‘Assurance audits involve an objective assessment of evidence to provide an independent opinion regarding a process, system, or other subject matter, such as assessing the quality of the antifraud arrangements. While consulting work is advisory in nature and normally results from a specific request of an engagement client—for example, by helping with the establishment of antifraud measures. The auditor’s work is covered by the Institute of Internal Auditors professional standards, such as Standard 2210.A2, which states that the internal auditor should consider the probability of significant error, irregularities, noncompliance, and other exposures when developing the audit engagement objective. Implementation Standard 1210.A2 suggests that the internal auditor should have sufficient knowledge to identify the indicators of fraud but is not expected to have the expertise of a person whose primary responsibility is detecting and investigating fraud. As I said before, internal audit can provide assurances on the extent to which ethical values are being observed across the organization. ‘‘3. Define all roles and build good buy-in from all stakeholders and experts in the field.

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‘‘This bit’s pretty simple. Involve everyone in your antifraud arrangements. Talk to the people who matter, and make it clear who does what and who needs to do what. Most fraud measures go wrong when people feel they are outside the loop. Even where there is material on the intranet, no one logs on because they think it’s outside their own sphere. It doesn’t relate to them. Create a clear picture of respective roles—for example, define clear roles for the ‘‘Investigations unit. There should be a resource or ready access to a resource to investigate suspected cases. This resource needs to be professional; it must adhere to a recognized set of standards and be respected by the legal profession and law enforcement. Practicing firms can offer such services as: Pretrial investigations. Assisting in depositions. Legal case strategies. Acting as expert witness. Searching for hidden assets. Fraud damage calculations. Reconstructing accounting records. ‘‘The golden rule is that these firms should not take on cases they are not equipped to handle. Good investigators get to know the local law-enforcement agencies and local media people. It is possible to set up reciprocal arrangements for investigators to work in sister organizations. Where there’s a problem, it is important that you use the right people, such as certified fraud examiners or certified public accountants, to investigate matters. There’s no short cut to this. In-house teams can be developed, and it is important that any conflict of interest be declared, such as close personal relationships with suspects. And where you come across big cases of politically sensitive matters—complex frauds or issues such as criminal gangs, bribery, money laundering, or drug-related matters—then the case will have to be escalated upwards to law-enforcement officers. ‘‘Finance staff. Finance managers are responsible for ensuring that particular risk areas such as income, expenditure, and final

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accounts are protected and that new accounting systems are protected by sound financial regulations and effective monitoring. ‘‘Top management. Executive management has to define a corporate fraud policy. The CEO is ultimately responsible for sound controls and establishing a culture of honesty. Executives are charged with evaluating the risk of fraud and addressing that risk through sound controls and an effective oversight process. Their role is to implement a proactive fraud control plan and certify that this has been done, that a prevention strategy is in place, and that major fraud is addressed and reported on. Good executives have in place a fraud control plan that provides strategies for dealing with fraud, training sessions, and reporting arrangements. They should also, where appropriate, notify the regulators where there is a significant fraud. Company directors have a duty to act in the best interests of the organization, to avoid conflicts of interest, and to ensure that any instance of fraud is properly investigated and addressed. ‘‘Line management. Line managers need to identify fraud threats, establish controls, check compliance, and report suspicions. They also need to be alert to anything that may suggest fraud or abuse, establish effective controls, and certify that these controls are in place. Where fraud is found, then controls should be tightened up straight away. My personal view is that alert line managers are the most important component in the fight against fraud. ‘‘Legal. The legal team deals with civil litigation and may have input regarding fraud control. They may advise on individual cases and prepare stats on fraud and abuse cases. Sometimes the legal people can be put in charge of staff fraud awareness training. ‘‘Chief risk officer. The risk officer has to ensure that there is a sound process in place for assessing risk and understanding fraud and using the latest information available. They should try to involve everyone in these assessments and assess future risks. These

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can include problems that arise from new technology, temporary staff, downsizing management layers, excessively tight targets, a growth in outsourcing, credit card payments, travel and subsistence, salaries, and property transactions. ‘‘Public relations. The public relations people deal with press releases and external communications about fraud risk management and regarding individual cases that affect the company. ‘‘Human Resources (HR). Employee relations and HR handle the fallout from fraud and issues that hit employees. HR has a key role in securing references, disciplinary policies, conflicts of interests, and the register of gifts and interests. They will also offer advice on disciplining employees who have tried to defraud the company. ‘‘Ethics. The ethics officer has a useful role. We may not be able to stop all fraud, but if we can catch it early it helps. Where there is someone to watch over internal ethics this must be a good thing, but we must make sure that the officer can go straight to the board if there is a problem. ‘‘Compliance. The compliance officers help to develop compliance guidance and monitor controls in high-risk areas. They consider aspects such as write-off policies, internal communications, staff training, internal monitoring, enforcing standards, and responding to problems. In addition, some larger companies have set up a compliance committee to address complex regulatory frameworks. Compliance officers need access to records and people, and their role is to oversee the compliance program and also to determine whether all staff are complying with the corporate code of conduct and whether they understand the risk of fraud and how to use the associated hotlines. The real aim is to foster a culture of compliance within the organization. ‘‘There are others we could mention, and the police support investigations may be able to provide a liaison officer, check investigation standards, and even help with fraud control projects. The FBI is the principal investigator for the U.S. Department of

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Justice; it investigates, for example, financial institutions, bribery and corruption of federal employees, wire fraud, and fraud against the U.S. government. The U.S. Postal Inspection Service can deal with fraud such as Ponzi schemes, whereas the Internal Revenue Service covers tax evasion and money laundering. I have had contact with the U.S. Secret Service, which protects high-level public officials and investigates credit card fraud and some highlevel computer fraud. State and local prosecutors deal with bringing charges against suspects and can assist in recovery of assets stolen or misappropriated by criminals. Educators can help prepare the young by building an understanding of fraud and ethics into relevant business training programs. Expert witnesses should also be mentioned, although to be accepted by the courts, these people must give proof of knowledge, education, and experience to convince a jury. These rules are covered by the Expert Witnesses Federal Rules of Evidence, whereby the witness may testify to an opinion based on scientific, technical, or other specialized knowledge. In the end, we are all part of the solution, and we are all fraud risk managers, because strong leadership is required to motivate people and make fraud prevention a reality. I feel that consideration of fraud should be built into all of the organization’s decision-making processes. In this way, everyone is responsible for behaving properly in handling resources and adhering to procedures, being alert to indicators of fraud, reporting suspicions, and cooperating with inquiries. ‘‘4. Design a fraud policy and a fraud response plan. ‘‘Okay, we arrive now at the corporate fraud policy. Not just a few buzzwords like ‘zero tolerance,’ ‘behave well,’ and ‘watch out.’ The first thing to do is to work out just what the policy is for. Most often, it’s to: Ensure management is aware of its responsibilities. Provide guidance on fraud. Ensure all frauds are investigated. Protect company assets and interests.

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Ensure state and federal legislation is upheld. Provide a suitable environment for fraud risk management. Encourage management to promote fraud awareness and

ensure all staff are properly trained. ‘‘It is a good idea to define fraud by referring to the Institute of Internal Auditors definition as ‘any illegal acts characterized by deceit, concealment, or violation of trust.’ The fraud policy will set the corporate approach to fraud control and talk about such issues as: There is a real business benefit from fraud control, since prevention is better than going to the cost, bother, embarrassment, and legal exposure where fraud happens. The organization supports national and local fraud prevention schemes. Employees should follow instructions, particularly those relating to safeguarding assets. All employees should be required to maintain adequate controls against fraud and abuse. Employees should be required to declare any conflicts of interest on an annual basis. A basic outline of key controls should be provided, such as separation of duties, authorization, independent checks and monitoring, and establishing good procedures. All suspicions should be reported using the established corporate procedure. Disciplinary action may arise where staff ignore the fraud training programs and do not comply with the corporate fraud policy. ‘‘It is also a good idea to develop a fraud response plan that makes clear that one should never approach suspects or talk about the case or circumstances. Details of how suspected frauds may be reported should be provided, and the need to cooperate fully with any investigation should be emphasized. It should also be made clear that no one may discuss the allegations or make reference to

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the crime, suspect, or circumstances without the consent of a named person. Moreover, no one may contact the suspect or the police without due authorization. ‘‘5. Develop a set of investigation standards, including interviewing and evidence gathering. ‘‘The next item is about standards. Fraud investigations go wrong when they are not carried out properly. Many cases are withdrawn where it is clear that the company or the investigators will be highly embarrassed in court due to the way they conducted their inquiries. The purpose of an investigation should be made clear, such as to: Prevent further losses. Secure evidence to support further action. Recover losses. Punish the culprit. Establish the truth. Keep clear effective lines of communication. Ensure the company keeps within relevant laws. ‘‘Once these issues have been clarified, we can develop good standards or buy into existing ones. Frauds get reported from the hotline, from audits, by accident, or just through the operation of existing procedures. Once an inquiry gets going, the investigators must adhere to procedures that cover areas such as: Appointing a lead investigator. Resourcing the inquiry. Establishing an authorized case. Initiating staff suspensions. Obtaining legal advice. Making contact with police and establishing their role in the inquiry. Launching the investigative process. Creating liaison with police and external auditors. Initiating recovery action. Communicating results.

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Establishing clear reporting lines. Writing and securing notes on the matter. Adopting standards of confidentiality. Removing and storing evidence. Working in pairs for corroboration of evidence. Dealing with malicious allegations. Obtaining testimony (oral or written). Using experts, such as professional, medical, or forensic

experts. Using circumstantial, physical, and documentary evidence. Dealing with hearsay and establishing rules on admissibility. Establishing the chain of evidence when several different

people are involved in investigating the case and dealing with evidence. ‘‘We need these rules, since fraud cannot be said to have happened until you can prove that it has happened. The problem is that criminal cases rely on proving a fraud beyond a reasonable doubt, which requires a much higher standard of evidence than the civil test of the preponderance of evidence.’’ ‘‘Bill, I’m only halfway through my presentation, and I’m actually shattered.’’ Bill tapped the camcorder and replied, ‘‘I enjoyed that. What’s next?’’ ‘‘Eh, it’s about staff awareness and training programs.’’ Bill smiled and said, ‘‘We’ve done that already—that seminar for the purchasing people done by Jack and Snouter. Did you look at that?’’ Maria laughed out loud and said, ‘‘Absolute trash. You had Snouter telling stories and Jack blabbing on about being good, with more or less no interaction with the delegates. There was no clear learning goal or endorsement from anyone from board level. And there was no attempt to define responsibilities or relate the thing to the work the procurement staff actually do. Calling it trash is being polite.’’

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Bill sought refuge in examining the camcorder and said, ‘‘You’re right about this being hard work. Let’s take a bit of a break.’’ They walked back to the hotel, and Bill stopped at the restaurant for a coffee while Maria went to her room with a promise to meet up again in fifteen minutes.

Maria resumed her position in front of Bill’s camcorder. It was clear that Helen had given up all pretence of being involved, as she had disappeared to her favorite spot at Freshwater Bay. Bill hovered over the ‘‘record’’ switch and said, ‘‘This is hard. Isn’t it just too much detail on fraud? Stuff that the specialists should know?’’ Maria waved her hand and said, ‘‘Listen to me carefully, Bill; that’s just my point. Everything that you are recording today is basic knowledge that everyone should know about fraud; it’s not detail for investigators, prosecutors, and security people. If we all took the time and trouble to understand the basics, we could fight fraud properly. If not, it’s going to be the biggest threat ever to worldwide economic stability. Got it?’’ Bill grinned and shouted out, ‘‘Part two—hold on to your hats, folks.’’ Maria continued her presentation, ‘‘Right, you can see what we’re doing. It’s about building a holistic approach to fraud control starting from the top. We have covered the high-level governance bits, and we have mentioned roles, policies, standards, and so on. But it’s all got to fit together. The point is that we start by taking the risk seriously and then resource our response. Nothing less will do. ‘‘6. Train employees, and define new competencies. ‘‘Okay, now we turn to awareness. This is serious. If all our people are alert and skilled in understanding fraud risks, then we

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have a good chance of guarding against an attack. So start with working out what you want from the awareness program; for example, decide that when they have completed the training, delegates will be able to: Understand the corporate fraud policy. Identify and categorize fraud and irregularity. Explain basic fraud concepts. Describe the potential impacts of fraud on the business. Identify possible indicators that fraud may be occurring. Effectively manage the risk of fraud. ‘‘So that’s what we want from our program, and we can now go ahead and design the thing. We need to speed this up, Bill, so the best way to do this is for me to list my approach to running fraud awareness seminars. For me this includes: 1. Get a good sponsor from the board and ask him or her to make an appearance at the start of the fraud seminar to set the context and indicate audit committee concerns. The leadership and oversight roles of the board are important as well as its policing role. 2. Do the preparations by assessing where we are with fraud and the type of expertise we have within the organization and the ongoing antifraud activities at hand. 3. Link the entire project to the overall risk management process. 4. Consider the competence from the perspective of different types and grades of staff, and make links to the human resource system for recruitment, performance appraisal, and promotion. 5. Consider a policy on awareness seminars and whether they should be mandatory or just advised for each group of employees. A step further is to set strict standards for each group and decide whether to issue formal certificates with multiple-choice tests at the end. The other approach is to develop several different modules—for example, General

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7. 8. 9.

10. 11.

12.

13. 14. 15.

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Fraud Risk Management, Identifying Fraud, Detecting Fraud, Preventing Fraud, and Responding to Fraud. Set objectives for the seminar that relate it to improving knowledge and understanding, developing practical skills along with an increased understanding of the risks as well as explaining company policy. But do not go as far as investigation skills. Train everyone, including vendors, and do refresher events each year. Design and build a good participant’s workbook that reflects the level of competence we are aiming at. Design an instructor’s session guide with slides, notes, and exercises. As we said, it may be possible to design different seminar exercises for different grades and types of staff. But remember to make sure that all exercises make sense to the delegates in terms of their work responsibilities. Run pilots in key areas, and assess results before rolling them out elsewhere. Tune into the group by understanding their roles, what makes them tick, and their past training. Establish a good dialog by getting them to talk about the issues that affect them. Tell the delegates why we are here. Explain the regulations, that it’s the right thing to do, and that fraud is a growing problem that most of the available stats miss due to underreporting. There are two types of organization—those that have been hit by fraud, and those that will probably be hit some time in the future. Explain how SOX Section 404 is one of the drivers for better controls. Tell people what will happen during the seminar, but keep it flexible. Define respective roles and responsibilities. We have more or less outlined these already. Define exactly what fraud is. Detail the various categories and some of the legal attributes. You can mention such issues

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16.

17.

18. 19.

20. 21.

22.

23. 24.

as destruction of documents, falsifying records, disclosure of confidential information, accepting or seeking gifts, improper handling of money, profiteering from insider knowledge, as well as the usual theft and bribery stuff. Present some basics about fraud. It exists, and we need to act and take charge and spend time on sessions like this, because they help the business and they fit with corporate strategy. Specify the assets that are at risk, such as fraud involving financial statements, billing systems, expenses, inventory, identity theft, and so on. Use a simple model that incorporates the concept of a journey with movement towards a secure and trusted company. Talk about the company’s fraud policies and why they are so important. Link this to securing a culture of honesty, good fraud prevention, detection, and response; and generally keeping fraud in check. Go back over where everyone fits in the fight against fraud. Move forward and go over some of the basics, such as the hotline, zero tolerance, oversight structures, the fraud control program, and fraud reporting arrangements. Discuss the role of ethics and values and whether they are real and whether people at the top walk the walk. You can talk about the whistle-blowers’ hotline and the importance of open reporting. It may be good to put in some kind of breakout exercise on honesty and behavior and why good people may be tempted to go bad. Deal with red flags and overall fraud detection. Unfortunately, we can’t assume everyone is honest all the time. Present the wider dimension. Discuss the overall enterprise risk management platform and ethics. Add to the company’s usual risk management the risk that some people may be dishonest some of the time. Not that no one can be trusted, but that we all need to be alert to the consequences of staff dishonesty.

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25. Encourage staff members to perform their own critical selfappraisal. Ask the delegates to examine their work areas for aspects that are exposed to internal or external fraud and find out what they are doing about these gaps. 26. Set a multiple-choice test to be completed at the end of the fraud awareness session, and, if applicable, set agreed pass levels (say 50% pass, 50 to 75% merit, and over 76% for a distinction). The scores achieved should go into each staffer’s personal performance file, once that person has completed the seminar and test. 27. Go back over the reasons why we are here, and recap the seminar. 28. Say au revoir, and refer to the online antifraud resource that should be in place on the corporate intranet. 29. Find a way of measuring the impact of the seminars through instant feedback and staff surveys. 30. Review and update the candidate’s workbook and trainer’s guide. 31. Consider the need for follow-up training for those who have attended the seminars some time ago. ‘‘7. Tighten up security, and plan for the worst contingencies. ‘‘We are running out of time, and I’m going to speed these last few items up a bit. No fraud control plan is complete unless we look at security issues as well. That is the way an organization protects its assets, including its information systems. We need to be on the lookout for system breaches and to come up with ways of ensuring that potential breaches are anticipated and properly addressed. Internet-based crime is a major threat to all organizations. Do you know that criminal gangs are now taking over from lone hackers and spending their time trying to breach corporate security? It’s like a rat race, in terms of who can keep up with the latest threat. ‘‘There is great scope for loss of revenue and loss of customers as a result of cyber crime. Some argue that security is fast becoming the big issue. These gangs are well equipped, and they can infiltrate

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a company’s database and steal the credit card details of customers and then extort money from the company. Or they may threaten to contact the customers so that the company loses face and loses business. Some hackers can destroy data, plant illegal material, deface web sites, and bombard systems to try to shut them down. I know at least one big company that was hit because it sent its old computers abroad for recycling. Criminals then accessed and retrieved both personal and corporate data from the hard drives, which they in turn sold to established fraudsters. These guys would then build personal profiles from this data and go on to steal identities. ‘‘Essentially what’s needed is a series of buffers between internal systems and the big outside world. There is help at hand. For example, there’s a useful standard issued by the Information Technology Governance Institute called the Control Objectives for Information and Related Technology (COBIT 4.0), which is a detailed framework aimed at ensuring that information technology (IT) is aligned with the business. There are several aims of COBIT, including ensuring that: IT enables and maximizes benefits. IT resources are used responsibly. IT risks are managed appropriately. The standard covers five main focus areas: 1. Strategic alignment. This is the linkage of business with IT plans and IT operations with enterprise operations. 2. Value delivery. This means that IT delivers promised benefits on optimizing costs. thereby proving the intrinsic value of IT. 3. Resources. This involves enabling proper management of critical IT resources—people, processes, applications, infrastructure, and information—to optimize knowledge and the infrastructure. 4. Risk management. Here the focus is on risk awareness by senior corporate management, with notes on risk appetite and transparency.

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5. Performance measurement. This tracks and monitors strategy implementation, projects, and so on to achieve measurable goals. ‘‘We must ensure that sensitive data is encrypted, and some of this data may be covered by government legislation for transmission, storage, encryption key management, and transmission across national borders. Firewalls are essential to limiting staff use of mobiles and wireless networks at work. Moreover, spreadsheets must be kept secure—this is required by SOX Section 404—so good password protection and read-only facilities are important. The organization may also set access rights to some spreadsheets or only to defined cells, and it may track the change facilities to check the history of each spreadsheet. ‘‘Good continuity management is also real important to ensure that, if someone brings down our systems, buildings, or even our people, we can stay in business. Once we have got our continuity plans, they should be tested regularly, because, sadly, we now live in a very scary world. ‘‘Banks are getting clued up, and they are starting to use twopronged security—something you know (password) and something you possess (a computer, or a token that generates a unique number for signing on)—to verify customers. Some banks issue customers a set of one-off passwords that are scratched off each time they log on. The situation is so serious that Interpol is looking at fraudsters who set up bogus web sites to get personal data. We can use embedded monitors to trigger an alarm when transactions fall outside set parameters, including many orders at just below set authorizations levels. ‘‘It’s really about being alert and keeping up with new fraud attacks. Most of the control measures are well known, and organizations now realize that it is one thing to employ security staff to protect the buildings, but Internet-based systems need an altogether different type of protection. Most organizations monitor internal traffic and look for odd patterns. This monitoring

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should be applied to transactions with vendors and customers. Staff should understand this concept and the need to use security measures and report any problems or attempted breaches. Basically all data should get a security classification depending on its importance, and then rules should be applied as to how it is used. Nothing short of this is acceptable. ‘‘8. Survey your systems, and assess weak areas. ‘‘We have talked about having good security, but this is not enough. Smart organizations engage in a constant search for system breaches and transactions that suggest something is wrong. Essentially, it is about fraud detection. A plan needs to be in place to ensure that if the fraudster has managed to launch an attack, the company can find it. Frauds can be discovered by: Accident. Informers. Internal and external audit. Controls. New systems installed. ‘‘Further, we should watch out for anything that comes to us from these sources. Some argue that the propensity to commit fraud is related to the chances of being discovered and the subsequent consequences. The auditors are starting to be direct in their approach to fraud and are asking the CEO and CFO straight up whether they are happy with their fraud control arrangements, whether they mind being examined, and whether they are aware of any specific frauds. At the same time, the auditors are being asked to carry up nonroutine tests and surprise visits. ‘‘Data footprints can tell you a lot about what’s happening, and sampled data can be used to assess whether there are problems. For example, we can review credit card spending trends where an employee tries to pay personal credit card debt through the company. We can also analyze data for missing fields, such as vendor tax, Social Security number, inventory type, and so on, while looking for strange trends and unusual averages. But always

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remember that while we are doing this, the fraudsters will try to conceal their efforts and may even be aware of our standard detection routines. A good way of dealing with data sampling is to: Define the at-risk transactions. Profile this data. Set data criteria for oddities. Define a sample. Analyze the data against other, similar data and other associated systems. Check for exceptions and oddities. Decide on further action. Investigate where necessary. Refine the model and start again. ‘‘Statistical analysis is useful for Internet use, cell phones, credit card spending patterns, and so on. Detection controls should really swing into action as soon as preventive controls fail. But remember, there is a sensitivity about this. We should not really publicly discuss detection routines in too much detail, because this information may well get back to the criminals. This is why many companies don’t engage in data sharing or even idea sharing. Large numbers of transactions can be analyzed; the expected results are compared with actual results and action is taken. Odd credit card spending can be assessed and the payment stopped before it goes through, if there is some doubt as to its authenticity. Detection analysis is about isolating suspect items, which can then be further analyzed. But this costs time and money and may have a low hit rate or even a hit rate that results in an abundance of suspect items that are called false positives. Where we miss something that should have been picked up it is called a false negative. Oddly enough, where security is so tight that the system rejects tons of items, this will only encourage people to bypass security as a normal workplace occurrence. ‘‘If there is a history of fraud, then suspect data can be compared with new transactions. And it is possible to link known fraudsters

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with others and draw a network of associates and suspects via shared phone calls and e-mails. Data analysis needs to follow customer behavior, which may change over time. Unusual transactions for readily convertible goods should arouse suspicions. In one analysis of sales it was found that an expensive item was selling twice as much than normal, and the investigation found that warehouse staff had been incorrectly discounting this one item by around 50%. ‘‘When they look for made-up figures, some investigators use Benford’s law on random numbers, which means suspect data sets may be identified because they are associated with the way numbers are used when made up by a fraudster. Money laundering is hard to identify, because the criminals can have inside contacts who tell them about the detection techniques being used. Laundering is about mixing legal and illegal funds to complicate the paper trails, although indicators can appear when suspect persons, companies, or countries come into the frame. ‘‘I guess the final thing to look at is red flags. Those are indicators that suggest someone may be up to no good. These red flags may cover such attributes of employees and systems as: Financial problems. Extravagant lifestyle. Regular rule breaking. Close social relationships with vendors. Accepting gifts. Losing assets and equipment. Unexplained absences. Heavy debts. Excessive drinking. Character changes. Lack of ambition and appearing comfortable with current job. Always making excuses. Genuine need—for example, large medical bills.

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Gambling addiction. High staff turnover (Exit interviews can tell us why someone

wants to leave and perhaps let us know what is really going on within a department). Lack of audit in the area in question. Unexplained budget variations. Poor financial rules. Strange trends, such as losses on some product lines (Where shoplifting is a risk, high-risk items should attract extra security—for example, power-tools.) Undated, altered, or missing records. (In one fraud scheme, paid checks were missing, and when the bank provided copies, it was clear that these checks were made payable to the CFO and costed to general expenses.) Strange purchasing issues where there is no price list, one low bid, called-off contracts, cozy relationships, poor documentation, cost increases, odd clauses, and no inspections. Ghost employees who appear on the payroll but do not really exist. Excessive complaints about nondelivery of items. Accounts payable where the documentation suggests photocopies, missing invoices, rounded-up figures, no phone number, or many items just below authorization or special checking thresholds (It is possible to run the staff database against the vendors’ database.) ‘‘9. Learn lessons real quickly, and follow up problems by improving controls. ‘‘A lot can go wrong if we are not on guard. Although we have discussed detection, the main focus of any fraud policy should be on prevention. Controls should be in place, and as fraudsters move to get around these controls, our controls should respond to the new challenges. Some people make it their career to undertake regular frauds, and we should have a good understanding of the types of frauds that can and have occurred in the past. Some of the basic

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controls that should be in place in more or less all organizations include: A solid control platform. To my mind we need, before all else, four main items that form a platform for our controls. These are (1) the right governance, (2) the right culture, (3) good secure processes, and (4) a degree of professional skepticism to challenge face-value assumptions. A control framework. The well known COSO model has five components in this established control framework covering the control environment, risk assessment, control activities, information and communications, and effective monitoring. Here all key roles are made clear, and there is a good awareness of fraud as well as good disclosures. Fraud resources. Good control must be resourced, and we need resources that are able to investigate problems, carry out staff disciplinary actions, and ensure that we can detect fraud and stay within the law. A staffing framework. This provides for covering a written code of conduct, formal job descriptions, definition of key manager roles, and hiring rules, along with employee checks, sick leave verification, staff screening, selection of fair targets, time control, scrutiny of contracts and relationships, media searches, and referees and qualifications checks. Policies for dealing with suppliers, customers, and creditors. Board and audit committee rules. Contract control. There should be a select list of vendors, and vendors should be required to follow company policy. There should be no overstocking, clear authorization levels, tendering, firm specifications, an audit access clause, control over data variations, authorizations, staff register of interests, and value-for-money reviews of key contracts. Inventory control covering discounting, audits, theft, credit notes, stock movement, write-offs, and surprise counts.

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Payroll procedures covering balancing payroll to human

resources systems, clear procedures, and control over ghost employees. Resources and asset control, covering asset registers, accountability for each asset, separation of duties, monitoring, staff outputs, vehicle usage control, and procedures for disposal of obsolete items. Expenses control, covering monitoring, vouchers, and sample checks. Payment procedures and checks between payment files and staff data, with a review of rounded amounts, false addresses, and duplicate payments. Security procedures, transaction monitoring, and CCTV use. Security checks can be minimal, using limited checks, regular checks, or automatic checks, depending on the level of risk involved. Financial management including checks requiring two signatories, holding a small number of bank accounts, banking spare cash, and general financial regulations. Staff movement control covering job rotation and encouraging annual leave. Decision control where there is an overall need for clear rules, clear procedures, evidence of outcomes, accountability for resources, supervision, monitoring, and people being motivated to behave well and perform up to expectations. ‘‘These control should be tested on a regular basis using the following approach: Set test objectives. For example, we may want to check whether staff maintain excessive influence over their work areas by never taking breaks. Define the control, which may be taking regular vacations. Test the control and find out whether all staff actually do take their vacations.

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Get the test results and examine the implications. So if there is

no cover during vacations, then some of the antifraud procedures may not be followed, and other aspects may be apparent, such as work not being covered during vacation and backlogs building up. Decide on detection routines where there is a weakness that may mean that fraud can happen. Summarize the overall results and issue a brief report. Decide on issuing new and/or improved controls and implement them. ‘‘10. Design and implement a fraud risk management framework. ‘‘Okay, we have managed to get to the last bit—fraud risk management. This is last because it relies on each of the earlier items. Fraud risk management happens when you have the right structures in place, staff is alert to this issue, and all the rest of the stuff we have gone over already has been acted on. So when everything else we have discussed is in place, you get to fraud risk management, simple. We can get through this bit pretty quickly. One basic approach is to do the following: Set an overall ethos from the board that fraud is a threat and it must be addressed. Define fraud and its impacts. We can agree that dishonestly obtaining a benefit by deception and other means can bring down an entire business. Raise awareness of prevention, then detection, then investigation. Make it clear that if the company becomes a victim, there will be some financial loss, a hit on reputation, corporate culpability, and overall embarrassment. Make people responsible for fraud risk management, and make fraud prevention part of everyday business. SarbanesOxley, the Federal Sentencing Guidelines, and auditing standards all support this approach. Ensure that the fraud risk management program is part of the enterprise risk management that most people are now doing.

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So whenever you assess a risk to the business, think also about the risk of fraud. Embrace fraud risk assessment as an opportunity to improve things and reduce opportunities for fraud, rather than seeing it simply as a basic compliance exercise issue. Make certain that each process owner becomes involved in fraud risk assessments, although there is no single standard that shows how this should be done. It cannot be done alone in an office or looking at just a process or unit with no integration; there must be an open discussion forum and defined ownership. Address fraud target areas such as IT security, outsourced bits, grants, tenders, credit card revenue, salaries, travel and expenses, property and assets, payments, web based business, call centers, and overseas operations. Understand that rapid change, downsizing, and risk taking can all lead to more fraud occurring; reevaluate risk whenever things change. Brainstorm in groups; don’t start with controls, but start with risks and then controls. But do keep the assessments open, and lighten it up where possible. Consider organizational, industry, and country-specific characteristics and exactly what types of fraud hit people like us. Decide how best to tackle risks. The risk of corruption may be met by sound procurement processes. The risk to information can be met by IT controls. The risk of financial misstatement requires controls over the financial reporting system, including checksoverresults from businessunits. Make sure there isnoone person handling the accounts. Make checks over income, and track spending; examine all employees thoroughly, and ensure robust quality assurance along with independent investigation of complaints.For identitytheft,ensurethatyou shredpersonal documents, cancel unused credit facilities, secure personalinformation, check the organization’s credit rating regularly, check

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its financial statements, and check whether the organization is at risk. For street robbery, tell staff to keep a low profile, keep valuables out of sight, do not boast, and try to dress down. Look forward to emerging risks and how they can be tackled. Horizon scanning and research through expert advice can help. We can use reformed fraudsters to help us strengthen our system.’’ Maria clapped her hands twice and said finally, ‘‘Okay, that’s that. We have gone through a lot of real important material, and I am pleased to say that we have covered the ten main areas for getting fraud under control. Simple, was it not?’’ A now exhausted Bill shut off the camcorder, and raising his eyes to the sky, he mouthed a silent ‘‘thanks’’ that this detailed presentation was finally over.

