TOPIC 1

Nature of Fraud

Certified Fraud Examiners (CFEs) estimate that organizations lose, on average, about 5% of their revenues to dishonesty from within.
- ACFEs 2010 Report to the Nations on Occupational Fraud and Abuse

Scandals Related To Fraud Enron, WorldCom, Madoff, others Other types of frauds occur everyday Fraud extremely costly business problems

Sources of Statistics of Fraud

Government agencies (SEC, BIR, NBI) Researchers about specific type of fraud within the industry Insurance Companies Victims of Frauds

Statistics of Fraud in the US

In 2008, US organizations lose roughly 7% their annual revenues to fraud.

How costly is fraud to the organization?

For every PhP 1 of fraud, net income is reduced by PhP 1

How to compute?

Fraud Loss P 500,000 Companys profit margin is 10% Companys Product Selling Price P 1,000 How much additional revenue must be generated to restore the effect on net income? How many products must be sold to recover the effect on net income?

How to compute?

Fraud Loss P 1,000,000 Companys profit margin is 2% Companys Product Selling Price P 500 How much additional revenue must be generated to restore the effect on net income? How many products must be sold to recover the effect on net income?

QUESTION: Are all detected frauds made public?

REMEMBER THIS:
Statistics about how much fraud is occurring are difficult to get. However, all signs indicate that fraud is increasing both in frequency and amount. Fraud is very costly to organizations and to economies. Because fraud reduces net income on a peso-to-peso basis, the amount of additional revenue needed to restore the stolen funds is many multiples of the amount of the fraud.

Two methods of getting something from others illegally 1. ROBBERY a. Physically forcing someone to give you what you want (using gun, knife, or other weapon) b. More violent and more traumatic than fraud c. Attracts much more media attention 2. FRAUD a. Tricking others out of their assets b. Losses from frauds far exceed losses from robbery

CHARLES PONZI AND THE PONZI SCHEME

An Italian who migrated to USA Discovered the mechanism that he thought would make both him and his investors very wealthy Promised a higher rate or return in a short span of time. Source of payment of returns was investment of succeeding investors. A form of pyramiding scheme Fraud, greed, deception, confidence

REMEMBER THIS:
Involves all deceptive ways in which one individual obtains an advantage over another by false representations. Fraud always involves confidence and trickery. Fraud is difference than robber where force is used. Embraces all the multifarious means which human ingenuity can devise, which are resorted to by one individual, to get an advantage over another by false representations. Includes surprise, trickery, cunning and unfair ways by which another is cheated.

Common Response of Fraud Victims

Fraud Victim: I cant believe she would do this. She was my most trusted employee my best customermy best friend. Fraud victims friend: What else could they be? They would not have succeeded without your trust!

IN FACT: Fraud perpetrators are often the least suspected and the most trusted of all the people whom victims associate. ELEMENTS OF FRAUD
1. 2. 3. 4. 5. 6. 7. A representation About a material point Which is false And intentionally or recklessly so Which is believed And acted upon by the victim To the victims damage

SHORT CASE 1
You are a new summer intern working for a major professional services firm. During your lunch each day, you and a fellow intern, Bob, eat at a local sandwhich shop. One day, Bobs girlfriend joins you for lunch. When the bill arrives, Bob pays with the company credit card and writes the meals off as a business expense. Bob and his girlfriend continue to be treated to lunch for a number of days. You know Bob is well aware of a recent memo that came down from management stating casual lunches are not valid business expenses. When you ask Bob about the charges, he replies, Hey, were interns. Those memos dont apply to us. We can expense anything we want. 1. Is fraud being committed against the firm? 2. What responsibility, if any, do you have to report the activity?

IS THERE A FRAUD? Case 1: Someone is mistakenly enters incorrect numbers on a financial statement. Case 2: Someone is purposely enters incorrect numbers on a financial statement.

INTENTION VERSUS FAULT

Fraud requires an intention to do such act. Fault requires no intention to do such act because it is committed involuntarily and unconsciously.

TPYES OF FRAUD (Bozkurt) 1. Personal use of business resources

o o o o o Embezzlement of the money during its collection but before it is recorded in accounts Stealing the cheques of business Tampering the bank records and taking monetary advantage Gaining advantage through forgery of documents Making payments which should not be made or previously made

2. Drawing up financial statements of the business falsely

GROUPS OF FRAUD 1. Fraud committed against an organization

The victim of the fraud is the employees organization

2. Fraud committed on behalf of organization

In financial statement fraud, executives usually commit fraud in behalf of the organization: o Financial statements look better than they actually are. o Stock price will increase o The company executives (management) will benefit o Victims are investors in the companys stock o Often occurs in companies who are experiencing net losses or have profits much less than expectations

OCCUPATIONAL FRAUD
According to ACFE: Occupational Fraud, this type of fraud as the use of ones occupation for personnel enrichment through the deliberate misuse or misapplication of the employing organizations resources or assets

OCCUPATIONAL FRAUD
1) Results from: Misconduct of employees, managers, or executives. Can be anything from lunch break abuses to high-tech schemes. 2) Key to occupational fraud is that the activity: 1) Is clandestine 2) Violates the employees fiduciary duties to the organization 3) Is committed for the purpose of direct or indirect financial benefit to the employee, 4) Costs to employing organization as assets, revenues, or reserves 3) Three major categories of occupational fraud: 1) Asset misappropriations Involve theft or misuse of organizations assets 2) Corruption Wrongfully use influence in a business transaction in order to procure some benefit for themselves or another person, contrary to their duty to their employer or the rights of another. 3) Fraudulent statements Falsification of an organizations financial statements.

