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©2015 Association of Certified Fraud Examiners, Inc.
WELCOME C-Suite’s Dirty Little Fraud Secret
Roger Darvall-Stevens, CFE
Partner, National Head of Forensic Services
RSM Bird Cameron
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Connected for Success
C-Suite’s Dirty Little Fraud Secret
Presented at the 2015 ACFE Asia-Pacific Fraud Conference
Thursday 5 November 2015
By Roger Darvall-Stevens MBA MA CFE
Partner, National Head of Fraud & Forensic Services, Australia
RSM
Email: [email protected]
PH: +61 3 9286 8279 / +61 421 056 683
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About Your Presenter – Roger Darvall-Stevens
• Partner at RSM and National Head of Fraud & Forensic Services in
Australia
• Over 25 years forensics experience in forensic investigations,
accounting/fraud examination, and anti-fraud services to corporate
and government clients in all industries
• Licensed investigator in multiple locations across Australia and New
Zealand
• Former police detective (areas include fraud, counterterrorism)
• CFE and Regent Emeritus (board member on the ACFE global
Board 2012-2013)
• Melbourne Australia ACFE Chapter President
• Trained and practised in advanced interview techniques
• Presenter at international and local conferences/seminars and
author of many articles and publications
• Roger’s qualifications include: – Master of Business Administration (MBA), Master of Arts (Criminology) degrees
– Graduate Certificate in Fraud Investigation
– Bachelor of Arts degree majoring in police studies and sociology
• Prior to joining RSM, Roger’s previous experience includes: – Partner with a ‘big 4’ for 13 years in their global Fraud Investigation & Dispute Services team
– Investigations Manager for AAMI Insurance
– Corporate Security Investigator and trainer for Ford Motor Company of Australia Limited
– Policeman and detective for 12 years with the Victoria Police Force in Australia
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Agenda
• Who are the ‘C-Suite’ or ‘C-Level’?
• Acknowledgement of fraud and next steps
• What do the statistics say?
• Motivations
• Case studies
• What can be done?
• Questions?
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Fraud by CEOs, CFOs, and others in the ‘C-suite’
is a dirty little secret, which is rarely discussed but
happens with disturbing regularity.
It is one of those once in a lifetime events that
seems to happen regularly!
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Who are the ‘C-suite’ or ‘C-level’?
An organisation’s most trusted executives, usually beginning with
the letter “C” or “Chief,” including:
– Chief Executive Officer
– Chief Financial Officer
– Chief Information Officer
– Chief Risk Officer
– Chief Compliance Officer
– Chief Operating Officer
– Chief Human Resources Officer
– Chief Marketing Officer
– Chief Administrative Officer
– Chairman or owner
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Acknowledgement… Then What?
• Once it is acknowledged that fraud is committed on occasion by
the C-suite, the next step is to address what can be done to
mitigate the risk and provide confidence that blind trust should
never be and, is not, a control.
• Everyone should be accountable and subject to appropriate and
proportionate checks and balances.
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What do the statistics say about who commits
fraud and their motivations?
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What Do The Statistics Say?
The most recent survey from the Association of Certified Fraud Examiners
(ACFE) revealed that:
“The higher the perpetrator’s level of
authority, the greater fraud losses tend to
be. Owners/executives only accounted for
19% of all cases, but they caused a median
loss of $500,000. Employees, conversely
committed 42% of…frauds but only caused
a median loss of $75,000. Managers
ranked in the middle, committing 36% of
fraud with a median loss $130,000.”
[Source: Association of Certified Fraud Examiners (ACFE) 2014, Report To The Nations on
Occupational Fraud and Abuse: 2014 Global Fraud Study, USA]
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What Do The Statistics Say?
[Source: Association of Certified Fraud Examiners (ACFE) 2014, Report To The Nations on Occupational Fraud and Abuse:
2014 Global Study, USA]
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What Do The Statistics Say?
[Source: Association of Certified Fraud Examiners (ACFE) 2014, Report To The Nations on Occupational Fraud and Abuse:
2014 Global Fraud Study, USA]
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What Do The Statistics Say?
[Source: Association of Certified Fraud Examiners (ACFE) 2014, Report To The Nations on Occupational Fraud
and Abuse: 2014 Global Fraud Study, USA]
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What Do The Statistics Say?