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c h a p t e r 15

THE LONG NIGHT

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nouter and Jack sat in the car outside Dhiru’s place and waited. As it got later, Snouter slept, and every now and again he would shudder and mumble something to himself. Jack kept watch on Dhiru’s apartment, and each time Snouter shuddered, Jack glanced at him and frowned. A particularly rigorous shudder shook Snouter from his sleep, and he blinked his eyes open and spluttered, ‘‘What the hell are we doing here?’’ Jack sighed, ‘‘When something’s not right you have to check it out. You know that.’’ Snouter straightened up his back and yawned very slowly, causing Jack to turn away and open the car window. Snouter scratched his nose and yawned again while Jack craned his neck outside the window to get a better view of the apartment. Snouter finally said, ‘‘Why don’t we just get this guy Dhiru into the office and then interview him properly? Or get an interpreter and work out exactly what he’s saying?’’ ‘‘I can see him moving around in his room,’’ Jack said, ‘‘but he’s still got the lights switched off. I wonder why.’’ Snouter continued his rambling comments, ‘‘When you need to find something out, it’s always best to just ask. No?’’ Jack realized he was in for a long night and played along, saying 135

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‘‘We set out a standard for carrying out investigations. But I just remembered, we haven’t got anything on interviewing. No standard or set approach.’’ Snouter coughed, ‘‘Don’t need one,’’ he said and wiped his mouth with the back of his hand. Jack continued looking up at the apartment and said, ‘‘You’re wrong. You need to draft out a document that says how you conduct interviews to ensure they are fair and admissible. A best practice standard.’’ Snouter looked unconvinced and proceeded to gently bite his fingernails, making a series of clicking sounds. Jack was determined to make the best use of the time they would spend together and made up his mind how this could be done. Hoping that he could distract Snouter from his nail-clipping task, he made a suggestion, ‘‘Let’s get something down on interviewing. A note that we can add to our standards.’’ Snouter leaned back in his chair and looked as if he was about to go back to sleep. Jack nudged him in his side and said, ‘‘Okay. You start. How do you approach interviewing?’’ Snouter screwed up his face and looked as if he was going to be awkward, but Jack just smiled, took out a note book and saw that there was just enough glow from the street lights to enable him to write notes down. Snouter closed his eyes but instead of sleeping spoke, ‘‘Interviewing. Okay, let’s give it a go. You actually represent the company when you do an interview, so you gotta be patient but firm; serious but good humored. You should be tolerant and encourage the person to talk. That’s about it. That’s the standard I use.’’ Jack wrote these ideas down and said impatiently, ‘‘No—I mean this is good, but we need to set standards. Set out a detailed approach to our work.’’ Snouter seemed to cheer up and rubbing his hands together said,

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‘‘Right. Well, to do an interview you need to go through a process like this; Set objectives. Why are you doing it? Do your research. Background to the thing. Determine your main questions. Establish timing. Work out how you’re going to document. Get a suitable venue. Set out the chairs—formal or cozy. Basic preparation. You know, notifying people and so on. The interview itself—which is about conducting it, closing it, and

then the follow up. ‘‘You getting this all down?’’ Jack was writing furiously and mumbled, ‘‘Sure enough. But I need more on the actual interview itself.’’ Snouter resumed his rather annoying facial scratching, Jack took over, ‘‘Tell you what,’’ he said, ‘‘let me expand on each of the main bits you mentioned, and you can take notes: Setting objectives. Why are you doing it? Okay, interviewing is about finding things out. It can be general fact-finding when we’re just looking into things. It can be about establishing what a witness has to say. And it can be questioning a suspect or possible suspect. Start with what you want from the interview. Doing your research. That is getting some background to the thing. Here you need to find out as much as you can before you launch into the interview. Check out the name, job title, and role of the person you are seeing. People get real upset when you don’t know some of the basic facts. It’s just no good being lazy about this. Determining your main questions. Work out what you need to know, and make a list of questions and areas that you need to explore. Get an order for them, but you have to be prepared to be

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flexible at the same time. Questions can be open, closed, or probing, but they should not really be leading or multiple questions. It’s a good idea to try to find out what’s important to the individual being interviewed. Establish timings. When, where, and for how long, so people know what to expect. Work out how you’re going to document. When the interview’s over, all you have is the record. So it’s important to work this out beforehand. It’s probably best to use a standard form and some standard terminology. Like ‘I interviewed x on the day in question.’ Note the witness’s name, contact details, and the investigator’s name; list all evidence provided and a statement that the interview was voluntary. Note the date of interview, how conducted, location and times, and whether or not a tape recorder was used. Get a suitable venue and set out the furniture. You can have a think about this to ensure you get the right atmosphere. A witness needs to be encouraged by informality but not so that they see it as a joke by too much informality. Basic preparation. It’s important to notify people and give them enough notice and allow them to get time off to attend. The interview itself. Which is about conducting it, closing it and then the follow up. ‘‘The interview structure may be;

Preparation. Work out respective roles and say who does the interview and who will record the interview. Introductions of all those present, done properly. Establishing rapport and building trust to get it positive. Explain the purpose of the interview, how conducted, and next steps. Explain your powers, and isolate the issues at hand. One factor to remember is the need to protect the well-being and rights of the individual in question. This approach applies to both witnesses and suspects.

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Establish what you need to prove. Probing questions are useful to follow up an open question like ‘tell me more about xyz’. These questions can be used to track down from general to specific. When dealing with suspects, put the evidence to the person and request an explanation. Keep these questions clear, relevant, and formal. And if the question is unanswered, you can continue to ask the question and seek answers. Develop themes and probe interesting bits, such as any ambiguities. Evidence can be physical, documents, financial statements, argument, assertion, analysis, or other testimonial statement. And these can be gained from observation, analysis, and of course asking questions. Make sure you use copies of all documents and not originals. And reference any actual evidence to the person giving a statement. Some people argue that you should not always confront mistakes made by the interviewee too early on in the interview; this may put interviewees on guard from the start, and they will tighten up. Consolidate and summarize by relating it to the evidence available and ideally review the facts of the case. Give feedback.

‘‘You getting this down Snouter?’’ Snouter looked impressed. ‘‘This is great.’’ He said with a new found respect for his colleague. He examined his notes and said, ‘‘You need to say a bit on getting information from the interviewee.’’ Jack looked out of the window and agreed by nodding his head, ‘‘Right then. I guess we want to put something in on listening skills which is really about nonverbal communications. You know, facial expression, gestures, posture, spatial context, giving the right signals, and using silence as a tool. My list would be:

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Concentrate on ideas and the information that is given to you. Keep an open mind and challenge oddities. Be responsive and read body language to put the person at ease.

Watch for proper facts that the person knows as compared to general knowledge and the types of assumptions that have been acquired through life. This is all clouded by values and emotions. Seek clarifications where required. You can take the person through the action sequence several times and review what has been said. Check out bias and acknowledge any anger or fears. Also gently probe areas of stress. Watch out where the interviewee is adopting the ‘halo effect’ where they score a third party high on one factor, then assume that person can do no wrong. So a long-standing and reliable worker may be assumed as always being honest. Work out what witnesses should know by establishing the amount of time since they saw the event, their distance from the event, visibility, reasons why they should remember, errors in their memory, and any possible bias. Maintain an interest. People give clues about what they are thinking. So putting your hand over your mouth, or pointing your foot towards the door—which is the escape route—may suggest something’s wrong. Some people give an indirect answer to avoid lying outright. In terms of identifying possible liars, it’s actually very hard. Good liars hide their emotions and look you in the eye to avoid being caught out. But they tend to overplay things by, say, throwing their arms wide open to make a point about their honesty while honest people may appear nervous and shaky, which we usually associate with—guess what? Lying.

‘‘Going back to body language, we can say smile, keep an open posture, lean forward, use touch carefully, use eye contact, and nod where it fits in. You really don’t want to be aggressive, which is offputting. But you don’t want to be submissive like a scared rabbit. You really want to be just assertive by keeping control in a positive way.’’

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Snouter stopped writing and pointed towards the window, ‘‘Hang on. Something’s happening up there,’’ he said in a shaky voice. Two loud gunshots suddenly rang out in the still air followed by a brief silence. Someone walking past the car screamed, and a small crowd quickly gathered round Dhiru’s building while both Jack and Snouter froze in horror. For a few brief seconds they just sat in the car, staring at Dhiru’s window.

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c h a p t e r 16

A MEETING OF MINDS

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elen moved over as Bill and Maria sat beside her on her favorite bench facing Freshwater Bay. She stood up and leaned on the railings overlooking the swirling sea below. ‘‘You two done?,’’ she asked, turning to face them. Bill looked hopefully at Maria, who said, ‘‘I hope so. We’ve made a movie of this fraud risk management thing. I feel exhausted.’’ Bill relaxed as he had confirmation that the ‘‘lecture’’ had been concluded. Maria got up, stood beside Helen, and said to her, ‘‘The main thing that worries me is the compliance program. It only covers parts of the business.’’ Helen agreed, saying, ‘‘Yes. I spotted that. Your man, the compliance man, doesn’t cover anything the core accounting unit does, and he doesn’t cover the overseas part of your business in Portugal.’’ Bill looked at these two ladies and laughed, ‘‘Stop bullying me girls. I’ve only just taken it over. In fact, this fraud stuff doesn’t actually come onto my books until I go back to work. So there!’’ Helen became quite serious and looked Bill straight in the eye, ‘‘Peter called earlier. He’s nearly finished his work with the finance people in London, and he wants to see you before you go back.’’ Bill looked surprised, 142

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‘‘Sure thing. But I’m off tomorrow.’’ Helen continued, ‘‘He’s supposed to be back tomorrow, earlyish. Look, I’m not supposed to say anything, but I think he wants to make you an offer on your cottage—the house and the large piece of land that it sits on. His backers have a plan to extend the hotel, and they need more land to make this happen. Anyway, let’s leave it until he sees you.’’ Bill looked thoughtful, and Helen read his mind and expanded her explanation, ‘‘I know you want to keep a house here. Look, I might as well tell you what he told me. He reckons he’ll make you an offer, and it will include him giving you a small apartment attached to the new hotel. That way you lose the cottage but keep a base here. So you can come visit whenever you want.’’ Bill stood up and joined the two ladies while Maria said, ‘‘Sounds good to me, Bill.’’ Bill leaned over the railings and said, ‘‘Dunno. It’s come as a surprise to me. Let me talk with Peter when he’s back, and then I can go away and talk it through with Ruth.’’ ‘‘Sorry.’’ Helen said with a smile, ‘‘I probably shouldn’t have said anything. It’s just that I’m worried you might miss Peter if you leave early tomorrow. Bill shrugged and changed the subject. He asked, ‘‘What were you saying about my compliance arrangements?’’ Helen looked at Maria, who in turn decided to lead on this, ‘‘Well. Big companies are hard to control. Head office sets direction, policy, and also standards. But they never really know what goes on in local offices and overseas sites. Setting up an audit and compliance process is one way to get feedback from an independent source that confirms things are okay. It even helps people deal with complex rules and corporate systems. But you have a man who visits parts of the organization but not the main accounting unit or the far-out places. That’s not to say anything is wrong, but it just means that parts are outside the loop. Now that you’re in charge of compliance, you may want to remove these

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barriers and get your man into what appears to be several non-go areas. He should scoot off to Portugal and get off to—where is your accounts set up?’’ ‘‘Orlando,’’ replied Bill. ‘‘Okay then, Orlando.’’ Helen came in, ‘‘The problem is that when the audit or compliance team reports to someone who has some operational responsibility, they often don’t get to review these same bits of the organization. So everything that the CFO is in charge of gets left out.’’ Bill seemed to see the light and said, ‘‘I see what you mean. And as part of the antifraud arrangements, this becomes a weakness.’’ ‘‘Exactly,’’ came a joint response from both women. A light trickle of rain started to fall, and as if on cue, all three turned and headed back for the hotel at a leisurely pace.

They arrived back at the hotel and settled down in the lounge area where a few people sat around the well laid out tables and chairs. Tea and cakes sat on the table in front of them, and Bill couldn’t help making a smart comment, ‘‘You know—if Jack were here, we’d be knocking back booze all night.’’ Maria laughed, ‘‘Oh yes. He’s such a bad influence. Naughty, but nice.’’ Helen’s phone rang, and after a few minutes she passed it over to Bill, saying it was Peter who wanted a word. Bill hummed and erred a bit, finally made a noncommittal remark, and then gave the cell phone back to Helen. The two women looked at Bill with some expectation, and Bill shrank back in his seat, raised his eyebrows, and said,

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‘‘What? Okay, the phone call. Peter wanted to talk about the cottage, but he thinks he won’t get back in time to see me. So he’s going to e-mail me when I’m back in the States. Okay, satisfied?’’ The conversation drifted off into a replay of their adventure on the Isle of Wight last year when they got involved in a miscarriage-of-justice case and eventually helped a man wrongly convicted of a serious crime. Bill’s cell phone went off again, and he excused himself, got up, and spoke in hushed tones for a few minutes. When he returned he sat back down and said, ‘‘That was Jack. He says hi. But he says he needs to go out to Orlando and do some checking over there. It seems there has been an allegation that he needs to check out. And I’ll need to switch my flight and see if I can meet him there.’’ Maria’s eyebrows shot up over her forehead, ‘‘Told you so!’’ she said in a triumphant voice. ‘‘It’s the bits of the organization that are left out where things can go wrong.’’ Bill held up one hand, saying, ‘‘It’s only an allegation. They were going to ignore it, but the person who spoke to them has just been shot.’’ Maria and Helen froze and stared at Bill for a few minutes. Helen broke the spell and said in a shocked voice, ‘‘Shot dead?’’ Bill tugged at his ear as if he had mis-heard the phone conversation and replied, ‘‘Not sure. I think he’s in the hospital, according to Jack. Unless he was drunk and imagined it all.’’ Bill suddenly felt tired and had a feeling he would be under pressure as soon as he got back to the States. He slid off his shoes and sat back with his legs stretched out in front of him and smiled at the two women sitting in front of him. Helen ordered a bottle of good wine and was just about to launch into small talk when Maria broke the mood and sat up straight and said,

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‘‘We haven’t talked about financial statement fraud.’’ Bill opened and closed his mouth, and remained silent as a worried look etched across his face. Helen did the same, but on opening her mouth she almost said ‘‘what the hell do we want to talk about that for’’ but quickly thought better of it. Maria realized that she was not going to get much back from her two friends and continued, ‘‘You know we could learn lots from an old case, now called the Ponzi schemes. It would appear that Charles Ponzi promised 50% interest in 90 days and delivered in 45 days. He simply used new investors to pay old investors, and word spread about the benefits. People wanted to get rich quick and trusted Ponzi, who had a top-flight lifestyle. The scheme collapsed because there were no underlying assets; 40,000 investors lost $15 million, and he ended up with five years in jail for mail fraud. People have always tried to cook the books and distort the truth, while investors have always thought you could turn lead into gold if you had the right ingredients. Or if someone convinces you that he has the right ingredients. To me it’s just a potent mix of greed, ignorance, and cunning. Anyway, you wanted to talk about financial statement fraud, Bill?’’ Bill blinked and silently mouthed ‘‘no,’’ but Maria failed to spot this and went on, ‘‘Right, then. It has been a long tradition that crooks buy themselves a shelf shell company or what some call a ‘shell company.’ That is a dormant company that can be used as a vehicle for tax fraud and, say, as an offshore device for money laundering. In some company filings, the shareholders are not even identified but are held in trust or bearer shares with no names supplied. As such, the handler can rake off profits and cheat the shareholders and investors as well as undermining investors. These types of fraud can affect investor confidence, and, since they are growing, they also affect stock markets. When the books are fiddled by insiders then this can be terrible. But who cares? When the economy is on the up, everyone gains and no one really cares where some of the money goes astray. It’s really about concealing true business performance, and it can be used to meet loan obligations, performance targets, and earnings

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growth. Or to support stock prices in anticipation of a sale. These earnings overstatements can involve the entire top management team. Whatever the reason, it always involves an element of deceit. And it happens where there is so much moral decline and short-term expectations linked to executive rewards (like stock options) or when people just don’t take it as a serious threat. ‘‘I once ran a business game with a group of university business degree students who competed to make profits and stay afloat. Every time a team cheated I had to fine them, and as the game progressed, it became clear that one group had worked out that it was worth being fined to make gains and win the game. They had no worries about ethics and keeping inside the rules. And the sad thing is that they won in the end. If I were to run this game again, I’d suspend them if they broke the rules. That’s what I mean about taking fraud seriously. The fines for knowingly violating certification requirements are $1 million and up to ten years in jail. For willfully violating certification requirements the fine rises to $5 million and up to 20 years. Helen, why don’t you talk to Bill about ways forward.’’ Helen was just about to sip her wine, and she grudgingly put down the glass, saying, ‘‘Yes, why not. May as well enjoy the evening. Ways forward are about all sides having a degree of professional skepticism, and this includes the auditors. Tell you what, let me list what the external auditor can do to check things: Performing analytical reviews, looking for odd trends by comparing

figures with last year’s results, or looking for odd results from one specific part of the business. Carrying out fraud risk assessment and checking high-risk areas like material journal entries. Checking accounting estimates and timing decisions. Examining unusual transactions, remembering that Enron and WorldCom hid billions of debt in off–balance sheet entities. Watching the application of rule-based accounting standards and whether the executives have been trying to work around these

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technical rules (The company’s management is responsible for the accounts, but they must also ensure that they are fairly stated. Also the board must set a code of conduct and work within it). ‘‘The individual financial transactions go into the accounting system, and this information ends up in the financial statements, which are public records and will affect loan, investment, and financing decisions. The Securities Exchange Commission has set tight rules for standards for professional conduct of attorneys, standards for audit committees, better auditor independence, and disclosing managements’ decisions on off– balance sheet arrangements and contractual obligations. And the audit committee that oversees the company must contain a financial expert who should watch out for problems such as insider trading and whether generally accepted accounting principles are being applied. The audit committee will also want to see proper quarterly and annual disclosures from the executives. ‘‘There is another level of oversight at the Public Company Accounting Oversight Board, which oversees the audit of public companies to protect investors and further the public interests in the preparation of independent audit reports. They register accounting firms and oversee their quality assurance processes and inspect them. If there are problems, they can discipline accountants, and they seek to promote high professional standards and compliance with Sarbanes-Oxley. How’s that for a few information nuggets?’’ Helen laughed as she finished her latest presentation, and, taking a long sip from her wine, placed the glass down onto the table before adding, ‘‘And that’s about it from me, folks.’’ Maria looked at Bill, whose eyes were glazed over. He had a puzzled look on his face as if he had accidentally sat down in the middle of a complex math class when he had actually enrolled on a life drawing course. Maria tapped Bill on his shoulder and asked, ‘‘Had enough Bill? Do you feel you’ve done enough research?’’ Bill threw his head back and mumbled,

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‘‘You know, I will never go away and ask people to teach me about anything again ever. My brain hurts.’’ Helen laughed again and got up, saying, ‘‘I’m off. You two stay if you like. I’m pretty much bushed.’’ Maria got up, ‘‘Don’t leave me here. I’ve done my lecture and I am double bushed.’’ Bill clapped his hands and said sternly, ‘‘I second that emotion. Let’s call it a night. I think I’ll jump into the nearest bush if I hear any more about fraud.’’

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c h a p t e r 17

THE SUNSHINE STATE

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ack and Snouter sat in a little Italian restaurant and ate. Jack said, ‘‘So this is the first time you’ve been to Orlando?’’ ‘‘Yep. Never before. Oh, once as a kid we got to Disney, but that was ages ago.’’ ‘‘What I can’t understand is you’ve been at the company for awhile doing this compliance role and you’ve never done any work in Orlando, the home of the accounts department.’’ Snouter looked at the drinks list and was having trouble deciding on his choice. He thought about the question for awhile and then said, ‘‘I represent the finance bit. They set standards and check that what’s supposed to happen, happens. Davis, the CFO, sees me more or less every time he’s in the Big Apple. We sit and check the program and make sure it’s firing right.’’ ‘‘Okay,’’ Jack said, ‘‘Bill reckons he’ll meet us later on today, but we can do some background checking while we’re here.’’ Snouter decided on a locally brewed beer and shouted his order to a passing waitress, who looked suitably displeased at this crude approach. Snouter scratched his nose and said in a hesitant voice, ‘‘I still don’t see why we’re here.’’ The waitress brought over a beer, and Jack ordered the same before saying, ‘‘We were told by Dhiru that something was wrong with the charity account—the Sudanese account. We listened to him, and then he goes to ground and tries to run off. We visit him, and then he’s shot.’’ 150

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‘‘How is he?’’ ‘‘On life support. The surgeon doesn’t know how he survived, but right now he’s out of it. Sedated and zonked out.’’ Snouter shivered and drank deeply from his glass. ‘‘I’ll never forget going upstairs and seeing all that blood. But how the hell did the gunman get in and out without us seeing him?’’ ‘‘It can happen. I forgot to check that there was a fire escape,’’ Jack said as he flashed back to his own lack of concentration outside Dhiru’s apartment. He grimaced as he tried to work out how he had missed the shooter and how he had not seen this person when they rushed up to the apartment after they had heard the gunshot. Snouter looked at Jack’s facial expression and displayed a rare degree of sensitivity, which led him to ask, ‘‘What’s wrong? Something wrong with the beer?’’ Jack shook his head and replied, ‘‘We’ve gone off track. We’ve seen that something’s wrong, and so far we’ve done nothing constructive. Just scouting around and coming up with a fat zero.’’ Snouter looked insulted, ‘‘We’ve done the fraud policy, and we had a seminar, remember?’’ ‘‘Yes, yes, I know that. But we really should have in place an allegation process. When you get an allegation, you should set it against some sort of criteria that determine whether it’s followed up. And then we should have a set routine for logging the thing, notifying someone, say, the Chief Finance Officer (CFO) or CEO or someone senior, and then doing some kind of groundwork. It seems a bit wacky the way we do things right now.’’ Snouter looked really upset and pursed his mouth as he decided to stop talking for a while and focus on his beer. Jack realized this, and thought about lightening things up. He added, ‘‘Look. It’s not all bad. We have a meeting with the CFO in less than an hour from now. Let’s put our heads together and plan it.’’ Snouter nodded and sat back waiting. Jack closed his eyes for a moment and thought. He then asked, ‘‘What do we know about the allegation?’’

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‘‘Well, our friend Dhiru says that—you know, I’m not sure what he said. He feels something is wrong, but that’s about it.’’ ‘‘Okay, what do we know about the Charity work?’’ ‘‘Not much. It’s outside the normal business, and it’s classified.’’ Jack looked up and inquired, ‘‘What do you mean—classified?’’ ‘‘You know what I mean. It’s private business, and it’s not our money.’’ Jack pulled out a notepad and said, ‘‘Let’s get down a list of questions. How about this: What is the Sudan project? How is it financed? How much money is involved? What happens to the money? What is the Portugal link? How is it accounted for? Do you know about any allegations? What work should we do to check it out?’’

Snouter nodded and added his point, ‘‘And maybe we need to get along to Portugal to check that side of things.’’ ‘‘Good,’’ Jack concluded. That should tidy things up. I wonder if we’ve overreacted by calling Bill in on this. It may be nothing at all.’’ Snouter responded, ‘‘You mean the boy who cried wolf?’’ ‘‘Yes. This isn’t what we’re supposed to do for the fraud detection routines. I was going to run a data-interrogation software program and look for staff details coinciding with purchasing data, along with other systems relating to business associates, vendors, and customers. Oh, and run a few other checks like duplicate payments and contracts just under the set authorization limits.’’ ‘‘Sounds good.’’ ‘‘But all I’m going to have time for is to check on an allegation from someone who said things that don’t even make sense.’’

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Snouter smiled and said, ‘‘Exactly what I say. . . .’’ Jack interrupted him, ‘‘But for the fact that someone tried to stop him from talking further.’’ ‘‘But he was going away. Why shoot him when he was going off somewhere?’’ Jack finished his drink and said, ‘‘I don’t have all the answers, but let’s see if the CFO can help us.’’ With that the two men got up; Jack paid the tab, and they headed towards the rental car.

Snouter sat in the passenger seat and enjoyed the comfort that came from a full-sized car that catered to his bulky frame. He flipped on the air conditioning and pulled out the Orlando map that had been poking out of the glove compartment. He said in his high-pitched voice, ‘‘Will we get a chance to visit the attractions? Disney, Universal, and such.’’ Jack laughed out loud and eventually said, ‘‘Let’s see what Bill wants to do,’’ and then added with another laugh, ‘‘Okay, son?’’ Jack decided on a scenic route, and the car swept along Universal Drive and went slowly past the hotels, restaurants, and other attractive venues that littered the main tourist strip. Snouter craned his neck to take in as much as possible, and Jack asked, ‘‘You have a young’un, don’t you. Why don’t you take him or her here sometime?’’ Snouter shifted in his chair, ‘‘The girl’s still little. But I don’t have access. I mean the wife’s gone off with her, and it seems that I can’t see the girl unless I do some kind of crazy alcohol program until I dry out. Which is what the wife says too. I can’t get em’ back until I’m off the booze.’’ Jack looked concerned at this news, and Snouter continued, ‘‘It’s hard. . . .’’

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‘‘Why don’t you go on the alcohol recovery program?’’ ‘‘I’m away on compliance visits most of the time, and the program lasts a week so. . . .’’ Jack jumped in, ‘‘Take a week off. Surely the company will back you.’’ ‘‘Not really. I have asked, but I have to complete the compliance work and that takes up all my time.’’ ‘‘Well, just stop drinking then. It must cost a fortune to drink so much.’’ Snouter smiled and lowering his voice said, ‘‘I got a special expense account. Because I’m on the road, I can claim for the food and drinks wherever I am.’’ Jack looked at his watch and realized that they were in danger of arriving at the office late. He said, ‘‘Having your expense bills met is perhaps not such a good idea.’’ Snouter disagreed as they drove into the parking lot of the plush offices in Altamonte Springs, on the outskirts of Orlando city. The smoke-glass building looked pretty impressive, even if it was shared with several other companies. Jack drove around a while before he found a free space. He parked and with Snouter strolled up towards the reception area. They were directed to the third floor and were soon shown past a busy open-plan area and then into the large, attractive office of the CFO, which overlooked a landscaped garden. The CFO greeted them and placed a hand on Jack’s back as he led them to a large couch facing his leather armchair. He was tall and well built, with a sharp English-sounding accent. His brown hair was layered with highlights that made him look a bit like a film star. His suit jacket rested on a stand, and his tailored blue shirt looked good even though he had no tie on. ‘‘Welcome, gentlemen. Davis Middleton’s the name, Chief Finance Officer.’’ He beamed at Jack and, turning to Snouter, asked, ‘‘How’s it going, Snouter? Would you care for a drink, perhaps?’’ Jack answered for both of them and quickly said, ‘‘Coffee please.’’

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The CFO buzzed on his phone and barked the coffee order through to his P.A. He sat back, smiled, crossed his legs, and studied the two men who sat together trying to look intelligent. He finally said, ‘‘Coffee’s on its way. Now, how’s the new fraud project going? I understand that it’s been given to Reynolds to bring on? Jack answered, ‘‘Bill has given us several tasks that we have more or less done. He’s coming down to review our work this afternoon.’’ The CFO looked surprised, ‘‘What, here in Orlando?’’ Snouter answered, ‘‘That’s what Bill said.’’ The coffee arrived and was placed on a small table in front of the couch. Jack and Snouter helped themselves while the CFO watched them negotiate their way carefully around the coffee, milk, and sugar cubes. When the coffees had been successfully poured out, Davis Middleton said, ‘‘Snouter, you know that you now report to Reynolds, right?’’ ‘‘Yes sir.’’ ‘‘Excellent. Now what can I do for you two?’’ Jack tasted the expensive freshly ground coffee and then put his cup down to reply, ‘‘Well, we’re looking at the compliance program and what it covers, and we want to know a little more about the Sudan charity account.’’ The CFO folded his fingers together as if praying and thought about the question for a few seconds. Eventually he said in a hesitant voice, ‘‘Right, let me see, the Sudan charity. A few years ago some of the directors started doing charity work for the Darfur region of Sudan—for their relief fund. We’d held events and sponsorships and social programs all aimed at collecting cash for the charity. Most of the board members were involved, and we’d sometimes do staff events where people would make a small contribution. Anyway, this went on for a while, and then it slowed down as other charities became more popular. Some felt that we were focusing on this one country too much.’’

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Snouter, who was making notes, asked, ‘‘Who kicked this off?’’ Davis frowned, looked quickly towards the closed door, and then replied, ‘‘I believe Georgina started it off. Then we all got involved. Anyway, it became less of an issue until two of our nonexecutive directors wanted to make regular personal donations to Sudan and build a school—or was it a medical center or something like that. They found a charity in Portugal— you know we have a local office there—and the board members sometimes go out to visit. You know, press the flesh and all that. In fact, we have held board meetings there as a way of getting independent directors and executives to bond together.’’ Jack asked, ‘‘So this charity work is not widespread.’’ ‘‘As I said, two directors were pretty concerned about conditions in Sudan and decided to make much bigger donations. They raise funds, donate the cash, and then send it to the charity in Portugal. The charity works with the Sudanese government, and they are building this school or whatever it is.’’ Jack said, ‘‘Is it all outside of our books?’’ Davis again folded his fingers and recrossed his legs, saying, ‘‘Pretty much so. The cash comes in and then goes straight out to Portugal. The charity prepares accounts through their accountants, and these records go back to the people who made the donations. It’s a sensitive area as the directors wish to keep a low profile, being it’s such a personal thing. Those directors are no longer with us, but it’s to do with one’s personal conscience, you know. Anyway, the sponsors, our two former directors, receive the accounts and pictures of the buildings— plans, drawings, and bankings, and that sort of thing—so they can monitor their contributions. It does sit outside our own business. Although we would like to think that we help facilitate these good endeavors.’’ Jack and Snouter looked at each other while the CFO smiled and looked out towards the window. Davis then inquired,

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‘‘Why are you asking these questions? Is something wrong?’’ Jack said quickly, ‘‘No, not really. I mean, we’ve had a report from New York—a junior in records retention who seems confused about the money. Nothing more.’’ The CFO looked thoughtful and then answered, ‘‘I remember. That little fella up in New York. Let me explain. The Sudan account is managed by my senior accountant, Giles. He does all the paperwork. He receives the cash, corresponds with Portugal, and makes sure it stays outside our business accounts. Remember, it is not us, the company, that is making the donations. It’s private individuals. Anyway, Giles went off sick a while ago, which is real rare as he is so reliable. I got a casual worker to cover, and she sent the Sudan income documents to the head office in New York. Records retention got hold of it, and I had to ask for it back so that it could go off to Portugal to the registered auditors who process the information on behalf of the charity. It should not have gone to Records in New York, and that’s where all the confusion set in. Simple.’’ Jack asked, ‘‘This arrangement. Who set it up?’’ The CFO glanced at his watch as if expecting someone to come in through the door and answered, ‘‘As I said, Georgina set it up when she started her charity work years ago, and to be honest, I wasn’t too happy at first. Precisely, since I was worried that it could get mixed in with our business accounts, or that it might look as if we were claiming that we, the company, make these donations; but it seems to be working out okay. Okay, fellas, I’m expecting a visitor in a few minutes; is that all?’’ Jack stood up, and Snouter looked sadly towards a fully stocked drinks cabinet in the corner before rolling himself off the couch. Davis Middleton shook hands formally with the two men and wished them all the best before saying, ‘‘Anything else we can do, just let me know.’’ Jack turned around and said,

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‘‘Just so we can close the file on this one, can we have a quick word with this Giles?’’ ‘‘Yes, surely. Just go outside and ask my personal assistant (PA) to show you where he sits. Goodbye now.’’ As they walked out of the office, Snouter said to Jack, ‘‘What about your list of questions.’’ Jack stopped dead and said, ‘‘Shoot. I forgot about that. Shall we go back?’’ Snouter shook his head, ‘‘Nah. Forget it.’’ They arrived at the PA’s desk, and after a few minutes’ delay were taken to Giles, who sat at the furthest end of the office, hidden by several giant filing cabinets. He was a young man in his early twenties sporting tinted glasses, and his brown hair was tied back into a short pony tail. He smiled openly and shook hands with both men before saying, ‘‘Let’s go down to the coffee lounge on the top floor. There’s no room here at my desk. The three men marched over to the elevator and were soon seated around a beech-colored table surrounded by large potted palm trees. Giles had bought them three large coffees and sat back as he asked what he could do for them. Jack went through his concerns about the Sudan charity and asked whether Giles could add anything to what the CFO had told them. Giles seemed eager to help. ‘‘Not really,’’ he said, pushing his sunglasses back onto the top of his forehead. ‘‘It’s an in-out job. Cash comes in, and it goes into the bank account of the accountants in Portugal. I give receipts to the donors, and they get detailed reports back on what the money was spent on. In fact, one of them visited Sudan early this year and had a look at the new buildings. It’s their money, and it’s up to them to make sure it’s well used. And I can tell you, they’re no fools. They’re big-time businessmen here in Florida.’’ Jack once again forgot the list of questions he had drawn up earlier and fired several questions at random before he asked,

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‘‘Why would this Dhiru guy worry about it?’’ Giles’s face dropped, and for the first time his smile faded, ‘‘I heard about what happened to him. But he’s a bit odd. When he got the documents and I asked him to send them back, he got weird and started going on and on about how he needed copies of all the other records about Sudan. I could hardly understand him on the phone, and I had to complain to his boss before he sent them back. I think he may have been planning some kind of fraud. Sorry, I know he’s not well, but that’s just my opinion. I had to raise a complaint about this myself, you know.’’ Jack and Bill spent some time talking to Giles, who used to work in Universal Studios; he told them all about the new rides and how pretty the place was in the evening. Snouter perked up and seemed more interested in this feature than anything to do with charity work. After managing to break up the deep conversation between Giles and Snouter, Jack asked one final question, ‘‘What do you do with the accounts for the Sudan thing?’’ ‘‘These monthly statements come to me from Portugal, and I send them off to the donors. Well, they send their courier for them at the end of each month. I’ve just got the latest package today, and the courier is due to pick it up later on.’’ ‘‘And do you keep copies?’’ ‘‘Oh no. They’re sealed up for the donors, the two ex-directors, and I’m not privy to that.’’ ‘‘But where in Portugal do these accounts come from? And who are the main donors?’’ Giles looked concerned and answered abruptly, ‘‘Sorry, that’s all classified information. What I can say is there is no point sniffing around as the two directors are no longer on the board. They both left last year. Okay, is that all?’’ Jack’s brain started flashing, and he asked himself ‘‘Where next’’? He shook out of this brief trance and said jokingly, ‘‘So, it’s a late night for you?’’ Giles looked confused, ‘‘Why?