OCCUPATIONAL FRAUD DIVISION (According to Victims)

1. Frauds where a company or organization is the victim. Employee embezzlement perpetrator is an employee of the organization. Vendor fraud perpetrator is a vendor of the organization. Customer fraud perpetrator is a customer of the organization 2. Management Fraud Victims are shareholders or debt-holders of the organization. 3. Investment scams and other consumer frauds Victims are unwary individuals 4. Miscellaneous frauds Any other type of frauds

EMPLOYEE EMBEZZLEMENT
1. The most common type of occupational fraud. 2. Employees deceive their employers by taking company assets. 3. Can be direct or indirect. 4. Direct o employees steal company cash, inventory, supplies, tools, other assets; o by establishment of a dummy company; o no involvement of 3rd parties. 5. Indirect o occurs when employees take bribes or kickbacks from vendors, customers and other outsiders to allow for: lower sales prices, higher purchase prices, non delivery of goods, or delivery of inferior goods; o involvement of 3rd parties.

VENDOR FRAUD
Significant overcharges by major vendors on defense and other government contracts. Two forms: o Perpetrated by vendors acting alone o Perpetrated through collusion between buyers and vendors Usually results in either: o Overcharge for purchased goods o Shipments of inferior goods o Non-shipment of goods even payment was made

CUSTOMER FRAUD
Customers do not pay for goods purchased or they get something for nothing.

MANAGEMENT FRAUD
Often called financial statements fraud Distinguished from other frauds in terms of : o Nature of perpetrators o Method of deception Usually involves top managements deceptive manipulation of financial statements Examples: WorldCom, Enron, Waste management, Sunbeam, RiteAid, Phar-Mor.

INVESTMENT SCAMS AND OTHER CONSUMER FRAUD 1. Ponzi Schemes

Lure investment funds from victims and then pay those victims a premium or interest from money that is paid by subsequent investors.

2. Telemarketing Fraud
Victims send money to people they do not know personally or give personal financial information to unknown callers who pressure potential victims to act now because the offer wont last or somehow convince the victim that she has won a free gift such as a cruise, trip, or vacation. The victim must pay for postage/and or handling by providing their credit card number and personal information to the perpetrator.

3. Nigerian Letter or Money Scams

A potential victim receives an e-mail or other form of communication promising the victim a large financial payout in exchange for help in transporting large sums of money from one country to another. The letter states that an up-front cost is needed in order to pay taxes, bribe government officials or pay other legal fees.

INVESTMENT SCAMS AND OTHER CONSUMER FRAUD 4. Identity theft

It occurs when someone assumes the identity of another person to purchase goods, engage in criminal activity, or perpetrate fraud. Perpetrators steal a persons identity by accessing personal financial information that is found in : o Credit cards o Credit statements o Bank statements o Social security o Other personal documents (drivers license, PRC license) Perpetrators will also gain this information by going through a victims mailbox or trashcan.

5. Advance Fee Scams

It occurs when a victim pays an up-front cost for a good or service that is never delivered. The victim pays up-front cost to secure payment, loan, contract, investment, or gift. Upon receipt of money by perpetrators, the victims will be unable to contact the perpetrator.

6. Redemption/Strawman/Bond Fraud
Perpetrators claim that the government controls certain bank accounts that can be accessed by submitting paperwork with the government officials. Victims must buy expensive training kits that teach how to access the funds. When unable to access the fund, the perpetrator will indicate that the paperwork was not properly or correctly filled up, additional fees will be charged for more training.

7. Letter of Credit Fraud

Letter of credit is a legitimate document that is issued by banks to guarantee payment for goods that are shipped in international trade. Fraudsters create bogus LCs and sell them to unsuspecting victims by encouraging them to invest on it for unrealistic returns.

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INVESTMENT SCAMS AND OTHER CONSUMER FRAUD 8. Internet Fraud New version of schemes that have been perpetrated offline for
years.

REMEMBER THIS: Fraud can be classified in several ways: 1. By victims 2. By perpetrators 3. By scheme Frauds against organizations are most common, but financial statements fraud is the most expensive.

SHORT CASE 2
Fellow student in your fraud examination class are having a hard time understanding why statistics on fraud are so difficult to obtain. What would you say to enlighten them?

SHORT CASE 3
You are having lunch with another graduate student. During the course of your conversation, you tell your friend about your new fraud examination class. After you explain the devastating impact of fraud on businesses today, she asks you the following questions: 1. What is the difference between fraud and error? 2. With all the advances in technology, why is fraud a growing problem?

