WHITE-COLLAR CR ME
com
YOUR SECRET WEAPON IN THE WAR ON FRAUD
IN THE NEWS
Mortgage Fraud that Led
to Financial Crisis Leads
to More Mortgage Fraud
Y ou’d think that with banks
and other mortgage lenders
tightening up on lending stan-
dards to strengthen their defenses
against fraudulent loan applica-
tions, mortgage fraud would be on
the decline.
On the contrary.According to the
Mortgage Asset Reporting Institute
(MARI), a unit of Lexis-Nexis, mort-
gage fraud actually was sharply
higher in 2008. Between 2007 and
2008 the number of reported inci-
dents of mortgage fraud jumped by
26% to an all-time high, represent-
ing losses of nearly $25 billion com-
pared with just under $20 billion
for the previous year.
Disturbing: This trend ran
counter to that in mortgage origi-
nations which in dollar terms
plunged by nearly 40% between
2007 and 2008.
Possible explanation: “With
fewer loan originations today, the
data suggests that the economic
downturn may have created more
desperation, causing more people
than ever before to try to commit
mortgage fraud,” said Denise James,
LexisNexis Risk & Information
Analytics Group director of
Residential Mortgage Solutions.
White-Collar Crime Fighter source:
11th Periodic Mortgage Fraud Case
Report to the Mortgage Banker’s
Association (MBA), by Mortgage Asset
Research Institute,www.marisolutions.com.
IN THIS ISSUE
•LOSS PREVENTION
How to obtain confessions in
retail fraud cases..................3
•CARD CONTROLS
Prevent purchase card fraud... 4
•INTELLECTUAL PROPERTY
Industrial espionage is a serious
danger in a down economy...... 5
•THE CON’S LATEST PLOY
Law-enforcement successes
from around the country........ 7
FIGHTER
Joseph Spinelli, Daylight Forensic and Advisory LLC
INTERNAL FRAUD
INVESTIGATIONS
Critical Resources
A
ccording to key audit standards, it
is management’s responsibility to
determine if suspicious financial
activity warrants initiation of a fraud
investigation.
Specifically, while internal audit (IA) is
expected to comply with rules govern-
ing internal controls over financial
reporting and detection of red flags of
possible operational fraud, evidence
gathered by IA of suspicious activity
must be evaluated and acted on by man-
agement.
Unfortunately, many organizations
lack a formal fraud management strategy
or programs that can assess fraud risks,
monitor the effectiveness of internal
anti-fraud controls and apply the appro-
priate procedures when evidence of
fraud is discovered—including investiga-
tions, when necessary.
These and other key anti-fraud duties
and responsibilities should be integral
elements of an enterprise-wide Fraud
Management Program (FMP), established
by management with active oversight by
the audit committee (see White-Collar
Crime Fighter,April 2008, page 5).
Problem: When evidence requires a
full fraud investigation, many organiza-
tions rely on outside investigative ser-
vices to handle the case. This can
become prohibitively costly if fraud
activity increases, as is the case now, due
to the economic downturn. It can also
produce poor results, because a third
party’s lack of familiarity with your orga-
nization’s unique operational, cultural
and compliance functions can under-
mine the effectiveness of an internal
www.wccfighter.
VOLUME 11 NO. 3
MARCH 2009
fraud investigation.
Solution: Establish an in-house fraud
investigation unit (FIU). In all likelihood,
employees with the professional skills
and background necessary to put such a
team together are already on your pay-
roll. It’s a matter of assembling the team,
establishing its mission and providing it
with the tools and financial resources to
fulfill its duties. Added advantages of an
in-house FIU:
•Unlike outside investigators, internal
FIU members are familiar with your orga-
nization’s entity-level operational
processes and procedures and therefore
do not require a “learning curve” to con-
duct an efficient and effective fraud
investigation.
•Having an FIU enables management
to quickly and efficiently investigate tips
about possible fraudulent activity pro-
vided by employees via the organiza-
tion’s Sarbanes-Oxley-mandated whistle-
blower hotline.
•Having an FIU in place and ensuring
that it performs its duties in all incidents
of internal wrongdoing establishes a pos-
itive impression of the organization in
the eyes of government investigators and
prosecutors in the event that a serious
fraud within your organization attracts
the attention of these authorities.
THE FIU TEAM
It is essential that all members of your
FIU team have “real-life”experience with
fraud investigations,fraud prevention man-
agement and communication with senior
management and outside authorities.
Your FIU should be headed by an indi-
 WHITE-COLLAR CRIME FIGHTER
vidual with a combination of critical skills
and experience. Specifically, the Director
of Investigations should have…
•Extensive experience in investigating
institutional fraud, especially complex
financial crimes.
•A solid track record of successful
managerial experience.
•Exceptional communications skills—
to forge cohesiveness among the FIU
team and maintain positive and produc-
tive contact with top management and
the board of directors.
