Fraud ManagementFraud Management

and Conflict of Interestand Conflict of Interestpresented by

Tommy SeahFCPA, FAIA, CFE, CSIACFE Vice Chairman (2006/07)Regent Emeritus ACFE Board of Regents (ACFE World Headquarters, Texas)Chairperson, CFE International Consulting Group

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Case StudyCase Study

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Best PracticesBest Practices

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• What is Occupational FraudWhat is Occupational Fraud• Who commits fraud ?Who commits fraud ?• What is conflict of interest?What is conflict of interest?• Does it matter?Does it matter?• Conflict of interest and Board Conflict of interest and Board

membersmembers• What is fraud management ?What is fraud management ?

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This Triangle helps explain the human process This Triangle helps explain the human process for committing any kind of wrongfor committing any kind of wrong

Opportunity

Motivation Rationalization

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What type of individual commits FRAUD? What type of individual commits FRAUD?

  It is not limited to any one type of person.It is not limited to any one type of person.

• MarriedMarried• Active religious Active religious

membersmembers• ChildrenChildren• Good educationGood education• First-time First-time

offendersoffenders• Good employeesGood employees• Don’t abuse Don’t abuse

alcoholalcohol

• OptimisticOptimistic• High self-esteemHigh self-esteem• AchievingAchieving• Family harmonyFamily harmony• Socially conformingSocially conforming• Self controlSelf control• KindKind• SympatheticSympathetic

Conclusion: Fraud Perpetrators Look Exactly Like Us!

Normal Citizens Fraud Perpetrators Bank Robbers

Sample Sample Sample

No Significant Differences Major Differences

While people who commit rape, murder, bank robbery and otherproperty offenses have distinguishing characteristics, fraud

perpetrators look more like more citizens than criminals!

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The Reality of FraudThe Reality of Fraud  Sometimes, even an honest person will lie.Sometimes, even an honest person will lie.

There are different motivations for lying. It is There are different motivations for lying. It is important for the interviewer to be able to important for the interviewer to be able to recognize the different types of liars and to recognize the different types of liars and to understand the reasons they lie.understand the reasons they lie.

Managing Managing Conflict of InterestConflict of Interestis an integral part is an integral part Fraud ManagementFraud Management

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Black’s Law Dictionary defines a “conflict of Black’s Law Dictionary defines a “conflict of interest” as:interest” as:

““a real or seeming incompatibility between a real or seeming incompatibility between a person’s private interests and his or her a person’s private interests and his or her public or fiduciary duties.”public or fiduciary duties.”

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• Conflict of interest is a set of conditions Conflict of interest is a set of conditions in which professional judgement in which professional judgement concerning a primary interest (such as concerning a primary interest (such as patients' welfare or the validity of patients' welfare or the validity of research) tends to be unduly influenced research) tends to be unduly influenced by a secondary interest (such as by a secondary interest (such as financial gain).financial gain).

• Thompson DF. Understanding financial conflicts of interest. N Engl J Med 1993; Thompson DF. Understanding financial conflicts of interest. N Engl J Med 1993; 329: 573-576329: 573-576

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• Not everyone think that Conflict of Not everyone think that Conflict of Interest is bad.Interest is bad.

• Conflict of interest is a Conflict of interest is a conditioncondition not a not a behaviourbehaviour..

• This argument is becoming steadily This argument is becoming steadily less tenable as evidence less tenable as evidence accumulates on the influence of accumulates on the influence of conflict of interest. conflict of interest.

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Procurement Fraud/AbuseProcurement Fraud/AbuseMany contract procurement fraud Many contract procurement fraud

schemes…schemes…• From the simple:From the simple:

– Bribes & Kickbacks Bribes & Kickbacks (e.g. Coalition (e.g. Coalition Provisional Authority, House Intel & Provisional Authority, House Intel & Appropriations Committee)Appropriations Committee)

• To the slightly more sophisticatedTo the slightly more sophisticated– Bidder collusion w/ government employeeBidder collusion w/ government employee

– Bidder collusion w/ other biddersBidder collusion w/ other bidders• Courtesy bids, price fixingCourtesy bids, price fixing

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• Conflict of interest, Conflict of interest, revolving doorrevolving door

– Boeing & US Air ForceBoeing & US Air Force– Boeing has agreed to pay a total of $615 Boeing has agreed to pay a total of $615

million dollars to resolve the government’s million dollars to resolve the government’s investigations and claims relating to the investigations and claims relating to the company’s hiring of the former Principal company’s hiring of the former Principal Deputy Assistant Secretary of the Air Force Deputy Assistant Secretary of the Air Force for Acquisition and Managementfor Acquisition and Management, Darleen A. , Darleen A. Druyun, by its then Chief Financial Officer, Druyun, by its then Chief Financial Officer, Michael Sears, and its handling of Michael Sears, and its handling of competitors information in connection with competitors information in connection with the Evolved Expendable Launch Vehicle the Evolved Expendable Launch Vehicle (EELV) Program and certain NASA launch (EELV) Program and certain NASA launch services contractsservices contracts

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Do you have a conflict of Do you have a conflict of interest?interest?

Integritas ac virtus Integritas ac virtus bonorum sunt hominum bonorum sunt hominum armaarma

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Questions?Questions?

Integrity and Virtue are the weapons of good menIntegrity and Virtue are the weapons of good men

21Copyright (c)2006 www.cfe-in-practice.net

       

Thank youThank you

Contact Information:

Tommy Seah CFE, FCPA, CSI

Regent Emeritus

ACFE Board of Regents, Texas, USA

www.cfe-in-practice.net

tommy@cfe-in-practice.net

Phone : + (65) 91069872