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SHORT CASE 4
Upon hearing that you are enrolled in fraud class, a manager of a local business asks, I dont understand what is happening with all these major scandals such as the Bernie Mardoff scandal, the Goldman Sachs accusations, and the Enron fraud. There are billions of dollars being stolen and manipulated. How can any good auditor not notice when billions of dollars are missing? How would you respond?

SHORT CASE 5
Bob who works as a credit manager for a large bank, has a reputation for being a very hard worker. His convenient downtown apartment is located near the bank, which allows him to work undisturbed late into the night, Everyone knows that Bob loves his job because he has been with the bank for many years and hardly ever takes a vacation. He is very strict credit manager and has the reputation for asking very difficult questions to loan applicants before approving any credit. Nancy, Bobs director, noticed that Bob had not taken a mandatory weeklong vacation for a number of years. Given Bobs history of being tough on approving credit for the bank, should Nancy be concerned?

SHORT CASE 6
While discussing your class schedule with a friend who is an accounting major, your friend describes why she decided not to take the fraud class you are enrolled in With advances in audit technology and the increased digitalization of business records, fraud detection is a dying part of financial statement audit? How would you respond?

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Some of the most important skills for a fraud fighting professionals (Critical skills)
1. Analytical skills
Fraud detection and investigation are analytical process where investigators identify: o the kinds of fraud that could occur o The kinds of symptoms and indicators those frauds would generate o Ways in which to examine and follow up on symptoms that are discovered. It requires significant amounts of diagnostic and exploratory work to discover what is really happening.

2. Communication skills Fraud examiners spend considerable amounts of time interviewing witnesses and suspects and communicating those findings to witnesses, courts, and others. Knows: o how to push for evidence and confessions o How to structure questions and interviews o How to write reposts that valued by courts, lawyers and others 3. Technological skills Using technological advances, he must proactively search for fraud symptoms and fraud perpetrators and build both fraud-free and fraudulent profiles. Knows how to analyze huge data bases very efficiently using the modern technology.

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Other skills that are extremely useful for a fraud fighting professionals (Critical skills)
1. Some understanding of accounting and business
Fraud is always concealed to hide it by perpetrators. The concealment attempts involve altering accounting records and documents.

2. A knowledge of civil and criminal laws, criminology, privacy issues, employee rights, fraud statutes, and other legal fraud-related issues. Investigating and resolving frauds always involves legal questions such as : o Should this case be pursued in the criminal or civil courts? o Are certain gathering techniques legal? o When should law enforcement be involved? 3. The ability to speak and write in foreign language Many frauds today involve individuals in multiple countries. Cross-border investigations are not uncommon, and the ability to speak and write a foreign language. 4. A knowledge of human behaviour, including why and how people rationalize dishonesty how they react when caught, and what is the most effective way(s) to deter individuals from committing.

CERTIFIED FRAUD EXAMINERS (CFEs)

CFEs are considered to be leaders in the antifraud community and have recognition as such throughout the world. They represent the highest standards held by the Association of certified Fraud Examiners (ACFE) and possess expertise in all aspects of the antifraud profession. This profession is acknowledged globally and preferred by many employers. The ACFE states that becoming a CFE immediately sets an individual apart and launches an individual to the top of their profession. ACFE is the worlds largest antifraud organization and the premier provider of antifraud training and education.

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REQUIREMENTS TO BE A CERTIFIED FRAUD EXAMINERS (CFEs)

Be an associate member of the ACFE in good standing. Meet minimum academic and professional requirements. 1. Academic requirements a. With bachelors degree (or equivalent) from an institution of higher learning b. If no bachelors degree, may substitute two-years of fraud-related professional experience for each year of academic study. 2. Professional requirements a. With at least two years of professional experience in a field directly or indirectly related to the detection or deterrence of fraud. b. The following categories are deemed acceptable as fraud related experience: i. Accounting and auditing
1) 2) 3) 4) 5) Evaluation of accounting system for weaknesses Designing internal control Determining the degree of organizational fraud risk Interpreting financial data for unusual trends Following up on fraud indicators

ii. Criminology and Sociology

1) With education or research in the fraud and white collar crime dimensions of sociology or criminology. 2) An experienced background in general sociological field is insufficient.

iii. Loss prevention

1) Who deals directly with issues of loss prevention 2) Who deals with fraud related issue. 3) Experience as security guard or equivalent is not acceptable

iv. Law
1) With experience in legal field (dealing with fraud) 2) Included are prosecuting lawyers, fraud litigators, others with antifraud specialization

Be of high moral character Agree to abide by the By-Laws and Code of Professional Ethics of the ACFE.

