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Praise for Executive Roadmap to Fraud Prevention andInternal Control: Creating a Culture of Compliance

“Executive Roadmap touches all the bases on corporate fraud.The authors—both experienced fraud investigators and federallaw enforcement agents—lay out the history and major milestonesof corporate fraud, and discuss with precision the key issues facingtoday’s executives and compliance leaders. The book provides avaluable overview for business leaders looking to develop andimplement effective compliance programs and instill a culture ofintegrity in order to help their organizations defeat the challengesposed by today’s sophisticated fraudsters.

—Jeffrey Eglash, Senior Counsel,Litigation & Legal Policy, GE

“Biegelman and Bartow provide great insight into not just howfraud occurs inside of companies, but why. Preventing fraud re-quires a solid understanding of both, making this book a mustread for any executive who is serious about creating the compli-ance mechanisms and the corporate culture needed for effectivefraud prevention.”

—Aaron G. Murphy, Partner, Latham & Watkins LLP

“Business leaders would be wise to follow the recommendationsin this book. Fraud prevention is more than just creating a set ofpolicies. As the subtitle indicates, it is essential to create a cultureof compliance. Empty words accomplish nothing. The authors,both experienced fraud examiners, have spent decades investigat-ing fraud, as well as developing strategies to prevent it. This bookis an essential tool in creating an antifraud environment in anycompany.”

—James D. Ratley, CFE, President & CEO,Association of Certified Fraud Examiners

“Biegelman and Bartow’s Executive Roadmap to Fraud Preven-tion and Internal Control is an essential guide for all who havean interest in eradicating corporate or institutional fraud. Writtenby experts in detecting and preventing fraud in its myriad forms,this book is a handy source for those who hope to avoid the

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predicaments that the authors have seen or in managing the crisesthat arise when the problems cannot be avoided. The new sec-ond edition is an indispensable addition to the libraries of internalcompliance and legal officers, and forensic accountants.”

—Joel M. Cohen, Partner, Gibson Dunn & Crutcher,former New York federal prosecutor and liaison to the

French Ministry of Justice and OECD

“Biegelman and Bartow’s book offers expert guidance to anyonetasked with understanding and tackling fraud in the workplace.Their straightforward approach informs the reader and providesa roadmap and guidance for implementation of an effective fraudmechanism within any organization—small or large. I plan to pro-vide a copy of the book to my Board of Directors and executivemembers of management.”

—Lisanne E. S. Cottington, Compliance Officer,Insight Enterprises, Inc.

“This next edition is extremely timely. It covers key topics that anymanagement member needs to know in today’s regulatory climate.These authors have used their extensive corporate and governmentexperience to create a practical and easy to understand complianceguide. A superb resource for any executive.”

—Karen Popp, Partner at Sidley Austin LLPand former federal prosecutor and Associate Counsel

to President Clinton

“With executives increasingly on the hot seat when corporate com-pliance issues arise, clear guidance regarding risk areas and bestpractices is invaluable. Executive Roadmap to Fraud Preventionand Internal Control contains a timely combination of illustrativestories and practice tips regarding hazards in this complex area.It is a good resource for both corporate executives and the manyprofessionals assisting corporations to prevent or detect fraud andbuild a culture of legal compliance.”

—Barb Dawson, partner with focus on internalinvestigations and business litigation, Snell & Wilmer LLP

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“Executive Roadmap to Fraud Prevention and Internal Control:Creating a Culture of Compliance is a truly phenomenal book.Martin Biegelman and Joel Bartow have accomplished an incred-ible achievement: They have flawlessly bridged the chasm be-tween the theoretical/academic and practical/tangible. This is avolume that should not be on the bookshelf of every managerinterested in compliance and fraud prevention (which should beevery manager); it should be dog-eared and open on the desk-top of every such manager! Kudos to Messrs. Biegelman andBartow!”

—William J. Kresse, M.S., J.D., CPA, CFF, CFE;Associate Professor, Graham School of Management;

Director, Center for the Study of Fraud and Corruption,Saint Xavier University, Chicago

“Biegelman and Bartow have again provided an invaluable re-source for leaders in the corporate world who have responsibilityfor fraud, integrity, and compliance. They send a clear messagethat addressing fraud is a two part process: establishing robustcontrols and detection measures and creating a culture of compli-ance and integrity. This work provides a detailed tour through theworld of fraud controls while keeping the importance of cultureat the forefront.”