[Source: Association of Certified Fraud Examiners (ACFE) 2014, Report To The Nations on Occupational Fraud and Abuse:
2014 Global Fraud Study, USA]
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Motivations
Motivations for fraud of the owner/executive category, which is the
closest category to C-suite, are captured in the top nine behavioural
fraud red flags as follows in order of prevalence:
1. Living beyond means 43.7%
2. “Wheeler-dealer” attitude 29.6%
3. Control issues, unwillingness to share duties 28.6%
4. Financial difficulties 25.2%
5. Unusually close association with vendor or customer 24.3%
6. Irritability, suspiciousness or defensiveness 15.5%
7. Divorce or family problems 15%
8. Excessive pressure from within the organisation 14.6%
9. Addiction problems (e.g., gambling, alcohol, drugs) 10.7%
(note: percentages exceed 100% as there are, in some cases, multiple red flags)
[Source: Association of Certified Fraud Examiners (ACFE) 2014, Report To The Nations on Occupational Fraud and
Abuse: 2014 Global Fraud Study, USA]
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Case Studies
Satyam Indian IT Company (2009)
Company founder and Chairman
Ramalinga Raju falsified revenue by
USD$1.5 billion and admitted this in a
letter to the company’s board. He was
found guilty along with nine others of
inflating the company’s revenue,
falsifying accounts, income tax returns,
and more.
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Case Studies
Bernard L. Madoff Investment
Securities LLC (2008)
Bernie Madoff, who was founder
and chairman of a Wall Street
investment firm, was sentenced to
150 years of prison and USD$170
billion in restitution for deceiving
investors out of USD$64.8 billion
through a Ponzi scheme.
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Case Studies
WorldCom Telecommunications
Company (2002)
Assets were inflated as much as USD$11
billion, and the company filed for
bankruptcy, with USD$180 billion in
losses for investors. Those involved
included CEO Bernie Ebbers who was
sentenced to 25 years of prison for fraud.
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Case Studies
Enron Energy and Commodities
Company (2001)
Shareholders lost USD$74 billion,
and the company filed for bankruptcy,
leading to the demise of the Arthur
Andersen accounting firm. Those
involved included CEO Jeff Skilling
(sentenced to 24 years of prison) and
former CEO Kenneth Lay (who died
prior to sentencing).
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Case Studies
• Confidential Case Study 5 to be displayed and discussed at the
conference
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Case Studies
• Confidential Case Study 6 to be displayed and discussed at the
conference
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Case Studies
• Confidential Case Study 7 to be displayed and discussed at the
conference
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What Can Be Done?
Boards, audit committees, and executive or senior management
have vested interests in confirming checks and balances to ensure
that the ‘C-suite’ leads the way with the tone from the top and with
ethical behaviour beyond reproach.
Key Checks and Balances Include:
• Develop tailored forensic or fraud detection procedures
• A forensic review that should:
– Focus on the C-suite
– Can be designed by reverse-engineering the intelligence gained in
understanding C-suite fraud red flags
– Use fraud-profiling
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What Can Be Done?
Fraud Profiling:
• Understanding the motivations and characteristics of C-suite
fraudsters, the industry, and businesses in which C-suite
executives operate, and then
• Developing forensic or fraud detection procedures to provide
insight into the fraud vulnerabilities or actual fraud that may be
occurring or is at a high risk of occurring in the near future.
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Examples of Forensic Procedures
1. Interview the C-suite executive
to understand fraud and
corruption control awareness,
as well as for family and
individual profile for
vulnerabilities.
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What Can Be Done?
2. Conduct forensic due diligence
background checks on the C-suite
executive and family that are either
publicly available (e.g., background
checks for other business interests,
social media sites) or with consent
where required (e.g., police checks) to
ensure that any conflict of interest,
perceived or actual, is managed.
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What Can Be Done?
3. Understand the systems-access profile of the C-suite executive
(e.g., transactions, approvals) and perform forensic data
analytics, including personal expenses.
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What Can Be Done?
4. Perform forensic IT analysis as required (e.g., Internet sites
visited, such as gambling websites, if corporate access allows)
or email review if required.
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If a C-suite executive objects to forensics or fraud
detection procedures, or a forensic review, I suggest that
this may be a red flag in itself and should cause concern
for the board.
No one, regardless of level or seniority in a business, is
beyond the checks and balances that mitigate the risks of
fraud and corruption.
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Contact details
Roger Darvall-Stevens
Partner, National Head of Fraud & Forensic Services,
Australia
T +61 3 9286 8279 / +61 421 056 683
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Our one-firm structure allows us to provide strong
connections and a focus on client relationships.
Clients can readily connect to our national and
international expertise and networks, our extensive
understanding of Australian business and to senior
advisors. With RSM Bird Cameron you really are…
Connected for Success
©2015 Association of Certified Fraud Examiners, Inc.
WELCOME C-Suite’s Dirty Little Fraud Secret
Roger Darvall-Stevens, CFE
Partner, National Head of Forensic Services
RSM Bird Cameron