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TYPES OF FRAUD
Type of Fraud
Employee Embezzlement

Perpetrator
Employees of an organization

Victim
The employer

Explanation
Employees use their positions to take or divert assets belonging to their employer. This is the most common type of fraud. Vendors either overbill or provide lower quality or fewer goods than agreed. Customers dont pay, pay too little, or get too much from the organization through deception. Management manipulates the financial statements to make the company look better than it is. This is the most expensive type of fraud. These types of frauds are committed on the internet and in person and obtain the confidence of individuals to get them to invest money in worthless schemes. Anytime anyone takes advantage of the confidence of another person to deceive him or her.

Vendor Fraud

Vendor of an organization

Customer Fraud

Customers of an organization

The organization to which the vendors sells goods or services. The organization which sells to the customers

Management fraud (financial statement fraud)

Management of a company

Shareholders and/or debtholders and regulators (taxing authorities, etc.)

Investment scams and other consumer frauds

Fraud perpetrators all kinds

Unwary investors

Other (miscellaneous) types of fraud

All kinds depends in the situation

All kinds depends on the situation

Source: Forensic Accounting 4th Edition (International Edition) by Mark F. Zimbleman and Conan C. Albrect, Southwestern Cengage Learning.

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Differences Between Criminal and Civil Cases Under Philippine Law

By Renato Bautista, Jr.
(Source:http://suite101.com/a/differences-between-criminal-and-civil-cases-under-philippine-law-a285872) From the manner they are initiated, their effects while pending, to the resulting consequences, there are huge differences between criminal and civil cases. There are two major types of cases that can be encountered in regular courts in the Philippines: criminal and civil cases. Unlike in other countries however, regular courts try both types of cases. The State, through the government's prosecutory arm, always participates in criminal cases as a party, while only private parties are usually involved in civil cases. The State involves itself in civil cases only when it is one of the party litigants. Causes of Criminal and Civil Cases Criminal cases stem from violations of penal statutes or laws that impose penalties for their violation. The principal penal statute in the Philippines is the Revised Penal Code, which defines various conducts or activities as crimes and provides penalties for their commission. Examples of crimes are murder, theft, robbery, swindling, arson, rebellion, slander, rape, etc. There are also laws being passed by Congress from time to time, violations of which can result in criminal cases, such as laws against possessing unlicensed firearms or issuing worthless checks. These are called special criminal laws. Civil cases, on the other hand, are caused not by conduct prohibited by law, but personal dealings which give rise to certain obligations, such as entering into a contract or performing acts which result in damages (injuries or financial loss) to another. Examples are non-payment of indebtedness or rents, failure to deliver ordered goods or delivering defective ones, rendering defective service, negligently causing injuries to another or his property, etc. Party Litigants in Criminal and Civil Cases As mentioned, in criminal cases the State is always a party. This is because crimes offend not only the victim, but the State which has an interest in maintaining peace and order in society; this is why all criminal cases are titled "People of the Philippines" versus the accused person. The people or the State is represented by a public prosecutor (formerly called fiscal) whose role is chiefly to prosecute the accused person by proving the charges against him or her. Although strictly speaking the public prosecutor's job is not to seek the conviction of the accused but to find the truth, in reality the prosecutor's disposition is almost always to secure a conviction. The victim of the crime is called the private offended party, but is properly considered merely as the principal witness to the crime, assuming of course he or she is alive or competent to testify. There are crimes, however, where there is no private offended party and are, therefore, called public crimes, such as prostitution, illegal possession of firearms or illegal drugs cases. Consequences of a Criminal Case In a criminal case, if the accused person is convicted or proven guilty, he or she will be penalized. The penalty may be a mere censure, fine, imprisonment or even death, depending on the gravity of the crime committed. The death penalty has been abolished in the Philippines and has been replaced by life imprisonment as the ultimate penalty. Consequences of a Civil Case Unlike criminal cases, civil cases cannot result in the imposition of a penalty. If a person loses a civil suit filed against him or her - depending on the nature of the case - it can result in the payment of a sum of

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money (not in the sense of a fine but as payment of an obligation or for damages), delivery of property, vacating of premises, desistance from performing certain acts, declaration of certain status, etc. Sometimes, certain civil or contractual transactions can give rise to criminal liabilities. The most common example is the issuance of a post-dated check that is without or with insufficient funds. Under paragraph 2 (d) of Article 315 of the Revised Penal Code, as amended by Republic Act No. 4885, when a person issues a worthless check to another in payment of an obligation or for value, he or she can be held liable for swindling or estafa and violation of the Bouncing Checks Law (B.P. 22). It should be noted, however, that the basis of criminal liability here is not the non-payment of an obligation, but the very act of issuing a worthless check which is punishable by law as a crime. References: Revised Penal Code of the Philippines; Batas Pamabansa Bilang 22 (Bouncing Checks Law) >>>>>>>>

DISTINCTIONS BETWEEN CIVIL AND CRIMINAL CASES IN THE U.S.