—Ronald C. Petersen, Executive Director, GlobalSecurity, Ally Financial

“From the perspective of an ethics and compliance practi-tioner, Martin Biegelman’s and Joel Bartow’s new offering isa Thanksgiving feast. Too often, companies and organizationsget caught up in the moment, and don’t stand back to exam-ine the cultural, organizational and historic reasons that fraudexists. Biegelman and Bartow plow that road, and use their in-sights to offer invaluable tips in the design of effective antifraudprograms.”

—James D. Berg, Vice President, Chief Ethics andCompliance Officer, Apollo Group Inc.

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“Biegelman and Bartow have indeed produced a functional road-map for the executive to follow in fraud prevention and inter-nal control. This book is a great asset for those engaged in theseemingly endless struggle to control fraud. A “must read” for theindustry.

—Raymond L. Philo, MPA, Executive Director,Economic Crime Institute, Utica College

“As if Executive Roadmap to Fraud Prevention and Internal Con-trol wasn’t a powerful enough tool for fraud fighters, now Biegel-man and Bartow have added fresh insight and advice to the secondedition. With compelling updates on costly internal and externalfraud and corruption, together with easy-to-read descriptions oflatest fraud-fighting technologies, this is a must-read for fraudexaminers, auditors, attorneys, and others—whether they’ve readthe first edition or not.

—Peter Goldmann, President, White-Collar Crime 101LLC/FraudAware

“Fraud borders on the ubiquitous in contemporary corporate cul-ture. This book provides a rich and comprehensive guide to craft-ing a state of the art fraud deterrence program. While the bookis sure to better equip corporate executives and directors in theirfight against fraud, I intend to draw heavily upon its content ineducating accounting students who represent the CEOs and CFOsof the future.”

—Ingrid E. Fisher, PhD, CPA, Associate Professor andChair of the Department of Accounting and Law, The

University at Albany-SUNY

“The book’s exploration of fraud theories ranging from “rottenapple” to the “potato chip” (can’t eat just one!), provides usefulexamination of the psychology of corporate fraud that explainsits recurring nature and offers clues to creating a fraud resistantculture.”

—Zachary W. Carter, Partner and head of the TrialGroup, Dorsey & Whitney LLP and former United States

Attorney for the Eastern District of New York

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Executive Roadmapto Fraud Preventionand Internal Control

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Founded in 1807, John Wiley & Sons is the oldest independent publishingcompany in the United States. With offices in North America, Europe, Aus-tralia and Asia, Wiley is globally committed to developing and marketingprint and electronic products and services for our customers’ professionaland personal knowledge and understanding.

The Wiley Finance series contains books written specifically for financeand investment professionals as well as sophisticated individual investorsand their financial advisors. Book topics range from portfolio managementto e-commerce, risk management, financial engineering, valuation and fi-nancial instrument analysis, as well as much more.

For a list of available titles, visit ourWeb site at www.WileyFinance.com.

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Executive Roadmapto Fraud Preventionand Internal Control

Creating a Culture of Compliance

Second Edition

MARTIN T. BIEGELMANJOEL T. BARTOW

John Wiley & Sons, Inc.

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Copyright c© 2012 by John Wiley & Sons, Inc. All rights reserved.

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

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted inany form or by any means, electronic, mechanical, photocopying, recording, scanning, orotherwise, except as permitted under Section 107 or 108 of the 1976 United States CopyrightAct, without either the prior written permission of the Publisher, or authorization throughpayment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Webat www.copyright.com. Requests to the Publisher for permission should be addressed to thePermissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030,(201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and authors have used theirbest efforts in preparing this book, they make no representations or warranties with respect tothe accuracy or completeness of the contents of this book and specifically disclaim any impliedwarranties of merchantability or fitness for a particular purpose. No warranty may be createdor extended by sales representatives or written sales materials. The advice and strategiescontained herein may not be suitable for your situation. You should consult with aprofessional where appropriate. Neither the publisher nor authors shall be liable for any lossof profit or any other commercial damages, including but not limited to special, incidental,consequential, or other damages.