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‘‘The pick-up.’’ ‘‘Oh no,’’ Giles laughed, ‘‘The courier will be here before 5:00 P.M. tonight.’’ Jack poked Snouter, and they both got up once more, thanked Giles, and said their farewells. Jack asked Giles to be sure he thanked the CFO on their behalf for his time. They drove out of the offices and headed towards their hotel while Snouter kept a careful watch out for a decent bar. He shouted out, ‘‘Pull over Jack, there’s a good looking bar.’’ Jack pulled over and parked at the appointed joint. Before Snouter could jump out of the car, Jack pulled Snouter’s arm and said, ‘‘We can get a drink later on. I’m not satisfied. We still got work to do to find out what’s at the bottom of this muddy lake.’’ And with that he swung the car out of the parking lot and retraced their steps back to the offices they had just come from and parked again in the parking lot. Snouter flopped his head back onto the car seat and groaned, ‘‘Not again. Last time this happened, a man got shot.’’ Jack smiled and said, ‘‘Just wait here. I won’t be long.’’ Jack slid out of the car and marched towards the receptionist. He greeted her like an old friend, ‘‘Hi sweetheart, left my cell phone. Won’t be a second. . . .’’ and swept up the stairs to the third floor. He came to the open-plan office and peeped through the glass windows that were set in the doors. He could just about see Giles moving behind the huge filing cabinet that stood against his desk. Jack thought. He went back downstairs and said to the receptionist, ‘‘Can’t find Giles from the third floor. Could you call him and say he’s got a visitor downstairs. The receptionist did so, and Jack said,

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‘‘Excuse me, just popping into the bathroom.’’ He walked off and ran up the stairs to the third floor. From the door at the selected floor he watched Giles walk towards the elevator, get in, and disappear. Jack went into the office, picked up a red file from the first empty desk he passed, and walked towards Giles’s desk. No one even looked at him. He checked the desk and found a package bound with tape placed under Giles’s chair. He flipped it over and quickly wrote down the sender’s address in Portugal, placed it back where he had found it, and walked back downstairs, where he found Giles waiting at reception. Jack took out his cell phone and held it up, saying, ‘‘It was in the bathroom—silly me.’’ Giles laughed, checked his watch, and said in a hassled voice, ‘‘Oh, good, well done. See you, then.’’ He reached over shook Jack’s hand and went quickly back to the elevator. Jack walked slowly back to the car and got in. ‘‘Now we can have a beer,’’ he said, ‘‘I’m finally getting somewhere.’’ Snouter immediately perked up and snapped his fingers, ‘‘Drive on then, old man, drive on.’’ Just as Jack started up the car, his cell phone sang out. He handed it over to Snouter with an instruction to answer it and tell the caller he was driving. Snouter nodded and mumbled ‘‘okay’’ a few times and then shut the phone down and put it on the dashboard. ‘‘Well?’’ Jack asked. Snouter replied, ‘‘That was Bill. He says he got all the way into Orlando airport and bingo he gets a call from Georgina. . . .’’ Jack concentrated on overtaking a tanker; he screwed up his eyes and muttered, ‘‘And what? Snouter seemed to be thinking. He sniffed loudly and then said,

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‘‘Oh, she told Bill to get straight back to New York and report progress. So Bill says you and me need to get back to give him an update. Georgina says she needs to press on and get our fraud stuff approved by the audit committee. Or something like that.’’ Jack looked for the right turn-off for their hotel and wondered exactly how much progress they had really made.

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ack sat in the kitchen facing Bill and glanced down at the appetizing range of dishes that Ruth had set out on the large oak kitchen table. Ruth could be heard rattling around upstairs amid the distant cries of two small babies. Bill stared into space and smiled, ‘‘You know,’’ he said, ‘‘some say that a baby’s cry is distressing. But I think it’s wonderful; they’re wonderful.’’ ‘‘Yeah,’’ Jack replied quickly, ‘‘especially when they’re next door with their mother.’’ Bill shook out of his brief trance and replied, ‘‘Stop it. I love looking after the babies. But Ruth’s just so good. She tends to the babies and cooks all the time.’’ Jack shook his head, ‘‘Yeah, yeah, yeah. Now look here, big man—what’s happening with the fraud project?’’ ‘‘Well,’’ Bill replied, ‘‘I get back to the States; Georgina calls me up and asks me for a report. I tell her I’m in Orlando checking on you guys, and she feels things will slip. The audit committee chair wants an update, and it looks like I’m just fooling around in Florida.’’ Objecting to this, Jack said, ‘‘Okay. But we’ve more or less done most of the work. It just needs tidying up. Bill stood up and looked out the window into the woods that spread beyond his well-kept garden. He turned back, sat in front of Jack, and said, 163

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‘‘I’ve spent quite a lot of time with Helen and Maria. Especially with Maria, and she has developed a sort of integrated approach to fraud risk management. It shakes things up, and well, it treats fraud as a major issue. Not just about a short seminar or a few notes. But it’s more of a real change program to get fraud understood properly, across the entire business.’’ Jack listened carefully to assess this information. He observed, ‘‘What you’re saying is that the progress I’ve made with Snouter is not enough.’’ Bill nodded, adding, ‘‘We need to step up a gear. Tell you what—let’s eat; and I’ll show you the video we made. Maria says we should develop a framework from this and then use this framework to develop our own response. Something that suits our business model.’’ Jack had already started taking his share from the dishes and relaxed as they took a break from proceedings to focus on the meal. Ruth joined them as they started eating, swinging in with two baskets, each with a small baby inside. She picked her meal, sat down, and asked the two men how they found each dish. Ruth looked quite content as she received the various compliments for the meal, and she suddenly said, ‘‘Snouter lives on his own, doesn’t he? Do you want to invite him over, as there’s so much food here?’’ Bill waved his hand in a ‘‘not really’’ gesture as his mouth was full while Jack said, ‘‘You know Ruth, I think he wouldn’t mind. It’s a bit of a trade-off. He gets fed, and we get to do some more work tonight. Bill, what do you say?’’ Bill was now able to speak and said, ‘‘I guess we could look at the video together. Okay, call him and see what he wants to do.’’ Jack got busy on the phone and announced that Snouter would be over in an hour or so. Jack looked up from his meal and asked, ‘‘Ruth, where’s your ma, mama Bess?’’

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‘‘She’s gone off to her cousin in Washington. She’ll be gone a few days and back after that.’’ Ruth looked at both men, leaned back on her chair, and considered how she could say what was now on her mind. Bill poured a glass of wine for each person, and Ruth snapped her fingers and said in a newsreader type voice, ‘‘I want you to know that mama Bess does say things from time to time. You know, lately she can be a bit sharp. And she says things without thinking. Actually, that’s not true. She says what’s on her mind, and she’s kinda direct but most times right.’’ Jack and Bill listened to Ruth, both with a confused look on their faces. Ruth threw her hands up and continued, ‘‘Okay. Let me just apologize for what she said the other day. About coming from outta Mocco.’’ Ruth watched as two sets of eyebrows flicked up and down as they tried to understand the point being made. Ruth searched around for ways to enlighten them and then said, ‘‘Mama Bess said that fraud had been covered up because the crook employed ‘a cuffie man from out of Mocco,’ remember?’’ Ruth suddenly relaxed and smiled as it finally dawned on her that these two simpletons had not understood a word mama Bess had said. Bill asked carefully, ‘‘What is Mocco?’’ Ruth regained the initiative by saying, ‘‘Never mind. Good then, that’s that. No damage done, and I know that mama Bess loves having you around, Jack, and she’s always liked you so much, Bill.’’ And with that she smiled, got up, and asked Bill to help her carry the babies upstairs.

Later that evening, Bill sat back and watched Snouter work his way through the feast that had been laid out. He realized he had made the mistake of leaving the nearly full wine bottle out on the table, and Snouter had been working his way through the bottle, stopping only to tackle the

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food dishes. Jack was in the lounge with his laptop charged up and ready to go. A reggae song from the time he had spent in Jamaica kept coming to his mind, and Jack hummed the word softly to himself. Bill and Snouter came into the lounge, and each flopped down on a sofa chair. Jack looked up and said, ‘‘I’ve heard that word before—Mocco. It’s from a song by a guy called Balloon, who sings about winning the lotto.’’ And with that Jack’s index finger kept time as he sang in a Jamaican DJ talking style, ‘‘How does it go now? ‘When I win the lotto, Stop beg people and borrow, Buy two front teeth, give to Miss Ello,Man a go move outta Mocco.’ Big hit in Jamaica many years ago.’’ Bill clapped his hands, ‘‘Well done. So what does Mocco mean?’’ Jack sang again, ‘man a go move out of Mocco’ and then shrugged, ‘‘Don’t know.’’ Snouter finished his meal, sniffed, and stood up. He said, ‘‘I thought we were going to do some work. I don’t mind relaxing, but if so then someone give me a drink.’’ Bill turned the laptop around so that they could all see the screen, flipped in a USB memory stick, and said, ‘‘You’re right, son. Here we go. Let’s sit back and look at Maria’s spontaneous presentation.’’ Snouter looked confused, and Bill added, ‘‘What I mean is, she did this as a favor to me. Spontaneous. Erhmm— it’s done straight out, not rehearsed.’’ Snouter nodded. He walked over to a side table, poured out a drink of what looked like vodka, and sat back around the laptop looking much more relaxed.

Maria’s presentation came out quite clearly, and a silence ensued as the small group watched in admiration as she did her work. She explained her

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points, working through the ten-stage model, while Bill could be heard mumbling from time to time in the background. Jack and Snouter listened carefully. Meanwhile, Bill watched this repeat performance and typed frantically at a separate laptop, pausing the media from time to time as he tried to keep up with the spoken words. When the presentation was finally over, Bill saved his work one last time and announced, ‘‘That’s great. It’s gonna make a great appendix, this 100-point checklist.’’ Jack shifted in his seat to look at Bill. ‘‘What do you mean, checklist?’’ he asked. Bill laughed and got up to refill Snouter’s glass and pour out drinks for himself and Jack. He handed out the drinks, eased himself back down into his seat, and said, ‘‘You’re not the only one who fancies writing a book. I’ve checked with Maria, and she’s happy for me to write out something that she can endorse. Something like; Corporate Fraud: A Manager’s Journey. A sort of joint project. Jack looked impressed, while Snouter simply sat sniffing his drink as if he was unsure whether it was the same drink he had already tasted. Bill rubbed his hands together and said, ‘‘Right now I’ve got to get this checklist together, but what Maria’s saying is that a good antifraud strategy should cover ten important issues. Let me see, I’ve written these down; 1. Create a culture of honesty and a good reporting procedure. We start by examining the way top people behave and how they report back to stakeholders. What I mean is they perform well but also behave properly. This sets the entire platform for the fraud control project. 2. Design a sound oversight process, and make it challenging. When the top people have got it right, we set out a further level of scrutiny that watches over the entire process. This super-level is there to help the executives and also to make sure good governance

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4.

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is really happening. Actually, Maria reckons that the oversight question is now the big issue, whether the board is there to drive the business or whether it simply helps guide the business by setting the right standards of behavior. It’s hard, because a robust audit committee may have to be set up in cases where the board is too aggressive, while a gentler audit committee may be more suited to a company that has a balanced and fair board. Which is why it’s such a big issue. What kind of directors should we be employing— big hitters or helpful coaches? Define all roles, and build good buy-in from all stakeholders and experts in the field. To tackle fraud, Maria says we all need to be involved but in different ways. The organization needs to decide what these roles are and explain them to everyone properly. But not just by telling people but by engaging with stakeholders and getting them involved in defining their contribution. We need to talk to the experts and not just make it up ourselves. Designing a fraud policy and a fraud response plan. Okay, here we get to the fraud policy. Maria feels that a fraud policy by itself without steps one to three is not enough. This, I guess is where we’ve gone wrong. We jumped a few steps and got straight into the policy. Develop investigation standards, including interviewing and evidence gathering. I mentioned that we need to have standards in the way we investigate, and this is definitely an issue. Either we have a set of standards, or we buy into something that is already there from specialists in the field, like qualified fraud examiners. Train employees, and define new competencies. Now we can do the training and awareness seminars. Not just for new staffers, but for everyone. Not the same package for all, but different ones for different parts of the business so that it means something to them. Your seminar for the procurement staff had nothing in it for them. It was too generic, so it didn’t

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tackle the sorts of issues that hit procurement people from the fraud front. Tighten up security, and plan for the worst contingencies. Maria spent time on this because security is so important to stop the crooks from getting in, or for that matter to stop employees causing problems. We hadn’t even planned to look at this at all, which is pretty bad really. Survey your systems, and assess weak areas. This bit means we sweep our systems and check those that attract the most risk of fraud and corruption. I know that we planned a few basic detection runs, but not a proper assessment of those parts of the business where we can expect problems from fraud and abuse. Learn lessons real quickly, and follow up problems by improving controls. As you saw, Maria feels fighting fraud is an ongoing battle, one where you have to keep on top of things all the time. We saw our work as a one-off thing, but this is not the right approach. The fight has got to be continuous for it to work, and it has got to make sense. Design and implement a fraud risk management framework. It’s only when we have gone through these nine steps and have a solid ethical platform that we can really talk about fraud risk management with any hope of being successful. Maria sees this last bit as a wrap of all the rest. Simple.’’

Snouter’s eyes were slowly closing as he started to feel tired, and he shuddered and then glanced swiftly at his watch. Bill said, ‘‘Well, Snouter, what do you think of it all?’’ Snouter’s head shot up, and he appeared a little startled before he said in a high, shrill tone, ‘‘Yes. Like it. My skill is in investigating people and checking up on things. But this sort of high-level approach sounds pretty good.’’ Jack asked,

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‘‘Well, where do we go from here?’’ Bill yawned and answered, ‘‘We report to Georgina and see what else we need to do. I’ll want to talk to her about this 100-point checklist and whether we can apply this approach, which will take time to do.’’ Jack leaned forward and said in a hushed voice, ‘‘Okay. You go see Georgina, but I will need to go out to Portugal and check out something that needs checking.’’ Bill’s eyebrows shot up, and he looked at Jack, ‘‘What the hell. . . .’’ Jack tapped his nose and said, again in a soft voice, ‘‘Trust me on this I’m. . . .’’ Ruth came in and said she was tired and was going up for the night. Bill said slowly, ‘‘Ruth, what is Mocco?’’ Ruth sighed and said, ‘‘Look guys, it’s nothing.’’ She looked at Bill’s eager face and then continued, ‘‘Okay, if you insist; Mocco is a kind of remote place in Jamaica where the people are pretty rough. People say that these rural folk can’t read nor write. They’re sorta backwards. I don’t know if that’s really true or not, but that’s what the older generation used to say. ‘Yu come from outta Mocco’ means you’re a hillbilly, okay? Goodnight boys.’’ And with that she swept out of the room. Jack looked at Bill and said slowly, ‘‘So that means we’re hillbillies? And Georgina employed us knowing that?’’ At that moment, Bill’s cell phone rang and he jumped up from his chair and spent a few minutes talking quietly to the caller. He slipped the phone back into his pocket and his face dropped, drained of its usual spark. He turned slowly towards the two men and said solemnly, ‘‘That was the hospital on the line. Dhiru died an hour ago.’’

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ack leaned back in his seat and flicked through the glossy brochure on his destination, Portugal. ‘‘Looks good,’’ he thought as he studied the photographs of the pretty scenery and the sea views of the Algarve on the southern end of the country. He closed his eyes and thought about things. In his mind he prepared a list of issues and tasks and problems: Bill’s company has no real handle on fraud. Georgina wanted them to work on the fraud policy. No, actually it was the audit committee that wanted this done. Dhiru tried to report a problem that he could not really define. He was murdered, but he was backing off at the same time and

looked scared when they saw him last. The Orlando site has a weird set up—donations for Sudan from two guys who used to be directors. But he now had a contact address in Portugal to follow up this link. Georgina called them off from their checks in Orlando. This Sudan thing does not really tie up. Georgina brought him and Bill in on this fraud project. But he and Bill are apparently from ‘‘outta Mocco,’’ so that makes them total nerds.

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Mama Bess says people will use nerds when they don’t want them to

do a good job. Jack slipped into a light sleep. He dreamt that he lived up in the hills wearing cut-down jeans and a straw hat—semiliterate and barely able to understand living in a global world. He reached for his pipe and took out a small knife to carve a weird shape from a hunk of wood. . . .

The plane landed at Faro airport, and Jack plodded along with the many tourists who had come to the Algarve for their annual vacation. He felt odd by himself and wished he had brought his wife and kids with him as he saw the many families looking excited and energized. He flashed passed immigration and jumped into the nearest taxi with an instruction to get to the Algarve and find him a decent— and he meant decent—hotel. The taxi soon left Faro and swept through the pretty countryside, which was dry and wide, like parts of California. It crossed several wide bridges that arched over the many rivers that existed throughout the country. Jack admired the red-colored hillsides and got a good explanation from the driver, who called himself Jose´, about the fact that they were close to North Africa and this reddish earth was a feature of this wild and hilly territory. Jose´ was a small, lively fifty-year-old with dark curly hair, and as with many Portuguese who worked in the tourist areas, he spoke fairly good English.

After a while they swept into the Algarve, which is the southern part of the country that hugged the long and rugged coastline. They passed whitewashed houses, many of them with orange and red roof tiles, which sparkled in the hot Portuguese sunshine. Jose´ explained that people painted their houses white to keep the sun out and as a matter of pride to show cleanliness. As they approached the more crowded tourist parts, Jack noticed there were cozy looking cafes and bars on almost every corner.

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Many of the smaller streets were made of old fashioned white cobblestones that had been washed clean by the regular rainfalls in this part of the world. The actual tourist route consisted of many small hotels with verandahs looking out towards the sea, while the larger hotels had shining bright blue swimming pools taking pride of place near the front. Palm trees stood out between most of these buildings. As they drove along the coastline, Jack craned his neck to look at the glistening blue sea, where swooping seagulls made that loud squawking noise that was common all over the world. White cliffs protected the beaches, and smaller white rocks rose like small islands from the sea. The scene reminded Jack of the Isle of Wight just off the English south coast. The car stopped outside a pleasant-looking hotel that had the usual verandahs and a small heart-shaped swimming pool. Jose´ grinned and said, ‘‘My cousin Petra runs it. It’s just great there, you’ll see. Tell her Jose´ sent you, and she give you good room.’’ Jack thanked and paid the man and slammed his car door. He turned back and leaned through Jose´’s car window and said, ‘‘I need to get somewhere first thing tomorrow. This is the address.’’ He showed Jose´ the address he had noted back in Orlando and continued, ‘‘Know it?’’ The driver frowned and then nodded, replying, ‘‘Yes sir, I know it. What time tomorrow?’’ Jack thought for a few seconds then said, ‘‘Nine A.M.?’’ ‘‘Okay. I be here. Adios.’’ Jack entered the hotel and said he was a friend of Jose´. This news seemed to be well received, and he was given special treatment, which included a personal tour of the small but pleasant hotel. He spotted the gym, and within an hour he was working out on the mats going through his self-defense routines—punches, kicks, and various fierce-looking movements with much concentration and focus. After a quick shower he went downstairs for a walk and a meal when he spotted a woman who must have been Jose´’s cousin. She had the same dark curly hair and sharp

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features, but this time on a rather attractive lady in her early thirties. She smiled, came from around the front desk and said, ‘‘So you’re Jose´’s friend?’’ Jack squirmed as he thought about telling the truth and then said, ‘‘Oh yes. He told me to come here as you run the best place in town.’’ She laughed, shook out her long curly locks, and said, ‘‘I’m Petra,’’ while holding out her hand which Jack took with great care. After the usual introductions Petra looked upset and said, ‘‘You are not eating with us tonight?’’ Jack’s brain once again went into action and he flicked through the possible excuses before saying, ‘‘Oh yes. Just going for a run—I mean a walk—and I’ll be back for dinner. Soon.’’ Petra’s smile returned and she squeezed Jack’s hand, waved, and went back behind the desk to see to a young lady who was waiting patiently for some sign of a front-desk service. Jack turned left out of the hotel and walked a few yards until he entered what he later found out was ‘‘the Strip,’’ which is one of the main tourist routes in the Abufeira region of the Algarve in a small area known as Saõ Joaõ. It was like something out of a movie, this brightly lit street leading down into the soft sands of the Prai da Oura beach. The strip was jampacked with brightly colored shops selling all kinds of tourist goods. Each restaurant had its own chairs and tables set out on the sidewalk, and many of them played dance music or more suitable Portuguese music. Many of the bars had wide-screen TVs that seemed to be set on soccer matches, with a small group of people crowded around each one, supporting one team or the other. Jack managed to get down to the golden-sand beach with jutting rocks at either side overlooked by cafes, bars, and restaurants. He stopped dead at a cafe´ facing the blue sea, with a sign declaring Frago; chicken and chicken prie prie, and the heady smells that swept past him made his stomach rumble as he thought about getting back to Petra and that promise of dinner. His walk was quickly shortened as he spun on his heels and headed with a quickened pace straight back to his hotel. Jack

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managed to get the hotel restaurant to serve him the local spicy dish of chicken prie prie, and this excellent meal was spoiled only by the fact that Petra introduced him to a tall, fierce-looking gentlemen who happened to be her loving husband. This disappointment was short-lived, as Petra’s husband turned out to be a very pleasant host and he, Jack, and Petra spent the evening talking about living in Portugal as compared to living in the States and various other interesting topics of conversation.

Jose´ arrived at the hotel parking lot with a blast on his horn at 9:30 A.M. Jack sat sipping his third cup of coffee, saw the car, and heard the noise. As a punishment for Jose´’s lateness he took his time to finish his coffee and strolled slowly to the car and slid into the passenger’s seat. After they had said their ‘‘good mornings’’ and ‘‘bon dias,’’ Jack passed over the address and they set off. Jack sat back and said, ‘‘Is it far from here?’’ ‘‘No no. Close.’’ Jack seemed relieved and asked, ‘‘You guys use Euros. How come you don’t have your own money?’’ Jose´ laughed out loud, ‘‘Oh yeah. They took away our money and it now is Euros. Our wages go down, and our shopping price goes up.’’ He threw up his hands, and Jack watched the car slide towards the left before it was righted again and Jose´ continued, ‘‘What can we do? It’s life.’’ It was Jack’s turn to laugh, and they soon reached their destination. Jack paid the rate and said, ‘‘Be back in. oh—two hours.’’ Jose´ scratched his head and said carefully, ‘‘You can go autobus. It’s cheap and goes fast.’’ Jack walked away and said, ‘‘Two hours, Jose´. I like to have a driver, my friend.’’ Jose´ sounded his horn, waved, and drove off with two hands on the wheel this time.

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Jack looked down at his note with the address he had written down and glanced up as he saw the building in question. It was a restaurant called ‘‘Pranos,’’ with the usual tables and chairs placed both inside and outside the venue. He walked past the various groups of diners working their way through their breakfast and went inside. A harassed elderly waiter wearing a small white apron, placed his hand on Jack’s arm and started to direct him to a table while Jack simply stood still and asked, ‘‘Where can I find the accountants Baleroes?’’ The waiter seemed confused and said, ‘‘You wish table sir?’’ Jack stiffened and placed his hands behind his back before saying again, ‘‘Where can I find the accountants Baleroes?’’ Again, the waiter looked unimpressed, and at that moment a tall, smartly dressed young lady with long, flowing brown hair marched towards them. She asked Jack, ‘‘Can I help you?’’ Jack felt as though he were in a time warp and repeated, ‘‘Where can I find the accountants Baleroes?’’ This time the hand that was placed gently on Jack’s arm was enough to persuade him to be directed to a small table at the back of the restaurant, and he sat down opposite the lady. She swept her hair back, stretched her neck, and said in perfect English, ‘‘I’m Pazeta, the manager. What can I do for you?’’ Jack explained that he was looking for an accountant’s office of a firm called Baleroes and that he had been given this address. Pazeta looked towards the ceiling and her sparkling black eyes widened as she returned her gaze towards Jack and said in a soft voice, ‘‘There used to be a firm upstairs. This accountants. But they moved. Well the staff have gone, but the office is still there.’’ Jack crossed his legs and said ‘‘Have they gone?’’ ‘‘Some post comes there and a young man used to come for it now and again. But not any more. It’s closed.’’

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‘‘How long ago was that?’’ Pazeta followed suit and crossed her long legs which made Jack wonder how fierce and big her husband might be. Pazeta counted quickly on her fingers and said, ‘‘Over six months ago. They worked on charity accounts. I wanted them to take on my restaurant business, but they told me that they only do charity accounts. Then they just closed up. As I said, they still have the office and the files are there, but that’s about it.’’ Jack wondered what to say next, and Pazeta looked around at her busy restaurant and tried to look relaxed as a few plates could be heard smashing in the background and the elderly waiter shouting what could have been some kind of Portuguese swear words. Jack finally said, ‘‘Who’s this guy who used to pick up the mail?’’ Pazeta was looking towards the crashed plates and said, ‘‘Sorry, I don’t know him. A young man with yellow hair—blond hair, you would say. He used to come here, but no longer. He gone back to Spain, where he’s from.’’ Pazeta stood up and held out her hand, which Jack shook with a few words of thanks. She walked with him towards the exit and asked, ‘‘Would you like to eat here at all?’’ Jack rubbed his stomach and said, ‘‘Many thanks, but I am full right now. Another time, perhaps.’’ Jack gave Pazeta a card with his hotel’s address and asked her to call him if she could think of anything that might help him. Pazeta smiled, picked up the card, and walked elegantly towards the kitchen door. Jack walked slowly out of the restaurant with his head down, thinking. He stood outside the restaurant and thought about his project. How could he bill Bill? That is, charge Bill for being here in Portugal; he had come here on a hunch, and so far he had found nothing. Not possible. So that means this trip comes out of his pocket. What a joke. But more importantly, what the hell was he going to tell Bill when he got back to the States?

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eorgina looked at the two men in front of her and rubbed her eyes. Bill sat back looking relaxed and in control. Snouter shuffled in his seat, his eyes darting around the large board room that he had not seen before. Bill had his file in front of him; he took out two sheets of paper and then handed them to Georgina and Snouter. The documents each had ten points on them, and Bill cleared his throat and read out each one: ‘‘1. Create a culture of honesty and a good reporting procedure. 2. Design a sound oversight process, and make it challenging. 3. Define all roles, and build good buy-in from all stakeholders and experts in the field. 4. Design a fraud policy and a fraud response plan. 5. Develop investigation standards, including interviewing and evidence gathering. 6. Train employees, and define new competencies. 7. Tighten up security, and plan for the worst contingencies. 8. Survey your systems, and assess weak areas. 9. Learn lessons real quickly, and follow up problems by improving controls. 10. Design and implement a fraud risk management framework. That’s what we need to aim at. Would you like me to go through each one in turn?’’ He looked up at Georgina expectantly and sat back.

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Georgina looked tired. She studied the document and then answered, ‘‘You’re saying that we need to boost this fraud project. Beyond what we set as our original terms?’’ Bill wondered how to explain himself as he visualized Maria declaring that what he had was not a project and it would not work unless he treated it as a serious venture sponsored by the board. As Georgina started to look impatient, Bill answered, ‘‘I’ve been talking with an international expert in the field, and she says that we need to set this as a corporate issue for it to work. She feels that all big outfits are either being hit by serious fraud or will be in the future. and those that have not resourced a solid response will be hurt most. And be party to it. I mean possibly culpable.’’ Georgina seemed to relax for the first time since she had seen Bill and she leaned forward, ‘‘Bill. You’ve been a key figure in the company for some time now. I thought you had messed up when you returned without a finished product. But I see what you are saying now.’’ Bill jumped in, ‘‘Absolutely. I can’t give the audit committee the goods just like that. I need to present the audit committee with a change program that they can endorse and support. Actually, it’s something the board can drive and the audit committee can monitor. Bigger than our first idea.’’ Georgina said, ‘‘You’d better take me through the ten points. Oh, by the way, where is Jack?’’ Snouter answered before Bill had a chance to respond, ‘‘We expanded the compliance checks, and Jack’s gone out to Portugal to check things out.’’ Bill added, ‘‘I was going to brief you on this, but we have not finalized the compliance side yet.’’ And he flipped out his phone and called Jack’s number; Jack’s voice sounded at the other end, ‘‘Darling?’’

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Bill replied, ‘‘Not really, pal.’’ ‘‘So sorry. Thought it was the wife. What’s new?’’ Bill’s voice sounded hesitant as he said, ‘‘That’s what I want to know. Anything out there?’’ ‘‘I’m just checking out the accountant who works on the Sudan charity. But there’s nothing yet.’’ ‘‘Okay,’’ Bill replied, ‘‘Let me know if anything breaks.’’ ‘‘Will do.’’ Georgina wrote something down in her note book and said, ‘‘Okay. Time’s moving on. Give me a quick recap on your ten points.’’ Bill pulled out some more papers from his file and said, ‘‘Actually, it’s going to be a 100-point plan. A health check that we can use to judge whether we are there or not. I’m still working on the ten sub-factors for each of the ten points.’’ Georgina looked at her watch, and Bill quickly continued, ‘‘1. Create a culture of honesty and a good reporting procedure. The board needs to review the code of conduct and make it real. And work out how they report out to stakeholders on how they live up to their values. The board needs to have a good whistle-blowing process in place. That’s where we start, with high standards and making sure these standards are being observed—always. 2. Design a sound oversight process, and make it challenging. We want the board, the audit committee, and the external audit to talk to the regulators about best practice in fraud prevention and then stake their claim for ensuring we have a good procedure in place. We will need an internal auditor and to look at how we do compliance work. That is Snouter’s area. 3. Define all roles, and build good buy-in from all stakeholders and experts in the field. We need to define how we all fit in to the antifraud equation and then tell everyone. Set new staff competencies and make sure they can be achieved.

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4. Design a fraud policy and a fraud response plan. When we have done these things. we can then draw up a fraud policy that makes sense. It will need to be signed off by the board. 5. Develop investigation standards, including interviewing and evidence gathering. I feel we should buy these in and have a contact with a good firm of certified fraud examiners or certified public accountants to assist Snouter. Or build an in-house team to do the work, but that will take time. Best to use experts and then try for skills exchange as we develop our own capacity. 6. Train employees, and define new competencies. Remember the competencies we proposed for all staff. When these are in place, we can train people. Properly and thoroughly. 7. Tighten up security, and plan for the worst contingencies. We need to check that our security is sound. I feel that we should employ a top-flight security officer. 8. Survey your systems, and assess weak areas. We will have to do a high-level review of our systems and check weak areas for possible fraud. The new security officer can do this with help from Snouter here. 9. Learn lessons real quickly, and follow up problems by improving controls. This means our staff will need to keep controls tight in each business unit to combat current and future threats. 10. Design and implement a fraud risk management framework. What we want to end up with is fraud control that is firmly integrated into our enterprise risk management process. That’s the bottom line.’’ Bill suddenly realized that many of the tasks he had just described should have been addressed by Snouter, although the man himself did not seem to be unduly worried. Bill scratched his eyebrows and was now looking fairly relaxed about the meeting. He wished he could talk to Georgina without Snouter being there.

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Georgina slipped her papers back into a file marked ‘‘Fraud Project’’ and cupped her chin with her hands. She said, ‘‘Sounds good. I was talking with a friend of mine who works with a big investment outfit, and she told me how corporate fraud was hurting her company. The resource director had been taking kickbacks for years, and no one knew. Actually, she believes people did know but just kept it zipped. Now her company may be fined big time. So I agree, let’s step this up and get a project plan to the next board meeting. Tell Jack to get back here so we can get this thing moving, okay? I want you to work on this 100-point plan and get a detailed presentation ready for the audit committee next week. This is a special meeting that’s been set up to hear your fraud program. Don’t worry about advance papers. Just do it; bring it with you, and hit them with it live. I want this to work, Bill, so this is your big chance. You and Jack both present. Remember, you look stupid then I look stupid. Okay.’’ And with that she got up and headed for the door. She stopped there and turned around to say, ‘‘By the way, good work guys. You spotted a weakness and moved on it. Good people are not scared to redefine a project to get to the right solution.’’ Then she was gone. Snouter snapped his file shut and said, ‘‘That went well. Let’s celebrate.’’ Bill sat still with a frown on his face and then said innocently, ‘‘Who appointed you?’’ ‘‘The lady here—Georgina. She signed off my application and told me to report to the CFO, Davis Middleton.’’ Bill’s brain buzzed with thoughts and this news. ‘‘Right,’’ he said, ‘‘Let’s get lunch. Z bar?’’ ‘‘Absolutely.’’

Freddy greeted them with his usual good-natured smile. He said,

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‘‘We got specials today. Take a look,’’ and he floated a sheet of paper towards them. ‘‘Specials for special people,’’ he added. Snouter ordered steak, while Bill settled for a lasagna. ‘‘The usual drinks?’’ Freddy asked. That settled, the two men sat back at a corner table and sipped their beers. Snouter rubbed his hands and said, ‘‘I haven’t had steak for weeks. What’s Ruth cooking tonight?’’ Bill mumbled, ‘‘Everything. Sometimes I get home, and there’s tons of grub around so I gotta eat up and try each dish. Actually, I should have had a salad. Damn. There’s no way I’m gonna eat everything tonight. By the way, I got a text from Jack; he’ll be back tomorrow evening. How about you come over, and we can meet up at my place?’’ ‘‘No probs. Tomorrow it is.’’ Snouter received his steak and was working his way through it while Bill picked at his lasagna. Bill looked up and asked, ‘‘What do you think about Georgina?’’ Snouter chewed his steak and mumbled, ‘‘Nice bird. Tough, but sexy.’’ ‘‘No, I don’t mean in that way. We know there’s a problem with the Sudan thing. But she takes us off it and now wants Jack back. I don’t think we’re going to get to the bottom of it all, but it seems to me that something doesn’t fit and all roads lead back to Georgina.’’ Snouter tucked into his steak and took a break to dive into his beer. He eventually said, ‘‘Told you Sudan was a nonstarter. Cash comes in, sponsors get their accounts. It’s up to them to check it out—not us.’’ Bill looked at Snouter and asked ‘‘Don’t you ever probe things?’’ ‘‘No time. I got to do my compliance program, or I get fired.’’ Bill finished his dish, and before he could suggest they get back, Snouter had snapped his fingers and ordered two more beers.