Criminal case
Purpose Consequences Burden of proof Jury Initiation Verdict Claims To right a wrong Jail and/or fines Beyond a reasonable doubt Jury must have 12 people Determination by a grand jury that sufficient evidence exists to indict Unanimous verdict Only one claim at a time

Civil Case
To obtain a remedy Restitution and damage payments Preponderance of evidence May consist of fewer than 12 persons Filing of a claim by a plaintiff Parties may stipulate to a less than unanimous verdict Various claims may be joined in one action

Source: Forensic Accounting 4th Edition (International Edition) by Mark F. Zimbleman and Conan C. Albrect, Southwestern Cengage Learning.

>>>>>>>>>>>>>>>

FRAUD RELATED CAREERS

Type of employers
Government and law enforcement CPA Firms Corporations Consulting Law firms

Type of career
FBI, postal inspectors, criminal Investigation Division of the IRS, U.S. marshalls, inspector general of various governmental agencies, state investigators, and local law enforcement officials. Conduct investigations, support firms in litigation, do bankruptcy-related accounting work, provide internal audit and internal control consulting work. Prevent, detect, and investigate fraud within a company. Includes internal auditors, corporate security officers, and in-house legal counsels. Serve as an independent consultant in litigation fraud work, serve as expert witness, consult in fraud prevention and detection, and provide other fee-based work. Lawyers provide litigation and defense work for companies and individuals being sued for fraud and provide special investigation services when fraud is suspected.

Source: Forensic Accounting 4th Edition (International Edition) by Mark F. Zimbleman and Conan C. Albrect, Southwestern Cengage Learning.

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THE CASE OF PYRAMIDING SCHEME IN THE PHILIPPINES

NBI busts another pyramiding scam

By Edu Punay (The Philippine Star) | Updated November 20, 2012 - 12:00am

(Source: http://www.philstar.com/headlines/2012/11/20/868917/nbi-busts-another-pyramiding-scam)
MANILA, Philippines - The National Bureau of Investigation (NBI) uncovered another pyramiding scam yesterday. Justice Secretary Leila de Lima said the NBI arrested Glenda Andagan, manager of Visioner 2020 International Traders Inc., a fledgling trading firm that allegedly duped over 100 people, mostly from Lanao del Sur, through the same Ponzi scheme that Aman Futures Group Phils. Inc. and Rasumans Nad 21 Auto Option had used. Andagan was caught in her office in the act of accepting P30,000 in marked money from an NBI agent who posed as an investor. Speaking to reporters, De Lima said the illegal scheme continued to lure people amid wide publicity on the Aman and Nad 21 cases. Why are there people who are gullible to this scam? she said. We have been giving stern warning, but the government can only help those who want to be helped. This is a serious societal problem. Visioners operation is relatively smaller compared to those of Amans and Rasumans, De Lima said. The NBI launched the operation after at least 20 people were victimized by Visioners offer of 30 -percent return on investments. Meanwhile, De Lima said a team of prosecutors will help the NBI in building the case and gathering evidence against Manuel Amalilio of Aman and Jachob Coco Rasuman. The NBI continues to receive complaints from victims and trace the whereabouts of incorporators and officers of the two firms, she added. De Lima said Ma. Donna Coyme, the agent of Aman who had cooperated with the probe and revealed the modus operandi of the firm, has already been placed under the NBIs protective custody. They have yet to assess if Coyme could be used as a state witness after examining her extensive affidavit giving a comprehensive picture of the scam, she added. Some members of the Aman board have sent feelers to become state witness, she added. De Lima said steps have also started to seek the freezing of the assets of Amans and Rasumans firms. The involvement of local officials in the scams was too early to conclude, she added. Rasuman was placed under the provincial governments protective custody in Marawi City. A special panel of state prosecutors is now conducting preliminary investigation on six complaints against Aman in Pagadian City and five against Nad 21 in Cagayan de Oro City. The cases against Amalilio and Rasuman are set to be filed in court in the next few days, De Lima said. Cebu to revoke Aman permits Cebu City Mayor Michael Rama will revoke the temporary business permit issued to Aman Futures Group Philippines Inc.

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I will direct my City Treasurer to send me a letter so I can revoke it immediately, he said. Apparently, Aman was able to secure a temporary business permit from the city last Sept. 28. Last July 25, the company applied for a business permit under the name of Luna Fernando. The business address registered was at Unit 1202-A Keppel Center, Cebu Business Park in Barangay Luz. The company declared a capital investment of P10,000,000. Cebu City Treasurer Emma Villarete said the issuance of a temporary business permit to any applicant is part of the process. In every application, the city issues a temporary permit so the establishment can start operating while the applicant is completing all the requirements, she added. Villarete said the temporary permit is immediately revoked if the applicant does not satisfactorily pass inspection or if the applicant fails to comply with all the requirements within a specified period of time. They also did not receive any complaint when Aman applied for a permit to do business in Cebu City, she added. Rama said that no victim has come to their office to complain or seek legal assistance. Victims of Aman in Cebu City may approach his office for help, he added. DTI, SEC to be more proactive At Malacaang, presidential spokesman Edwin Lacierda said government agencies like the Department of Trade and Industry (DTI) and the Securities and Exchange Commission (SEC) must be more proactive in stopping pyramiding scams. Whats difficult here is that... if its too good to be true, thats something that you should consider suspicious, he said. I suppose because the interest being offered is huge (so they got en ticed). But, this has been happening even before, we have advised the people to be careful about huge and really good offers, high interests, in fact, beyond banking rates. Lacierda said the public must be cautious and report to the government if they become aware of other scams. We will know once there are complainants and it is unfortunate that (there were) a number of our citizens who were victimized by the scam, he said. Nonetheless, we are investigating all this, and we will ensure, at the very least, that we will make this public information on scams. I think, the DTI local offices will be more proactive because... if you notice, the scams happened in the south. So DTI (offices) will have to be more vigilant. The SEC, Im not sure if they have regional offices. But, we know for a fact that the DTI office, in fairness to DTI Pagadian, they issued a warning. Lacierda said it could be a persons natural desire for wealth and for high interest rates that prompted them to invest in these scams. Its very, very unfortunate, he said. But Im sure that SEC and the DTI will be very vigilant in averting another round of scams.

