Criminal Minds: What CPAs Can Learn from the Way Thieves Think

[ILLUSTRATION OMITTED] This is more than a story about six men, all of them admitted white-collar criminals. It is more than a story about their fraud schemes, which resulted in total combined losses of nearly $4 billion. This is the story of what CPAs can learn from these men from their motives and methods, from how they were caught and how they could have been stopped earlier. This is a story of fraud's impact and the role CPAs can play in spotting and preventing it. The AICPA Fraud Task Force, a group sponsored and supervised by the Institute's Forensic and Lingation Services (FLS) Committee, provides fraud detection, investigation, and prevention information to AICPA members. As part of this mission, the task force located and interviewed a half-dozen perpetrators of significant accounting fraud. The task force summarizes the interview responses in a new report designed to help CPAs implement controls or other measures to prevent similar fraud. The six individuals who agreed to talk to the task force did so with the understanding that their names would not be revealed. The information they provided paints a broad picture of who they were at the time each fraud took place--and how they have changed since then. * All of the respondents hold college undergraduate degrees in fields including accounting, industrial engineering, and ancient history Two of the men earned graduate degrees, including an MBA, and two were CPAs. * All of the respondents held positions of trust in the organizations where their fraud schemes took place. The admitted thieves held the titles of chairman, CFO, tax partner, general partner, general manager, and senior manager. * The perpetrators ranged in age from their 20s to their late 50s at the time they committed their crimes. * All but one of the respondents spent time in prison for their white-collar crimes. Several of the perpetrators were behind bars for more than three years, with the longest sentence served lasting 60 months. * All but one of the respondents said they had not defrauded other employers and said they would not commit their fraud again. The one exception said he raised to be a criminal and that he hasn't changed one bit. Asked if he would commit his fraud again, he answered, You never know Asked if he had defrauded any other companies, he said, No, but are you going to believe a convicted criminal? A SUMMARY OF SCHEMES The men interviewed by the fraud task force executed a variety of illegal schemes. Following is a brief description of each fraud; the dollar loss for the victim organization, investors, and others; what done to conceal the fraud; how the scheme discovered; and what CPAs, business leaders, and others could do differently to prevent or uncover these types of fraud. Fraud No. 1: The Ponzi Scheme Description: This scheme involved the embezzlement of money from a trust fund by the fund's sole trustee so he could make an urgent debt payment. The trustee, a CPA in a public accounting firm, rationalized the action as a loan, an idea that reinforced when he set up the Ponzi scheme and paid back the money to the trust. He then continued the Ponzi scheme, using the money to upgrade his lifestyle. Dollar loss: $250,000. What done to conceal the fraud: The perpetrator set up a fake bank account and false documentation to hide the fraud. How the scheme discovered: One of the perpetrator's investors had a sudden need for money Determining that the fraud unsustainable, the perpetrator reported the crime himself, admitting that he was a liar and a thief. He later served time in prison and paid restitution with interest. What could be done to prevent this type of fraud: The perpetrator said he took advantage of poor internal controls at his accounting firm. The requirement of two-signature checks would have stopped the first instance of embezzlement from the trust fund. …