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As they sat around their table a man approached them and sat opposite Bill. He was a tall Mexican man in his late twenties with a slim but firm build, dressed in a black lounge suit. He grumbled, ‘‘You two are hard to find. Which one’s Snouthouse?’’ Snouter nodded, with some suspicion. The stranger reached into his jacket pocket, and Bill tensed for a second, then relaxed as he saw a police badge flashed first in front of him and then to Snouter. ‘‘Detective Delgardo. NYPD. You know about Dhiru Madrass?’’ Snouter said in his high-pitched voice, ‘‘Yes, officer; we both do.’’ Delgardo stroked his slim black moustache, sat back, and called out for a soda water. ‘‘Well, we know that you and Jack Durham were the last to see him. You both gave statements at the scene when he was shot.’’ Again Snouter nodded. ‘‘I’ve read your statements.’’ Delgardo said, ‘‘But it wasn’t a murder at that stage. Well it’s a full-blown murder inquiry right now. We had it down as a burglary gone wrong. But why were you at his place that night, and what did you talk about?’’ Snouter looked at Bill and leaned forward as he dealt with this question. He responded, ‘‘We wanted to know a bit more about Dhiru’s work. We’re reviewing the compliance set up in our company and we—well, we just wanted more info.’’ Delgardo examined his soda and put it down untouched. ‘‘At night?’’ he asked with surprise. Bill answered this, ‘‘That’s how my team work when we have a job on. Nothing’s unusual.’’ ‘‘Okay. What did you discuss?’’ Snouter frowned and thought about the question, ‘‘Not much. Dhiru told us about some odd things that we were going to follow up.’’

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‘‘Could these ‘odd things’ be related to the shooting?’’ ‘‘Not really.’’ Snouter answered, ‘‘It was just basic work stuff, really. Nothing too heavy.’’ Delgardo gave Snouter a hard stare and then suddenly lightened up, saying, ‘‘Okay gentlemen, that’s about it. Here’s my card if you can think of anything that might help us.’’ He handed cards to Bill and Snouter and sipped his drink, ‘‘Right,’’ he said to Snouter, ‘‘Anything to add?’’ Snouter jerked a little and replied ‘‘Oh no—nothing else.’’ Delgardo got up and thanked both of them, paid for his soda, and left. Snouter watched him walk away, and when the policeman had gone, he wiped his forehead with the back of his hand and said, ‘‘Why didn’t you tell him about Sudan and all of that?’’ ‘‘Not sure.’’ Bill answered, ‘‘We don’t know what’s happening yet. We only have things that don’t look right and leads that go back to Georgina. It’s no good telling him that.’’ Snouter seemed okay with this and was just about to order another beer when Bill said, ‘‘Right, let’s get going. We have a presentation to get ready for.’’

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ack turned left and bumped into the elderly waiter, who was leaning against a wall smoking a cigarette. ‘‘I’m sorry,’’ he said immediately as the waiter swayed a little but did not fall. The waiter smiled, ‘‘No damage. So okay, sir.’’ Jack picked up a box of matches that had fallen from the waiter’s hand and then said, ‘‘Who’s the boy who comes for the mail upstairs?’’ The waiter resumed his air of confusion and said, ‘‘A boy come here?’’ Jack thought quickly and said, ‘‘The yellow-haired boy.’’ The waiter stared at Jack, and Jack held his breath. The waiter then said, ‘‘Oh, I know. Carlos; he goes no more here.’’ As the waiter started to shuffle slowly away Jack asked, ‘‘Where is he now?’’ The waiter seemed not to hear at first, but then turned his head over his shoulder in Jack’s direction and said, ‘‘Yellow hair. I see him. He on tourist bus for circles. You call it noddy bus.’’ And then he was gone.

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Jack spotted his driver, Jose´, across the road, sitting outside a small bar sipping a drink. He called out, ‘‘Jose´. You ready?’’ Jose´ waved, gulped down his drink, and walked across the road towards Jack. He said with a smile, ‘‘Yes ready. Where you want to go now?’’ ‘‘Do you know about the tourist bus?’’ Jose´ nodded his head and said triumphantly, ‘‘See, I told you to take bus. Why not?’’ Jack held his hands up, ‘‘No. I still want you to drive, but I want to have a look at this tourist bus. The circle bus. A—the noddy bus.’’ Jose´ clapped his hands and said, ‘‘I know. It goes around the Strip, Fisherman beach and back. You want to try it?’’ Jose´ walked ahead and turned down a side street where he had parked his car, and Jack followed. They got in and were soon back on the road. They stopped outside a large hotel called the Brisa Sol, and Jose´ explained that the Mini Train did a circular route, and passengers could jump on and off. It actually went close to Jack’s hotel as it went right though the Strip. Jack thanked him, paid the tab, and promised to get in touch as soon as he needed a taxi. Several tourists waited at the bus stop, and Jack joined them as they stayed under the bus-stop roof to avoid the hot midday sun. After a few minutes, a mini train trundled slowly towards them and stopped. It was a bright-colored Disney-type electric train with five or six small carriages linked to a small engine, like a scaled down version of a real train. Jack paid the driver the price of an all-day ticket and jumped on. A teenage girl conductor checked each ticket, and when she came to Jack he quickly said, ‘‘Where’s Carlos. Which train is he on?’’ She stopped for a moment, checked Jack’s ticket, and went off to sit in the front carriage without answering Jack’s question. The train moved off and went past the Model supermarket while Jack spotted a McDonalds and a Levis store on the left. The roads were

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pleasant, clean, and bright with tourists walking around everywhere. They came to a large roundabout with giant bright models of watches painted blue, red, and yellow with each watch entwined around the others. Several small dogs ran wild in the streets, and there was color everywhere. Palm trees lined the streets, and locals and tourists seemed to be mixing well together—talking and laughing on street corners or in local bars. Portuguese music played through speakers in the train, and Jack thought that he may as well give up his doomed investigation and just enjoy what really was a vacation. He spotted a sign outside a cozy little white-colored house with pale-pink picket fences, set off from the main road. It read ‘‘vende se—for sale,’’ and for a second he pictured himself buying this house and living here away from the stresses of everyday life. He glanced up at the blue skies with a smattering of wispy white clouds and thought he may as well get his swimming things from the hotel and spend the rest of the day on the beach. Just as he was planning the day, the conductor girl came into Jack’s carriage and said in a sweet voice, ‘‘I asked the driver, and he says Carlos will be working from 6 tonight. Okay?’’ Jack pulled himself from his day dream and thanked her for this information just as the train arrived at the top of the Strip and stopped. Jack jumped off and checked his watch. He’d be back at 6 but would spend the rest of the afternoon at the beach as he had planned. He waved to the pretty conductor and headed for his hotel.

At 6 P.M. Jack stood again at the top of the Strip and waited for the mini train. He had just missed one and sat down to observe the tourists wandering round the cobbled road and a few local men hustling hard, trying to sell tickets, timeshares, cheap watches, and whatever else they had. A new mini train soon arrived, and Jack saw that it was the same conductor who had helped him earlier. He waved at her again and sat back down to wait for the next train.

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The next train eventually arrived and Jack showed his ticket to a young man with bright yellow hair who smiled and waved him towards an empty seat. Jack said, ‘‘When you are free I want to ask you some questions.’’ His subject nodded, and Jack noticed that Carlos sat next to the passengers and spoke constantly to them about the sights and sounds that greeted them as they drove along the route. It seemed that Carlos had appointed himself unofficial tour guide and enjoyed explaining the local history of this part of the country. The train jogged along the Strip and turned right at the bottom into Albufeira old town and on towards central Albufeira. It swung past the Camara Municipal building, which looked like a giant white spaceship. They entered the old town with its smaller buildings and narrower roads; and as they went down the steep slope, the train’s brakes were applied with a squealing noise. More light Portuguese music drifted through speakers as they passed the many hotels, some with flags outside while others had ironwork gates with intricate designs. Nearly all of them had the obligatory whitewashed walls with orange roofs. The train traveled along the ocean front and past hotels that seemed to dip right over into the sea. As they stopped at the stop light a small, elderly tanned man with no teeth and wearing a flat cap peered into the train. The train shuddered into motion and went down into what locals call the ‘‘fisherman beach’’; then it climbed slowly up the hill. Jack watched as an old woman who must have been 100 years old, with brilliant white hair, was standing outside her small terrace house, sweeping the area in front of the door, her head wrapped in a flowing black scarf. These images contrasted so much with the new buildings that looked like they had just been put up and the many building sites that suggested more developments were due. Jack’s carriage was finally empty, and Carlos sat next to him and said, ‘‘What aspect of Portuguese history you interested in?’’ Jack studied the young man and was impressed by his bright smile and intelligent eyes. Jack said, ‘‘Carlos. I need to find out a bit more about the accountant’s office you worked in. Baleroes, the charity accountant upstairs from the restaurant.’’

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Carlos looked taken aback and seemed unsure of what to say next. Jack continued, ‘‘I work for a company that has been donating to the Sudan project and I just need to check that everything is okay.’’ Carlos seemed to relax a little and said in a shaky voice, ‘‘I am studying accountancy. And I work the train here in the evening. I used to work a little at the accounts office, but they shut up.’’ Jack frowned and asked, ‘‘Do you still pick up packages from them?’’ ‘‘No longer now.’’ ‘‘Where did they go to?’’ Carlos looked out the window and answered, ‘‘Don’t know.’’ Jack looked concerned, ‘‘What did you do there?’’ ‘‘I only did basic office duties. Filing and so on.’’ ‘‘What about the accounts?’’ Carlos hesitated before asking, ‘‘Are you policıá officer?’’ ‘‘No,’’ Jacked laughed, ‘‘I’m just a simple auditor trying to find out a bit more. That’s all. What about these accounts then?’’ Carlos suddenly stood up and said, ‘‘Hold tight.’’ The train stopped outside the Brisa Sol Hotel, and Carlos jumped out to attend to the new passengers. Jack sat still as several passengers squeezed into his carriage before the train jerked back into action and trundled along the same route that Jack was beginning to know quite well. Carlos sat in front of Jack, and as the new passengers pointed out their favorite views and talked to each other, Carlos twisted his neck around and said in a hushed voice, ‘‘Look. I have papers at home. I quit the job because it was wrong. Something wrong. I meet you with papers, yes?’’ Jack leaned forward and said,

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‘‘Where can we meet?’’ Carlos looked around carefully and said in an even softer voice, ‘‘Irish bar at the old town. Paddy’s. Know it?’’ ‘‘I can find it. What time? ‘‘I finish later. Meet at 10 tonight. Okay?’’ Jack was about to answer when he saw Carlos turn around and start telling the person next to him about the way the Algarve had been developed over the years. Jack realized that their conversation was over until later on, and since he now knew the route quite well, he stepped off at the next stop and walked the route back to his hotel on the Strip. Jack stopped at a cafe´ on the strip and tried the famous Portuguese sardines he had heard about before strolling back to the hotel. He found the hotel manager, Petra, at her desk and asked her to get the taxi driver, Jose´, to pick him up around 9:30 that night. Jack got to his room; he stripped off to his shorts and performed half an hour of rapid exercises along with the sharp air-kicks and punches that he tried to do every day. He worked hard and breathed deeply as he visualized an invisible opponent in front of him who was being pounded by his fierce blows. After this he showered, dressed, and went down to the bar for a local beer called Super Bock. Petra had appeared behind the bar, and Jack wondered whether she had a twin sister as she seemed to run the hotel singlehanded. Petra was wearing a simple but slinky red dress that dropped down from her shoulders and Jack looked into her eyes and asked, ‘‘Where’s the husband tonight.’’ She winked and said, ‘‘He’s gone for gun practice. He is part-time soldier, you know.’’ And Jack removed his ‘‘look at my sexy eyes’’ look and immediately assumed his ‘‘I’m a happily married man’’ image. ‘‘That’s nice,’’ he replied and looked at his watch. Nearly time for his taxi to come. Petra moved across the bar to serve another customer, and Jack suddenly felt homesick. He missed his wife and kids. He missed being at home with them, watching movies, playing pool, or just being around

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them. He stared into his glass and was just about to sink into a deep mood when his cell phone rang. He punched the answer key and said, ‘‘Darling?’’ Bill’s voice sounded at the other end, ‘‘Not really pal,’’ ‘‘So sorry. Thought it was the wife. What’s new?’’ Bill’s voice sounded hesitant as he said, ‘‘That’s what I want to know. Anything out there?’’ ‘‘I’m just checking out the accountant who used to work on the Sudan charity. But there’s nothing yet.’’ ‘‘Okay,’’ Bill replied, ‘‘Let me know if anything breaks.’’ ‘‘Will do.’’

A car sounded its horn, and Jack got up, waved at Petra, and saw Jose´’s head poking out of the car window. Jack got into the passenger seat and said, ‘‘Hi Jose´. You know everywhere right?’’ Jose´ agreed. ‘‘Well take me to Paddy’s Irish bar in the old town!’’ Jose´ laughed and said, ‘‘Know it. But you come to Portugal and want Irish bar. What’s up, man?’’ Jack said, ‘‘I just have to meet someone there that’s all. Why don’t you join me. You working tonight?’’ Jose´ mumbled, ‘‘Every night.’’ And the car roared into life as they started off on the short trip to the Albufeira old town district. The car stopped outside what looked like a small shopping mall. Jack looked at it and said, ‘‘You sure this is it?’’ Jose´ nodded and replied, ‘‘Yeah. Upstairs. You see it when you go up. Want me back anytime?’’

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Jack looked at the phone number printed on the car dash and punched it into his cell phone, ‘‘I’ll call you if I need a ride.’’ He paid the driver and walked into the glass-fronted building and up the stairs where, as predicted, he found the bar. A large white-haired man in his fifties greeted him as he entered, and Jack saw that there were not many customers in this fairly small joint. The bar manager grasped Jack’s hand and shook it firmly. He said in a broad Irish accent, ‘‘I’m Patrick. Call me Paddy, though. Glad to meet you.’’ ‘‘Likewise. I’m Jack.’’ Paddy laughed out loud. He was tall and stout with a large round but gentle face. He leaned forward and asked softly, as if speaking to a small child, ‘‘Would you be having a pint of Guinness, Jack?’’ Before Jack could answer, a pint of black stuff was slowly being poured out with pride as Paddy watched it flow into the glass and said sternly, as if now teaching a university class, ‘‘Do you know that the biggest Guinness drinkers are Nigerian, and then comes Ghanaians?’’ Jack looked impressed and asked, ‘‘What makes an Irishman come to Portugal?’’ Paddy held the glass up to the light and seemed satisfied with the results. Only then did he proffer an answer, ‘‘Poverty, my son, poverty. I was living in Camden Town in London, you know, and bad times forced me out. And here I am. Couldn’t speak a word of Portuguese, came here two years ago and opened this bar here. Still can’t speak a word of it. It’s a bugger of a language to learn. These people make life so hard. They come out at around 11 P.M. at night and stay until 3 A.M. Back home, we close up at 11 in most bars. Makes for a very long day.’’ Jack could not hold back a laugh, and just as he was about to enter a verbal joust with his new-found friend, Carlos came through the door and pointed towards a table and chairs at the back of the bar.

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Jack asked for a second pint; after paying for them, he took them both over to the table where Carlos was sitting. Carlos looked at the black drink and took a sip saying, ‘‘I don’t usually drink this. But it’s nice.’’ Jack checked his drink and agreed. The two men seemed to be waiting for one of them to open the conversation. Jack finally said, ‘‘You felt uncomfortable at the accountants?’’ Carlos grimaced and checked around the bar to see if he knew anyone there. He then said, ‘‘Yes. When they took me on, at first things were fine. The firm was run by two older men and one younger woman. All from the same family. They did the accounts for some big charities. Everything was fine.’’ Jack sipped his drink and thought he could become a regular consumer. He made a thumbs-up to Paddy while pointing at his drink, and got a loud laugh back in return. Carlos seemed displeased at this public display and stopped talking for a while. Jack thought about gaining ground, ‘‘So things were okay at first.’’ He said and continued, ‘‘But not always?’’ Carlos said, ‘‘No. After a while the seniors did less work and a younger American guy came in called Chad something. When he did the Sudan accounts, I keep asking him about the paperwork, and it seems something was wrong. I am studying for accounting, and I know what is needed to draw up accounts. The old accountants hardly came in any more, and Chad got upset when I asked questions, and then he dismissed me.’’ Jack looked suitably sad and expressed his sorrow. Carlos took out a piece of paper from his jacket pocket and slid it across to Jack. He said, ‘‘I got this account from Chad before I left and took it home. But I have not told anyone. You have it now. Okay?’’

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Jack looked at the paper with numerous figures printed on it. He folded it and placed it in his own jacket pocket. Carlos emptied his drink and looked around. ‘‘Another?’’ Jack asked, and Carlos shook his head and said, ‘‘No thanks. I gotta go. See you, Jack. Good luck.’’ And he stood up, quickly shook hands, walked out the door, and waved briefly back as Paddy let out a loud ‘‘Goodnight, lad.’’ Paddy shouted out again, ‘‘Another one, Jacky?’’ Jack got up, went over the bar, and said, ‘‘Why not, Paddy? For the road.’’ And Paddy went through his careful exercise of pouring the perfect pint. Jack watched the black drink slowly slide into the glass with a line of white froth working its way to the top and thought about getting back home. He would check out tomorrow and grab a flight home. Why not?

Jack shook hands with Petra at the hotel and promised to return with his family next year. She smiled and wished him well before she added, ‘‘Jose´ will be here with the taxi in an hour. So you have some time to kill.’’ Jack left his bag with Petra and walked down to his favorite cafe´. He sat at a table outside and sipped a first-class cappuccino and watched the world pass by. Or at least the tourist world. He tipped his head back and felt the morning sun on his face as he closed his eyes for a few minutes. He opened them and squinted as he saw a lady walking towards him; the sun glazed from behind her so that she appeared as a gray shadow surrounded by a white haze. She came up to him, and he realized it was Pazeta dressed in a smart black skirt and white blouse, her hair tied neatly behind her. Jack’s mind flashed on his wife and whether she would mind if he had to kiss this pretty girl, as Pazeta came right up to Jack and leaned across close to him. Jack launched a wide smile and pursed his lips just as Pazeta’s hand flew through the air and she slapped Jack hard across his left cheek.

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Jack lurched back as Pazeta cursed something in Portuguese and spun on her heels, marched off, and quickly disappeared. Jack blinked and the shock stopped him from reacting at all for a few seconds. He eventually turned around and heard two old men sitting behind him laugh out loud. ‘‘What did she say?’’ Jack asked. The men giggled helplessly and held their hands up to their mouths. Jack glared at them and turned quickly around in case that woman came back. He heard more laughs behind him and was about to get up when a man who Jack knew owned the cafe´ came quietly towards him, leaned over, and said, ‘‘She says, ‘‘you live as you like and make problems as a pig.’’ Jack stared at the man, paid the bill, thanked him for his help, and left for his hotel.

When he got back to the hotel, he found a charming Petra standing beside his bags as if they were made of gold. She said, ‘‘Goodbye, once more.’’ Then Jack heard the taxi horn, which meant Jose´ was there waiting to take him to the airport at Faro and home. Jose´ talked about his work, his family, and the way he tried to speak English as much as possible and how he was improving. He made it clear that Portuguese was not the same as Spanish, even though the two countries had close ties and bordered each other. After a few minutes he said, ‘‘What is wrong?’’ Jack stayed silent and then said suddenly, ‘‘Jose´ turn back. I need to check someone.’’ The taxi stopped and managed to swing around back into Albufeira while Jose´ laughed and said, ‘‘You fall in love with my country and want to stay?’’ ‘‘No, Jose´. I do like it though, but I want to go back to that accountants’ place to see someone. Someone from the restaurant you took me to yesterday.’’

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Jose´ nodded and replied, ‘‘No worry.’’ The taxi turned into the street that Jack had visited and came to a halt outside the restaurant. Both men looked at the building. It was now a blackened, burnt-out wreck. Small barriers had been placed around the front, and it was clear that there had recently been a fierce fire at the heart of the building. Jose´ crossed his chest and mumbled something in Portuguese. Jack felt his body freeze for the second time today and then got out of the car and walked across the road to what had been the restaurant. He approached a slim middle-aged man who sat at a table next door to the building and asked, ‘‘What happened here? And where’s the manager, Pazeta?’’ The man gestured and spoke back in Portuguese, and for the second time since he had arrived in the country, it dawned on Jack that these people had their own language and culture and they only learned English to help outsiders. Jack called Jose´ over and asked him to find out what happened. Jose´ sat with the man and after a few minutes came over to where Jack stood and explained, ‘‘Well. It’s simple. Last night there was a fire in the office on top of restaurant and it spread, and then it goes out, but the building is dead. . . .’’ Jack interrupted, ‘‘Someone died, you said? Where’s Pazeta?’’ ‘‘No. No one dead, but the building is gone. No good. Pazeta has gone away. He don’t know where.’’ Jack felt tired and he was starting to get a bad headache. What he had hoped would end up as a pleasant vacation was turning out to be a nightmare. He looked up at the building, quickly felt in his jacket pocket for the paper given to him by Carlos, and said, ‘‘Jose´, would you drive me to the airport? I’m going home.’’

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c h a p t e r 22

MAKING MORE PLANS

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ack and Snouter sat in the lounge while Bill looked in the kitchen as Ruth and her mom were preparing the evening meal. Bill glanced at the many different dishes that were placed on the side table as the two women continued to work at the kitchen stove. He walked over to Ruth, hugged her from behind, and said, ‘‘You could feed an army with this much food. Don’t you ever get tired?’’ Ruth leaned back, twisted her head around, and answered, ‘‘It’s fun. Specially with my ma here to help. There’s another woman. Carmella, from across the road who wants to get together with us and try out different dishes.’’ Bill released his grip and said, ‘‘Gotta get back to work. See you soon.’’ And he went back to the lounge. Jack held one small sleeping baby in his lap while Snouter held another baby, who seemed to be staring at his grizzled face, at a strange angle. Bill had to laugh as he entered the lounge. ‘‘You should see you two. First-class baby sitters.’’ Bill gently took each baby in turn and placed them into a basket padded with small blankets and cushions. Both babies seemed content enough. Jack sat back and said, ‘‘Takes me back to my baby-raising days. In a way I kinda miss them. What about you, Snouter?’’

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‘‘Yes, suppose so. I didn’t spend much time at home. Mostly in hotels and bars, being I was on the road a lot. I remember my little one was scared of me for ages when she was little. Thought I was some mad stranger.’’ Bill sat down and faced the two men, saying, ‘‘Right. Let’s get to it. Ruth and her ma are cooking, so dinner will be ready in—ehm, I’m not sure when, but they’ll shout for us when it is.’’ Jack looked at the now sleeping babies and said, ‘‘We have to make a presentation to the audit committee next week, right?’’ Bill got up and poured three drinks. He replied, ‘‘Absolutely. So we need to get going. It’s essentially taking Maria’s ten elements and developing ten further subsets for each one. Then we tell the audit committee how we’re gonna make it happen and to what timescale.’’ Snouter sampled his drink and said, ‘‘Tastes good. Aged scotch, right?’’ Bill nodded and went on, ‘‘So we need to get ten factors for each of the ten main items. And then talk about how we deal with each one. Right?’’ Snouter reached across for the bottle, refilled his glass and said, ‘‘Why not we eat first and work after?’’ Bill looked at Jack and then said carefully to Snouter, ‘‘When you got this job—I mean before you got your job here, were you interviewed?’’ Snouter sniffed loudly and said, ‘‘Yep. They fired tons of questions, and I told them about my insurance work, tracking down low-lifes who claimed false. He seemed to like that.’’ A strange silence ensued for a few seconds, which was finally broken by Jack, ‘‘Don’t you want to hear about Portugal?’’ Bill sat back and listened as Jack went through a detailed description of his visit and the people he had met. He finished with the slap administered by the restaurant manager and his shock at that. Bill ventured an explanation,

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‘‘She thinks you burnt down her restaurant. You come around asking questions. When you get no good answers, someone breaks into the office upstairs—the accountant’s office—and sets it on fire. This fire spreads and burns down her business. That’s my guess.’’ Jack stared at the ground for a heartbeat and said, ‘‘Snouter’s right. We’ve got to plan the presentation at some stage. But today we need to think through what’s been happening to us.’’ Snouter grinned at this good news and settled down for another drink. Bill shut down his laptop and started this new conversation, ‘‘Agreed. I think we’ve been running around for nothing. We have no real leads, just some idea that things look weird.’’ Jack took out a sheet of paper and placed it on the coffee table. He said, ‘‘This was given to me by a guy who used to work for the accountants in Portugal. The firm’s now closed shop. Well, obviously, it’s also burnt to the ground. Let’s start at the top. Let me list things: We get called in to prepare a fraud policy. Actually, let’s start at the top. Georgina brings in you, Snouter, and sets you up as the compliance

officer. But this is not enough for the audit committee. They want more and want a project to make fraud policy better. Punchier. We get called in to do this. You get off to the Isle of Wight, Bill, and talk to Helen and Maria. Which is where you get these big ideas for a fraud control project. Which is good. We get news from Dhiru that he thinks something is wrong. Remember, he said it out loud at our seminar. We go see Dhiru, and he’s shot and, sadly, dies. Me and Snouter check out Orlando and find out they have some private system for cash donations for a charity. Top people donate and then get accounts that they check. But this falls outside our business, so we’re locked out.’’

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Snouter added, ‘‘Told you so. It’s a private thing. These people want to keep a low profile ‘cause that’s the whole point about charity money. . . .’’ Jack hushed him, ‘‘Okay. We get it. But I still want to find out how it works. Dhiru had an idea, and look what happened to him. I find the address for the accountant who does the Sudan charity books. But the office is shut up, and when I ask around it gets burnt down. Who knew I was in Portugal?’’ Bill shifted uncomfortably in his chair and said, ‘‘I told Georgina about it. When I called you, remember?’’ Jack sighed, ‘‘Yeah, I remember. So the Portugal lead is zapped. Back to my list; we’re told to get back on to the policy work. By whom?’’ Again Bill said, ‘‘Georgina.’’ Jack stretched out his legs and folded his arms, ‘‘So that’s where we are. We have something that needs looking at, and we get blocked by the boss. There’s nowhere to go.’’ Bill considered this situation and said, ‘‘Guess so. But I’ve know her for so long. She’s. . . .’’ Snouter interrupted, ‘‘That copper wanted to know what was going down. We could tell him ‘bout our CEO.’’ Bill looked at Jack, and there was an uncomfortable silence as all three sat and digested this problem. As the silence grew into a sort of vacuum, mama Bess came into the room and said, ‘‘Dinner’s ready boys. Step up!’’ Three tired bodies got up from their seats and headed for the kitchen with a mutual understanding that they should drop the subject for a while. Ruth and mama Bess had excelled. The table was laden with different types of meat and vegetables, including sweet potato, yam, and green bananas. Several tasty-looking desserts lurked in a corner waiting to be sampled when the main course was over. Bill kissed Ruth on her forehead and said,

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‘‘You are first class, my dear.’’ He gestured to his friends to get comfortable, which they did with very little hesitation. Mama Bess told her humorous stories about the Caribbean and how she grew up in a rural district where everyone knew each other. Snouter got involved and told his tale of growing up in an isolated farming community with very little entertainment other what you could make yourself, and the feast was consumed with vigor. Shortly after that, mama Bess retired upstairs to look after the babies. When she had gone, Jack, with a sneaky wink, congratulated Ruth and suggested she open a restaurant at which Ruth laughed nervously for far too long. She quickly tried to change the subject and said the first thing that came to her mind, ‘‘What are you fellas working on then?’’ Snouter had already drunk two glasses of wine on top of his scotch and said wildly, ‘‘Fraud and secrets and undercover operations. FBI stuff.’’ Ruth smiled and replied, ‘‘No, really. What are you involved in now.’’ Snouter tried to reply but instead swallowed a large piece of meat, which allowed Bill a chance to take over, saying, ‘‘We thought we had something, but Jack got the accounts and what we thought was strange seems to check out. At this prompt, Jack flashed out the document he had with him, placed it on the table, and said, ‘‘Yeah. This is it, the accounts.’’ Ruth picked up the document and looked at it for some time while the others continued their stories of days gone by. Bill told them how he was an only child which made him start life pretty shy. And he had always been reserved, even with his first wife, until he met Ruth. He then became serious and started talking about his father and how he had spent his last few years. Ruth suddenly grabbed Jack’s arm and handed the document back to him. She screwed up her face just like her mother and said, ‘‘Take it back. These accounts are trash. They’re made up.’’ Jack laughed, folded the document. and shoved it back into his jacket. Bill

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watched this as Snouter started to tell a noisy tale about following a tall woman and finding out she was really a man. Bill interrupted this story and said, ‘‘Hold it, Snouter. What did you say, Ruth?’’ ‘‘Those accounts are not real. They cannot be real. That’s the problem. Most people do not bother to challenge things. They get a set of figures and don’t even check them properly. That’s why so many frauds don’t get found out.’’ Jack laughed, ‘‘Women are always so suspicious of everything.’’ Ruth smiled back and said, ‘‘Okay, wonder boy. Let me tell you how it goes. Give the thing back to me.’’ Jack fumbled through his pockets and eventually came out with what was now a very tatty piece of paper. Ruth straightened the document (see Exhibit 22.1). She then spent the next ten minutes explaining how the figures, even if they were draft, made no sense, while the others listened carefully. Ruth closed her argument politely by suggesting, ‘‘These accounts are draft, since there are no notes and no balance sheets. But none of the ratios between donations, rental income, staff salaries, and the staff overheads and last year’s figures make any sense at all. It’s all made up—and badly so, as if the preparer didn’t really care at all about these accounts being viewed by anyone with any common sense at all.’’ Snouter grabbed the wine and said, ‘‘Well, makes no difference. We’ve dropped the investigation.’’ Bill picked up the paper and said, ‘‘You think so?’’ Jack looked at his watch and said, ‘‘I’ve been on different airplanes for most of the day and I’m shattered. I’m knocking off. Thanks for the meal, Ruth.’’ Bill stood up and announced, ‘‘Jack and Snouter. Go to the lounge, we need to finish off a few things. Is that okay?’’

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EXHIBIT

22.1

Relief Charity

Jack groaned, and Snouter thought about the scotch that was in the lounge and smiled to himself. When they had gone, Bill turned to Ruth and said, ‘‘You sure about those accounts sweetheart?’’ Ruth turned deadly serious and said, ‘‘I did the accounts at the hotel back home. You remember, when I had a decent job and didn’t sit around at home all day?’’ Bill, whose sixth sense told him that they were getting into a tired woman upset scenario, quickly switched to defense, ‘‘You are always right, Sweets. Just checking.’’ However, the wine had stirred Bill’s macho blood and he could not resist adding one small dig at Ruth.

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‘‘Remember I—me and Jack—are mocco so we don’t know about these things.’’ Ruth pulled Bill’s hand and dragged him gently towards her, asking, ‘‘What do you mean?’’ Bill fell into her arms and said, ‘‘Nothing at all.’’ But Ruth was not happy. She mumbled, ‘‘Mocco. You mean that stupid saying? I told you mama Bess apologized to Snouter.’’ Bill looked hurt, like a three-year-old who had lost his favorite toy. He asked his wife, ‘‘What about me and Jack. Don’t we get a sorry?’’ Ruth looked at Bill and then laughed out loud and said, ‘‘Mama Bess wasn’t talking about you and Jack. She was talking about Snouter. She once worked for a hotel chain, and the directors hired a drunk to check the books. They did this because they knew he would miss their scams. In the end it turned out to be a really big fraud. That was what mama Bess meant by her comment. You do understand that Snouter is an alcoholic. And that you getting him sloshed whenever you meet up is making it ten times worse. And the fact that he claims his drinks on the company compounds it.’’ Bill looked stunned. Ruth kissed him gently and said, ‘‘Go look after your guests.’’