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Former Autonomous Region in Muslim Mindanao deputy governor Norodin Lucman said he had received reliable information that a number of local governments in Lanao del Sur used their internal revenue allotment to invest in the firms of Rasuman for the purpose of making money out of government funds. Drug money was also allegedly used to invest in the Rasuman Group, he added. Lucman said victims of the Rasuman scam came from the cities of Marawi, Iligan, Cagayan de Oro and Cotabato. Public funds in our place are treated like a private bank account, he said. Government has to look into these public funds. Lucmans own clan, which consists of several politicians in Northern Mindanao, was also duped by the Rasuman group of over P100 million in investments. Rasumans wife is Princess Tomawis whose father is Southern Philippine Development Authority chairman Jerry Tomawis. Lucman said Tomawis is the brother of Alif party-list Rep. Acmad Tomawis. Lucman is alarmed at the possibility of lawlessness in Northern Mindanao when people start to take matters into their own hands to recover their money. Unlike in Pagadian where guns are controlled, here loose firearms are in the thousands, he said. With Aurea Calica, Jess Diaz, Jessica Ann Pareja/Freeman

SPECIAL REPORT | Of Ponzi and pyramid scams: Why do Pinoys keep falling into the same old trap?
By: Likha Cuevas-Miel, InterAksyon.com November 15, 2012 9:09 PM

(Source: http://www.interaksyon.com/business/48146/special-report--of-ponzi-and-pyramid-scams-why-do-pinoys-keepfalling-into-the-same-old-trap)

Educating the masses Roel Refran, chief operating officer of the Philippine Stock Exchange (PSE) says that it was very unfortunate that 15,000 people were duped in the P12-billion pyramiding scam operated by Aman Futures Philippines, Inc. Refran says the Aman scam was a "widespread Ponzi scheme," which was supposed to be something that the public already knew about. What suprises Refran was that professionals such as doctors and lawyers were still duped by Aman. He says this only proves that despite their being highly educated, there are professionals who are still "not well-versed in finance and capital markets." To the non-finance person, a 35-percent a week yield on investment, which Aman Futures used to peddle, is too good to be true, according to the PSE executive. "That is already a red flag. The [stock] market now is only doing 25 percent [annually]," Refran says.

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Telemarketing Scams
(Source: http://www.consumer.ftc.gov/articles/0076-telemarketing-scams)

Signs of a Telemarketing Scam

Often, scammers who operate by phone dont want to give you time to think about their pitch; they just want to get you to say "yes." But some are so cunning that, even if you ask for more information, they seem more than happy to comply. They may readily direct you to a website or otherwise send information featuring satisfied customers. These customers, known as shills, are likely as fake as their praise for the company. Here are a few red flags to help you spot telemarketing scams. Say "no, thank you," hang up, and file a complaint with the FTC if you hear a line that sounds like this: "You've been specially selected." (for this offer) "You'll get a free bonus if you buy our product." "You've won one of five valuable prizes." "You've won big money in a foreign lottery." "This investment is low risk and provides a higher return than you can get anywhere else." "You have to make up your mind right away." "You trust me, right?" "You don't need to check our company with anyone." "We'll just put the shipping and handling charges on your credit card."

How They Hook You

Scammers use exaggerated or even fake prizes, products or services as bait. Some may call you, but others will use mail, texts, or ads to get you to call them for more details. Here are a few examples of offers you might get: Travel Packages. Free or low cost vacations can end up cost ing a bundle in hidden costs. Some of these vacations never take place, even after youve paid. Credit and loans. Advance fee loans, payday loans, and credit card protection are very popular schemes, especially during a down economy. Sham or exaggerated business and investment opportunities. Promoters of these have made millions of dollars. Scammers rely on the fact that business and investing can be complicated and that most people dont research the investment. Charitable causes. Urgent solicitations for recent disaster relief efforts are especially common on the phone. High-stakes foreign lotteries. These solicitations violate U.S. law, which prohibits the cross-border sale or purchase of lottery tickets by phone or mail. Whats more, you may never see a ticket. Extended car warranties. Scammers find out what kind of car you drive, and when you bought it so they can urge you to buy overpriced or worthless plans

Buying into any of these "offers," or ones like them, will likely lead to another call from another salesperson promising to get your money back for a fee. This is called a refund or recovery scam.

