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findings and assisting in the detection and prevention of fraudl' lhis defini-
It
depends on the jurisdiction in which CFEs practice and the tlPes of work
performed. That could incluCe conducting fraud investigations, internal investigations for their employers,
expert witness testimonies, litigation support services or independent white-
ifan investigation is to be conducted within city limits. Likewise, each Canadian province has PI licensure requirements, Australia requires PIs to
served be licensed at the state or territory level,
District of Columbia'
The statutes can change at any time. Even though a license isnt required
now it doesnt necessarily mean that the jurisdiction wont require it in the near
future. The trend is moving towards required licensing, and states with no such recuirements are the exception rather than the rule.
CFEs will need to research unique
emplovers ^^l^l-, Url ^^ L^L^lr^f rrrrylvlvr lrrLrr ^*-l^.'.. UcildiM +L...i5UtElI assume that onll inoependent CFEs
had no licensing requirements have rennire rorontlrr -o.co.l hillc thqt rrrill ''-^- -t*^- registration and licensing, and others
have bills pending that could chanse
in private praciice neeci to be licensed. Thati true in most states, but eight states that require PI licensure proride no such exception for employees conducting internai ini'estigations on behalf of their emplovers.
The 2013 Fraud Examiners L[.anual
states, "Fraud
current regulations. States earn fees from licensing PIs, and the regulations also give states the power to discipline and limit what non-sworn 1all'
enforcement personnel can do rthile conducting an investigation.
requirements in each of the jurisdictions in ivhich thev practice to determine if they're required to obtain PI
iicenses. It may be possible to request opilions from the states' attorneys general offices for particular situations. The chart, which will assist you in condiicting,tour o\{n research, is based on
a
eramination is a methodolop tbr resolving fraud allegations tlom inception to disposition. I{ore specificallt, fraud eramination involves obtaining eridence and taking statencnts. \\'riting retrorts. testih ing to
Chart on Fraud-Magazine.com
The detailed chart at Frauci-\fasazi;le-
com (available July l) accompai\rn< this column will assist you in resear*ing licensure requiremenls in variou'
::cr-:cie anv legal opinions on specific license requirements in any individual :a-.<. \bu should consult local legal
.,2
FRAUD
MAGMINE
FMUD-MAGMINE.COM
from PI licensure in various jurisdictions include attorneys, CPAs, government officials, individuals conducting genealogical research, computer
forensics experts, insurance adjusters,
Definitions of an 'investigator'
Although each jurisdiction is different, tlpical examples of statutory definitions ofan investigator that lvould require
licensure include a person investigating:
The identity, habits, conduct,
performing an
Don't wait to be embarrassed on the stand or find yourself charged with a crime. Proactively investigate the necessity of licensure in the jurisdictions in which you practice.
Journal of Accountancy March 5,2013, employer, such as an internal auditor or company detective. However, some
as an ex-
of lost or stolen property, missing persons, owners or heirs ofproperty or heirs to estates.
The origin of and responsibility
pert witness or fact witness, be sure that you're either properly licensed within that jurisdiction or specifically exempted from licensure requirements. Otherwise, opposing counsel can accuse you
which means that CFEs conducting fraud investigations for their employers
may require iicenses.
Some states specificaliy exempt a
person conducting computer forensic examinations, while other states specifically include them in the definition of
an investigator requiring a PI license.
Each
properry
The conduct, honesty, efficiency, Ioyalt,v or activities of employees, persons seeking employment, agents,
to disallow your testimony entirely. Either way, your case and professional
reputation could be severely damaged. Requirements for obtaining a PI
license vary by jurisdiction, but most
written test, others have CPE or training requirements and a few states virtually require prior Iaw enforcement experience. Most jurisdictions require
a
It goei ',iihorrt saving (but I'11 it anr.n'av) that CFEs and CPAs
as
that the private investigator or his or her firm be bonded; the amount ofrequired bond varies by jurisdiction and
ranges from $2,500 to $100,000. A few
states allow malpractice
conduct-
Staring at a felony?
-\iir-oae mar'file a complaint in most :taies that require licensure ofpnvate lnlestigators against an indrr.idual or
liabiliry insur-
properlv licensed ii their jurisdictions require it. Other key rr.ords that would likelv triqeer hcensure requirement,
depending
ern 'rhe
ance in lieu of
bond.