For general information on our other products and services or for technical support, pleasecontact our Customer Care Department within the United States at (800) 762-2974, outsidethe United States at (317) 572-3993 or fax (317) 572-4002.

Wiley also publishes its books in a variety of electronic formats. Some content that appears inprint may not be available in electronic books. For more information about Wiley products,visit our web site at www.wiley.com.

Library of Congress Cataloging-in-Publication Data:

Biegelman, Martin T.Executive roadmap to fraud prevention and internal control : creating a culture of

compliance / Martin T. Biegelman, Joel T. Bartow. – 2nd ed.p. cm.

Includes index.ISBN 978-1-118-00458-6 (hardback); 978-1-118-22179-2 (ebk.); 978-1-118-23551-5

(ebk.); 978-1-118-26035-7 (ebk.)1. Corporations–Accounting–Corrupt practices–United States. 2. Corporations–Corruptpractices–United States. 3. Accounting fraud–United States. I. Bartow, Joel T.,1958– II. Title.HF5686.C7B52 2012658.4’73–dc23

2011042677

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

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This book is dedicated to our families, who have supportedand encouraged us throughout our careers. Without them,

we would not be where we are today.

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Contents

Foreword to the Second Edition xiii

Foreword to the First Edition xvii

Preface xxi

Acknowledgments xxvii

CHAPTER 1Fraud’s Feeding Frenzy 1

CHAPTER 2Fraud Theory and Prevention 23

CHAPTER 3The Path to Greater Corporate Compliance, Accountability, and EthicalConduct: COSO to Sarbanes-Oxley 47

CHAPTER 4The Path to Greater Corporate Compliance, Accountability, and EthicalConduct: SAS 99 to the 2010 Amendments to the Federal SentencingGuidelines for Organizations 81

CHAPTER 5Internal Controls and Antifraud Programs 105

CHAPTER 6Financial Statement Fraud 133

CHAPTER 7Internal Fraud: Protecting a Company 157

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xii CONTENTS

CHAPTER 8Former Fraudster and New Man 171

CHAPTER 9External Schemes and Scams: The Rest of the Fraud Story 185

CHAPTER 10Not Too Big to Fail 205

CHAPTER 11Designing a Robust Fraud Prevention Program 231

CHAPTER 12Whistleblowers and Hotlines 255

CHAPTER 13Time to Do Background Checks 287

CHAPTER 14Training, Training, and More Training 307

CHAPTER 15Global Fraud and Corruption Risk 329

CHAPTER 16The Feds Are Watching: What to Know and Do Now 349

CHAPTER 17A Fraud Prevention Culture That Works 371

APPENDIXACFE Fraud Prevention Checklist 391

About the Authors 395

Index 399

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Foreword to the Second Edition

In the aftermath of the worst financial crisis since the Great De-pression, companies both in the United States and around the globestruggle to meet investor expectations and remain competitive onthe international stage. Faced with challenging financial conditions,companies have focused efforts on essential cost-cutting measures,while also exploring opportunities in emerging markets and develop-ing new products and services for this decade and beyond. With thesechallenges come tremendous opportunities, and out of the ashes ofthe financial crisis will rise stronger, more resilient companies. Unfor-tunately during challenging times, some employees become temptedto cut corners and engage in fraud.

At the same time, regulators, faced with increased scrutiny fortheir apparent shortcomings prior to and during the financial crisis,have increased investigative and enforcement efforts to combat aperceived growth in corporate fraud. Armed with new enforcementpowers such as the Dodd-Frank Wall Street Reform and ConsumerProtection Act and the UK Bribery Act, regulators have increasedtheir efforts to investigate and prosecute corporate fraud.

Against this backdrop, companies must remain focused onbuilding and maintaining a strong fraud prevention and compli-ance program. The best global companies of today and the futuremust make corporate integrity and ethics the centerpiece of theirculture—permeating every level of the organization, from the boardand senior management down to entry-level employees in foreignsubsidiaries. Focus must be placed not only on compliance with thelaw but compliance with the tenets of honesty, ethics, and highest lev-els of integrity. Creating such a culture is not easy, but must becomea reality for any organization that hopes to compete on the globalstage.