Why They're Calling You

Everyone's a potential target. Fraud isn't limited to race, ethnic background, gender, age, education, or income. That said, some scams seem to concentrate in certain groups. For example, older people may be targeted because the caller assumes they may live alone, have a nest egg, or may be more polite toward strangers.

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How to Handle an Unexpected Sales Call

Questions to Ask
When you get a call from a telemarketer, ask yourself: Whos callingand why? The law says telemarketers must tell you its a sales call, the name of the seller and what theyre selling before they make their pitch. If you dont hear this information, say no thanks, and get off the phone. Whats the hurry? Fast talkers who use high pressure tactics could be hiding something. Take your time. Most legitimate businesses will give you time and written information about an offer before asking you to commit to a purchase. If its free, why are they asking me to pay? Question fees you need to pay to r edeem a prize or gift. Free is free. If you have to pay, it's a purchase not a prize or a gift. Why am I confirming my account information or giving it out at all? Some callers have your billing information before they call you. Theyre trying to get you to say okay so they can claim you approved a charge. What time is it? The law allows telemarketers to call between 8 am and 9 pm. A seller calling earlier or later is flouting the law. Do I want more calls like this one? If you dont want a business to call you again, say so and register your phone number on the National Do Not Call Registry. If they call back, theyre breaking the law.

Some Additional Guidelines

Resist pressure to make a decision immediately. Keep your credit card, checking account, or Social Security numbers to yourself. Don't tell them to callers you don't know even if they ask you to confirm this information. That's a trick. Dont pay for something just because youll get a free gift. Get all information in writing before you agree to buy. Check out a charity before you give. Ask how much of your donation actually goes to the charity. Ask the caller to send you written information so you can make an informed decision without being pressured, rushed, or guilted into it. If the offer is an investment, check with your state securities regulator to see if the offer and the offeror are properly registered. Dont send cash by messenger, overnight mail, or money transfer. If you use cash or wire money rather than a credit card in the transaction, you may lose your right to dispute fraudulent charges. The money will be gone. Dont agree to any offer for which you have to pay a registration or shipping fee to get a prize or a gift. Research unsolicited offers with your consumer protection agency or state Attorney Generals office before you agree to send money. Beware of offers to help you recover money you have already lost. Callers say ing they are law enforcement officers who will help you get your money back for a fee are scammers. Say no thanks and hang up the phone. If you dont want a business to call you again, say so. If they call back, theyre breaking the law. Register your home and mobile phone numbers with the National Do Not Call Registry. This wont stop all unsolicited calls, but it will stop most. If your number is on the registry and you still get calls, they are likely to be from scammers ignoring the law. Report any caller who is rude or abusive, even if you already sent them money. They'll want more. Call 1-877-FTC-HELP or visit ftc.gov/complaint.

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SAMPLE NIGERIAN LETTER

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IDENTITY THEFT
Techniques for obtaining and exploiting personal information for identity theft
Source: http://en.wikipedia.org/wiki/Identity_theft
Identity thieves typically obtain and exploit personally identifiable information about individuals, or various credentials they use to authenticate themselves, in order to impersonate them. Examples include: Rummaging through rubbish for personal information (dumpster diving) Retrieving personal data from redundant IT equipment and storage media including PCs, servers, PDAs, mobile phones, USB memory sticks and hard drives that have been disposed of carelessly at public dump sites, given away or sold on without having been properly sanitized Using public records about individual citizens, published in official registers such as electoral rolls [14] Stealing bank or credit cards, identification cards, passports, authentication tokens ... typically by pickpocketing, housebreaking or mail theft Common-knowledge questioning schemes that offer account verification and compromise: "What's your mother's maiden name?", "what was your first car model?", or "What was your first pet's name?", etc. Skimming information from bank or credit cards using compromised or hand-held card readers, and creating clone cards Using 'contactless' credit card readers to acquire data wirelessly from RFID-enabled passports Observing users typing their login credentials, credit/calling card numbers etc. into IT equipment located in public places (shoulder surfing) Stealing personal information from computers using breaches in browser security or malware such as Trojan horse keystroke logging programs or other forms of spyware Hacking computer networks, systems and databases to obtain personal data, often in large quantities Exploiting breaches that result in the publication or more limited disclosure of personal information such as names, addresses, Social Security number or credit card numbers Advertising bogus job offers in order to accumulate resumes and applications typically disclosing applicants' names, home and email addresses, telephone numbers and sometimes their banking details Exploiting insider access and abusing the rights of privileged IT users to access personal data on their employers' systems Infiltrating organizations that store and process large amounts or particularly valuable personal information Impersonating trusted organizations in emails, SMS text messages, phone calls or other forms of communication in order to dupe victims into disclosing their personal information or login credentials, typically on a fake corporate website or data collection form (phishing) Brute-force attacking weak passwords and using inspired guesswork to compromise weak password reset questions Obtaining castings of fingers for falsifying fingerprint identification. Browsing social networking websites for personal details published by users, often using this information to appear more credible in subsequent social engineering activities Diverting victims' email or post in order to obtain personal information and credentials such as credit cards, billing and bank/credit card statements, or to delay the discovery of new accounts and credit agreements opened by the identity thieves in the victims' names Using false pretenses to trick individuals, customer service representatives and help desk workers into disclosing personal information and login details or changing user passwords/access rights (pretexting) Stealing cheques (checks) to acquire banking information, including account numbers and bank routing [15] numbers Guessing Social Security numbers by using information found on Internet social networks such [16] as Facebook and MySpace Low security/privacy protection on photos that are easily clickable and downloaded on social networking sites. Befriending strangers on social networks and taking advantage of their trust until private information are given.

