Financial Services Anti-Fraud Risk and Control Workbook E-Book

Peter Goldmann

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 501

Veröffentlichungsjahr: 2009

Beschreibung

Myth-busting guidance for fraud preventionin a practical workbook format An excellent primer for developing and implementing an anti-fraud program that works, Financial Services Anti-Fraud Risk and Control Workbook engages readers in an absorbing self-paced learning experience to develop familiarity with the practical aspects of fraud detection and prevention at banks, investment firms, credit unions, insurance companies, and other financial services providers. Whether you are a bank executive, auditor, accountant, senior financial executive, financial services operations manager, loan officer, regulator, or examiner, this invaluable resource provides you with essential coverage of: * How fraudsters exploit weaknesses in financial services organizations * How fraudsters think and operate * The tell-tale signs of different types of internal and external fraud against financial services companies * Detecting corruption schemes such as bribery, kickbacks, and conflicts of interest, and the many innovative forms of financial records manipulation * Conducting a successful fraud risk assessment * Basic fraud detection tools and techniques for financial services companies, auditors, and investigators * Fraud prevention lessons from the financial meltdown of 2007-2008 Written by a recognized expert in the field of fraud detection and prevention, this effective workbook is filled with interactive exercises, case studies, and chapter quizzes, and shares industry-tested methods for detecting, preventing, and reporting fraud. Discover how to mitigate fraud risks in your organization with the myth-busting techniques and tools in Financial Services Anti-Fraud Risk and Control Workbook.

Leseprobe

Table of Contents

Title Page

Copyright Page

Preface

► About This Book

► About White-Collar Crime 101 LLC

Acknowledgements

Introduction

► Renewed Inflation and Monetary Confusion

► Banking the Civil War

► Twentieth-Century Fraud

► Savings and Loan Crisis

► Cleanup

► Booming 1990s

► What Does It All Mean?

◄ CHAPTER ONE ► - Why No Financial Services Institution Is Immune to Fraud

► Statistical Perspective

► What Is Fraud?

► Myths and Realities about Financial Services Fraud

► Review Points

► Chapter Quiz

◄ CHAPTER TWO ► - The Human Element of Fraud

► Who Are the Bad Guys?

► Insider Threat

► The Fraud Triangle

► The Fraud Triangle in Financial Services

► Pressure at Lehman: An Extreme Example

► Opportunity and Rationalization

► Rationalizing High-Level Fraud

► A Fraud Diamond?

► Review Points

► Chapter Quiz

◄ CHAPTER THREE ► - Internal Fraud: Loan and Mortgage Fraud

► Loan Fraud (Nonresidential Mortgage)

► Mortgage Fraud

► Types of Internal Mortgage Fraud to Beware Of

► Red Flags of Employee-Level Loan and Mortgage Fraud

► Preventing Employee-Level Loan and Mortgage Fraud

► Review Points

► Chapter Quiz

◄ CHAPTER FOUR ► - Employee-Level Embezzlement

► Looting Customer Accounts

► Looting Noncustomer Funds

► Theft of Confidential Information

► Insider Abuse of Computer Systems

► Red Flags of Employee-Level Embezzlement

► Preventing Employee-Level Embezzlement and Information Theft

► Review Points

► Chapter Quiz

◄ CHAPTER FIVE ► - Internal Fraud: Management Level

► Looting and Embezzlement

► Illegal Financial Transactions/Corruption

► Fraudulent Financial Reporting

► Red Flags of Management-Level Internal Fraud

► Management-Level Fraud Prevention Checklists

► Review Points

► Chapter Quiz

◄ CHAPTER SIX ► - External Fraud against Financial Services Companies

► Externally Perpetrated Loan Fraud (Nonmortgage)

► Externally Perpetrated Mortgage Fraud Schemes

► New Forms of Identity Theft and Fraud

► Red Flags of External Fraud

► External Fraud Prevention Checklists

► Review Points

► Chapter Quiz

◄ CHAPTER SEVEN ► - Conducting a Successful Fraud Risk Assessment

► Getting It Done

► Procedures for Conducting a Fraud Risk Assessment

► Roles of the Board and Management in Fraud Risk Assessments

► Review Points

► Chapter Quiz

◄ CHAPTER EIGHT ► - Legal and Regulatory Compliance for Controlling Fraud Risk

► Fraud Rules to Take Seriously

► Hypothetical Case: Compliance and InfoSecurity

► Develop and Implement a Response Program

► Future Regulation: A Prediction

► Review Points

► Chapter Quiz

◄ CHAPTER NINE ► - Fraud Detection in Financial Services Companies

► Basic Detection Methods

► Advanced Fraud Detection Tools and Techniques

► Essentials of Fraud Auditing in Financial Institutions

► Essentials of Automated Auditing

► Conclusion

► Review Points

► Chapter Quiz

◄ APPENDIX A ► - Answers to Chapter Quizzes

◄ APPENDIX B ► - Answer Key for Case Studies

Notes

Glossary

About the Author

Index

Copyright © 2010 by Peter Goldmann. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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eISBN : 978-0-470-58314-2

Preface

The man who is admired for the ingenuity of his larceny is almost always rediscovering some earlier form of FRAUD. The basic forms are all known, have all been practiced. The manners of capitalism improve. The morals may not.