A strong antifraud program is not only an essential businessrequirement in today’s modern world, it is a crucial factor for

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xiv FOREWORD TO THE SECOND EDITION

regulators when determining sanctions after problems arise. TheUnited States Department of Justice and the Securities and ExchangeCommission have written policies that allow for leniency when sanc-tioning companies that have established and maintained robust com-pliance programs and internal controls.

Having spent their careers investigating and preventing fraud andcorruption, Messrs. Biegelman and Bartow have unique insights inhelping organizations develop best-in-class compliance programs andinternal controls. Following a distinguished career in federal law en-forcement, Mr. Biegelman entered the private sector and became asenior compliance official at a Fortune 25 company. In that role,Mr. Biegelman designed and oversaw a financial integrity unit thatremains the model for corporations around the globe. A prolificwriter and speaker, Mr. Biegelman has assisted corporations world-wide in crafting and improving fraud prevention programs. Mr. Bar-tow followed a similar path with leadership roles in law enforce-ment, consulting, and the corporate sector. He also has designed andimplemented fraud prevention programs for corporations and is anaccomplished speaker and author.

Martin Biegelman and Joel Bartow understand both regulatorsand corporations; they have conducted law enforcement investiga-tions and internal investigations; and they have interacted with com-panies at the preventative stage and following a scandal. The twomen have spent their careers with a singular, unwavering focus onimproving organizations through fraud prevention and deterrence.Always searching for new and innovative methods, Messrs. Biegel-man and Bartow remain thought-leaders and driving forces in thefield.

In this second edition of the acclaimed Executive Roadmap toFraud Prevention and Internal Control: Creating a Culture of Com-pliance, Martin Biegelman and Joel Bartow convert their lifelongexperiences and unparalleled knowledge into a concise, well-writtenbook. They provide the essential tools to take aspirational goals forfraud prevention and compliance and build them into concrete andeffective programs. The authors offer subject matter expertise onfraud risk assessments, internal investigations, hotlines, whistleblow-ers, training, and much more. This second edition also discusses thesignificant regulatory changes that have transpired since their last edi-tion. Through engaging and thought-provoking examples and case

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Foreword to the Second Edition xv

studies, the authors provide practical advice for all types and sizes oforganizations. As with the prior edition, this book will prove to beessential reading for compliance professionals.

—BRADLEY J. BONDIPartner, Cadwalader, Wickersham & Taft LLP

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Foreword to the First Edition

Today’s business leaders operate in an environment of unprecedentedopportunity and complexity. The globalization of business growsapace in nearly every industry. The most competitive companies andbest business leaders are seizing this opportunity with new productsand services that are developed, manufactured, and sold in everycountry of our planet. Partnerships between companies from differ-ent regions of the world are commonplace today; in fact, they areexpected. The workforces of the best companies reflect the bright-est minds from a multitude of cultures and backgrounds. Techno-logical advances have facilitated the advances of global businesspractices and in many ways have accelerated the speed of change.Capital markets operate around the clock, rewarding the success-ful and punishing those who fall short. Media and press coverageand scrutiny have never been as pervasive as today. News made inCairo, Illinois, reaches a world audience as quickly as news fromCairo, Egypt. Legal and regulatory regimes vary dramatically fromboth a regional and national perspective. The largest market, theUnited States, recently enacted the most sweeping reform of publiccompanies since the 1933 and 1934 Securities Acts. It is accurate tocharacterize this period as one of the most complex and exciting inthe history of capitalism. There is unprecedented opportunity andcomplexity.

To seize the opportunity and manage the complexity, businessleaders are elevating their leadership and improving their manage-ment practices. This heightened performance is evident in every facetof the best companies’ operations, from R&D and Sales and Mar-keting all the way through to the Board and the governance of theextended organization. The rewards of global markets for the bestcompanies are unprecedented. However, companies that fail to im-prove or have lapses in performance face swift and negative conse-quences to their financial results and company brands.

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xviii FOREWORD TO THE FIRST EDITION

Nowhere are the negative consequences of inadequate leader-ship and performance more glaring than when fraud has been per-petrated or internal controls have been compromised. Unfortunately,too many companies have failed to establish a well-architected systemof controls and governance. The Sarbanes-Oxley Act is providing acatalyst for change, but in too many instances it is a checklist exercise.