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LETTER OF CREDIT FRAUD

Source: http://www.fraudaid.com/letter_of_credit_fraud.htm
Letter of Credit (LC): Letters of credit became necessary when trade between countries made it impossible to simply do business by handshake. They were initially introduced by the merchant banking system in Europe, and grew out of earlier contracts such as the "chop" in Asia and the personal "house" emblem embossed in hot wax used throughout Europe and Arabia. Originally, a Letter of Credit was quite literally that - a letter addressed by the buyer's bank to the seller's bank stating that they could vouch for their customer, the buyer, and that they would pay the seller in case of the buyer's default. Nowadays, they are formatted to provide fill-in spaces for the various requirements of international or domestic business. It is written by a bank on behalf of one of it's creditworthy customer, who's application for the line of credit has been approved. Back to top The sequence of information on Letter of Credit the language used is determined by rules set by the INTERNATIONAL CHAMBER OF COMMERCE (ICC). The rules and language are very specific and cannot be changed, and are spelled out in the ICC's Uniform Customs and Practice for Documentary Credits, or UCP500. The parties to a Letter of Credit are (1) the buyer (the applicant) (2) the buyer's bank (the issuer) (3) the beneficiary (the seller/payee) (4) the beneficiary's bank. The LC outlines the conditions under which payment (credit) will be made to a third party (the beneficiary). The conditions are specified by the buyer and may include insurance forms, Way Bills, Bills of Lading, Customs forms, various certificates - i.e. whatever documents are necessary to safeguard the integrity of the purchased product or service. It is the responsibility of the issuing bank to ensure, on behalf of its client the buyer, that all documentary conditions have been met before the Letter of Credit funds are released. In effect, a basic Letter of Credit is a financial contract between the bank, the bank's customer, and the beneficiary, and this contract* involves the transfer of goods or services against funds. *Not to be confused with the contract between the buyer and seller. The neither of the banks have any interest in that kind of contract. The Letter of Credit may be written for a short period of time, covering one shipment of goods, or may be written for a greater amount and for a longer period of time in order to cover say, a year's worth of shipments ( Note: a valid Letter of Credit never carries the term "one year and one day" which is a meaningless term created by fraudsters). The maturity date on a Letter of Credit is the date on which the full value of the credit is payable. A Letter of Credit may have a discount rate. That means that the buyer may not have been the one to close the deal with seller. Perhaps it was arranged by a licensed broker, the buyer's agent, or perhaps the importer's bank acting as the buyer's agent. In that case, the difference between the actual amount available for purchase expenses and the full value of the Letter of Credit is the commission earned by the broker.

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In any event, the buyer has to either have the funds on deposit in his bank to cover the full value, or has to have made other arrangements with his bank to cover the full value. A Letter of Credit cannot be purchased for only a small percentage of the face value and then cashed across the street for the full face value. There are several types of Letter of Credit: BACK-TO-BACK LETTERS OF CREDIT, CREDIT ENHANCEMENT, IRREVOCABLE LETTER OF CREDIT, STANDBY LETTER OF CREDIT, CONFIRMED LETTER OF CREDIT, and DOCUMENTARY LETTER OF CREDIT, TRAVELER'S LETTER OF CREDIT, as well as documentary commercial bill, red clause Letter of Credit, sight draft, and time draft. Once you understand the uses for a Letter of Credit, even uses for the ones not defined in this dictionary become self-evident. The Scam: Fraudsters would like you to believe that Letters of Credit are investment securities, but as you can see, a Letter of Credit is written on an individual basis and must bethoroughly researched. While a Letter of Credit may be forfaited, the financial instrument equivalent of factoring, that is not a procedure to be taken up by the inexperienced. Without an intimate knowledge of trade finance, trade law, and international politics and economics, you can quickly find yourself up the creek without a paddle. The usual swindler approach involves persuading you that a Letter of Credit or similar instrument can be purchased at enormous discount in exchange for your funds, and that a few weeks or months later this same financial instrument will be worth hundreds of thousands more. Or can be sold for hundreds of thousands more. Or can be turned around overnight. Or traded for a higher value. It just ain't so, and now you know why.

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