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c h a p t e r 23

THE HEAT IS ON

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he three men were sitting around the lounge, each thinking about the task that lay ahead in getting a presentation ready for the audit committee. Bill, who never drank too much, was least impaired, while Snouter was almost unintelligible. Jack was okay apart from a tendency to drift off into thoughts of lying on a soft beach in Portugal and soaking up the sunshine. Bill finally broke the spell by saying, ‘‘Seems to me that we have two big issues. One is to get the fraud project up and running. . . .’’ Snouter asked, ‘‘And the other?’’ Jack answered this question, ‘‘The other thing is the Sudan account.’’ Snouter sneered and said, ‘‘Not that again. Old news.’’ Bill shifted his body and flopped his head back on his chair rest. He responded, ‘‘Jack’s right. It doesn’t make sense to talk about fraud policies while we have something on our books that just won’t go away.’’ Bill flipped out a small business card and placed it on the coffee table. He said, ‘‘I got this from that Detective guy. He said we should call him if we could think of anything else. Remember, Snouter?’’ ‘‘Yeah. But he had the shooting down as a burglary.’’ 206

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Jack picked up the card and studied it before saying, ‘‘Call him, Bill. And tell him what you know.’’ Jack slid his cell phone out from his jacket pocket and punched in the numbers from the card. He spoke to Detective Delgardo for a few minutes and spent most of the time listening carefully. After a few minutes he signed off and turned back to the group to report, ‘‘No luck. He’s been investigating the case, and seems that our Dhiru was a bit of a bad boy. He cheated on his wife in India and skipped the country. His wife’s relatives have been looking for him ever since. The old guy who lived downstairs used to play chess with him, and he got it straight from Dhiru. Anyway, it looks like the family caught up with Dhiru, and that’s about it. Detective Delgardo’s passed the case over to the Indian authorities, and they are checking it out on their side of the world. You know, it seems that when a foreign national gets shot by another foreigner, no one really wants to get involved. So the case is more or less closed.’’ Bill tugged at his ear as if he didn’t understand this way of thinking. Jack continued, ‘‘Our problem is only a problem if Dhiru’s death is linked to his allegations. But it falls away if this isn’t so. Right?’’ Bill slowly nodded. Jack looked at Snouter whose head had dropped onto his left shoulder as he had fallen asleep. Jack nudged Snouter in his ribs and received a loud grunt in response. Jack said, ‘‘Snouter, wake up. We need to check something out.’’ Bill held up his hand, ‘‘Leave him alone Jack. Let him rest.’’ Jack’s eyes flashed and he got up, put on his jacket, and said, ‘‘I want to go see the old guy who knew Dhiru and ask a couple of questions.’’ Bill looked unconvinced but said, ‘‘If you like. I’ll sketch out some ideas for our presentation and you go check things.’’

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Jack headed for the door, saying, ‘‘I’ll be back later,’’ and disappeared. Bill opened his laptop and started tidying up the ten main components of Maria’s fraud control strategy. After a while, he stopped work and thought about Georgina—how he had worked with her for many years and always found her to be straight. But he also thought about the strain she was under and how she was looking really tired lately. He typed in a lot of what Maria had said, and for each batch of points he prepared a short slide with bullet points and a few diagrams where appropriate. Snouter gently snored in his seat in the corner of the room while Bill worked. Suddenly, he stopped working on the presentation and plugged the Ethernet cable into his laptop. He logged onto his work network and scanned through the corporate systems. Since he was now responsible for Snouter, he was able to access and pull up Snouter’s account. It contained a brief note on his work record and scanned copies of work references that had been obtained to support his employment application. He read several comments on Snouter’s alcohol rehabilitation programs that he had been on in his previous job. He then read a note from the human resources (HR) officer about Snouter’s absence from work for alcohol-related issues and a further memo recommending management action to resolve the problem, which appeared to suggest that dismissal was the best option. He scanned through the files and found a memo from HR that read: Dear Mr. Snoutehouse, This is to confirm our recent interview where it was noted that, on several occasions, your judgment had been affected by your problems associated with alcohol dependency. Please ensure that you register with our counselor to start your rehabilitation program as soon as possible. We will be monitoring your progress in conjunction with your line manager, and hope that this is the start of better performance at work. Best Regards Sandra Hendersey

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The memo was over six months old. As he read this memo, Bill glanced across at Snouter whose legs were spread out at an angle, his head thrown back with his mouth open—still emitting the gentle snoring noise that had been going on for some time now. Every few minutes his mouth would jerk slightly, and at that instant the snoring noise would sound more like a snort. Bill’s mind ran on mama Bess’s words, ‘‘from outta Mocco.’’ Yep, that’s our Snouter. Bill heard Ruth’s voice in the hallway, then Jack burst into the room and threw himself into a chair and kicked off his shoes. He seemed out of breath and for a few seconds breathed hard to catch his breath. Bill watched him and waited until he eventually said, ‘‘He’s gone.’’ ‘‘Who?’’ Bill asked. ‘‘The old guy. He’s called Darwin or something like that. He just took off. He told everyone that he has been scared to death since the shooting, and he went off to his sister’s in Canada.’’ Bill said, ‘‘Well then, that’s that. Case closed.’’ Jack laughed and said, ‘‘Not so quick. I finally got to talk to another old guy, Mr. Bernard from the first floor. Anyway it seems that this Bernard is close to Darwin and they play checkers together. So Bernard tells me that Darwin was scared when the shooting happened. But the next day, Darwin became real happy and said that he finally had enough money to get out of here.’’ Bill stepped over the still sleeping Snouter and poured Jack a drink. He handed it to him and then said, ‘‘So we still don’t have anything.’’ Jack looked insulted and said, ‘‘Yes we do. Bernard says that the old fella, Darwin, is a gloomy man and he didn’t speak to anyone much. He certainly didn’t talk to Dhiru. In fact, he’s a kinda racist and hates all foreigners. And he never played chess. He played checkers. And he was pretty bad at that.’’ Bill sat back down,

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‘‘What are you saying then?’’ Jack thought about it for a few seconds and then said, ‘‘What I’m saying is that it just doesn’t add up. The cops say Darwin knew Dhiru and told them this story about the relatives and wives and bad feelings. Playing chess and being best friends. But this wasn’t the case here. They were not friends and Darwin did not run off because he was frightened.’’ Bill said, ‘‘What if your new friend Bernard is wrong? What if he’s a soak like our old friend here?’’ pointing to Snouter who had shifted in his chair while still sleeping. Jack hesitated for a while and then replied, ‘‘Okay, perhaps. But one of them is wrong. And we can’t ask Darwin can we? I think we should call the cop again. Detective Delgardo.’’ Bill looked surprised and responded, ‘‘No way. We can’t keep bugging the guy. Cops don’t sit around playing games, and I don’t think Delgardo will be impressed with our new story. Let’s focus on the presentation and give this other thing a break for a bit.’’ Jack stood up and said, ‘‘It’s been a long day. I’m hitting the sack.’’ Bill mumbled, ‘‘Hold tight a second. Let’s talk about the problem. You think we have some kind of fraud happening here, but you can’t say what it is.’’ Jack sat back down. ‘‘It’s not that.’’ He said, ‘‘I feel as if there’s something wrong. But I just can’t get a hang of it. We get told about a problem by Dhiru. But he backs off and then he’s put out of the frame. Forget family feuds and all that. He was taken out, okay. I go out to Portugal and the same thing happens. Any evidence there is goes up in smoke—literally. Then this witness, Darwin or whatever he’s called, gets some money and he goes off. The accounts I got are wrong. . . .’’ Bill interrupted, ‘‘That’s only what Ruth says. It may not be absolutely right.’’

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Jack looked straight at Bill and replied sharply, ‘‘You need to start giving Ruth her dues. She’s not just a pretty face; she’s pretty sharp as well.’’ Bill looked embarrassed and said, ‘‘Yeah, yeah. You’re right there.’’ Jack sipped his drink and looking more relaxed said, ‘‘I just can’t see how we can set up a fraud response thing with all these loose ends hanging out.’’ ‘‘But look, you may think there’s something to check out. I have still got my task. I have to prepare the presentation and pretty quick too. The problem is that if we get an allegation or any suspicion of employee fraud we’re supposed to notify the CEO and the CFO. But you know deep down, we cannot be sure about Georgina, the CEO. So how can I go running to her about issues that could lead back to her? She’s called me off from anything that brings me closer to the action. She brought in Snouter and sent him running around the organization, achieving not much at all. So what do I do?’’ Jack stared up towards the ceiling and thought; what should we do? Bill answered his own question, ‘‘I guess we talk to the CFO. But do I tell him my concerns? How can I go up against Georgina and expect to survive?’’ Jack was still looking skywards and finally said, ‘‘I could.’’ A silence ensued as they both listened to the soft snoring of Snouter. Jack continued, ‘‘I could go back to Orlando and talk to the CFO. Try to get some more information and tell him about what I’ve found. My concerns.’’ Bill smiled but at the same time became deadly serious as he said, ‘‘And I could finish setting up the audit committee presentation from Maria’s guidance. You know they want a full presentation with slides and all. You need to understand that my whole future with the company depends on my performance.’’ Jack agreed, and said,

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‘‘I understand. The pressure’s really on. If we do it that way you stay out of the messy bits and I keep investigating. What about Mr. Siesta?’’ he said looking at Snouter. ‘‘Do you keep him here or should he come with me to Florida?’’ Bill laughed, ‘‘We should drop him at Freddy’s bar and he could spend the rest of his days there.’’ Jack walked over to Snouter and looked down at him, ‘‘I suppose I could take him with me. Never know, he might come in handy.’’ ‘‘Right,’’ Bill said with conviction, ‘‘You go off to Orlando with Snouter tomorrow. I stay here and work up Maria’s fraud material. I present it to the audit committee and you brief me when you get back, and then we can decide what to do next.’’ Jack seemed confused for a second and said slowly, ‘‘I’ve known Georgina since college. You’ve known her for many years. You know, if we just stop everything—stop the inquiry, then Georgina stays in the clear and we all go on with our lives.’’ Bill answered this comment, ‘‘But then everything else becomes unclear. If we don’t do our job, what next? You know deep down inside, there’s no way out for us. We have to keep going, or nothing else makes sense.’’ Jack slowly nodded his head and said, ‘‘I know, but it’s just so hard. We don’t have a case, only a suspicion.’’ ‘‘Tell you this, Jack. If she’s in the clear then that’s that. If not, then it’s just one of those things. Agreed?’’ Jack nodded again, ‘‘Guess so. Look, I’m shattered. See you tomorrow. You can call a cab for sleeping beauty here.’’ And with that Jack got up and walked slowly out of the room and up the stairs towards his bedroom.

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c h a p t e r 24

THE PRESENTATION

B

ill sat outside the oak door that hid the impressive board room behind its glossy sheen. He looked down at his notes—slides with notes that he had earlier scribbled against each slide. He thought about his job and how his responsibilities had grown over the years. He thought about the way he hated doing presentations. No, he did not actually hate them, but he just did not like them much. Especially when so much was riding on this one in particular. He had only found out yesterday that the audit committee had set aside an entire afternoon to hear his presentation. Hours with him at the helm, armed with his slides and notes. Hell, this was going to be some afternoon. ‘‘Bill. Bill. . . .’’ Johnston, the tall, skinny company secretary with graying hair, stood over Bill and brought him out of his thoughts. ‘‘Bill, they’re ready for you. Let me tell you, friend, they’re in a bit of a mood. They’ve been discussing civil liability for audit committee members when a fraud breaks and hits a company. They’re really hyped up, and our new corporate attorney has submitted a paper on this which. . . .’’ Johnston suddenly stopped, checked his watch, and realized that he was holding up proceedings. He changed the subject, ‘‘Come on then, let’s go.’’ Bill got up, dropped his notes, and spent a few scary seconds putting the notes back in order and back into his file. Johnston watched this with a slight frown, and Bill suddenly imagined that he was going into a court to be sentenced for a heinous crime. Johnston walked ahead, and Bill 213

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followed at several paces behind. The board room was bursting full of richly colored oak—from the walls to side tables, to a large book case, and the entire room was illuminated by a sweeping chandelier that sparkled as it swayed ever so slightly. The main feature was a large table placed in the middle of the room. A fairly small group of six people sat towards the furthest end of the table, and Bill’s presentation was obviously going to be made from the nearest end of the table. He recognized several of the committee members: Sarah Dunswick, James Freeshard III, and Graham Milligrand, the top financial wizard who worked with an international bank. The two serious-looking men and one shy-looking woman with long, black hair looked unfamiliar. Bill sighed with relief as he spotted his first slide gleaming on the screen in front of the audit committee members, and he was further relieved when Johnston started fiddling with the laptop as he checked that the clicking device that advanced each slide was activated. Bill approached the group and sat down politely at his end of the table. The chairman was actually the young-looking woman, Sarah Dunswick, who, with her small intelligent face, piercing blue eyes, and curly light brown hair seemed to exude a special aura as she smiled and said, ‘‘Please let me introduce Bill Reynolds, who will take us through his work on developing our fraud resilience. I intend to place fraud as a standing agenda item of the audit committee, and Bill will be preparing regular progress reports on this matter. Now, bearing in mind the issues that we have been discussing recently and the unfortunate events relating to legal liability that our previous chair has experienced at the other company board he sits on, I know we are all hoping to see much progress on fraud policies for our company. Anyway, I don’t wish to go over old ground, and so may I ask Bill to take us through his presentation.’’ Bill stood up and looked at the first slide as he quickly took a small sip from a glass of water that had been placed in front of him and cleared his throat. ‘‘Good afternoon, ladies and gentlemen. Thank you for inviting me to this specially convened audit committee to discuss our plans for better fraud risk management in the company. I have been working with a

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consultant and my colleagues to get a grip on the task at hand and to seek your endorsement for my proposed way going forward. I appreciate that you wish to hear a detailed account of the fraud plan, and I have prepared such a presentation. Please stop me if you feel we are getting into too specific detail. I suggest that all larger companies in the United States are either being attacked by fraudsters or will at some time in the future be attacked either by external fraudsters or by their own employees or partners. Most companies only think they may be attacked, and this is where they fall over. I have discovered that the way the risk of fraud is managed is changing. Real criminals discover a company’s risk strategy and then design their own approach to committing fraud, based on what can be a pretty sophisticated counter-strategy. As we change our strategy, they alter their response. Car criminals are up against high-tech access controls that make it hard to steal expensive cars, so they simply switch tactics and target the car driver him or herself. We are, in fact, engaged in a battle against these forces that we can either win or lose. And the question to ask ourselves is ‘‘Who will win this battle?’’ Bill looked around the room and saw six faces focusing entirely on his words. He smiled within and gained strength from the feeling that he was getting through. He paused like a consummate actor and flipped his air mouse to turn to the first slide. (See Exhibit 24.1.) ‘‘But before we get into the detail, I want to touch on one issue. And that, ladies and gentlemen, is yourselves. Many audit committees don’t build fraud into their terms of reference, but this is wrong. Fortunately,

EXHIBIT

24.1

Fraud Presentation

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we have it set firm within the remit of this committee and this gives me a good start. When you have had a chance to give me your feedback, I will want to present my plan to the main board and ask them to adopt it and then drive it forward. As an audit committee you will want to oversee the actions of top management and the way they formulate their regulatory disclosures, including those relating to internal control. Whilst our controls can provide only a reasonable but not an absolute assurance on whether or not we will be successful, it may be that management are able to override and therefore circumvent controls. This is a particularly dangerous concept, given that such overrides may lead to fraud and abuse from senior officials. To make matters worse, the U.S. Federal Sentencing Guidelines suggest that each organization is responsible for the wrongdoings of its employees when acting in their official capacity, even if the organization did not know or approve of the employees’ actions. And this is where a good compliance program is an important part of our response to these sentencing guidelines.’’ Bill stopped talking and looked for a reaction from his audience. They seemed enthralled, and it took a few seconds for the members to regain their ground, as their role was to challenge and not just accept everything that was put in front of them. The elderly man, James Freeshard III, clasped his fingers as the others awaited his comments. He finally said in a gruff but powerful voice, ‘‘Yes. We have talked about our responsibilities, and it seems the dice are staked against us. It seems we have to question everything the board members do to cover our backs, which is not really feasible in my book.’’ Bill enjoyed the fact that he was getting feedback, and he raised himself to his full height as he responded, ‘‘I appreciate your views, and this is something that is spoken of in many different organizations. I guess you will want to maintain a healthy skepticism in examining significant management decisions and be alert to business practices that border on the shady side. In many cases it is important to look behind what drives our senior people and ask whether this sits well with the need to behave properly at all times. In essence it is up to you to ensure you have access to the right information and to those

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people who can tell you whether there are matters regarding accountability that need to be probed at all. ‘‘And if you are not sure, then you will want to have access to experts who can advise you. Auditors, compliance people, human resource staff, business managers, and the fraud and abuse hotlines are all good sources of such information. These sources should be telling you things that tie in with what the executives are saying, and if there are gaps, then you may wish to explore matters further. Unfortunately, there is a view that even trusted executives may fall over from time to time. But I agree that the primary role of an audit committee is to advise and support the board on audit and accounting issues.’’ The audit committee members seemed to relax en masse as they silently agreed on a mutual vote of confidence in Bill and his perspective, at least for now. Bill loosened a button from his jacket as if to signal his getting into the real action and then continued, ‘‘Chair, you said at the start of this session that you will want me to report progress on my fraud plan. Well, I have been advised to develop an integrated fraud plan that has ten components. And within each component there are ten further elements, giving us a 100-point set of criteria against which to assess our position and progress. Let me list the ten main components (see Exhibit 24.2). EXHIBIT

24.2

The Ten Fraud Control Components

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EXHIBIT

24.3

The Three Main Fraud Control Stages

‘‘But I want to do my presentation back to front. Before we go over each of the ten points in some detail, I want to go back to the fact that we need to take fraud seriously, which means we need to treat this work as a major change project. This next slide says that I will need to go through three main stages to get my project up and running. They are: (see Exhibit 24.3) ‘‘A. Set-Up If we are not talking about a real fraud project, then we have little motive to make this initiative work. I came across our current fraud strategy as consisting of a policy and one poor staffer running around from site to site checking low-level compliance issues. To step it up to a higher level we must set up a real project to make effective fraud risk management a reality. I have identified five stages for setting the thing up. (see Exhibit 24.4.) EXHIBIT

24.4

Set-Up

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1. Work out what you want. I would like you to endorse my view that more than anything, we want better protection for our resource that is our company and our good reputation. We want motivated staff such that our people are focused on their work and knowthatanyabuse willbedealtwithseverely. Andall inall, we want to have a better and healthier business. This is what fraud risk management is about and not just checking a box that says staff seminars done. Or fraud policy issued. 2. Get a vision. If you are happy with this we can go on to getting a vision for the project. I feel that a vision is about visualizing a concept that everyone at all levelscan buy into. I propose a poster that shows us as a ship that rides stormy waves that threaten us. We sail over these waves because we have a firm hull—that is, good ethics and a serious response to the threat of fraud. I propose that we put up posters of our ship and leave out any caption. At set stages we can add some narrative, and in this way our people can get into a game of seeing the project set up, described, designed, and then, if you pardon the pun, floated out. This idea of a seaworthy vessel can be used on our fraud documents. Just an idea you understand. Our marketing people can advise here. 3. Establish responsibilities, key players, and leadership. I want the project to be owned by the board, and all key players identified and brought into the equation. But more than this, I want all staff to see where they fit in and that they have some responsibility for helping us guard against actual fraud and the risk of fraud. 4. Set up a change project. More than anything, I want the project to be about changing perspectives. Make fraud an issue that is part of the way we work to grow our business. The transition from nothing much to this new culture will need milestones to drive it on its way. It is a journey from where we are to where we want to be. The ship analogy may be quite useful as we use the image to plot a journey, through rocks,

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maybe to an end site that is hard to access by criminal gangs or by those people who work for us and feel tempted to gain an unfair advantage. 5. Use an integrated approach. This final part of the set-up is to make sure that what we do sits within and not outside our business. When we have arrived, we will want our systems and processes and our new projects to be risk assessed for the risk of fraud as a natural everyday occurrence, because that’s how our employees behave. And when our people deal with customers, partners, associates, vendors, and so on, this idea that fraud could break stays in their minds not so that it gets in the way of business, but just as a way of being careful in dealing with people, and protecting our business interests. B. Capacity Most culture-change projects fail because they are mainly words but no real actions. Capacity build happens where we resource words and concepts to turn them into something real. I’ve got five things to talk about here (see Exhibit 24.5). 1. Recognize the links between different parts and systems in the organization. In my world, fraud risk management is not a set of vague ideals that sit outside the business, but a set of clear values that help us run our business. That is, it is part of our EXHIBIT

24.5

Capacity

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2.

3.

4.

5.

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processes in a way that adds value to what we do anyway, by simply getting people to consider an extra dimension when they design things, when they operate things, or when they make decisions about things. Or when they work with others whose decisions or actions commit resources or change our systems in any way. Ascertain resources. This means we pay for people to help us achieve our vision. Simple. My consultant, Jack Durham, is an example in case. Get some resilience. I put this in my slides because we need to be alert to the reality of resistance. Some people don’t like new things. They don’t want to attend seminars or talk to people about new competencies. It is real life to anticipate resistance and build resilience into our plans so that they do not fold over whenever someone says they will not work. Develop strategic initiatives and communicate them. This is about setting out our aims in a way that translates into a set of objectives that people understand and can see happen. For example, we want to develop better security, more customer verification, or staff training, or a communications policy, or whatever else is needed to make it happen. Get a capacity to change and design incentives. We will want to make room within our busy day and find a way of encouraging people to get involved and commit. Incentives mean all ways of motivating people to rally round our initiatives in a way that makes sense to them. This could be by making fraud risk management part of the performanceappraisal process or testing people to see whether they really understand our approach and values.

C. Integration The final part of the program goes back to the idea of integration. Here I mean turning a project into changed behavior. I was able to think up five parts for this one, too (see Exhibit 24.6).

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EXHIBIT

24.6

Integration

1. Build it into the competence of all staff. Any culture-change program is about changing the way our people see things. That is, changing the corporate culture so that security, compliance, and good behavior are seen as important. Actually it is more than that. It’s about people challenging things when these norms are not adhered to by all, including their own management. People will not use a whistle-blowers’ hot line where the culture in the workplace discourages such action. We will want to find out how people feel and fix it so that they support our antifraud measures proactively, not grudgingly. 2. Think about personal objectives. If we can get fraud risk management to the troops, we will have succeeded. If our front line worry about fraud and think about the new scams that are breaking every now and again, then we are doing well. Managers and staff should consider that people who work with us need to account for their decisions and need to follow some kind of procedure if we are to sail above any problems with abuse or irregularity. This is about balancing personal autonomy with corporate integrity. Give people freedom to act and make decisions. But make sure that within these freedoms people retain their own integrity and the integrity of our business and our business processes. Not easy but real

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essential. Remember, we are only making plans here, and there is further work to do to tie up all loose ends. 3. Full integration. We can get proper integration where our systems, processes, people, projects, disclosures, and businesses relationship reflect the need to be alert to and protect against the risk of fraud. We will need to be able to track how we can do this properly. 4. Work out what information is needed to establish how you are doing. Forany project we willneedtomeasure howweare doing. That is, to set some milestones that we can report against, and I guess you as a committee will want to see reports that say how far we have gotten and how much more work we will need to do. 5. Upgrade and develop as an ongoing strategic issue. I put in this final element to reinforce the view that nothing stays the same. As criminals gear up and as threats alter, we will need to be on guard and make sure we are ahead of the game. So the project is not just a project; it’s a better focus on fraud that means a permanent change in the way we think and behave. It is an ongoing thing that evolves over time, not as an end in itself but as a new consideration that’s forced on us by the growing malice from some sections of society—by people who feel they can take shortcuts to achieving their goals through deceit to obtain what the rest of us work hard for all our lives.’’ Bill stopped and did his sweeps of the room to check his audience for any response or to see whether they had fallen asleep. Luckily, they were all still awake and appeared to be okay with the presentation so far. The chair felt that she had to step in, in some way as Bill had spoken for what seemed like ages. She said, ‘‘Well. There’s a lot to this. I know we have to think about what you’ve said so far, Bill, and I know that we are only halfway through the presentation, but a short break would seem appropriate at this stage.’’

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The members needed no further prompting to slowly stand up and wander towards the coffee area and the bathroom at random, while Bill flipped through his notes and tucked them into his file before he also went in search of a much-needed cup of coffee. His cell phone sang out and he answered, ‘‘Yes.’’ ‘‘Jack here. Just to tell you, we’ve got to Orlando. How should we play this?’’ Bill looked around at the audit committee members who were standing around the coffee machine, out of earshot. He replied, ‘‘Things have moved on a bit, Jack. The audit committee may well ask about current investigations. We’re doing things without telling anyone else.’’ ‘‘You know we can’t inform the CEO while she’s tied up in it.’’ ‘‘Okay. Look, I’ve got to get back to the presentation. Talk to the CFO and tell him about the investigation. We have to cover our backs right?’’ ‘‘Got it.’’ And with that Bill returned to the board room for part two of his oneman show.

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c h a p t e r 25

THE MYSTERY CONTINUES

T

he Orlando skies were fairly misty as it had been raining for most of the day. Jack and Snouter had booked the same small hotel as on their last visit, and they received an odd smile from the same middle-aged receptionist who had greeted them before. She took great pleasure in wishing them a lovely and cozy stay as she logged two rooms next door to each other. After the usual flurry of activity involved in unpacking bags and hanging up clothes, Jack stood in front of the full-length mirror in his hotel room. He was barefoot and bare-chested, wearing only a shiny track suit bottom. His eyes narrowed, and he glared at his reflection staring back at him. He went into a sequence of punches, moving in and out in a swift motion as his hands flew into action. Different variations of punches and blows emanated from his body as he thrust his fists forward and backward in rapid secession. He breathed deeply and focused on his exercise routine with sweat glistening from his toned skin. Tonight he was concentrating on his punching sequence. After a rapid half-hour he showered, dressed, and at the agreed time, went down to the hotel’s small but brightly designed ground-floor restaurant, where he saw Snouter just about to sit down at an empty table. Jack looked through the menu card while Snouter was trying to catch the eye of a young waiter who was rushing between tables. The quiet hum of small talk from the other diners was broken by Snouter’s loud shout, 225

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‘‘Hey you, boy. Bring two beers over here.’’ Jack grimaced and held his face closer to the menu as several pairs of eyes turned towards his table. Snouter seemed unconcerned and said, pleased with himself, ‘‘Right, Jack. You called Bill when we touched down at the airport. What did he say?’’ ‘‘We gotta talk to the CFO about this inquiry. You know, report our concerns to a senior person.’’ Snouter grabbed one of the two beers placed on their table by the waiter, gulped a third of it, and then said, ‘‘Makes sense. I still don’t think we got a real investigation. Just a bunch of things that seem odd.’’ ‘‘Not just odd. We have a whole set of circumstances that need to be explored properly. How did you get into this detection game when you don’t want to check anything suspicious?’’ Snouter laughed out loud, ‘‘If I followed all the leads that came to me I would never complete the compliance program, ever. And then I would be seen as a waste. And then my job’s on the line, again.’’ ‘‘What do you mean again?’’ ‘‘I’ve been here before. Chasing leads and getting nowhere. Then getting iced for wasting time. Seems that senior people just don’t want to know about things that make them look bad.’’ Jack frowned and thought about this logic, which meant most investigations would just not happen. He was thinking about a suitable response when Snouter got the next words in, ‘‘We need a plan. How to tackle this.’’ Jack lost track of his thoughts about telling Snouter off and said, ‘‘Tell you what. Let’s do this properly. Let’s set up an incident room.’’ Snouter finished off his beer as the waiter came to their table and took their order, which included two more beers demanded by Snouter. Jack leaned back on his chair and continued his idea, ‘‘In my old job, I used to get a chart and put up the case details. That way you can trace links and think about missing bits. Shall we give it a go?’’

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Snouter decided that the hotel beer was not his favorite and that he would prefer to find a local bar that had a better selection. He was just about to suggest they get out after dinner when Jack said, ‘‘That’s it then. I’ll ask the hotel manager to find us a room with a wipeboard and flipcharts. I know they have them for conferences and such. And we’ll get to work this evening, right?’’ Snouter nodded unenthusiastically. Their meal arrived and they both tackled with some vigor the somewhat large portions of food that had been set out on their table.

Jack and Snouter managed to secure what the duty managers called a ‘‘breakout room.’’ One of the small rooms next door to the main conference room contained a table, four chairs, an Internet computer, a large wipe-board with nonpermanent markers, and a flipchart. Jack stood in front of the board with a red marker in his hand while Snouter sat at the table as if he was taking remedial math classes at school. A bottle of red wine stood on the table alongside two half-filled wine glasses. Jack held up the marker pen and assumed the ‘‘teacher position’’ as he pointed his other finger at Snouter and said, ‘‘What do we have so far, my friend?’’ Snouter sipped his wine and answered with a question, ‘‘What?’’ Jack persevered, ‘‘What’s our case about, Snouter?’’ ‘‘Lots and not much really,’’ came the response. Jack scratched his chin and decided to change his approach. He said, ‘‘Okay. Let’s put up what we have so far,’’ and started writing notes over the wipe-board. When he had finished he sat down, and both men looked at the board as if studying a particularly complex Picasso painting (see Exhibit 25.1). Snouter seemed to pep up and got into the swing of the proceedings by asking,

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EXHIBIT

25.1

Fraud Investigation Notes, Draft 1

Dhiru—blows the whistle and is shot Orlando—income received for Charity Income goes to Portugal

Accounts go back to Orlando

Portugal visit and records burnt

Accounts look wrong

No resources to investigate

No real case to answer

From outta Mocco?

‘‘What’s that Mocco thing?’’ Jack sighed and replied, ‘‘Never mind.’’ This seemed to satisfy Snouter, who then announced, ‘‘But there’s nothing there really. Nothing concrete. The income goes to charity, and the donors want to keep it low key. They get the accounts and are happy. Our books are not involved, and it’s outside our range. Oh and the cops say Dhiru was involved in family stuff.’’ Jack tapped the pen and said, ‘‘But we know that the old guy who told the cops about the family has gone off with some money that has come his way. And we’re being discouraged, which always worries me.’’ Snouter seemed unimpressed, ‘‘It’s all just small random bits that fit no pattern.’’ Jack went back to the board and added a few more lines Money in—charity gets money—accounts wrong—Why?

Snouter suddenly got up, walked over to the board, and wrote CEO implicated? and sat back down. Jack remained standing while watching this and then asked, ‘‘But no one actually suffers any loss here. These donors, whoever they are, should check their accounts. If they are experienced businessmen, then they would do that anyway, surely?’’ Snouter nodded and poured

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out some more wine. Jack scratched his hair, which made a soft grating sound as if he were rubbing his brain for ideas. He said, ‘‘What the hell do we tell the CFO? There’s nothing here really just— just unusual things. You know that all fraud work comes down to gathering evidence, and we have nothing so far. No real evidence that there is anything wrong at all.’’ Snouter smiled and added, ‘‘We only have to report to the CFO if we have a case that’s suspicious. If we decide there is nothing to investigate, then that’s that.’’ Jack sat down with a thud and flopped his legs out in front of him. He studied the floor, then looked up at the wipe-board. No one spoke for a few minutes. Jack said, frowning, ‘‘But the accounts don’t stack up.’’ Snouter replied, ‘‘The accounts you got from Portugal could be anything. Including an incorrect set that were withdrawn of something that has nothing to do with this case.’’ ‘‘That’s true. But why are we here, then?’’ Snouter got up and said in a soft and menacing voice, ‘‘That’s the problem. We got to be careful that people don’t say we’re just wasting time and wasting company money.’’ Jack also stood up, ‘‘Let’s call it a day and see if we have any more ideas tomorrow.’’ Snouter drained his wine glass, and they both went out of the room and retired to their own bedrooms.

Jack sat in his room and called his wife. He told her about the job and the tricky situation they were in, and he finally described the breakout room where he and Snouter had tried to decipher the case. He held the phone away from his head as his wife shouted out the dangers in leaving confidential information on a wipe-board in an open area of a hotel. Jack wished her goodnight and promised to go straight back to the breakout room and erase the information. He flipped the TV remote and

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thought about the effort needed to go back downstairs and wipe the board. After a few minutes hesitation, he left his room and went in search of that most annoying breakout room. He waved at the receptionist as he passed her and went along the corridor into the breakout room. He switched on the lights and, sure enough, his scribbled notes were still in place for all users of the small room to see. Jack sat down and looked at his notes. He thought about the way Snouter had been of no use in brainstorming this case, and he looked at all the words he had put on the board. Maybe he could try a private brainstorm. What was missing? What was causing him to feel ill at ease? Jack tensed as he heard the sound of footsteps coming towards the room that he was in. The sharp clicking sounded louder and louder as it got closer to the room. Jack silently slid off his chair and flipped off the lights. A soft glow from the distant lights in the darkened streets outside fell across the room so that everything appeared in various shades of dark gray. The footsteps stopped outside the door as the handle slowly turned. Jack braced himself against the wall so that the door would hide him from the intruder as it slowly opened. Jack was hidden by the opened door and he saw a dark shape enter the room, but he or she did not turn on the lights as a glow from the corridor light meant the table and chairs could just be seen. The shadow entered the room, and Jack froze as he could see the back of the distinctive brown jacket that Snouter had worn today. The shape grabbed the wine bottle that contained the leftover wine and was about to leave the room when Jack stepped out from behind the door and said, ‘‘Peek a boo. . . .’’ Snouter jumped and grabbed his heart as if he were about to faint, although he managed to keep hold of the wine. He sputtered out, ‘‘What the hell. . . .’’ Jack laughed and switched on the lights. He said, ‘‘You’re a real wino, man.’’ Snouter collapsed in a chair and said, ‘‘One day I’m gonna drop dead, and it’ll be your fault playing games.’’