!m
jurisdiction, include:
r.iihout a license vary but in a ferv states rhe ;rime is a felonv. In one recent case,
a C.P.\
\r-r-r.rs
.
investiga!o1s: ibrensic accounting; liiigaaor s::3ii senices: computer ibrel-.i; <-u::.raiion or specific tasks
COI{NNUED ON PAGE 17
i.i.iii;illg
FRAUD MAGAZINE
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variety of funciraising activities to fulfill their objectives. Most school departments raise funds with rhe approval of school administrators. Athletic departments raise the highest amounts for
retail trade, manage these programs in middle schools, high schools, com-
propriationsj, l\ihich invohre stealing an entilri ii:i-'cis, iall inio three categories: larcenr', iraudulent disbursements and
skimaring. Cash larcenv schemes involve ihe then of funds recorded in the
activities, and the ASB fund treasurers maintain the clubs' accounting records. Facult,v advisors normally skim revenue from event proceeds before they give rnoney to the treasurers for deposit. Disbursement schemes are rare. Faculq' advisors also teach students
that suffered a revenue loss ofapproximately USD$6,800 each (USD$54,400 annuaiiy). Tnese iosses pnmarii,v occur when one individuai is responsible for all club revenue n'iih no monitoring bv
managers. Investigators oiten can't find those responsibie because too manv people har.e had access to product
entitr s aiiounting rccor,i:. ln lrauduleni i.iisb'*isenent schernes, an indir-irjuai makes a ciistribution of entin'funds for a iish,-xest iiurrose. Skimming, ihe tnei-l oi lf,bcok iunis, is usuallr. at the
hean ci srudeli tuliraising losses.
horl'to operate school stores and manage other retail sales activities, such as
(l'll
subsequent columns.) Nfost schools knon they need proper internal controls over both
Public-sector clubs
In mr-slare. \t-ashington, students in public schoois conduct thousands of F.rndralslng aciirities each vear. S.iu,iells .:':li :1;ul:; a,ir rsors in each :ch.rci J:-:::a: -,o;;, ;iubr as a part oi
the Asstr;:a:ec Slucent Bodr' lASB
t
\\hen
that a faculn adri-.or s responsible for a specifrc loss anou::, ie or she usualiv
makes restitutioii :o ---:e scrrooi. Schools
properlv manage them. Their negligence discredits all other schoois that
ie-
ncnciuals. but
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determine who stole the revenue because too many people had access to the
concession-stand inventory and money.
convicted fraudsters usually rejail sentences ofless than one year. ceive The information for the case stud-
for pubiic-sector ciubs cited below comes from audit reports issued by the
ies
In an unannounced cash count, an external auditor found that the amount of money on hand at a school's floral, candy and balloon shop didnt
agree
Washington State Auditor's Office (the external auditor for the schools).
Case No. 1: sticky soft drink
fundraising losses.
didn t rnonitor cash register detail tapes to identify and investigate the unsup-
practice), didnt make intact daily deposits with the ASB Fund treasurer and had unlimited access to inventory and funds stored in an unlocked cabinet at the shop. The school didnt use a change
it in
gave
ported refunds; he only verified that the revenue amount reported on the daily
'cash register activity reports agreed
with
fund at the shop and didnt maintain any merchandise inventory records. The auditor couldnt find the culprit(s) who
stole US$216 because too many people
with the ASB Fund treasurer. The external auditor couldn't identify the person(s) responsible for the US$914 loss because too many people operated the cash register and had access to the money.
Private-sector teams
Children also conduct fundraising acprimarily tivities in the private sector in athletics. Parents form governing
as-
machine stock and iemove mc'rner', but ideally trto peopie .nouia io tnis
The cashier iaier counted, receipted and deposited the monev into the ASB
including state offices. In fact, no agency in the state of Washington guicies these private groups. Ofcourse, this can spell disaster. The teams' treasurers or managers often misappropriate
Fund bank acco'.int. Hoite-ter. 'rhe external auditor detern:ii:e'i ihat the anount of funds deposlitc ir'a: le:s thai the
expected re\.enue
Lincs bt
io
basketball
llom inr-enton-
sold
,-.iten skimming for personal beneit De.ause writing checks to themselves they handle all revenue anci maintain
len in the concession stand rvas missrng. The basketbali tournament officials reimbursed the school ibr the known
loss
'ier i:c
cre,i up -ieas::-:.
L'SS172.
proving the amount oiconcessionstand relenue that had been lett in the
ruirci.