•Leadership qualities. This position
can often involve long hours and stress-
ful conditions. The ability to stay “cool”
under pressure and maintain productivi-
ty among the team is essential.
Under the Director of Investigations,
other members of your FIU should
include…
•Chief Audit Executive—or at least a
senior member of the IA team with
extensive fraud experience, especially in
conducting fraud risk assessments.
•Experts in electronic evidence gath-
ering and data mining.
•Forensic accountants who are profi-
cient in the widely used audit analytics
software programs such as ACL and IDEA
and who have experience in applying
these tools in fraud investigations.
Simple
but Effective Loss
Prevention “System”
o get a step ahead of retail
T fraudsters trying to perpetrate
bogus returns, arm your loss pre-
vention (LP) managers and offi-
cers with cell phones that allow
for text messaging between LP
personnel within the company.
Key: LP staff are often out of
the office and/or involved in a
case.They can’t always come to a
land-line. However, they can
always receive a text on a cell
phone from a team member in
another of your stores, saying,
“Heads up: traveling refunders
may be on the way to your store;
here’s a description (to include,
today, the ability to attach a photo
of the refunder and/or his/her
vehicle).”
White-Collar Crime Fighter source:
Jack W. Brown, PhD, Dean of Criminal
Justice, Beckfield College, jbrown@beck
field.edu.
2
•Due diligence experts trained in
uncovering critical background informa-
tion about vendors, agents, sales repre-
sentatives, joint venture partners and
other parties with whom the organiza-
tion does direct business.
These skills will be beneficial if the
organization has operations in foreign
countries or is considering an overseas
presence.The Foreign Corrupt Practices
Act provides for hefty penalties for any
US organization that offers or pays
Having an FIU enables
management to quickly and
efficiently investigate tips
about possible fraudulent
activity provided by employees
bribes to foreign officials. Knowing who
your organization is doing business with
overseas is therefore an absolute essen-
tial in today’s global economy.
SETTING UP THE OPERATION
Once you have your FIU leader and
team members selected, follow these
steps for getting the unit up and run-
ning…
•Draft a mission statement for the
unit, articulating its specific duties and
responsibilities. These should naturally
encompass the job of protecting the
organization against losses due to inter-
nal and external fraud…safeguarding
the organization’s reputation for integri-
ty and business ethics…managing coop-
eration with law enforcement authori-
ties…supporting the organization’s
efforts to comply with all applicable
laws and regulations related to main-
taining proper internal controls, securi-
ties matters, whistleblower protections,
fraud prevention and ethics.
•Review and enhance your Fraud
Management Program, or if the organi-
zation lacks one, assign your FIU leader
the task of formulating one as quickly as
possible.
•Develop a manual or handbook for
conducting internal fraud investigations
and ensure that your entire FIU team is
fully familiar with it. This tool should
include detailed investigative proce-
dures, and full descriptions of the spe-
cific duties of each team member in
conducting an investigation.
•Establish standards for writing inves-
tigation interview reports and require
all reports to be submitted to a central
repository—such as the General
White-CollarCrime
FIGHTER
Editor
Peter Goldmann
Consulting Editor
Jane Y. Kusic
Managing Editor
Juliann Lutinski
Senior Contributing Editor
Linda Stockman-Vines
Associate Editor
Barbara Wohler
Design & Art Direction
Ray Holland, Holland Design & Publishing
Panel of Advisers
Credit Card Fraud
Tom Mahoney, Merchant 911.org
Forensic Accounting
Stephen A. Pedneault, Forensic
Accounting Services, LLC
Fraud and Cyber-Law
Patricia S. Eyres, Esq., Litigation
Management & Training Services Inc.
Corporate Fraud Investigation
R.W. (Andy) Wilson,Wilson & Turner
Incorporated
Corporate Integrity and
Compliance
Martin Biegelman, Microsoft Corporation
Securities Fraud
G.W. “Bill” McDonald, Investment and
Financial Fraud Consultant
Prosecution
Phil Parrott,Deputy District Attorney
Denver District Attorney’s Office,
Economic Crime Unit
Computer and Internet Investigation
Donald Allison, Senior Consultant,
Stroz Friedberg LLC
Fraud Auditing
Tommie W. Singleton, PhD
University of Alabama at Birmingham
White-Collar Crime Fighter (ISSN 1523-
0821) is published monthly by White-Collar
Crime 101, LLC, 213 Ramapoo Rd.,
Ridgefield, CT 06877. www.wccfighter.com.
Subscription cost: $295/yr. Canada, $345.
Copyright © 2009 by White Collar Crime
101, LLC. No part may be reproduced w th-
out express permission of the publisher.
Mission Statement
White-Collar Crime Fighter provides
information of maximum practical value
to organizations and individuals involved
in all facets of investigating, detecting
and preventing economic crime.