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Jack picked up a board wiper and was about to draw it across the board when Snouter said, ‘‘Let’s do some more on this.’’ Jack looked surprised and was about to make a joke but instead said, ‘‘Go on then,’’ and sat down. Snouter got up and stood beside the wipe-board. He picked up a marker and said, ‘‘It’s not about breaking a case by just thinking hard about it. It’s about exploring issues by planning more work. Let’s list what we need to do.’’ Jack agreed, and Snouter made the list, saying to Jack, ‘‘We need to do some more work while we’re here: Interview the finance guy again, the one who sends the cash to the

Portuguese bank. Find out who the donors are and how much they send. Find out about the accounts they receive. Find out whether anyone has any worries about it all. Then decide whether we can drop it or not.’’

Jack looked impressed and commented, ‘‘I like it. It’s a plan.’’ Snouter sat down and looked straight at Jack for a few seconds. Jack started to feel uncomfortable and was about to ask what’s up when Snouter spoke, ‘‘I know some of this already. Dhiru gave me some papers a few months ago, and I thought they were nonsense. When people have poor English you think they don’t know what they’re doing, but I see now that that’s not always so.’’ Jack looked at the wipe-board as Snouter continued talking, ‘‘He sent me the names of the main donors, and I actually did some checking. Two of the big spenders used to be independent directors on the main board but resigned last year. They have no links apart from being directors of a car-export company based in the Middle East. That’s about it.’’

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Jack looked confused, ‘‘Why didn’t you tell me about this?’’ ‘‘I forgot. The booze, it gets to you and when you forget it’s hard to tell people that you had something. It’s embarrassing.’’ Jack said, ‘‘You remember the name of this car company?’’ ‘‘Yep, the Deraisu Car Export Company, Dubai.’’ ‘‘Did you look them up?’’ ‘‘Yep, they do exist and these two donor guys are directors. But this doesn’t affect anything really. As far as I can see.’’ Jack walked over to a computer in the corner of the room and switched it on. After a few minutes of muttering and scratching his hair, he got onto the World Wide Web and asked, ‘‘What was the name of that company again?’’ ‘‘Deraisu Car Export Company, Dubai.’’ Jack typed away at the keyboard and said, ‘‘Got it. The Deraisu Car Export Company. Not much here but wait— they pulled in an absolute fortune last year. Hang on, let’s translate this into dollars. It’s millions of dollars. The two main directors are listed as James Finnastood and Chad Shourn. Let’s put this information on the board.’’ Snouter nodded, looked at the wine, yawned then said, ‘‘Yep, that’s them. Okay this company made money, but there’s still no real link here. The ex-directors make lots of money, and they are good people and make donations. That’s how I read it. I told you I checked it out and came up with nada.’’ Jack shook his head, ‘‘But it’s when we put all this together that we may have something. That’s what fraud work is about. You know that, Snouter.’’ Snouter picked up the wine bottle, pointed to the wipe-board, and said, ‘‘Well that’s about it. You can take a copy of the stuff on the wipeboard if you like. I’m off to my room.’’ And he went out of the room

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with the same clicking sound that had announced his entrance earlier on. Jack went over to the wipe-board and added in; The Deraisu Car Export Company, Dubai

He sat back down and looked at the board. Money in, off to Portugal, and now the big sums of money made by a new factor, the Deraisu Car Export Company. Jack thought about Dhiru’s death and the fire in Portugal. If these were linked to the case. then another factor comes into play. He stood up and wrote the word DANGER in the middle of the wipe-board and pressed the green button, whereupon a whirring sound occurred and a copy of all that was written down slid out of the small engine attached to the wipe-board. Jack then erased the writing on the board. He stood looking at his paper copy for a few more minutes, and as he folded it in two and placed it carefully in his jacket pocket, he saw a flash in front on him—a vague pattern that seemed to remind him of something he had seen before but could not describe. He shook his head and got up and left the room thinking that there was something there, but it seemed to be just out of his reach.

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c h a p t e r 26

THE AUDIT COMMITTEE HEARS MORE

T

he audit committee chair shuffled her papers and looked through the copies of slides that she had in her pack, mentally calculating how long it might take for Bill to go through each slide. Her colleagues settled down in their seats, and she looked at Graham Milligrand, immaculately dressed in a jet-black suit, as he pulled out his shirt sleeves to ensure his golden cuff links were properly on display. Sarah Dunswick vaguely recalled some dark shadow over Graham’s past, but she just could not remember the facts. Was it something to do with his son, or his brother; was it financial shenanigans on Wall Street? Graham smiled at Sarah and then looked down at his own papers. Bill sat at his place at the far end of the table, looking at Sarah for a signal to continue. Sarah tapped her glass and called the group to order, ‘‘We have made a good start with Bill, and I feel that we were right to set aside the entire afternoon for this presentation. In one sense, it is a learning opportunity for all of us, as we can get more into the subject of corporate fraud and fraud prevention.’’ Graham cleared his throat and said in a forceful voice, ‘‘Yes, chair. I was a bit worried about spending too much time on this, but I agree with Sarah. We need to sit through Bill’s material and perhaps more than that, we need to make sure we, as a committee, understand the growing importance of fraud and its effect on big business—and for that

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matter, all types of organizations. You know that I sit on the board of lots of big companies.’’ Sarah nodded, her head slowing. She said, ‘‘Thank you, Graham. Perhaps you would continue, Bill.’’ Bill stood up and clicked his mouse to bring up the next slide. He was quite enjoying himself as the collection of very important people sat and listened to his every word. He continued, ‘‘Thank you, chair. I said earlier that we will want to set up a change project that has clear aims and seeks to develop our capacity to combat the threat of fraud. We then want to instill this new thinking right into our workforce, from top to bottom. I also noted the ten-point model against which we will build our project, which is noted once again on the slide (see Exhibit 26.1). ‘‘When I took over responsibility for our fraud policy, all we had was a short orientation video for new staffers and one compliance officer who tried to visit each of our local offices once a year. Fortunately I spent some time on the Isle of Wight in discussion with Maria Abimbola, who is an international expert on fraud awareness.’’ James Freeshard III coughed and said, ‘‘The Isle of Wight. That’s over in Virginia, young man.’’ Bill quickly replied, EXHIBIT

26.1

Ten-Point Model

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‘‘No, the place I’m talking about is in England, not the States. Okay, so we had a pretty low-level response to the threat of fraud, and Maria set me right in the way she uses an integrated approach to fraud risk management. There is the view that each organization is different, but we can still use a sort of benchmark to judge how we are doing. The 100-point criteria can be used to assess how robust our antifraud arrangements are. So for each of the points we score them from between 0, which is ‘not in place’ to 1, which is ‘fully in place.’ So an organization can score between 0 and 100. The idea is to use this benchmark, the 100-point criteria, to periodically assess where we stand and spotlight those areas where we fall down. There are schedules at Annex A that set out the 100-point assessment, but right now let me take you through each of these ten items to give you a more detailed insight into how I think we should go about this task. ‘‘We start out with ethics(see Exhibit 26.2). ‘‘Step 1. Create a culture of honesty and a good reporting procedure. That is, the culture of the organization and the way we ensure anything that falls outside the code gets reported to top management. The questions are as follows: EXHIBIT

26.2

Ten-Point Model, Step 1

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Is there a sound code of ethics sponsored by the board that is

well known and understood throughout all parts of the organization? Are regular staff surveys carried out to ensure the code is observed in a way that reflects real buy-in across the business? Does the code tie in with corporate values that are designed to drive behavior and help guide the way both day-to-day and strategic decisions are made? Is the code refreshed each year by staff re-signing their commitment to its message? Is there a user-friendly whistle-blowing procedure that encourages staff to report issues of fraud, abuse, and breach of procedure that is accessible and represents best professional practices? Does the code of ethics help guide our relationship with vendors, customers, contractors, partners, associates, and others who interact with our organization? Is there a nominated person with specialist expertise who provides assurances to the audit committee and main board on the way the code of ethics is applied, revised, and made to be effective? Is there an effective compliance program that runs across highrisk parts of the organization that encourages compliance and ensures that noncompliance may be detected and addressed? Does the disciplinary procedure ensure that good ethical behaviors are promoted and action taken if and when such behavior falls short of an acceptable standard? Do staff feel that senior management sets a good example in the way they behave in the pursuance of company objectives and performance targets and in the way they provide leadership and relate to stakeholders?’’

Bill paused at that point and looked at the committee chair. Sarah Dunswick looked up and jerked into action,

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‘‘Good. Let’s stop at each list of ten points for questions. Any questions ladies and gentlemen?’’ The shy-looking woman swept back a lock of hair that had fallen in front of her eyes and responded, ‘‘Yes, I have a question. Do we, the audit committee, get information on all reported suspicions? I mean the whistle-blowers’ concerns. Do we get a report on whistle-blowers’ accusations?’’ Bill said thoughtfully, ‘‘I don’t think we report anything much to this committee right now. You will want to think about what you get on fraud issues when we start designing the new arrangements.’’ The questioner seemed to be happy with this, but Sarah Dunswick’s eyes flashed as she asked, ‘‘Do you have any suspected frauds that we should know about?’’ Bill froze, and for a few seconds could not think of an answer. He tugged at his left ear as he considered a response. He did have real suspicions about his boss, the CEO. But how could he talk about that? The Chair seemed confused and repeated the question, ‘‘Bill, is there anything we should know about in terms of ongoing enquiries?’’ Bill visualized the scales of ‘‘should he, shouldn’t he’’ that he weighed up in his mind before he said, ‘‘There are always fears, suspicions, and checks that we make as part of the normal work of the compliance process. Right now there is nothing concrete that needs to come before this committee.’’ Sarah frowned at Bill, made a mental note to talk to him in private after the meeting, and then said, ‘‘Right. Please do go on.’’ Bill shuddered as he suddenly wondered if it was a criminal offense to mislead the audit committee. He forced himself back into his stride and continued, ‘‘We get to the next bit of the model. It’s all very well to get the company to behave well and then stand back. In reality, a good oversight

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EXHIBIT

26.3

239


process is needed to ensure that what’s supposed to happen does really happen. So we get to (See Exhibit 26.3): ‘‘Step 2. Design a sound oversight process, and make it challenging. Is the fraud control project designed and maintained with regard to the views and concerns of all relevant stakeholders of the organization? Are the corporate governance arrangements sound in ensuring there are clear roles, responsibilities, and accountabilities for fraud risk management within the organization? Does the board have a clear ownership of the fraud control arrangements that is promoted through a fraud policy that in turn is driven personally by the CEO? Is there a well-thought-through balance between the pressure for quick performance results and the need to ensure that this performance is tempered by propriety and proper conduct? Does the compliance program ensure that regulatory matters are addressed, including the need to make sure that corporate behavior is at all times aboveboard?

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Does the Audit Committee assume a proactive oversight role in

considering the fraud policy, the corporate ethics program, and the fraud response plan, including the need to seek expert advice and ask tough questions of responsible persons where appropriate? Does the organization have a process through which it can track the corporate fraud history, including fraud trends, reports, and new threats, in a way that helps it oversee fraud control activities? Is there sufficiently robust guidance issued to management on the way it can best play a role in helping prevent, detect, and respond to actual and potential fraud, including the need to ensure that controls are continuously improved to help combat the threat of fraud? Does external audit play a pivotal role in assessing the arrangements for managing fraud risk in line with Audit Standard SAS 99 that includes the need to maintain professional skepticism and carry out unpredictable audit tests? Does internal audit review the corporate control environment (including ethical standards), maintain alertness to the risk of fraud, and help look for fraud using automated interrogation packages as well as providing an annual assessment of the overall antifraud arrangements?’’

Sarah sat back and looked at her colleagues for any questions that may have arisen from this part of the presentation. One of the serious-looking men said in a surprisingly child-like voice, ‘‘We need to ask tough questions you say. Like what?’’ Bill had sat down, and he quickly stood up to reply, ‘‘There is a view that when things start going wrong in a company, from the top, then there can be cover-ups. It is really hard for company staff to challenge their seniors, and we rely on the audit committee and the auditors to step in when things just don’t add up. For financial misreporting this can be literally not adding up. The audit committee will be part of this challenge element.’’

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The questioner suddenly grinned and said, ‘‘Graham is our financial expert. So he asks the tough questions on the accounts, right?’’ Bill gestured with open hands, ‘‘Absolutely. Each of you will have a view, but those with specialist skills will be able to probe elements that need probing. It’s a sad fact of life that we cannot take everything we see at face value, and it is here that tough questions are important.’’ Sarah felt that time was moving on, and she quickly got her voice in, ‘‘Good. Let’s carry on with the third element.’’ Bill was already standing, and he got back into his swing, ‘‘One problem with the current arrangements is that our fraud response sits with one fairly junior compliance officer. The integrated approach says that everyone has a role in this matter, and so our next series of assessments explores this issue (see Exhibit 26.4). ‘‘Step 3. Define all roles, and build good buy-in from all stakeholders and experts in the field.

EXHIBIT

26.4


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Does executive management have a clear role in establishing a

corporate fraud policy that ensures that ultimate responsibility rests with the CEO? Is there an in-house resource that investigates fraud when it occurs, or is there ready access to an external resource that can be used to investigate irregularities to a professional standard? Do finance staff have a good understanding of their role in relation to fraud risk management for high-risk areas such as income, expenditure, and the preparation of final accounts? Does line management have a clearly defined role in identifying fraud threats, establishing suitable controls, checking for compliance with these controls, and reporting any suspicions to the relevant party? Does the legal team have a clear role in dealing with civil litigation in fraud cases and providing advice on fraud control arrangements? Is there a Chief Risk Officer (or equivalent) employed, and does this person ensure that all risk assessments carried out in the organization include an assessment of the risk of fraud and abuse? Does the Public Relations officer have a sound remit to provide press releases and external communications on matters dealing with fraud against the organization? Are the Human Resources staff well versed in handling the fallout from fraud that impacts employees, including staff disciplinary actions? Is there a powerful Ethics Officer (or equivalent) in post who has a good understanding of the role of ethics in underpinning the management of fraud risk and ensuring a well-thought-of and successful organization? Does the Compliance Officer help develop compliance guidance for business management, as well as monitoring controls in areas with a high risk of fraud and abuse?’’

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Sarah looked straight at Bill and said, ‘‘This seems incomplete. What about the board, the audit committee, and what about the security staff?’’ Graham added, ‘‘Yes, and what about the auditors; they have a role surely.’’ Bill seemed unconcerned about these digs at his model. He answered, ‘‘Remember, we dealt with the board, the audit committee, and the auditors in earlier questions on oversight and so on. Security is so important that it has its own set of questions later on. Shall I go on, chair?’’ Sarah nodded, ‘‘Absolutely.’’ Bill clicked the next slide and said, ‘‘Having worked through topics 1 to 3, we can get to the fraud policy itself (see Exhibit 26.5). ‘‘Step 4. Design a fraud policy and a fraud response plan. Is there a clear understanding amongst staff of the exact roles of the fraud policy and fraud response plans and why these issues are important to an organization that has been established by the board? EXHIBIT

26.5


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Is there a clear definition of the concepts of fraud, abuse, and

irregularity that is derived from respected professional sources? Does the fraud policy promote the achievement of business

objectives by establishing the benefits of responsible behavior and clear accountabilities? Are all employees required to ensure that they maintain adequate controls against fraud and abuse in their areas of responsibility? Does the fraud policy support the best use of basic fraud controls, including adequate separation of duties, authorization, independent checks, formal monitoring, and establishing sound procedures? Does the fraud policy make it clear that employees and others should report all suspicions using the set corporate procedure? Is there a bottom-line position of disciplinary action if staff ignores the fraud training programs and does not comply with the corporate ethics program and fraud policy? Does the fraud response plan make it clear that staff should never approach suspects or talk about the case or circumstances of the suspicious activities to anyone who is not authorized to be party to these matters? Does the fraud policy encourage employees and others to cooperate fully with any investigation? Does the fraud policy make it clear that no one should contact the police or other such authorities without formal clearance from the responsible party within the organization unless there is a good reason why this course of action is appropriate?’’

Bill sat down. For some reason everyone turned to the oldest person in the room, James Freeshard III, who blinked and then said, ‘‘Right. How do we stack up against this?’’ Bill remained seated and answered, ‘‘We don’t. I will need to prepare the policy for the board as part of this project.’’

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Graham Milligrand was making notes and without looking up said, ‘‘You’re saying that we are going to agree on an assessment framework and then fail at each section?’’ Bill realized the dangers in this strategy and was about to answer when Sarah came to his aid, ‘‘I agree with Bill here. We have a pretty poor start, but we will set standards and then, over the months and years, seek to achieve them. It’s a work in progress. Better that than cover it up and pretend we are okay. Right Bill, get the next bit done then.’’ Bill got to his feet and for a second felt really tired. He looked at his audience and urged the energy back to his body as he launched himself into the next part of his presentation. ‘‘I have been talking about the entire organization and the way the integrated approach brings all of us into the frame in tackling fraud. But at the same time, we need to ensure we have the real experts in the front seats. Section 5 is about having an expert capacity in place, either inhouse or on call (see Exhibit 26.6).

EXHIBIT

26.6


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‘‘Step 5. Develop investigation standards, including interviewing and evidence gathering. Is there a suitably qualified in-house person who is able to lead our investigations and help define their purpose, the remit, and the legal repercussions including standards of confidentiality and client/attorney privilege? Do we have in place or have access to a professional set of standards that covers investigations and do we have a way of ensuring that all such investigations adhere to these standards? Do we have a resource or ready access to a resource that may be applied to undertaking investigations once a case has been established and authorized for action? Do we have set standards that make it clear when staff should be suspended and on what basis, including allowing them access to suitable legal advice? Do we have a formal process for engaging with law-enforcement agencies and the external auditor when we have a case that needs to be publicized in this way? Do we have an effective process for ensuring that any missing funds can be recovered, even when there is no prosecution? Do we have a clear standard on evidence that covers issues such as obtaining testimony using experts, using circumstantial evidence, dealing with physical and documentary evidence, dealing with hearsay, and rules on admissibility? Do we have clear rules on establishing the chain of evidence when different people are involved in the case covering such issues as removing evidence, working in pairs for corroboration of evidence, and writing and securing notes on the matter? Do we have clear procedures for dealing with malicious allegations? Do we have in place a formal process for communicating results of fraud investigations and establishing clear reporting lines?’’

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Bill remained standing in the hope that there would be no questions. As he was about to resume his presentation, the shy-looking woman shook her hair to brush it off her face and said in a measured voice, as if giving evidence in court, ‘‘When you start an investigation you need it to be authorized—so who do you talk to about this, to seek authorization?’’ Bill felt the trembles return as he visualized Jack and Snouter investigating things that no one else in the company even knew about. He said boldly, ‘‘Investigators need to be objective. There needs to be some flexibility to decide who to talk to and when. It depends on the investigation.’’ The shy woman started to sound quite firm as she continued to ask tough questions, ‘‘On the one hand you want a formal standard in place, but then you say you want to decide as you go along. Which one is it? Surely a board member needs to know when something is happening.’’ Once again Sarah came in for Bill, and this time she said, ‘‘We are in the process of developing these areas. Let’s leave the thinking for this when we start to see the standards being prepared. I think what we are saying is that when you prepare a standard or procedure or whatever you call it, Bill, you need to put it in front of us before it goes live. Yes?’’ Bill agreed wholeheartedly and continued his work, saying, ‘‘This next one is pretty straightforward. We have mostly discussed the infrastructure that we need in place with aspects one to five. Now it’s time to get the staff on board (Exhibit 26.7). ‘‘Step 6. Train employees, and define new competencies. Has the organization worked out exactly what it wants from its staff in terms of fraud risk management, including the need to guard against attack, understand the fraud policy, appreciate impacts, and essentially be able to manage the risk of fraud?

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EXHIBIT

26.7


Does the board sponsor staff training and ensure that a senior

executive engages with the training and endorses the events at the start of the fraud seminar? Do we have in place a process that enables us to assess the expertise we have within the organization and coordinate any ongoing antifraud activities carried out by staff in different parts of the business? Is there a process for linking the fraud development work with the wider enterprise risk management process so as not to overwhelm staff with too many initiatives? Is the fraud training fully integrated with human resource systems such as recruitment, performance appraisal, promotion, corporate ethics, and does it incorporate a clear policy on awareness seminars and state whether such training is mandatory or just advised? Are clear learning goals set for the program that relate the objectives to aspects of knowledge, understanding, and practical skills without going too far in terms of specialist aspects relating to actual investigative skills?

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Does staff fraud training incorporate sufficient modularity

where there are different modules and levels of engagement, depending on the staff grades and specialist work of the employees involved, covering general awareness, red-flag detection, and the operations most at risk to fraud? Are formal certificates issued at the conclusion of the seminar supported by an appropriate assessment method such as multiple-choice tests carried out at the end of the event? Is there a blended approach to staff development depending on what we are aiming at, covering seminar events, intranet resources, and one-to-one coaching, including the use of pilots, refresher training, and culture-change techniques? Is there in place an instructor’s session guide with slides, notes, and exercises along with participants’ workbooks for different staff groups, revised by measuring the impact of training from feedback and surveys?’’ Bill made a quick sweep of the audience, and having got a nod from Sarah, hurried onto the next part. ‘‘My expert, Maria, put security into the model because it stands alone as a real important matter. Let me give you the top ten bits (see Exhibit 26.8). ‘‘Step 7. Tighten up security, and plan for the worst contingencies. Does our staff understand the threat of security breaches including the destruction of data, planting illegal material, defacing websites. and bombarding systems so that they eventually shut down? Does our staff understand that intruders can steal our information and sell it to criminal gangs, and therefore ensure that sensitive data is encrypted and that data and spreadsheets must be kept secure with all changes tracked and logged? Do we make use of the dual security concepts of something you know (e.g., passwords) and something you possess (e.g., laptop

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EXHIBIT

26.8


computer or a token ring) and stay alert to the risk of hidden keystroke triggers? Does the organization understand the need to install firm buffers between internal systems and the outside world covering firewalls and staff access controls and limiting the use of mobiles, portable storage data devices, and wireless networks? Do we have in place a security platform that matches standards set by the IT Governance Institute covering major aspects of data security? Does all data receive a risk-assessed security classification with rules applied to how it is used, covering data handling, authorizations, what constitutes legitimate need, legal compliance, and laptops and their use as legal evidence? Do we make full use of virus protection, security patches, embedded monitors for our technical people and high-risk systems, removal of default settings and special IT backdoors, secure servers, and appropriate physical security?

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Are cyber attack response plans in place that ensure systems are

shut down, firewalls changed, intranet disconnected, or the Internet Service Provider altered in response to such attacks? Are staff fully equipped to understand security measures and report any problems or attempted breaches in line with staff selection and training, whistle-blowing rules, and staff meetings that deal with new alerts and security surveys? Is there a designated security person who is responsible for corporate standards, backing up data, compliance checks, staff biometrics, passwords, intrusion detection software, and data encryption and for ensuring that security is kept up to date? Are contractors and other third parties required to meet these standards when using corporate information, and are these parties adequately security cleared?’’ By mutual consent the committee members seemed to agree that they would refrain from asking questions to ensure that the presentation did not drag on longer that it needed to. What had started off as an exciting presentation was starting to drag. Sarah waved her hand to encourage Bill to continue as she took a quick look at her watch. Bill sipped some water and clicked the next slide (see Exhibit 26.9). ‘‘Right then. We’ve done the detailed security stuff, but we have many systems and processes that run throughout the business that need to be properly controlled. Fraud risk management is not just about assessing risk; it’s also about testing our systems to see whether anything wrong has got through. The bottom line is that we get in good strong controls that make us safe. An important part is to get each of our business managers to check their systems and make sure they are well controlled. ‘‘Step 8. Survey your systems, and assess weak areas. Are the sources of fraud detection fully exploited, including looking for odd trends and frauds discovered by accident, by informers, by internal and external audit, by exceptions thrown out by our controls, and when new systems are installed?

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EXHIBIT

26.9


Has there been a comprehensive assessment of the history of

and trends in frauds in the organization that can be used to guide future testing exercises? Are data-sampling models developed by systems managers that help define the at-risk transactions? Is data profiled for criteria that will isolate oddities when analyzed against other related data? Does management employ detection routines that provide data footprints against sampled data to highlight problems in highrisk systems, such as searching for missing fields (like vendor tax or Social Security number) and unusual averages? Is Benford’s law on random numbers employed to assess databases for suspect data sets that may be identified because they are associated with the way numbers are used when made up by a fraudster? Are tests for money laundering undertaken to isolate the mixing of legal with illegal funds, particularly in respect to

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external parties and third-party entities as well as to countries where this is more common? Are managers fully alert to unusual behavior such as financial problems, extravagant lifestyle, regular rule breaking, close social relationships with vendors, accepting gifts, losing assets and equipment, unexplained absences, heavy debts, excessive drinking, character changes, lack of ambition, and gambling addiction? Are managers alert to areas of the organization where there is a lack of audit/compliance work; unexplained budget variations; loose financial rules; high staff turnover; complaints about nondelivery of items; rising expenses; undated, altered, or missing records; poor separation of duties; and poor value for money. Do staff have a suitable incentive for looking out for and reporting inconsistencies or unusual behavior, without malicious intent, including the view that this is a firm responsibility?’’ By now the audit committee members were suffering from information overload, and they were each shuffling slightly and trying hard to stay focused while wishing to be elsewhere. Sarah realized that this was too much detail and she thought of a way of explaining this view. She eventually said, ‘‘I would have called a break here, but we only have two more items to go. Is there a way, Bill, you could speed things up for us?’’ Bill stared into two pleading eyes as he replied, ‘‘Oh yes. I can get into the last two quickly if there are no questions.’’ A sigh went through the small group as the elderly ex-lawyer held up a hand and said in his dramatic voice, ‘‘You mentioned money laundering earlier on. Is this a big issue?’’ Bill replied, ‘‘I guess so. The company is responsible for what goes through its books, and if we facilitate the commission of a crime then we may get

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EXHIBIT

26.10


prosecuted. You know, I’m not an expert on fraud so I could ask our corporate attorney to give you a paper on money laundering if you like.’’ A murmur of agreement went through the group, and Bill went on, ‘‘Right, so we get to controls. We tried to test whether suspect transactions could get into our systems, but now we need to stand back and assess whether our controls are generally good enough to match the best fraudsters (see Exhibit 26.10). ‘‘Step 9. Learn lessons real quickly, and follow up problems by improving controls.’’ Does the organization have a solid control platform (such as COSO) that involves a sound governance process for its board and audit committee, the right culture, good secure premises, and the exercise of professional skepticism. Does the organization use a world-class human resource (HR) framework that incorporates good codes of conduct, formal job descriptions, key manager role definitions, and hiring rules,

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along with employee checks, sick leave, staff screening, fair targets, time control, contracts and relationships, media searches, referees, qualifications, and staff movement controls? Are there sound policies for dealing with suppliers, customers, creditors, and other outsiders? Are there sound contract controls in place involving select lists of vendors, no overstocking, clear authorization levels, tendering, firm specifications, audit access clauses, control over data variations, authorizations, staff register of interests, and valuefor-money reviews of key contracts? Are there sound payroll procedures covering balancing payroll to HR systems, clear procedures, and control over ghost employees? Are there sound resources and asset controls covering asset registers, accountability for each asset, separation of duties, monitoring staff outputs, and vehicle-usage control, as well as procedures for disposal of obsolete items and good inventory controls covering discounting, audits, theft, credit notes, stock movement, write-offs, and surprise counts? Are expenses and payments controlled covering monitoring, vouchers, sample checks, payment procedures, and checks between payment files and staff data, with a review of rounded amounts, false addresses, and duplicate payments? Are there sound security procedures with use of security guards and CCTV in line with the level of risk at each site in question? Is there sound financial management, including checks having two signatories, holding a small number of bank accounts, and banking spare cash, along with general financial regulations including rules for cashiers, receipting, analytical review, and the use of end–of–day ‘‘Z’’ tape and unannounced cash checks? Is there good decision control where there is an overall need for clear rules, clear procedures, evidence of outcomes, accountability for resources, supervision, monitoring, and people being motivated to behave well and perform?

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EXHIBIT

26.11


Are these controls tested on a regular basis using a professional

approach that results, where necessary, in action on new and/or improved controls and measures to implement them? ‘‘I’ll get straight into the final part on fraud risk management, which brings together and summarizes all of the things that we have already discussed this afternoon (see Exhibit 26.11). ‘‘Step 10. Design and implement a fraud risk management framework. Has the board set an overall ethos on fraud that deems it to be a threat that must be addressed? Has fraud been properly defined along with its impacts to include the view that dishonestly obtaining a benefit by deception and other means can bring down an entire business? Is there a serious corporate goal to raise awareness of company ethics, fraud prevention, and fraud detection amongst our people?

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Does the fraud policy make people responsible for fraud risk

management and encourage fraud prevention as part of everyday business? Is the fraud risk management program an important part of the wider enterprise risk management program? Does each process owner get fully involved in fraud risk assessments? Does the policy encourage managers to address fraud target areas such as IT security, outsourced bits, grants, tenders, credit cards, revenue, salaries, travel and expenses, property and assets, payments, web-based business, call centers, and overseas operations? Does the policy help our people to understand that rapid change, downsizing, and risk taking can all lead to more fraud occurring and to reevaluate risks whenever the threats change? Does the policy encourage brainstorming in groups so that risk assessments go over the organizational, industry, and countryspecific characteristics and define exactly what type of frauds hit people like us? Does the fraud policy help people decide how best to tackle risks with the right response including how the risk of corruption may be met by sound procurement processes; the risk to information can be met by IT controls; and the risk of financial misstatement requires controls over the financial reporting system.’’

Bill clicked again, and the slide show stopped. He was exhausted, and firing himself up for one last time, he said in an excited voice, ‘‘What we are saying is that fraud is ever-present, and we need to be on guard for emerging risks and concern ourselves with how they can be tackled. Horizon scanning and lots of detailed research using expert advice from reformed fraudsters, for example, can be used to help us strengthen our systems. Let’s see what we have covered (see Exhibit 26.12).

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EXHIBIT

26.12

Fraud Plan Summary

‘‘The way forward is to set up the basics of an important change project that you, as an audit committee, may want to monitor, and we have got a 100-point assessment tool that can be adapted and applied to making us better and stronger. My final model brings all the important aspects of fraud control together (see Exhibit 26.13). ‘‘We need to get to a workplace culture that understands the huge threat posed by fraud and is able to install controls that guard against this

EXHIBIT

26.13

The Final Model

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threat. This needs to happen from the top right down to the bottom of our business. Our people need to be alert to the signs that fraud may be happening and be able to react properly. Under this is a strong ethical platform set by the board that means we behave in a way that promotes our corporate reputation in the eyes of all stakeholders, from environmental policies to the way we treat our people and our local communities. The board, which sits right at the top of our model, needs to establish ways that it can gain assurances that our fraud control strategies are working so that it can send formal messages out to the general public. The arrow on the left means we need to make sure fraud control is embedded into our business and into the way we all behave and work. That’s the big picture that I want us to get to. This is the start of our journey, and with your help and support I can refine my ideas and get something to the board to rally round and run with. Ladies and gentlemen, thank you for listening to what has been a fairly detailed account of where we hope to go with this new project.’’ And with that, Bill was finally able to sit back down into his chair. Sarah looked around the group of members and said, ‘‘I agree that this is an important matter. It would be wrong to throw out a few questions and vote on the ideas today as we all need a break. I suggest we take away your proposals, and each of us will have time to look at them over the coming weeks. After that we can set this item on the agenda for next month’s full audit committee meeting and see what we want to do. Oh, and we will want a presentation on money laundering next month. At this stage I feel we would like to applaud your input, Bill, and encourage you to progress the project. But I do want the committee to get an idea of the types of frauds that are being investigated and the types of things that are coming from the whistle-blowers’ hotline. I want a report on these matters for next month’s audit committee meeting. And I want to talk with you privately, Bill, and get a briefing from you on any current frauds—that is, live cases that are on your table. Agreed?’’ A gentle murmur of agreement rumbled round the room, and Bill got up, excused himself, and left the room feeling happy that he had achieved quite a bit over his short time in charge of the fraud bandwagon. He

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walked out of the building and headed to the train station. Suddenly his mood changed, and an awful shiver ran down his back as he returned to the feeling that he was stuck in a tight moral hole. For all his talk about ethics, he had been less than forthcoming with the audit committee by failing to tell them that he was, at this moment, investigating the highly respected CEO of the company.

