When it comes to piecing together complex pieces of financial crimes, Debra Thompson is among the best. As a Certified Fraud Examiner, she is frequently hired to investigate possible corporate or organizational malfeasance, and she often testifies as an expert witness in trials involving asset misappropriation, bribery and corruption, and financial statement fraud. She recently authored an AICPA book, “White Collar Crime: Core Concepts for Consultants and Expert Witnesses,” with professionals from her former employer, McGladrey LLP.
Here, she shares insights into fraud and her specialized career.
Q: How did you become involved in fraud/forensic accounting?
DT : It’s kind of an odd story. About 13 years ago, I was on a plane, and I met a gentleman who said he provided expert testimony for the insurance industry. He liked that work because it allowed him to pick and choose work opportunities even after a traditional retirement age. While that piqued my interest, I wasn’t sure how I could approach such a career path in accounting. But not long after that, I heard about the Association of Certified Fraud Examiners (ACFE), and I decided to follow that path and get certified. I moved from Las Vegas to Minnesota to work for LarsonAllen in the early 2000s and, at that time, nobody knew the phrase ‘forensic accounting’ or what it meant. Eventually, Rholan Larson (the co-founder of LarsonAllen) asked me to work on a case with him, and that opportunity helped put me in a position to handle forensic accounting and fraud investigations as part of litigation support.
Q: In general, how have you seen fraud schemes change over the years that you've been involved? Has it become more complicated?
DT : The fraud environment is riding the technology wave. As people and companies become more connected in a digital world, fraudsters have new opportunities to create problems. For example, remember the various spam calls or faxes years ago, which attempted to fool people into believing they had access to money in newly-discovered accounts in African banks? Now, that same scam has migrated to email or to phishing using fake website addresses. It’s the same game, but presented in a more sophisticated way.
Q: What are the most common things that should give companies and/or CPAs an idea that fraud might be occurring?
DT : The ACFE produces an annual “Report to the Nation” on fraud statistics, and the common case tip-offs don’t tend to change much from year to year. For example, a common clue is an employee who seems to be living well beyond his or her means. Assume a person is drawing a mid-level salary, but claims to have a lake home, expensive cars and jewelry, and exotic vacations. Absent an inheritance or other windfall, if the numbers don’t seem to add up, that’s a pretty good indication that something questionable might be going on. Other clues might be when someone voices concerns about financial problems, when a person seems to have too close of a relationship with a customer or vendor, or when an employee is pretty aggressive about pushing a family member or close associate for consulting or contract-related opportunities.
Q: How has the economy affected fraud in terms of frequency and type?
DT : I don’t believe there’s a specific tie-in between the types of fraud committed and economic conditions. However, a slower economy may improve the odds of a specific person choosing to commit — or not commit — a fraudulent act. Some people won’t break the law under any circumstances. For others, however, a downturn in their financial life may move them from “unlikely” to commit fraud to “more likely” to do so.
Q: In all of your years working in forensic accounting, what have you found most surprising?
DT : I continue to be amazed at frauds committed by people who, by any objective measure, have substantial means. Time and again, the largest frauds (in dollar value) are committed by those at the top of various organizations. Quite often, the reasons boil down to just greed — pure and simple. Think about the motivations for having a car. I drive a Chevy Malibu because it’s a dependable, reliable mid-range vehicle that gets me from point A to point B. But for another person, there may be a deep-seated need to elevate that ride into a status symbol, whether that’s Mercedes, BMW, Jaguar or something else. Or, if they already have the luxury car, they move up to something really extravagant, like a 60-foot yacht. Some people can easily afford those things. Others, who at first glance seem to have the money, may have enough debt or other financial issues to put such a purchase out of reach. But if they want it bad enough, fraud is one way to fund such a purchase.
Q: Based on your experience, what are the most simple, cost-effective things companies could do - but don't do - to reduce the opportunity for fraud to occur?
DT : Many times, organizations don’t install an internal hotline or tips program because they think it will be expensive to operate. But such programs are, in truth, pretty low-cost. They are also one of the most effective ways to root out fraudsters. And, if a company does set up such a program, they often overlook the opportunity to highlight it among employees, vendors and customers. That can be inexpensively done on the website, on company invoices, or on other promotional materials. For instance, if someone is in a construction business and sees a delivery of building materials going to an employee’s house instead of a job site, that activity should prompt the person to call the hotline to have it checked out. Of course, the tip reports need to be confidential, and employees need to feel they will not be punished for reporting unusual activity.
In addition to these tools, another simple fraud-fighting measure is drafting and enforcing a code of conduct, in which employees at all levels are held accountable in the same way.
Finally, not enough companies have clean, streamlined management review processes. In some places, so many people or layers are involved in financial approvals that it weakens the overall control because everyone thinks someone else is responsible. On the other hand, if management reviews nothing, a fraudster can sneak anything through the system. So, finding balance — usually with the next supervisory level up as a checkpoint — is typically a good way to go.
Q: What are the biggest challenges that companies face in keeping up with and preventing fraud today?
DT : Again, technology and IT are big concerns. These days, accounting and financial records are generally managed, transferred and retained in some electronic form. That makes it very important for senior leaders to understand how that data can be accessed or manipulated by either internal or external forces.
Q: What current rules and regulations would you like to see changed because they are out of date with the current fraud environment?
DT : I think the issue is less that current laws are out of date, and more that we aggressively enforce those laws. Like any industry, fraud-related legislation tends to follow current events. For instance, the Sarbanes-Oxley Act was a response to Enron, Worldcom and other firms that melted down due to internal fraud and false financial reporting. The Dodd-Frank legislation was a response to speculative excesses in the banking and financial industry. In reality, both of those laws are enhanced versions of earlier anti-fraud regulations, which were updated to meet evolving threats. All of that said, I think it’s important to keep timely protections in place, while trying to ensure they don’t place too much undue burden on business operations.
Q: As you look back over your career, is there any one person who was critical to helping you achieve success in forensic accounting?
DT : Without a doubt, the late Rholan Larson was one of the most influential people in my career development. He was a true mentor to me and others, and I wouldn’t have reached this level of success in my career without his help.
Debra Thompson is a principal at Steffen Thomas LLC, a company of seasoned auditors and forensic accountants that perform large, complex engagements in high-risk environments. Debra specializes in the areas of auditing, forensic accounting and fraud examinations. She can be contacted at dthompson@steffenthomasllc.com.