—John Kenneth Galbraith

This quote can be interpreted in different ways, depending on your view of the world and those who populate it. If you believe in the inherent good of those who make the financial markets what they are, you will take to heart the second-to-last sentence. If you are of a more cynical mind, the concluding sentence is the one that speaks most clearly to you.

This workbook is not designed to pass judgment on whether the ethical fabric of the financial services industry is more good than bad or vice versa. Rather, its purpose is to give internal auditors, accountants, and other financial professionals in financial services institutions a foundation of knowledge about fraud that affects their organization.

It is hoped that through the text, the interactive exercises, and chapter quizzes you will pick up some practical knowledge to help you mitigate fraud risks in your organization.

► About This Book

How to use this workbook. Read the text in each of the nine chapters. Each chapter contains one or more mini case studies of actual frauds. They are included to help illustrate key points in the chapter. At the end of the case studies, you will be asked how the fraud could have been prevented. Try to list as many preventive measures as you can. As you progress through the workbook, your list of measures will grow as you become more knowledgeable about the dynamics of how fraud is committed, detected, and prevented. Lists of sample preventive measures for each case study can be found in Appendix B.

At the end of each chapter, try to answer as many questions as you can in the Chapter Quiz and check them against the answer key found in Appendix A. These quizzes contain no trick questions. They are standard-format questions to help you complete the workbook and—most important—help you fight fraud and corruption at your organization.

Remember

Throughout this workbook, you will see boxes titled “Remember.” These are flags for key facts, concepts, or topics to pay particular attention to as you build your knowledge about fraud.

► About White-Collar Crime 101 LLC

White-Collar Crime 101 LLC (WCC 101) was founded in 1998 in Connecticut by Peter Goldmann, a graduate of the London School of Economics, an established business journalist who had reported for and edited many domestic and international business publications.

The company came into being as the result of Mr. Goldmann’s acquisition of a monthly newsletter called White-Collar Crime Fighter directed primarily at law enforcement personnel.

After acquiring the publication, Mr. Goldmann redesigned it and reformulated its purpose and content, thus establishing it as the only monthly subscription-based publication designed to provide useful, actionable anti-fraud advice and insight to the private sector.

Over the following years, White-Collar Crime Fighter published articles based on interviews and contributions from hundreds of top U.S. and overseas anti-fraud experts from the fields of auditing, accounting, law, investigation, forensics, finance, compliance, and regulation.

Today, the publication enjoys a reputation as a leading source of reliable how-to information on detecting, preventing, investigating, and prosecuting fraud.

Thanks to White-Collar Crime Fighter’s success, several subscribers approached WCC 101 asking if the company provided employee fraud awareness training. At the time, 2001, the answer was no. However, Mr. Goldmann wondered why large corporations were coming to his publication for training. It must have meant, he reasoned, that no one else was offering such training, which to him seemed like a basic anti-fraud imperative for any organization, given the already serious and continuously growing threat of fraud.

After some digging, the WCC 101 team determined that, indeed, there was no such employee-friendly anti-fraud training on the market. There was plenty of training for “the profession”—for fraud examiners, accountants, auditors, and law enforcement investigators; but nothing taught employees how to recognize the red flags of fraudulent conduct in their organizations or how to report such incidents if they were detected.

Long story short, Mr. Goldmann resolved to fill this gap in the market for anti-fraud tools. He conceived and developed FraudAware, a customizable Web-based (e-learning) fraud awareness course designed for large companies. The basic, generic FraudAware program was completed in mid-2002—just around the time when Congress was dotting the is and crossing the ts of the Sarbanes-Oxley (SOX) Act.

As executives of public companies (FraudAware’s initial targeted market) quickly learned that SOX compliance was going to cost them multiple millions of dollars and countless hours from the schedules of their internal auditors, accountants, senior financial executives, and attorneys, employee fraud awareness training was a decidedly low priority.

By 2005, as the financial and human resources burdens of SOX compliance had begun to decline, management at many organizations began to realize that despite its massive investments in SOX compliance, the problem was not getting better; in fact, it was getting worse.

The result. A growing number of organizations began to realize that they had to mobilize their greatest asset—their employees—to actively assist in the fight against fraud.