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c h a p t e r 27

SOME CLARITY AT LAST

J

ack sat in the diner and looked across at Snouter, who was looking particularly rough that morning. Snouter drained his coffee and went up for a third refill. Jack pulled out the copy of last night’s brainstorming session and studied the detail. Snouter returned to the table and grumbled, ‘‘Man I needed that coffee. What’s up for today, then?’’ Jack folded the paper and sat back. He answered, ‘‘I got another call from Bill last night. He needs us to do a presentation on money laundering. Or find someone who can.’’ Snouter wiped his mouth with the back of his hand and asked, ‘‘Why’s that?’’ ‘‘Because the audit committee wants it. Next month, that is. Oh by the way, Snouter—you know anything about laundering?’’ ‘‘Nah. Can’t say I do.’’ Jack squirmed at the thought of putting Snouter in front of the committee and was thankful that this was not going to happen. Snouter offered some advice, ‘‘You need a lawyer for that, or a copper. Some kind of detective who chases the bad guys’ cash and. . . .’’ Jack interrupted, ‘‘That’s not all. Bill says he’s under pressure to get the fraud project done and that we need to get back to New York. We got one day on this case, and then we fly back tomorrow.’’ ‘‘So what do we do?’’ 261

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‘‘Well. It seems that we just need to brief the CFO, make sure he knows that uh—that the CEO—whether there is anything that needs checking, and whether we tell the CEO.’’ Snouter seemed okay with this but suddenly said, ‘‘We had a plan yesterday. But now it seems Bill is pulling us out just like Georgina did. I say it’s a conspiracy as usual. The top dogs want us to shut up shop and stay away from their business.’’ Jack scowled and said, ‘‘Bill would not back down on anything that needs checking out. I know him.’’ ‘‘Like you know Georgina? You’re all friends, and you all stick together when things get rough. I know the score; just tell it to me straight.’’ Jack stared at Snouter and could not think up a good enough answer. Snouter shrugged his shoulders and started to get up. In a tense but quiet voice he said, ‘‘It’s okay Jack. I told you I know the score. I thought we had nothing, and you pressed me. Now that I think there’s something to look at, you want to back off. Both you and Bill. Well if that’s the case, then okay. Job done.’’ Jack grabbed Snouter’s sleeve and stopped him from leaving the diner. He said, ‘‘We’re going in on this. We’ll talk to the CFO, and if he wants us to investigate I promise we will do so all the way through. Whatever anyone else says.’’ Snouter smiled, and as he relaxed a little he said, ‘‘Okay. Let’s go see the man.’’ Jack had a rental car parked outside the diner, and the two men stepped into the vehicle and set off to the plush Orlando offices. They drove along the main highways with Jack concentrating on the road while Snouter looked at the many shops and sights that they swept past. Jack’s cell phone rang, and he flipped the answer button and threw it over to Snouter, ‘‘Answer that, it’s Bill.’’

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Some Clarity at Last

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Bill seemed hesitant on the other end, and Snouter had to convince him that it was okay to talk. Bill finally said, ‘‘Ask Jack if he’s found someone who can talk about money laundering yet. And I need you to report our case and see what we do with it. But more than that, I want you back here working on our fraud project. And in quick time. And call mama Bess, she wants to talk to you.’’ Snouter hummed ‘‘yeah, yeah, yeah’’ to all of this and seemed relieved when he could put the phone down. Jack asked, ‘‘What did the old man say?’’ ‘‘Just as you said. Report and get back, that’s all. Oh and I gotta call mama Bess for some weird reason.’’ Jack laughed, ‘‘Wow, you’re in trouble. Okay, use my cell to call her; it’s got Bill’s number in it.’’ While Snouter made the phone call using the same high-pitched ‘‘yeah, yeah, yeah’’ response, Jack had a vision of Bill sitting with Georgina and making sure that anything wrong was kept out of the light, a vision that did not fit with all he knew about these two people. But it would not go away. He searched his mind and tried to recall what he had seen in the brainstorm note that made sense of this case, and as before, he saw a distant light that was both elusive and undefined. He focused his mind and tried to locate the missing part of the jigsaw, and as the minutes passed, a vivid pattern of money going around in circles slowly started to come into focus. Then the spell was broken by Snouter, who said, ‘‘That bar looks great. Let’s check it out later eh?’’ Jack jumped a little and agreed, as this was the best way to stop Snouter talking. The car pulled up once again at the Orlando office of Bill’s great company. Jack managed to find a spot near the reception, and the two men went through the same motions as they had on their last visit— walking up to the receptionist, while smiling widely. Jack had insisted that Snouter perfect his ‘‘wide smile,’’ as the grizzled look, accentuated by his two-day beard, put most people off. Snouter grinned and looked even

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more scary than usual. Thankfully, the receptionist remembered them and got them to sign in as before. Snouter had an open access pass as part of his compliance role. He was allowed to turn up unannounced and check the books of any of the company’s local offices. They took the elevator and ended up in Davis Middleton’s office as his personal assistant (PA) took a phone call and gestured that they sit down on the sofa placed there for waiting guests. After what seemed ages, which was actually only a few minutes, Sarah, the pretty young PA, smiled and said, ‘‘Hello once again. What can I do for you?’’ Jack took the lead, ‘‘Sorry to come in off the street, it’s just that we need to talk to Davis again. Just to update him on something. Shouldn’t take long.’’ Sara frowned sweetly and said, ‘‘I’m so sorry. He’s been off sick for a few days now. He’s at home right now.’’ Snouter started to get up, but Jack remained seated and said, ‘‘What about the young fella. What’s his name. The guy who does the charity accounts. Well he looks after the charity funds.’’ Sarah’s frown deepened as she searched her memory for help. Snouter, now standing, said, ‘‘Giles, the tall, sneaky-looking punk. Sits in the far corner near the fire exit.’’ Jack grimaced, but Sarah simply started smiling again, ‘‘Okay. That’s Giles. He’s in. No, hang on, he’s out as well. He was in, but he had to take a package out to Mr. Middleton. So he’ll be on his way there. Or you could wait until he gets back later on?’’ Jack got up, stood closer to Sarah, and whispered, ‘‘We need to report something to Davis, so we have to go see him.’’ Sarah lost her smile and stared at Jack. Jack resumed his easy posture and said, ‘‘Give me his address, and I’ll tell him I got it from head office. Snouter has access to all company details anyway. True?’’ Snouter nodded,

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‘‘Yep. I could track it, but it’ll waste time and we need to talk with him urgent.’’ Sarah said, ‘‘Okay, here it is.’’ She wrote an address down and passed it over to Jack who said, ‘‘You’re an angel.’’ And the two men left the building and got into their rental car.

Bill sat back in his office and thought. He thought about his job and the fraud project that he was leading on. He thought about Jack and Snouter in Orlando and their investigation into a problem that was so undefined it was almost nonexistent. He thought about Georgina and their long history in the company going back over many years now. As he thought, he flipped out a card from his wallet and then studied its detail once more. He hesitated for a few minutes and then picked up the phone. He was about to dial the numbers but then placed the phone softly back into the cradle and took out his cell phone instead and punched in the appropriate numbers. When the call had gone through, he asked, ‘‘Detective Delgardo?’’ ‘‘Yes,’’ came a distant voice. ‘‘This is Bill Reynolds. I need to talk some more.’’ ‘‘Okay. When?’’ ‘‘Today?’’ Bill suggested with a faint hope. ‘‘Okay.’’ ‘‘Not at my place. The bar we met last time, Freddy’s bar.’’ ‘‘Okay. What time?’’ ‘‘Lunchtime. One o’clock.’’ ‘‘Okay.’’ And the line went dead. Bill did not know much about fraud. But he did know that when you knew about a possible offense or suspected that there was some kind of offense that may have been or may be committed, then you had to report it. Otherwise you were culpable. So he

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would have to tell Delgardo everything he knew and take it from there. End of story. At five to one Bill sat in the bar and looked at the driving rain that had been flooding down for at least an hour. Delgardo walked in just after one. He pulled off his wet jacket and placed it over the back of his chair. He wiped off the drops of water running down his cheeks and sat down opposite Bill. A waiter popped up, and Delgardo ordered a cheese wrap and a soft drink. As the waiter walked away Delgardo said, ‘‘Good to see you again, Bill. How’s your friends, Jack and that scruffy guy?’’ ‘‘Good.’’ Bill said, ‘‘Both good. I guess that’s what I want to talk to you about. The others, Jack and Snouter, are back in Orlando checking something out, and I need to let you know about it.’’ ‘‘What’s that?’’ Delgardo asked. ‘‘It’s the problem that started with Dhiru. The guy who got shot the other day. He reported some problem with money coming in for a charity, and as we were checking out his story, he was hit.’’ Delgardo was about to speak when Bill continued, ‘‘I don’t think he was hit by a relative. I think it’s tied up with him being a whistle-blower.’’ Bill explained how Jack had got information that contradicted the story told by the elderly neighbor who had gone away. And that the Portugal link had ended up with a fire that had destroyed all the charity documents. And that his CEO had taken his team off the case and it looked strange, like she did not want it checked out. Delgardo listened carefully but did not take any notes. He eventually said, ‘‘When your guys get back from Orlando, come see me and give me a report on all that they found. Meanwhile, I’ll take it up with my people and decide where to go with this. It’s better for you to complete your work, and then we can see where we stand.’’ Bill seemed relieved to have gotten this information out in the open. ‘‘Great,’’ he said, ‘‘I want to do the right thing. By the way, Detective Delgardo, do you know anyone on your side who knows about money laundering?’’

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Delgardo smiled and sat back as his meal was brought to their table. He thanked the waiter, and after taking a bite from his wrap he said, ‘‘I’m only smiling ‘cause you’re looking at him. I’m on homicide now, but I used to cover narcotics and money laundering. I’m no expert, but I have seen some action over the years.’’ Bill looked surprised, ‘‘How does it work?’’ Delgardo made a quick effort to finish his meal, which did not take long, and then said, ‘‘Varies. People have their own way of doing things. Big-time gangsters get hold of lots of money in quite a short time frame, and it’s dirty money. It’s cash connected with criminal activities. So they need to turn it into clean money. That is, funds that they hold that pretty much seem legal and that they can use to fund their lifestyle. Or fund further criminal activities. So they either have a legit business that is a front for their efforts, or they use a kinda network that makes bad money good.’’ Bill tugged his ear trying to understand this concept. ‘‘But how does it work—say, the network thing?’’ Delgardo checked his watch and continued his explanation, ‘‘Again, varies. But say it’s drug money and there are regular bundles of cash coming into the hands of the dealers. They may hand it over to a collector, and this collector passes it over to some kind of coordinator. You’d be shocked to know how many people walking round New York are carrying bags containing huge amounts of cash. Anyway, this coordinator holds the money and then passes it through the money laundering process, which, if big, is run by a kind of superbrain. Sounds crazy, but it can work like that. The superbrain knows who gets what money and where the money is held and what accounts it gets paid into. Sometimes this cycle is like a bartering thing, where the cash is used to buy stuff that is part of a legit business. Records are kept, and money goes back to the dealers and handlers or gets paid into an overseas account that they control. And the agents—say the collectors, coordinators, and this super brain—get a cut, a 5 to 10% commission. And everyone is happy.

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Apart from the honest, law-abiding public. And whoever else gets ripped off and damaged by illegal drugs. ‘‘Somewhere along the way there is a legit, or what seems like a legit business in place. Most launderers use overseas accounts to break the chain that we follow when investigating these issues. Or they pass through countries where things are pretty slack and it’s hard to get inside information. Drug dealers, terrorists, and international crime rings all need to move their money around to keep ahead of the authorities. They have their own secret language with coded text notes or discreet cell phone messages. Many of them write down stuff in hundreds of dollars, but it really represents hundreds of thousands of dollars. It’s tough for us, but we mostly aim at disruption where we break into a ring and try to confiscate as much of the money as possible and so lower the returns on this kind of criminal activity. Prosecutions are hard, except for offenses such as tax evasion or breach of international banking rules. Is that what you wanted?’’ Bill felt dizzy with all this information, and there was a short silence before he managed to say, ‘‘Yeh, guess so. It’s all pretty complex.’’ Detective Delgardo stared at Bill for a second and then took out a note pad, tore out a sheet of paper, and laid it flat on the table, ‘‘Look here,’’ he said, ‘‘Let me draw it out (see Exhibit 27.1). EXHIBIT

27.1

Money Laundering Model, Draft 1 Drug Dealers Cash Collectors

Money Laundering Coordinator Cash in

Laundered in Legit Business Cash Back to Top Drug Barons

Commission

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‘‘This is one case we dealt with. The collector got money from some kind of widespread drug ring and passed it over to the coordinator. This guy paid it into what was a dormant company, set up for money laundering. This company transferred the funds into a Middle Eastern bank and then into the accounts of the fraudsters, taking out their commission first. We caught one of the collectors traveling by foot across downtown carrying around three quarters of a million dollars in a blue bag. We trailed him. He got the bag to an arranger who counted out the money and worked out what accounts to send it to. Most of it went to the dormant company and then got transferred to a Swiss bank account. The players communicated by text and recorded their deals in a rough notebook, with coded names and what looked like small numbers that needed to be rounded up by 100 thousand dollars. We ran forensic traces on the cash, and most of it showed contamination by heroin, way above normal level.’’ Bill examined the drawing and asked, ‘‘What is a dormant company?’’ ‘‘Well it’s a front. It uses no real banking services, pays no bills, and doesn’t really trade, apart from passing monies to and from various sources. But big launderers are getting real smart, and they try to use real companies that look good to hide their transactions.’’ Bill scratched his ear and said, ‘‘That’s the trouble with scams. No one really loses.’’ Delgardo slapped his hand down on the table and said in a soft but firm voice, ‘‘Not so. When I left the team we were dealing with a scam involving counterfeit meds. Do you know how many people suffered as a result of taking medication that should have been helping them but was in fact fake? Some of them died. . . .’’ Delgardo looked around the bar and suddenly felt that he was saying too much in what was a public place. He lowered his voice even further and said, ‘‘If you have any actual knowledge or some suspicion, you gotta tell us, Bill. Don’t get involved, because you may alert people and be accused of

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tipping off. If you deal with large sums of cash and you might end up facilitating the acquisition or retention of money that comes from criminal activities, we need to know. What the crooks do is send the money round and round until anyone looking at it feels dizzy, and they win.’’ Delgardo checked his watch again and stood up before he looked around and said softly, ‘‘This is no joke, Bill. Launderers are serious people, and if you get in their way they will remove you. Got it? I’ll look into what you say about the old guy and his witness statement about Dhiru and check out a few other things here and there. For the time being, you finish your work and do a report, but make sure you let us take over if there’s anything there. Do not get into something that’s going to get deep, my friend.’’ And with that, he turned and was gone. Bill’s cell phone sang, and he pushed to accept; it was a message from Jack’s cell phone, ‘‘Bill, Jack here. Gotta be quick, the phone battery’s fading fast. We’ve checked the office, and there’s no one in really. We’re off to check the CFO at his home in Altamonte Springs and report the problem. I’ve e-mailed you a note on the thing that me and Snouter did in a sorta brain dump. Anyway, that’s that. Talk later.’’ Bill got up and headed back to his office. He needed to get Jack’s notes and bring his own ideas together, to make sense of this whole predicament.

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c h a p t e r 28

GETTING DEEPER

J

ack drove over to an address in Altamonte Springs, which seemed to be the home of Middleton, the company’s chief finance officer. It was about a half hour out of Orlando, and as he drove he thought about the notes that he and Snouter had made about their investigation. He pulled over and stopped outside a fairly small, by Florida standards, shopping mall. Snouter perked up and said, ‘‘Drinks, then?’’ Jack got out of the car and said, ‘‘Snouter, give me two seconds.’’ And Jack walked over to a small shop called The Friendly Internet Cafe´. He went over to the desk and pulled out the paper that contained the diagram of the case. A tall teenaged girl smiled and showed her huge white teeth as she asked, ‘‘Can I help you, sir?’’ ‘‘Yes. Please scan this paper, and e-mail it to my friend.’’ After some scuffling around with paperwork, e-mail addresses, and a scanner, the task was done, and Jack pulled out his cell phone to talk with Bill. Voicemail kicked in and Jack said slowly, ‘‘Bill, Jack here. Gotta be quick, the phone battery’s fading fast. We’ve checked the office and there’s no one in really. We’re off to check the CFO at his home in Altamonte Springs and report the problem. I’ve e-mailed you a note on the thing that me and Snouter did in a sorta brain dump. Anyway, that’s that. Talk later.’’ 271

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He stepped back into the car, and as the evening closed in and the road lights were trying to break into the dark shadows of the fading light, they were back on the road to Altamonte Springs.

Bill sat in his office, printed out the diagram that Jack had e-mailed him, and stared at it (see Exhibit 28.1). Bill thought, so Georgina sets up the charity thing and then employs a man who is not going to rock the boat, Snouter. Georgina calls them off the investigation and so far they get nowhere. He is stuck firm in the fraud awareness project, and this is seen as the priority. Bill unfolded the paper from Delgardo and looked at the diagram that represented a pretty standard money laundering scheme. He spotted two names at the bottom of Jack’s printout—the two ex-directors who were now in charge of a car company and who were the main charity donors. Bill picked up his cell phone and sent a text on to Delgardo which read: Hi. Bill Reynolds again. I know you won’t have done anything yet, but I now have two names of the donors we talked about, and they are directors of this car company—The Deraisu Car

EXHIBIT

28.1

Fraud Investigation Notes, Draft 2

Dhiru—blows the whistle and is shot Orlando—income received for Charity Income goes to Portugal

Accounts go back to Orlando

Portugal visit and records burnt No resources to investigate

Accounts look wrong No real case to answer

From outta Mocco? Money in—charity gets money—accounts wrong—Why? CEO Implicated

The Deraisu Car Export Company

DANGER

James Finnastood & Chad Shourn

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Getting Deeper

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Export Company, Dubai. Names are Jim Finnastood and Chad Shourn.

For a long time Bill folded his fingers and stared at the two sheets of paper as the room became darker, and with no light on, the papers turned into shades of gray. He suddenly looked up as he became aware of a figure standing in front of him, and he felt a shiver go through his body. Georgina stood in front of him with her hands placed in her jacket pockets, and she simply stared at Bill as though she was looking at him for the first time.

Jack stared at the road while Snouter read directions from a small road map. Snouter squeezed his eyes to read the fine print and then said, ‘‘Not far from here. Fourth turn on the right, then along the main road and three blocks down.’’ Jack counted off the exits until he got to his turn and swung the car off as directed. He turned into the main strip running down Altamonte Springs and slowed down. He said, ‘‘We find Davis the CFO. Tell him what we think is happening. Or that we think there is something that needs to be checked further. We tell him we can’t tell Georgina until she’s in the clear and then we shoot off.’’ Snouter picked up the cell phone and said, ‘‘Your cellie’s dead—batteries gone,’’ and he flipped the phone over to the back seat. Jack ignored this and continued, ‘‘When I say we shoot off, I guess we’ll have to stay over until tomorrow and then get back to New York.’’ Snouter watched the side roads as they passed each one and said, ‘‘Next turn, I think.’’ Jack moved the car over and started towards the house address that they had written down earlier that day.

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Georgina stood in front of Bill, and she slowly drew her right hand out of her jacket pocket. Before her hand could come out, the door opened, and Delgardo came in and stood watching the two figures facing each other in the now dark room. Bill grimaced as Georgina flashed out her hand and Delgardo stepped silently forward as Georgina placed a piece of paper onto Bill’s desk. Bill picked up the paper, and Georgina said in an angry voice, ‘‘I need to know what’s going on. I got this in the mail today.’’ Bill glanced at the paper, and Georgina swung round and said, ‘‘Who the hell are you? And. . . .’’ Delgardo switched on the light, held out his police badge in front of Georgina’s face, and said, ‘‘I got your message, Bill, and came straight away. We need to talk.’’ Georgina froze and was about to say something when Bill stood up facing his two guests and said, ‘‘Let’s all sit down. Please.’’ They did so, and as a nervous silence ensued, Bill studied the letter.

Jack parked the car in the driveway of the CFO’s house. A top-of-the-line green jeep stood in the driveway alongside a large silver Mercedes. Outside it was fairly dark, but street lights helped them see the target address, and a dim light shone over in the house. Snouter sniffed as though the luxurious house offended his view of life. Jack eased himself out of the car and looked at the house. Pretty nice. It was set on two levels, painted white but glowing gray in the shadows with lots of large glass windows on each level. Jack rang the door bell. It was a quiet area with the next-door neighbors some distance away, and the sound of the doorbell traveled across the drive. Nothing happened. Snouter stood some paces behind and said, ‘‘If the guy’s not well, he ain’t gonna answer the door.’’ Jack looked up at the windows and wondered what to do next. He walked back to the car and said to Snouter,

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‘‘We just need to report this damn fraud, and if he isn’t around then we can’t, can we.’’ Snouter did not answer and simply stood at the passenger side waiting to be let in. Jack stood looking back at the house, his brain working hard. Snouter looked at his profile in the faint light and said, ‘‘Oh no. You’re not onto something else, are you—please say no.’’ Jack got into the car and fired the engine, and as soon as Snouter got in they moved off. They drove a half mile down the road, stopped, turned around, and moved back slowly towards the house they had just come from. Jack stopped the car down the road from the house and switched off the light. Snouter said, ‘‘Jeeze. . . .’’ And Jack interrupted, ‘‘I’ve seen both the cars in that drive before, at the Orlando office. My guess is one belongs to the CFO, and the other belongs to that finance officer, Giles. We need to sit tight on this.’’ Snouter settled down in his seat and said, ‘‘Last time you said that someone got shot. What do you want with Giles? He’s no good, like his dad. I should know; I did a job for Giles senior years ago.’’ Jack turned to Snouter and was about to answer when he saw that Snouter had closed his eyes and was either asleep or was just about to drop off to sleep. Jack could just about see the house from where he was parked, and thankfully, there were other cars parked along the road, which meant they did not stand out. Jack checked his cell phone and saw that it was really dead. Snouter turned and opened his eyes for a second, and Jack said to him, ‘‘How come you know Giles’s dad?’’ Snouter mumbled, ‘‘Long story. I was on a job for him following people and that sort of thing. It all looked a bit weird. Anyway. I crashed my car and got fined for drunk driving, and I was bounced off the job.’’

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Jack scratched his head, ‘‘That’s a coincidence. You working with the man’s son.’’ Snouter smiled and said, ‘‘Not really. It was Giles who recommended me for this job. He set me up and told me what to say at the interview.’’ Jack shivered at this news, and just then the jeep’s engine purred and it pulled slowly out of the drive, headed towards the highway. Jack followed at a distance and made sure he changed lanes and kept a low profile while Snouter appeared to have gone back to sleep. The jeep moved carefully in and out of the traffic and seemed to be headed for a sign posted ‘‘Cocoa Beach.’’ After a while the jeep pulled up to a house set just on the main strip that ran behind the beach, not unlike the CFO’s house but much bigger. It was set in prime real estate and looked like a mini version of the White House. This time Jack could not park close to the house as he would stand out in this quiet area. He drove past the jeep as it swung into the driveway. Jack stopped the car and turned around, and as he swept past again he saw the tall figure of Giles jump out and head for the front door of what appeared to be his house. Jack turned around and stopped the car down the road so he could just about see the front driveway he had twice driven past. ‘‘What next?’’ he thought. Actually he had achieved nothing. He had driven to the CFO and now had driven to the CFO’s assistant and that was that. What to do next? Report to this Giles guy? Or just leave it alone? Snouter stirred and woke up, ‘‘Where are we?’’ Jack did not answer. Snouter asked again, ‘‘What’s happening?’’ Jack finally answered, ‘‘You know, this is the weirdest case I’ve ever worked on. There is no case and no one to talk to, and we’ve been told to get back to base. It’s like a wild goose chase.’’ Snouter smiled,

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‘‘Told you that on day one. Why do you think I left it alone. Let’s get back to the hotel and call it a night.’’ Jack sat still and thought. Suddenly, a small red sports car pulled out of the driveway and swept away. Jack gunned the engine and followed as Snouter’s head flung back into his headrest before he swore loudly.

Bill read the note that Georgina had thrown down on the table, while Delgardo listened carefully and Georgina looked through the window. ‘‘It’s from Dhiru,’’ Georgina said, ‘‘and it’s been sitting in my in-tray for ages. He writes about his concerns that this charity account is being used incorrectly, and he wants an investigation. He says he’s already told Snouter, but nothing has happened. It says here that he’s been threatened and he is going to quit the country. He says he’s going back home, but he wants to tell the CEO about it because he believes in honesty and honest businesses. That’s about it.’’ Delgardo picked up the two papers on Bill’s desk and said, ‘‘Those names you gave me. That’s why I came around. It’s bad news. One of ‘em is suspected of being associated with a crime syndicate— heroin and cocaine trafficking. He runs the money side, but the Florida police have nothing concrete on him. But they tell me that he runs with some pretty bad guys and he’s a known associate of at least one big drug dealer.’’ Bill looked at Delgardo and then at Georgina. Delgardo read the message and said to Bill, ‘‘She’s in the clear. As soon as I got your message I checked every angle, and your CEO’s in the clear.’’ Bill looked at Georgina and asked, ‘‘Was it you who employed Snouter?’’ Georgina did not usually take questions from junior staff, but she seemed in a daze and answered quickly,

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‘‘No. He was recommended by the senior finance officer from the Orlando team. He brought him in, and me and Davis just okayed it.’’ Bill seemed surprised and asked, ‘‘But why take us off the investigation.’’ Georgina said, ‘‘What investigation?’’ Bill stopped. She was right. They had not announced any investigation, and Georgina was not to know about their concerns. Delgardo said, ‘‘Who’s this senior finance guy?’’ ‘‘Georgina said, ‘‘Danielson. Giles Danielson. He runs the charity accounts. I used to talk to him when I ran the Sudanese charity drives. But that’s scaled down now, and he processes donations from the two fellas who used to be on the board. They both resigned awhile ago. I think they felt bad because they didn’t make any donations when I first set up the charity work, but when it stopped they said they wanted to take over the funding, since their new company was doing so well. I said they could use my system as long as it was kept outside of our company accounts. Giles was supposed to take care of that. The CFO, Middleton, didn’t like it, but these two donors threatened to stop their cash donations and blamed it on us. So we let them do their thing and keep it low-key.’’ Delgardo listened to all of this and said, ‘‘I checked that car company too, and I’ve had bad reports back. As a foreign business, it’s outside our jurisdiction, but my overseas contacts tell me it’s a secretive set up that just popped up from nowhere.’’ Delgardo grabbed a pen and added some lines to the money laundering model that he had drawn for Bill (see Exhibit 28.2). Delgardo continued, ‘‘I think it’s a big money laundering scam. Drug money comes in and is collected. It goes to your company as donations and is sent out to a bank account in Portugal. The charity is a front. They use the money to pay bills for the supply of luxury cars to the car company, and all the sales money comes in as huge profits. They probably pay off the tax man in whatever

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28.2

279

Money Laundering Model, Draft 2

country the company is registered in, and most of the money goes to pay off the dealers as laundered funds. Your finance guy is our superbrain, with or without help from your CFO.’’ Bill froze; he then said, ‘‘My people, Jack and Snouter, are about to tell Middleton about this problem.’’ He picked up his cell phone and punched Jack’s number. Nothing. The phone was dead. ‘‘My people are walking into danger,’’ Bill said. Delgardo flipped out his phone, ‘‘What’s your office address? I’ll ask Florida to check their end for further information.’’ Bill logged onto the system and pulled off the address and said, ‘‘As long as they stay in the office I guess they’ll be safe.’’

The red sports car was soon on the interstate and sped along like it was on fire. Jack was finding it hard to keep up and stay within the speed limit. He managed to get his car behind the sports car, but in a different lane, and for a while they cruised along headed south. As Jack thought about

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changing lanes to sit behind this firefly, he saw the green jeep sweep past him and sit tight behind the sports car. Then the two cars flew along, one after the other. Jack changed lanes and sat behind them as they moved off into the night. As the sports car changed lanes, the jeep followed, and Jack managed to keep them in sight without getting right behind them. Snouter held onto the door and grimaced as though the car was about to drop over a steep cliff. He could not speak but dearly wanted to find a way of convincing Jack to stop. Snouter was about to scream out loud when the jeep suddenly pulled into a large parking lot, and Jack could see the red sports car, parked up in a bay in the same parking lot. The jeep blocked in the now silent sports car. It was fairly dark as all the shops were shut, and the cars looked like mere shadows. Jack sat in his car and dimmed the lights. The jeep’s driver jumped out of his car, and a tall figure that must have been Giles marched over to the sports car. Jack’s dimmed lights threw their glow over Giles, who held out his right hand in a shooting motion that could mean only one thing. Jack sounded his horn, and the figure jumped back and swung around, and three shots rang out. Snouter jerked and slumped back in his seat, and Jack jumped out of his car and rolled over twice into the dark shadows of a hedge. The tall man walked back to the red sports car with his gun hand held out straight, and Jack screamed out with all his might, ‘‘Giles. Stop, right now. It’s over.’’ The gunman froze as if undecided. He then ran back to his jeep and sped off with tires screeching and smoke spewing out of the muffler. Jack looked at Snouter, who was quite still, and then swung around to the red car as its engine fired up and its beam threw a strip of light across the dark parking lot. Jack ran over to the car as it turned to point towards the exit. The sports car stalled, restarted, and then moved off. Jack ran alongside it, placed a hand on the door, and looked though the window. He saw staring back at him the Portuguese lady who owned the restaurant that had burned down. Pazeta, the same lady who had slapped him across his face, just a few days ago. Jack fell back as the car speeded up and he rolled over several times. The car worked its way back onto the highway and disappeared.

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Jack got up, winced as he felt a pain in his right knee where he had fallen down, and limped back to his car. He saw that one of the bullets had hit and flattened one of the front tires. Snouter was lying sideways across his chair with his head cradled by the car’s side window. Jack opened the driver’s side and eased his friend back into his seat. He checked his pulse and felt a faint beat. No cell phone, no one in sight, car tire’s flat, and no cars passing through this parking lot. Jack felt a cold trickle of sweat run down his back as he asked himself; what the hell should he do next? He got out of the car, walked over to the largest shop, picked up a heavy flower pot, and hurled it though the shop window with an almighty crash. A shrill alarm rang out, and Jack waited. In less than five minutes a police car came through and stopped next to Jack’s vehicle. After a rapid explanation, the paramedics arrived and Snouter was on his way to receiving much-needed emergency medical care.

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c h a p t e r 29

FRAUD RISK AWARENESS

B

ill and Jack sat in Georgina’s office and listened to Detective Delgardo, who was enjoying the task of recapping the case. He said, ‘‘You just stumbled onto this entire set-up. Georgina set up the charity thing, and this was fine. People donated spare cash, and you had—what was it?’’ Georgina answered, ‘‘Auctions and social events. All kinds of things to raise cash for Sudan.’’ ‘‘Right,’’ Delgardo continued, ‘‘So this goes along okay but, as with most things, it starts to fizzle out. I can tell you now that one of your ex-directors, Jim Finnastood, is tied in with several known drug traffickers, big time.’’ Georgina interrupted, ‘‘Yes. I remember Jim—a loud, aggressive man. We had to get rid of him eventually.’’ Delgardo seemed not to like the constant interruptions and quickly went on, ‘‘Well he spotted that your company shifted large amounts of cash with no questions asked, and this is what he wanted for his friends in the business. You know, druggies. Anyway, he starts giving so-called charity money to Sudan. But it’s not so simple. He needs to buy out Giles for it to work. So Giles takes the cash and sets up a new Portuguese connection in the Algarve. The Portuguese restaurant is both a real business and a money laundering front, and the office upstairs is where accounts are fabricated and money is transferred. Okay so far?’’ 282

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All three present nodded their agreement. ‘‘Okay, well local gangsters were told to burn down the restaurant because they thought you were getting too close, Jack. Did you know that Giles had a camcorder set up in the restaurant in Portugal that was hooked into his Internet computer at home? He logged on and saw Jack talking with the manager. Anyway, the cash is used to buy luxury cars for the company set up by Jim Finnastood and Chad Shourn and pay back the main drug trafficker. They ship these cars out to parts of Africa and the Middle East and make their money that way. Complex, but simple at the same time. Davis Middleton, your finance chief, seems to have challenged Giles about the arrangements. ‘‘Anyway, Giles puts pressure on him because he’s implicated by allowing the scam to go undetected. It seems that Middleton is not really crooked. He just got in too deep and could not find a way out. It’s always sad to see a good guy gone bad. Eventually it gets too much for him, and he cracks up and goes off sick, but Giles still has him under wraps. He threatens him, and this drives him to a nervous breakdown. Anyway, we’re still checking on how much he knew and how far he was tied into this scam. Giles is now on the run, although he’s been spotted in Mexico, and he’ll soon be caught and sent back. ‘‘We’ve picked up Pazeta at the airport trying to get back to Portugal, and she’s agreed to give evidence. Seems Giles asked her to come see him in Orlando, but he was actually after her because he thought she had told Jack whatwashappeninginPortugal.Hetriedtosilenceher,andaslongashe’son the run, Pazeta’s as scared as hell. We believe Giles paid someone to shoot Dhiru, and we’re working on several leads. We’ll get Giles pretty soon, and the FBI is talking with the Mexican authorities about him. The thing is, you guys came to me, and that made my job easier. Many companies find a problem and try to hide it. And that doesn’t work in the end, because everything gets muddy. And everyone starts to look shady.’’ Georgina turned to Bill and said, ‘‘Yes. That’s the problem; when a shadow hits one of us, it hurts all of us. Then we end up not trusting each other, which is sad. Anyway, how’s Snouter doing?’’