-:
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JUIY/AUGUS-|
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FRAUD MA3:'Z
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addictive the auction bank account. She returned 90 about USD$8,000 of her own funds to these the auction bank account to try to make A private-sector youth soccer club partial restitution. obligations, rvas to deporshe subject began a new season in debt and The school apparently didn't peralmost bankupt because its former tation to her native country - South treasurer stole more than USD$72,000 Africa. (Source: The News Tribune, form a thorough background investi\!ash., "Ex-treasurer's trial set gation of the volunteer bookkeeper. If - in 14 months. Tacoma, - its entire savings for March 31i' by Steve Maynard, Feb. they did, they would have discovered The clubi board of directors detected 19,2009, and "Pierce Countl', woman that she was in a court diversion this misappropriation of pla,.,er and program for a prior theft. Sentencing admits stealing from soccer ciub," by tournament registration fees when information was not available on this .,A.dam Lvnn, 29, 2009.) June it investigated the reasons the club case. However, perpetrators of similar wasn t able to pay its bilis. A generous benefactor and the local soccer asso- Case No. 2: going once, going twice crimes usually receive sentences of less than a year in jail and restitution ciation loaned cash so the club can get ... fraud at the auction "Bookback on its feet. A voiunteer bookkeeper at a private- ofthe loss amount. (Source: keeper with from charged steaiing Because of its financial woes, the sector school was charged with one club had to eliminate player award count of first-degree theft for allegedly schooll'by Herald staff, The Herald, Everett, Wash., March 12,2005,httpill programs and cancel adult volunteer stealing USD$30,981 in 22 months coaching classes. The current treasur- from a bank account that contained tinlurl.com/d9ktysb.) er said, "We have been on a very tight money from annual fundraising aucLessons learned budget and unable to serve our kids tions. The bookkeeper, 37, was ine of the way we would like to, but we have two people authorized to sign checks Let's review some of the finer points of been able to make ends meetl' for the auction bank account. Normally, tiaud and abuse in student fundraisins activities. The former treasurer, 43, trans- there wouldnt be any reason for the Private sectol governing bodies ferred USD$40,000 from the club's bookkeeper to issue any checks on the and public sector entities should: bank account to her personal bank account because she lvas simply
Case No. 1:
her to be treated for her gambling habit and sentenced her to days in jaii. After meeting all of
withdrawals from the club's hank account at a tocal.rrino wrote 12e unauthorized checks local casinos totaling more than usD$8,000, according to filed by the counn pros*.uting
attornev's
u-nj-^"' background investigation of the volunteer bookkeeper. to lf they did, they would have discovered that She was in a J
charges
moni-
office.
tor club financiai activiii closell beiore the loss, but you can be suie it dces now. At least trvo members reriert
ierieri
treasurer, a CPA, also pre:ents n']onthiv cash flow statements and baiance
sheets to the governing
. Establish formal written policies. funcls directlv to anorher school bank account procedures and internal controls for from rlhich disbursements transpired. all student fundraising activities. . Monitor the profitabili-,"- of aii i';l.jTu.o citizens complained that their credit cards rvere charged twice raising events to ensure their finanfor their purchases at the auction. This cial expectations have been met. prompted an inrestigation that uncovFraud examiners must understand ered the losses frorn the auction bank the differences between public-secto: account. Inr-estigaiors found that the clubs and private-sector teams and rhe booReeper didn't transfer any aucfraud scheme of choice for each rrhe:
supposed to rransfer aii the
bodr-.
s.;ill rr.l1 fo 10 counts of first-degree rn a plea bargaining agreemeni ',.-l:h lie county prosecutor. Tire rucqe c:derec
The former trea-surer plEaC*d
tion funds to the schooli disbursement assessing the risk of fraud. account during this period. Instead,
cash rrithdrartals and issued manv check to herself and her personal creditors from
she made numerous unauthorized
FRAUD-lvlAGAZ
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activities. Part 2 in this series discusses a successfui plan for successful fundraising, which comes from my life experiences dealing
with fraud and abuse in all qpes of student fundraising activities in my state. We will also
the most discuss 'gross profits testing" associatweakness common internal control
with retail sales events. There's much more to come. Get ready. r f [/[
ed
Regent Emeritus foseph R. Dervaes, CFE' CIA, ACFE Fellow, is retired after nore than 42 years of government service. Hei presi-
dent emeritus of the ACFE's Pacific Northwest Chapter. His email address is:
j
(such as conciucting employee interviews); and offering court testimony and preparing written reports that may be used in crimi-
Do yourself a favor
Dr. loseph T. Wells, CFE, CPA, lounCer and Chairman of the ACFE, expressed his opin
are
that can be construed to be uniicensed because it adds to their coffers. lt{oreover. courts or opposing ccunsel can hran: ','t-';
as an
if
FF*
laitilei
of McHard Accounting Consuitine LI-C :: Albuquerque, N.M. Shes a retired S:r l'..':.' police officer and a licensed
;r:r::r