The best global companies today and those of the future willhave well-defined and disciplined business practices that are executeduniformly on a global basis. This includes systems of accountabilityand compliance, regardless of different customs and laws. The Boardof Directors and senior management establish codes of conduct anda tone that is well understood and a core part of the company cul-ture. Business processes are defined and established to ensure thataccounts are correct, disclosures are complete, and policies are fol-lowed. Management does the job of ensuring that prevention anddetection systems are established. In short, the best leaders and com-panies ensure that compliance systems are an integral component oftheir business. Surprisingly, fraud is often overlooked as a key com-ponent of an ongoing compliance environment. The best companiesassume that they hire the top people. They set the right tone at the top.They have well-understood and articulated codes of conduct. Theyare often surprised when individuals in their organizations commitfraud.

The leading companies of the world are taking their complianceprograms to the next level by building and staffing fraud units toprevent compliance problems. Having been a senior executive at oneof the world’s premier companies, I can speak first hand about thevalue and importance of establishing a preventative fraud program aspart of a comprehensive compliance environment. Establishing thisunit allowed Microsoft to detect and address problems we would nothave seen. In addition, the fraud unit leadership became an importantpart of a management training program to ensure consistent anddisciplined business practices worldwide. From a CFO perspective, Iwas most pleased to see a unit and a program that helped to ensurecompliance, but also more than paid for itself!

In this book, the reader will be given a delightful roadmap tofraud prevention and internal controls. Illustrative stories and tipsalong with practical managerial advice on establishing the right or-ganization, objectives, and practices make this book a must read.

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Foreword to the First Edition xix

There is important contextual information on current practices andrequirements from regulatory regimes. Finally, the 14-point manage-ment antifraud program will allow every reader to meet challengesand complexities in a global business environment.

Enjoy!

—JOHN CONNORS

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Preface

Welcome to the second edition of Executive Roadmap to Fraud Pre-vention and Internal Control. The first edition was very well-receivedwith excellent feedback from readers, and for that we are most ap-preciative. Nothing pleases authors more than to know their writinglabor is providing educational value. This book is being used as atextbook at colleges and universities. It has been translated into Chi-nese and used in compliance programs as a reference source. Yet timeand fraud march on. There have been events and changes since theoriginal publication that require updating this book. For this secondedition, we have kept what is still timeless and relevant while addingnew material.

We continue to see fraud and corporate misdeeds with the in-evitable impact and enforcement response. Dozens of companieswere caught up in the government probes of backdating of stockoptions. The United States Department of Justice and the Securitiesand Exchange Commission ramped up investigations of corruptionand bribery, bringing more and more prosecutions for violations ofthe Foreign Corrupt Practices Act. A huge accounting fraud occurredat a once highly regarded technology powerhouse in India. We wit-nessed the worst financial crisis since the Great Depression and thecollapse of once-venerable financial institutions. As a result, new lawswere enacted, including the Fraud Enforcement and Recovery Act andthe Dodd-Frank Wall Street Reform and Consumer Protection Act(Dodd-Frank).

In a perfect world, this book would not be needed. All corporateemployees, from the Chief Executive Officer, the Chief Financial Offi-cer, and the Board of Directors to the entry-level workers, would havethe highest degrees of honesty and integrity. Fraud and abuse wouldbe nonexistent. There would be no financial statement fraud, assetmisappropriation, kickbacks, or bribery. Unfortunately, we live inan imperfect world in which noncompliance, misconduct, fraud, and

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xxii PREFACE

corruption exist. One only needs to read the daily papers or watch theevening news to learn of the latest corporate scandal, government in-vestigation, or shareholder litigation. Once respected corporate titanscontinue to face the prospect of “perp walks” and prison because offinancial impropriety.