This community includes law internal
auditors…fraud examiners…regulatory
officials…corporate security profession-
als…senior executives…private investi-
gators…and many more.
The editors of White-Collar Crime
Fighter strive to gather and compile the
most useful and timely information on
economic crime issues.
Comments, suggestions and ques-
tions are welcome. Please fax us at
203-431-6054, or E-mail us at edi
tor@wccfighter.com. Visit us on the
Internet at www.wccfighter.com.

Counsel’s office—no more than three
days after completion of the inter-
views.
Reason: Fraud investigation
reports must contain facts only. They
should be devoid of the writer’s opin-
ions or subjective conclusions. After
three days, details of the investigation
become less vivid in the investigator’s
mind, and that can compromise the
accuracy of the report.
•Formulate and publish a detailed
guide for interviewing and interrogat-
ing fraud subjects.
•Set up a case management system
to enable the FIU leader to determine
the exact status of all ongoing investi-
gations at any given time.
•Formalize a policy requiring the
Director of Investigations to inform
senior management and the audit
committee of all investigations that
may require the involvement of law
enforcement.This decision should not
Develop a manual or handbook
for conducting internal fraud
investigations and ensure that
your entire FIU team is fully
familiar with it
be made by the FIU.
Additional FIU “musts”:
•Ensure that all details of internal
fraud investigations remain confiden-
tial. This is the only way to establish
confidence among the organization’s
employees that when they share sen-
sitive information about a fraud inci-
dent with your FIU team, their coop-
eration won’t result in retaliation, ret-
ribution or other negative conse-
quences.
•Require your FIU to conduct
enterprise-wide fraud awareness train-
ing. Unless employees know how to
spot the red flags of fraud or suspi-
cious conduct, they will be unable to
make use of the organization’s hotline
which is the FIU’s best potential
source of tips on actual or suspected
wrongdoing.
White-Collar Crime Fighter source:
Joseph Spinelli, Co-Founder and Chief
Operating Officer, Daylight Forensic and
Advisory LLC, a New York City-based interna-
tional anti-fraud and compliance consulting
firm. Joe was the first Inspector General of the
State of New York and served 10 years as an FBI
agent. He can be reached at jspinelli@daylight
forensic.com.
WHITE-COLLAR CRIME FIGHTER
LOSS PREVENTION
Jack W. Brown, PhD, Beckfield College
Retail Fraud Cases
How to Obtain
Confessions
here are three investigative
T essentials to obtaining a true and
complete confession from a sub-
ject in a theft or fraud case—prepara-
tion, investigation and interrogation.
•Preparation. Essential steps:

Formulate detailed work sched-
ules for the investigator and for the sub-
ject—by coordinating with human
resources and/or the subject’s immediate
supervisor.

Prepare an overview of the sub-
ject’s background—including psycholog-
ical profile, employment history, financial
analysis, social characteristics, education-
al history.
Example: Determine if the subject
has characteristics consistent with an
A, B or C type personality…whether
he or she has a tendency toward
aggressiveness…and whether he or
she is a “leader” or a “follower.”
With regard to employment history,
determine if the subject has a stable
and consistent job history…if he or
she has been promoted vertically or
laterally…and if he or she has taken
positions that consistently pay more.
Key: These characteristics help to
build a profile of the individual—to
help in framing the right interrogation
questions in order to speed the
process of obtaining a confession.
•Investigation. The investigative
function serves as the “glue” for the
investigator’s case. If the investigator
has prepared properly, the investiga-
tion should unfold in a logical, disci-
plined and effective manner.
Important benchmark: Most retail
investigations should not drag on for
many months. If they do, the investiga-
tor likely did not spend enough time
preparing.
Key: Cases that have as their focus
one subject, committing one or two
consistent methods of criminal activity,
do not require extensive investigation.
They simply require proper prepara-
tion and sufficient investigation to
yield a true and complete confession.
Contrast: Cases that involve more
than one subject, committing several
types of criminal activity do require
extensive investigation.
Useful guideline: Use the multi-
dimensional nature of a case, not the
sole financial aspect of it, to determine
whether to terminate or continue an
investigation.
Example: A refund fraud case that
has a single subject who has worked
for the company for six months and to
whom, upon initial discovery of crimi-
nal activity, less than $1,000 in losses
can be attributed, does not necessarily
result in a short investigation.
Reason: Proper preparation in this
example would reveal that the subject
is one of three friends who work in the
company. However, all three came into
the company at different times, and
work different shifts in different
departments.
That may or may not mean that they
are part of the same fraudulent activity.
Nor should an investigator automati-
cally assume that since all three friends
are of the same sex they do not have
internal or external accomplices of the
opposite sex.
Key finding: What initially
appeared in this case to be one subject
acting alone was in fact two employees
and a host of outside collaborators act-
ing in concert.
The origins of the case stemmed
from the initial refund activity of one
subject that was less than $100 in
Continued on pg. 4