FraudAware training became a logical tool for accomplishing this. Indeed, in recent years, the team of FraudAware subject matter experts, instructional designers, and e-learning techies has been extremely busy, implementing customized training courses at organizations in all major industries in the United States and overseas.

Today, WCC 101 is the premier provider of published anti-fraud information and maintains the largest searchable Web-based archive of practical actionable fraud prevention information. It also has a reputation of being the only provider of customized anti-fraud training designed, developed, and implemented by a team of top subject matter experts and instructional professionals.

With the publication of Financial Services Anti-Fraud Risk and Control Workbook, WCC 101 adds another valuable source of practical anti-fraud training and guidance. This workbook will be followed by similar editions specifically for the not-for-profit and hospitality sectors.

Acknowledgments

This workbook would not have been possible without the generous support and assistance of some outstanding thought leaders in fraud prevention, detection, and investigation.

Special thanks are owed to Paul McCormack, CFE, who generously shared his knowledge and experience in banking fraud. Paul, formerly Vice President of Fraud Detection for SunTrust Banks in Georgia, provided invaluable assistance in putting together segments of the book dealing with the many technical aspects of bank fraud and the various tactics that financial institutions have experimented with in the ongoing battle with both corrupt insiders and external criminals. Paul currently is a partner at Innovar, where he leads the firm’s fraud practice. He is also a freelance author. His areas of expertise include fraud, commercial litigation, ethics, and compliance.

Thanks also to:

• LeAnn Bailey, CPA, former Vice President of Program Management at Washington Mutual and then JP Morgan Chase

• Christine Doxey, CAPP, CCS, Vice President of Business Development, Business Strategy Inc.

Thanks also to the many anti-fraud experts who generously shared their time and allowed me to interview them for articles published in White-Collar Crime Fighter, thereby enabling me to acquire valuable new knowledge for this project.

Appreciation also goes to John Wiley & Sons for choosing to add this new workbook format to its impressive array of anti-fraud titles.

Introduction: Brief History of Fraud in the Financial Services Industry

The U.S. financial services industry has evolved in a relatively short 150 years from one defined by basic, unregulated lending and borrowing to one of ultra-sophistication and complexity that the average man or woman on the street finds incredibly difficult to fully understand.

What isunderstandable and equally incontrovertible is that fraud has “matured” in lockstep with the industry’s evolution. No sooner has a new segment of the financial industry emerged than new ways to defraud it have been spawned. Indeed, each new product and each new service has been introduced only to unintentionally—but seemingly unavoidably—open a new door for fraudsters as well.

Unfortunately, thus far no regulatory control or legislative act has been able to fully close those doors again.

Before the Civil War, the United States had a banking and financial system that could be described as sketchy at best.

Until the Revolution, most of the colonies used tobacco as legal tender. Then came what came to be called specie money: currency made of material of value, such as silver and gold. But shortages of specie soon led to introduction by the states of paper money known initially as fiat money in that the paper was in theory backed by specie though in fact the states that issued the currency had no legal obligation to honor demands for redemption of the notes in gold or silver.

In any case, fiat money is what the Continental Congress used to finance the war against the British.

Following independence, the United States went through a brief period marked by the establishment of a primitive form of central bank known as the Bank of North America, which existed essentially for the sole purpose of financing federal operations. By 1782, after barely a year of operation, the federally sanctioned banking monopoly enjoyed by the Bank of North America proved untenable, as did its inflation-ravaged paper currency—and the institution was dissolved.1

This led to a congressional initiative—the Coinage Act of 1792—to reestablish the country’s monetary foundations on “hard currency” (i.e., gold and silver).

The silver dollar was inaugurated and became the monetary standard of the federal government. Before long, however, numerous events combined to sabotage the coinage system, not least of which was a massive increase in the supply of silver from vast mining operations in Mexico. By 1820, following a financial panic induced by the checkerboard of state and federal rules regarding the use of gold and silver versus bank-backed paper notes as true currency, there were no more gold dollars in circulation, only silver coins. However, their value proved unstable, and it was not long before the coinage system collapsed.

In the interim, a second attempt at central banking was initiated, in the form of Alexander Hamilton’s brainchild, the Second Bank of the United States. The bank operated alongside state banks, whose numbers increased rapidly in the early 1800s. Mandated by a Democratic-Republican political consensus, the bank was established in part to introduce a national paper currency.

A critical political lesson to be drawn from the 1816 establishment of the Second Bank of the United States is that the institution was born at the hands of influential New York merchants and traders, prominent among them the fur trader John Jacob Astor and financially powerful Philadelphia lawyer Stephen Girard, who had been instrumental in earlier federal banking initiatives.