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Bill looked away and said, ‘‘I got a call from the hospital, and it seems that he’s out of danger. But he’s lost a kidney. Actually, he’s not in such bad shape, and he should be home soon.’’ Jack laughed and added, ‘‘The only problem is he’s not allowed to drink again, ever. You know, Bill’s mother-in-law called him when he was in Orlando and begged him to quit drinking, and now, due to his condition, he has to stop anyway. I think you’ll find a brand-new Snouter when he gets back to work— alcohol free. His wife was back at his side as soon as she heard about the shooting. And since he can’t drink anymore, she says she’ll stick with him.’’ Georgina stood up, ‘‘Many thanks, Detective Delgardo. It was close, but we got everything cleared up in the end.’’ Delgardo stood up, shook Georgina’s hand, and left the small group with a slight wave and a rare smile. Georgina sat down and glanced at the two men in turn. She looked tired. She rubbed her eyes and blinked several times before she said, ‘‘You two have a big day coming up. Our first fraud awareness event for the senior executive team. So I’ll wish you luck. I’ve got quite a headache, so I’m getting off early tonight.’’ Bill and Jack stood up and left the room. Jack smiled, while Bill looked somewhat thoughtful.

Jack and Bill sat in the training room and waited for the senior executive team to arrive. Jack thought about the last time he had run the fraud session with Snouter. When they had told the group old stories about fraud and warned them not to engage in wrongdoing and that they needed to report any suspicion of wrongdoing at once. Snouter had mumbled away, and although some of the attendees had looked bored, no one had complained. But this was different. They had worked up a brand-new presentation, and this was how it should be done. Bill flipped through his

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29.1

285

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presenter’s notes and thought about Georgina. He recalled the look on her face when she realized an investigation had been conducted and that she was thought to be in the middle of it. He had actually thought she was implicated. People entered the room and found their seats. Twelve senior figures in the company settled down over the next five minutes until all the chairs were occupied. Jack looked around the room. They already looked bored. Bill stood up and flipped on the on-screen presentation (see Exhibit 29.1). ‘‘Good morning, ladies and gentlemen. Welcome to the first of our fraud update seminars. May I introduce my colleague, fraud consultant Jack Durham. I have met some of you, but for the others, I am Bill Reynolds, in charge of business planning and projects. May I ask that you introduce yourselves for the record.’’ With that, the attendees in turn gave their names, announced their job titles, and said a little about their roles at work. Bill listened carefully, and when they had finished, he stood up again and clicked the next slide (see Exhibit 29.2). ‘‘This is what Jack and I need to cover this morning—a background to fraud and the fact that it represents a clear and present threat to all organizations in all fields. I will also talk about the benchmarking work that tells us where we stand in terms of fraud prevention and control. I want to make clear the project that we are embarking on and then deal with how we all fit into the initiative and need to rally around and engage with it. I will close with the next steps and further work required.

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29.2

Fraud Coverage

But let me say our aim is to get you involved in making fraud control work a reality and not to present just another boring corporate policy.’’ A large man, whom Bill knew as the head of marketing, asked, ‘‘What about the money laundering scandal that has affected us; is this why we want to be seen doing something?’’ Bill laughed and responded, ‘‘Yes and no. We started on a review of the fraud policy before the scandal hit us. But this is what I mean by clearing the air. We need to talk about the case that you will have read about in the papers. Jack would you oblige?’’ Jack remained seated and took over the lead, ‘‘This company was implicated in a huge money laundering scam that came from the finance office in Orlando. A young finance officer was tied in with some pretty scary people and used the company to channel funds from drugs trafficking. The cash came into Orlando and was sent straight abroad as part of a complicated scheme to turn drug money into legal funds. In fact, the cash never hit our main accounts but was sent straight to a different company by using our systems as a way of distracting the attention of the authorities both here and abroad.’’ Henry Dillinger, the Head of Procurement said,

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‘‘So it falls outside our business, and so what? Does it not mean we are in the clear?’’ Jack answered, ‘‘Not as such. Your employee has been charged, and the courts may well feel that the company is culpable, because an employee acts on behalf of his or her employer. Moreover, if it is found that you took no useful steps to ensure that the risk of this type of problem was properly mitigated, then you may well be found culpable. The CFO is on long-term sick leave and has suffered a nervous breakdown. And the company’s reputation has been dented, because the public sees us as part of the scam, not as innocent bystanders. Be clear, this has hurt everyone a lot.’’ Bill stood up, ‘‘That is what we mean by clearing the air. If you don’t take fraud seriously, it can cause much pain. We run what I consider to be a pretty normal company, and in that respect, as with many companies, we have a pretty poor approach to fraud control. This scandal told me what was wrong with our current approach.’’ Bill clicked the next slide (see Exhibit 29.3). ‘‘Let me give you a quick jog through these very real factors: No dynamic fraud policy. We had a policy that was not documen-

ted, not publicized, and had not been reviewed for many years. Poor whistle-blowing facility. We did have a whistle-blower, but he hit a brick wall every time he tried to report his concerns. A brave EXHIBIT

29.3

Fraud Problems

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man died for what he saw as the need to report his worries, even when it was dangerous. A ‘‘won’t happen to us’’ approach. We were not alert to the risk of fraud, period. A ‘‘no go’’ area. The charity account used in the fraud was blocked from scrutiny, and we accepted this crazy situation. Weak compliance. We had one guy looking after nearly 100 local offices and three main corporate sites as well as overseas operations. ‘‘Our fraud control was not fraud control, and I suspect that many other companies and government organizations are in much the same position.’’ Gillian Howsky, the Head of Human Resources, caught Bill’s eye as she said, ‘‘But this is terrible. The fallout’s been heavy. I’ve started to check our staff records. Did you know that this finance fella, Giles, had a drug conviction last year?’’ Jack stepped in, ‘‘We know now. But people always want to trust each other and don’t realize that things can go wrong. People in sensitive positions need to be accountable, and controls need to be set up that don’t depend on the person being trustworthy all the time. I know that Giles fell in with the wrong crowd, but when he first joined the company he was fine. So you have to be alert and make sure controls work properly.’’ Henry Dillinger asked, ‘‘Are we in trouble? I mean do we get penalized because we allowed the fraud to happen?’’ Bill thought for a minute and asked, ‘‘What do you say, Tim?’’ Timothy Lockheart was the corporate attorney who had joined the company a few months ago. He replied, ‘‘Okay. Well a corporate entity can be prosecuted, and the authorities will want to look at the way we behaved and the way we met our responsibilities to conduct our affairs properly and protect out stakeholders’

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interests. I don’t want to bore you with too much detail, but our position will be influenced by the nature and seriousness of the offense, which is what’s called the pervasiveness of wrongdoings in how far they reached inside the company. The extent of collateral damage, say to shareholders, would also be assessed. We would have to divulge previous incidents and whether we had learned from past mistakes and whether or not we made quick voluntary disclosures. Our carrying out our own internal investigation helps, as well as taking a firm line with our staff. The final issue is the strength of our corporate compliance program and code of ethics, in that good companies always try to police themselves.’’ The energy level in the room was rising as the delegates realized they were each expected to make some sort of contribution to the event. Bill sensed this spark and quickly flipped to the next slide (see Exhibit 29.4). ‘‘Okay let’s get to the next bit—Background to Fraud. This is what fraud is about—deception for gain. It’s a wide concept that covers a lot of ground, but there are some ingredients that we tend to find in most corporate fraud. Let’s run through them. Time and place. People need access, and they need to be in place to

perpetrate fraud. Some say they need time to consider our systems

EXHIBIT

29.4

Background to Fraud

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and work out how best to get around the controls. Which is what Giles, our finance man, did. Inclination. People need a reason to go bad, to commit fraud. Sometimes they are just built that way, but other times the pressure to take a shortcut to gain a benefit is so great. And the reasons why they shouldn’t may be flimsy or not made clear. Let me tell you that Giles had bought himself a multimillion dollar property by Cocoa Beach in Florida. Method. There needs to be a precise approach to attacking our systems and making off with the goods. Some say the fraudster needs an intellectual capability and technical ability where the fraud is complex. Excuses. Most frauds are covered up so that they can continue for some time or, for that matter, never be found out. ‘‘Our friend was at the right place to commit fraud and had an excellent excuse for receiving funds and transferring them abroad. Was he a bad guy? The police think so, since he has been arrested and is being charged as we speak. There were so many clues that something was wrong. No one could look at the charity accounts apart from this finance officer. He even used to take colleagues out on his cruiser moored down on the Florida Keys, and no one ever wondered how he could afford it on his salary. Meanwhile, he owned a million-dollar ranch in Cocoa Beach. What I’m saying is that fraud is serious, because rather than arguing that all these things need to be in place for fraud to happen, we could turn the tables and say, ‘‘if these things are there, fraud will definitely happen.’’ So it’s our job to stop it in its tracks. Nothing less will do.’’ Fredricka Hennesy, who ran the information systems, felt it was her turn to make a contribution, ‘‘I used to work downtown running the information technology support for a large retail outfit. I heard that some of their top managers were taking bribes from vendors, and it was a sort of well-known secret. I did say I could run a program that would tie up new contracts, losses on value, and manager authorizations to see if there was a link, but no one

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wanted to know. In fact, I was seen as a troublemaker for a while until I left to come here.’’ Tim Lockheart got his views in, saying, ‘‘I’ve seen this happen before. Many companies don’t want to find fraud, and they don’t want to report it if it happens. But the directors have to maintain adequate accounting records and have to report on internal controls, and reporting is about doing the right thing and recovering any losses as a deterrent to would-be fraudsters. But they just don’t want to report to the regulators, law enforcement, or even their own insurance company. Some big companies don’t even have a real policy on reporting irregularity. They just dismiss the employee in question and leave it at that. Or they go for civil recovery for an early end to the problem. Reporting means holding up your hand and taking the flack. But many cases fail where there is a lack of evidence, and any evidence there is may suggest that there are poor internal controls. And a criminal case may delay any civil recovery and cause a company much public embarrassment where the fraudster has incriminating evidence on the company that affects the company’s share price. Where the audit committee is not on the ball, this can easily happen.’’ Fredricka Hennesy inquired, ‘‘But is this cover-up necessarily in the best interests of the shareholders?’’ ‘‘No way!’’ Lockheart replied. Bill regained charge and clicked the next slide (see Exhibit 29.5). ‘‘This is an assessment tool that has been endorsed by the audit committee and is something we wish to use in our company. The idea is that we score ourselves against these measures and then see how we can improve our fraud response plan. It does go on a bit, as each of the ten items has a further ten elements, which means we can get a score based on 100. The checklist is in your handout pack. But so that we get a flavor of how it works, let me move through the criteria in quick time: 1. Create a culture of honesty and a good reporting procedure. We have a code of ethics, but this is not seen as a dynamic tool. It’s out

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29.5

Ten-Point Plan

of date, and most of our workforce don’t even know it exists. As for the reporting procedure, I have already explained that the whistleblowing line failed us in the money laundering scandal. Actually, the compliance program fits in here, and our current arrangement consists of one person who doesn’t even have a background in compliance. He was a private investigator before he joined us. 2. Design a sound oversight process, and make it challenging. We need to bring in more independent directors to balance the board, and we need to set out accountabilities for fraud risk management from the top. Right now, our board has recognized that they need to drive these new fraud control arrangements. I have to say that our audit committee is committed to this and is willing to challenge most things. I know, I’ve been in front of them. I’ll be talking with our external auditors about their work on fraud control. But the big news is that we are talking about getting a top-notch Director of Corporate Governance to pull a lot of these oversight processes into a sensible whole. 3. Define all roles, and build good buy-in from all stakeholders and experts in the field. This has not happened at all, which is the main point of our being here today.

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4. Design a fraud policy and a fraud response plan. We are writing a new fraud policy and fraud plan that will be published soon. In fact, I have been asked to set up a new seminar to publicize these items when they are ready, so that they’re properly understood by all our staff at all levels. 5. Develop investigation standards, including interviewing and evidence gathering. Again we are working on this. Gillian, I know that you have asked your Human Resources people to draw up new staff roles to fit in here. And as I said before, the new Director of Corporate Governance will sort this out. 6. Train employees, and define new competencies. You might guess that we pretty much fail on this measure. But there are plans in place to develop and roll out first-class fraud awareness training as an important part of our approach. 7. Tighten up security, and plan for the worst contingencies. This is your area, Fredricka. I’ll be meeting with you to talk about our physical and IT security and back-up arrangements. It’ll be one of the first audits for the new internal audit unit. 8. Survey your systems, and assess weak areas. This one’s interesting. Last year we developed our enterprise risk management process, and teams and business units started assessing their risks and mitigations. I am going to make sure all future risk assessments include the risk of fraud in their frameworks so that this topic gets on the radar. This is a simple but real important development. 9. Learn lessons real quickly, and follow up problems by improving controls. We have been through a lot with the money laundering fraud. We have already learned lessons, and I want to spread this concept across the business and ask our business units to respond to the weaknesses we already know about. Most of this will be taken up in point 8 above in local and head office fraud risk management exercises that we plan to promote this year. As you can see from the checklist, each of us here will need to decide whether the core controls that are mentioned are fully in place and work. These controls set a basic platform that our fraud control plan sits on, and

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they have to be implemented in all relevant parts of the business. The new internal audit unit will help you check your position when we get it set up. 10. Design and implement a fraud risk management framework. You know, I see this last item as the wrap-up. It’s the project to get good fraud risk management in place. All the things that we have mentioned in items 1 to 9 need to be pulled together into a whole. I think the most important change is something that we have already mentioned—to make fraud risk management a key part of our already maturing enterprise risk management process. I have developed a model that uses this idea of an ethical platform to support good fraud risk management (see Exhibit 29.6). ‘‘Good risk management means good controls driven from the top, and good controls will stop fraud in its tracks. Or at least do as good a job as possible of stopping it. My approach in Exhibit 29.6 suggests that the board and CEO should drive fraud risk management across all parts of the organization so that it is embedded into all business units and support services. Meanwhile, the same board needs to have a process for gaining

EXHIBIT

29.6

The Final Model

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assurances that the entire workforce understands both the risk of fraud and the need to install suitable controls as well as to be on guard for any signs that all is not well. Moreover, it is important that this entire process sits on a firm ethical platform. My vision is to get this process into each and every part of our business. Imagine all of our management teams being able to assess the threat of fraud in their area and to ensure this threat is being met—and to provide formal assurances to top management that fraud risks, as well as other risks, are under control. Let’s pause here for questions and then get into the next part of our presentation, which Jack Durham will lead. That is the project to make all this work.’’ Tim Lockheart, the lawyer, started the ball rolling by asking, ‘‘You said you had assessed us against this model. Where do we stand, Bill?’’ ‘‘We don’t stand at all. We’re kind of sitting down trying to get to our feet. I mean I scored us as less than 25 out of a potential 100. We knew that we have a way to go, and one of the audit committee members felt we were shooting ourselves down as failing before we start. But I don’t see it that way. If we are brave and set high standards and then try to meet these standards, we will achieve much more. I will carry out a new assessment next year, and the aim is to score over 75%.’’ Meena Patel from Operations asked, ‘‘How do we get involved?’’ ‘‘By being here. By listening and giving me feedback. But thanks for the question, which I’ll get to under ‘‘next steps’’ before we close. Jack, you take us through the project agreed on with the audit committee.’’ Jack sprang to his feet and clicked to the next slide (see Exhibit 29.7). ‘‘Thanks, Bill. We need to turn 25% to 75% and then to 100%, and that’s the aim of the project. Let me whiz through the main parts of the project: Set-Up. The initial aim is to get to 75%, and this is now a target for

the CEO. The reasoning behind this is to get to real fraud risk management and avoid ever having to go through the terrible

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EXHIBIT

29.7

The Three Main Fraud Control Stages

trauma that we experienced in the laundering fraud. The vision is to mobilize the workforce from what is now a leaky boat to form a powerful ship that can ride over the threat of fraud, which we visualize as rocks and storms. By the way, your marketing people are working on this concept with some posters of ships and rocks and such. Capacity. Bill mentioned that you will be bringing in a new Director of Corporate Governance along with a Chief Internal Audit Executive, who will oversee capacity development that fits in with our current infrastructure. You will need to change your culture and values to be alert to the risk of fraud and see it as both a corporate and a local responsibility. Integration. Rather than build a new set of processes, you just need to refine what we do to make sure it is robust, our controls are sound, and decisions are made with integrity. It means you become a smarter workforce that knows when to challenge things and knows that the threat of fraud changes frequently, so we need to keep up to date with this threat. Not by trusting no one and nothing, but just by being aware of bad things that could happen if we let them. You need to move from ignorance, to awareness, to assuming responsibility, and then through to actually embedding fraud risk management into the way we work.’’ The Head of Information Systems, Fredricka Hennesy, sat back in her chair and said,

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‘‘There’s a lot to do. How’re we going to fit it all in?’’ Jack sat down, and Bill hesitated for a few seconds. He then answered with care, ‘‘We will have help. This new Director of Corporate Governance will be in charge of a team of new managers; a Chief Internal Audit Executive, a Risk Officer, and a Compliance Manager, who will also sponsor fraud work. Some of you may recall that I have always dealt with corporate accountability projects such as our past work on internal control, enterprise risk management, and now this new fraud project. But we need to bring in real experts to make these things work. We have a second chance to get it right, but remember, we are growing fast into what is now a huge company that is heading for the New York Stock Exchange. We need to get real on this.’’ Fredricka Hennesy asked, ‘‘What sort of things will happen shortly?’’ Bill took this question and responded, ‘‘Okay, this takes us to the final part for today under ‘next steps.’ But before we finish, let me show you my final slide, which brings together all aspects of our ten-point model for effective fraud prevention (see Exhibit 29.8). ‘‘Ethics provides the platform, while the other eight items set the pillars for our model, which means we can have effective fraud risk management at the end of our project. In terms of next steps, we will be bringing in a new Director of Corporate Governance and then the senior managers we have already mentioned. Next, we prepare a proper fraud policy and fraud response plan. We will then run fraud awareness seminars across the entire organization, and we will get fraud into our wider enterprise risk management process. But more than this, the board wants fraud on the agenda of business-group managers, and all the managers will get involved in this project as part of their set performance targets. I’m working on a detailed project plan for the CEO, but it will go to the new Chief Internal Audit Executive when he, or she, gets appointed. So a lot will happen pretty quickly. We currently have leaks that need plugging. And as a company, we have to set sail on a

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EXHIBIT

29.8

Ten-Point Model for Effective Fraud Prevention

corporate journey in a rocky market that will test our corporate ship to the limit.’’ Georgina, who had sneaked into the back of the room some time ago, stood up, and all present turned around to look at her. She walked slowly to the front and said in a commanding voice, ‘‘Well said, Bill. I can’t think of a better way to close this session apart from me saying my board in unison, and myself in person, will drive the fraud control project, and it will work and it will make us stronger, more trusted, and in the end; much more successful. And I don’t think we will need to look too far for our new Director of Corporate Governance.’’

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c h a p t e r 30

FAMILY AFFAIRS

B

ill stood over his father’s grave and looked at the mound of earth that lay over the ground. He visualized the face that he had known all his life and tried to hear the voice that had always been somewhere in the background as he had grown and experienced life. Bill searched his mind even deeper for memories of his mother, who now had her husband lying alongside her, and closed his eyes for a few moments. After a while, he slowly turned away and said softly to himself, I will try to reach out more, I promise.

Ruth and mama Bess looked at their latest creation—slow-cooked lamb with mint dressing. Their neighbor, Carmella, had prepared the desert; sweet cherry pie with whipped cream. It was all looking good. Jack’s wife, Sharon, looked on and thought about her best dish, vegetarian lasagna, as it sat alongside the rest of the feast. Ruth rushed around the kitchen checking the food and testing the dressing, tossing the salad, and tasting the two types of gravy set out beside the huge cooker. Mama Bess sat on a chair in the corner with two small babies propped up in a basket in front of her. Using her feet, she rocked the basket in a slow and experienced manner. Jack and Bill sat in the lounge and smelled the sweet aroma coming from the kitchen area. Bill sat back with his eyes closed feeling the strain of the weeks of preparing the fraud project. He said, with his eyes still closed,

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‘‘When I married Ruth, I knew I had a catch. I mean something real special. But I didn’t know she’d run the house, take care of the babies, and cook all the time. It’s like some kind of man-dream.’’ Jack smiled and he too sat back and absorbed the neat family atmosphere in the house that was completed by his own wife being here too. ‘‘Yeah,’’ he said, ‘‘Sounds too good to be true.’’ Bill sipped a glass of wine, ‘‘Yeah,’’ he agreed, ‘‘too good for one man. Happy, happy times, Jack my old friend. Happy, happy times.’’ Jack heard his name being called from the kitchen and slowly eased himself up from his chair and walked towards the smell. He got to the kitchen and was greeted by three women who grabbed him and led him over to the counter. Ruth had her hand firmly on her hips, and she looked stern. She barked, ‘‘Now Jack. Taste each of these three dishes, and tell me which one you like best.’’ Jack grimaced—a dilemma. He could not win. Whichever one he chose, he would get hit by the two who lost out. He thought of a way out and for a second looked at the open window and thought about jumping through it and running like hell. His wife led him to the counter and said, ‘‘Just be honest, sweetheart. That’s all.’’ Jack looked at her smile and saw underneath a hidden warning that made him shiver. He stuttered and said, ‘‘I’m just no good at this sort of thing. You know that I eat anything that’s hot, and even if it’s not I. . . .’’ Sharon tugged his arm and the other two women came closer and Carmella bared her teeth slightly and then hissed, ‘‘Just eat the darn stuff. And choose the best. Right!’’ Jack panicked and felt he was going to hyperventilate, when Ruth smiled sweetly and said, ‘‘It’s no big deal Jack. Just go for it.’’ He was blindfolded and then given three different tastes numbered one, two, and three. He was asked to put them in preference order and

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after several minutes of declaring that they were all excellent, which in fact they were, he waited for the blindfold to be removed and chose numbers at random, then changed the order and simply froze. Silence swept across the kitchen, and suddenly mama Bess laughed out loud and said, ‘‘Stop squeeze the young man. He’s not an orange, you know.’’ The other three women joined in with the laughter and Jack softly withdrew from the kitchen recognizing his chance to escape. Jack felt a hand grab his, as he made it to the hall. Ruth spun him around and said, ‘‘I’ve found it, Jack.’’ Jack thought he was not in trouble but could not be sure, so he gave a guarded reply, not knowing what the ‘‘it’’ that had been found was at all. ‘‘That’s uh, good then—yes?’’ Ruth stared hard at Jack and tried again, ‘‘Look. I want a restaurant and I know you men want wifey at home.’’ Jack thought it safest to just nod. He looked at Ruth and recalled the last time he had faced an angry person. Just last year, a man had looked at him hard one night outside a hotel and came towards him with his fists clenched. Jack had stepped to one side, pushed him so he stumbled, and as he fell, had then landed a swift kick under his chin—and that was that. But right now he looked at Ruth and felt very afraid. Ruth strained her neck to check the lounge where Bill was relaxing, and seeing he was safely out of the way continued, ‘‘I want this restaurant, and I’ve found one. It means me, my mom, and Carmella can make it work.’’ Jack relaxed a little, ‘‘Okay.. . .’’ he said slowly. Ruth laughed softly, ‘‘Your wife, Sharon, wants to help too.’’ Jack suddenly felt defensive, but before he could speak, Ruth turned to go back to the kitchen but said quickly, ‘‘Bill has to accept an equal partnership.’’

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Jack said to her back as she walked away, ‘‘You know Bill won’t like it Ruth; you know that.’’ The group sat around the table and embarked on a feast of different dishes, each prepared with care and relish. The noise of several people talking at the same time rose and fell depending on which latest story was being told. Sharon was enjoying her time in New York and being part of this family unit that Jack had gotten himself into. She asked, at random, ‘‘How’s your fraud work, guys. Is it coming to an end?’’ Jack looked at Bill, who then said, ‘‘Pretty much. The project’s well on its way, and our top people are fully signed up.’’ Jack looked pleased with this as he had been brought in to help, even though he had not done such a great job at first. Bill looked around at the group and waited for a quiet spell, which took a while. When he felt it was there, he tapped his wine glass and said, ‘‘I have an announcement, people.’’ The rumble of conversation stopped entirely, and all faces turned towards Bill. He smiled more to himself than anyone else and continued, ‘‘I have spoken to the CEO, and she wants to get going on the fraud project and all that we need to do to keep it working.’’ The faces looked worried as work topics were not really something that they wanted to talk about on a weekend. Bill simply shrugged at the look of apprehension and kept going. ‘‘Anyway. We will want to employ a high powered Director of Corporate Governance to help us make things happen. Stick with me folks, it does get better. Anyway, I managed to convince the CEO that we should invite Jack here to fill the gap until we get someone in. It’ll be quite a task, bringing together audit, risk, controls, fraud, and the rest for the company. That’s if you want it Jack.’’ Jack looked shocked. He really felt he had so much to prove. He had done the investigation, but he had not done so well on the fraud policy side. He realized everyone was looking at him, and he said, ‘‘Wow, many thanks Bill. This is news. Honey, what do you think?’’ and he turned to his wife who smiled back,

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‘‘It’s okay, Jack,’’ Sharon said, ‘‘I can visit, or we buy somewhere near, or something. You know that Ruth and I have so much in common. The kids are in college now, and they’re pretty flexible. It’s up to you.’’ Jack looked at Bill, and Bill said, ‘‘It may mean you get the real job. If you do well and if it’s what you want.’’ Jack stopped and thought about it, ‘‘Sounds okay. But let me talk it over and get back to you. Maybe I could do it for a bit and then write a new book about the experiences— something like Corporate Governance: A Manager’s Journey.’’ Bill laughed, grabbed a new bottle of wine, and topped up each glass, ‘‘Not a problem. I should have told you when you came around today, but I thought it was good news for all of us.’’ Jack nodded his agreement, and Ruth said, ‘‘Well done. It’s good to have a new career, or an old one reborn.’’ The door bell rang, and Bill stood up and said, ‘‘I’ve one last surprise. Hold on.’’ And he went out to open the door. The others congratulated Jack on his good news, as the undercurrent was the fact that Jack had been drifting in his career for some time. He was a chief auditor and then a good consultant but had taken to just writing the occasional book, along with some work that tended to come from referrals from Bill. The kitchen door opened, and Snouter walked in and made a case of shaking each hand or kissing each cheek, whichever was most appropriate. He seemed tired but otherwise looked tidy and well presented. He was given pride of place at the head of the table, and dishes were brought to him. He was well behaved and refused all alcoholic drinks in preference to fruit juices. He seemed polite and somehow changed, and Jack watched him for a while before he realized that this was the first time he had spent any time with Snouter while he was sober. Despite his lack of strong drink, Snouter entertained the others with his usual stories of fraud and misdemeanors, ending with him being shot in action while out with Jack on their big adventure.

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While these exciting stories were being told, Jack, who was sitting next to Ruth, leaned over and whispered to her, ‘‘Tell him—why not?’’ Ruth looked worried and the confident spring she had had for some time now seemed to fade away. She said back, ‘‘You said it won’t work and you know him well. It looks like I’ll have to stay in the shadows.’’ Jack looked at Bill and thought about his friend. He turned back to Ruth and said, ‘‘Why not try, Ruth?’’ Ruth tapped her glass and the group conversation slowly came to a stop. Jack looked horrified and said under his breath, ‘‘Not now—in front of us?’’ Ruth ignored Jack and looked at her audience, ‘‘I’ve got an announcement to make too.’’ Bill smiled and looked at his lovely wife. Ruth looked back and said, ‘‘You need to be happy with this, Bill, for it to work.’’ The faces around the table once again searched for meaning as the silence fell. Ruth braced her back straight and said, ‘‘I’d like to open a restaurant. I mean, I’d like to do what I was going to do back home and start a business. Open a Caribbean restaurant— local—near here.’’ As if watching a tennis match, all eyes turned to Bill, and Jack held his breath as he waited for what would be a most public explosion. Bill looked at their faces, and his brain churned away for what seemed like an age. He frowned and looked worried for a second, and then he said very slowly, ‘‘I’ve also got an announcement.’’ Ruth looked worried at this effort to ignore her question, and her face fell down as she stared at her plate. Bill shuffled in his chair, ‘‘Helen’s husband, Peter, from the Isle of Wight called me.’’

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Jack asked, ‘‘How are he and Helen? Ruth started to get up to leave the table as she felt a surge of sadness come across her, but Jack pulled her back whispering, ‘‘Stick with it, Ruth,’’ Bill seemed not to notice and continued in a perky voice, ‘‘They want to buy my cottage. No, that’s not right. They want to buy the land that the cottage sits on and build an extension to their hotel. They have the funding. They will refurbish my cottage, and it will still be available for use whenever me and Ruth and the babies want to use it. What I mean is that they will rent it out and we can use it whenever we want.’’ Ruth squirmed in her chair and tried to rise again. Bill looked at Ruth, ‘‘What I’m saying, Ruth, is that we’re going to get a ton of money for our land on the Isle of Wight and regular holiday rent coming in. My dad’s old place is also up for rent, so that will add to our monthly income. I want to leave my job and write a book on fraud and maybe do some fraud awareness training here and there. My dad used to say he took a risk on life and tried new things. I think he meant for me to do the same. And for you, Ruth, you open your business and I’ll be more than happy to stay home and look after the babies.’’ Ruth did get up this time and went over to her husband. At this point, mama Bess marched into the room and said in a stern voice, ‘‘Snouter—yu wife is on the phone. She asked me if you were back on the booze yet.’’ Snouter stared and checked his glass to make sure it was orange juice, while mama Bess continued, ‘‘I told her no way, mam. Yu man is very upstanding, and I’m proud to say he’ll never let yu down again.’’ And Snouter looked up at mama Bess’s smiling face and felt her kind words sweep over him like the warm Caribbean sun.

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INDEX

Antifraud program, 88 Association of Fraud Examiners, 11, 66 Assurances, 258-259, 294 Audit committees, 52, 107–109, 215, 234–260

Danger signs, 47, 49 Danger zone, 49–50, 91 Data analysis, 64–65, 128 Data footprints, 126 Data sampling, 127 Deception, 47 Defining fraud, 19, 55, 116, 289 Dominant managers, 52 Donald Cressey, 47–48

Background checks, 64 Benford’s Law, 252 Beyond a reasonable doubt, 118 Body language, 140 Bribery, 8 Case studies, 19, 22, 25–26, 27–29, 47, 48, 50, 56, 65, 128 Certified fraud examiners, 11, 12, 66, 112 Certified Public Accountants, 12, 112 Chief risk officer, 113 COBIT, 124 Code of conduct, 19, 41–42 Code of ethics, 52, 104, 106 Combined Code (UK), 70 Competence (of staff), 222 Compliance officer, 114 Compliance program, 40, 84, 143 Conspiracy, 9 Contract control, 130 Control override, 50, 70 Controls testing, 131–132 Corporate ethics, 104 Corporate Governance, 71 COSO model, 130 Credit cards, 127 Criminology, 47 Culture, 73–74 Cyber crime, 123

Ethics officer, 114 Ethics, 70, 73, 80, 104, 106, 114, 122, 147, 236–237 Evidence, 63 Executive management, 113 Expense claims, 8 Expert Witness Federal Rules of Sentencing, 115 External audit, 72, 109–111 False negatives, 127 False positives, 127 FBI, 28, 114 Federal Sentencing Guidelines, 105 Finance staff, 112 Financial management, 131 Financial statements, 204 Forgery, 8 Fraud awareness, 18, 37, 43, 54–57, 120–123, 284–298 Fraud control, 92–93, 103–134, 167–169, 178, 180–181, 191–298, 214–223, 235–259, 291–294 Fraud: acts, 8, 9 detection, 126 file, 62

307

308 Fraud (continued ) investigations, 228, 279 losses, 11, 12 policy, 55, 115–116, 243–245 report, 63 response plan, 115, 116, 243–244 risk model, 91 triangle, 47 Impact of fraud, 49 Information security, 124, 133, 249–251 Institute of Internal Auditors, 12, 111, 116 Internal audit, 111–112 Internal controls, 129–132 Interviewing, 137–139 Inventory control, 130 Investigation standards, 62–63, 65–66, 117–118, 137–139, 245–247 Investigations unit, 112 Isle of Wight, 32, 45, 68, 80, 142 Learning lessons, 129–132, 254–256 Legal officer, 113 Line management, 113 Misappropriation, 8 Money laundering, 128, 268–270, 278–279 Oversight process, 107, 239–240, 292 Payments, 131 Payroll, 131 Perceived opportunity, 48 Phone tapping, 65 Ponzi scheme, 115, 146 Preponderance of evidence, 118 Profiteering, 8 Project management, 89, 219–223, 295–296

Index Public Company Oversight Board, 72, 110, 148 Public relations, 114 Rationalization, 48 Reasons not to bother about fraud, 11 Red flags, 122, 128–129, 251–253 Report to the Nation, 12 Reported fraud, 90, 108 Risk management, 48, 90, 91, 122, 132–134, 256–257, 294 Risk registers, 90 Roles and responsibilities, 219, 241–242, 292 Sanctions, 52 Sarbanes Oxley, 11, 51, 65, 69–70, 71–73, 105, 107, 148 SAS 99, 109, 110, 240 Section 404, 70, 72, 73, 125 Securities Exchange Commission, 64, 107, 148 Security, 123–124, 249–251 Sharp business practices, 12 Social security numbers, 64 Specific controls, 130–132, 254–256 Staffing framework, 130 Standard 1210.A2, 111 Standard 2210.A2, 111 Stock control, 48 Stock options, 147 Testing controls, 131–132 Tip offs, 105 Training, 119–123, 247–249 Whistleblowing, 76, 103, 104–105, 106 Zero tolerance, 20, 42, 115

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