Common sense tells us that a business executive or manager onlyneeds to hear: “Never commit fraud of any kind.” However, fraudprevention always involves furthermeasures: a zero tolerance of fraudin any shape or form, providing fraud awareness and preventiontraining for all employees, instituting strong internal controls, andlimiting exposure to fraud through a robust fraud detection, inves-tigation, and prevention program. Nevertheless, it is naı̈ve to expectthat these steps alone can stop all forms of fraud and abuse from oc-curring. It is a given that corporate crime will always be with us.Whatis really needed is an ongoing culture of compliance that takes yearsto build but only a moment to collapse. Corporate executives whoare charged with protecting their companies from fraud need a guideto establish an effective program. The passage of the Sarbanes-OxleyAct of 2002, the Amendments to the Federal Sentencing Guidelinesfor Organizational Crime, the enactment of Dodd-Frank, and otherrelated compliance enhancements have required CEOs, CFOs, andboards to understand the protections that need to be in place toprevent corporate fraud.

Fraud is nothing new. History has shown that fraud has longbeen a part of our society and will continue to be. As Judge Edwin R.Holmes said in the case of Weiss v. United States in 1941, “The lawdoes not define fraud; it needs no definition; it is as old as falsehoodand as versatile as human ingenuity.”1 We continue to see corporatescandals and the strong enforcement response of the government.Gone are the days of a slap on the wrist to the wrongdoer and all isforgotten. Today, corporate fraud results in shareholder lawsuits, theimplosion of companies, executive prison sentences, and an investoroutcry for reform.

In addition, there is a greater focus than ever before on uncover-ing and preventing fraud as a result of the loss of billions of dollarsin equity and greatly diminished investor confidence in the markets.Financial statement fraud and other internal fraud schemes provideconsiderable risk to a corporation. The enactment of enhanced re-porting requirements and greater public scrutiny of companies have

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contributed to this new age of enforcement. However, internal fraudis not the only risk that businesses face. External fraud schemes alsoattack companies and can do significant damage to both finances andreputations.

Although no one expects CEOs, CFOs, and other corporate ex-ecutives and managers to be experts in fraud prevention, the currentclimate requires a thorough understanding of the principles of fraudexamination and state-of-the art compliance programs. This book isa roadmap to help executives understand fraud and reduce its im-pact. George Santayana once said that those who do not rememberthe past are condemned to repeat it. This book looks to the past togain a better understanding of the nature of fraud and how to preventit. It relates lessons that can be applied now and in the future to pre-vent fraud, and it also reviews theories and models that explain howand why fraud happens inside an organization. It then describes thecurrent climate as well as the critical importance of fraud preventionand culminates by providing a roadmap to establishing a culture ofcompliance. Creating this culture is the only way businesses can po-sition themselves to meet the new environment of tighter regulations,transparency, and accountability. It is a proactive method for actuallypreventing fraud. Simply reacting to fraud issues as they occur is nolonger acceptable.

The authors bring a unique perspective to corporate fraud pre-vention. We are life-long practitioners in the field, with a combined60-plus years of experience in both the public and private sectorsdetecting and investigating fraud and white-collar crime. Our careersparallel each other. As federal agents with the United States PostalInspection Service and the Federal Bureau of Investigation, we inves-tigated fraud and corruption, including corporate crime, investmentfraud, kickback schemes, international fraud scams, insurance andhealthcare fraud, organized crime, and violations of the Racketeer-ing and Corrupt Organizations Act (RICO). We were involved in theprosecutions of hundreds of fraudsters.

We then went into the private sector to conduct investigationson behalf of corporate clients that were victims of fraud and othercrimes. We worked cases all over the world for companies large andsmall, public and private, and we helped business executives under-stand the importance of fraud prevention. We were subsequentlyrecruited by corporations and given the responsibility of creating and

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managing worldwide fraud prevention and anti-corruption programsusing our knowledge, skills, and experience. We are both CertifiedFraud Examiners (CFEs) who are still doing this work today.

After spending our careers with victims and perpetrators, inves-tigators and prosecutors, in courtrooms and boardrooms, we havegreat insight into all kinds of fraud and the reasons people committhem.We have many lessons to share as well as numerous case studiesand experiences about how to detect, investigate, and prevent fraud.This book is intended to be a primer for corporate executives at bothpublic and private companies who are expected to protect their or-ganizations from fraud and inappropriate behavior. This book willprovide special insights to executives at medium and smaller size com-panies who may falsely believe that they are not facing fraud issues orwho may not fully understand the relationship between fraud preven-tion and good corporate compliance. In addition to senior executives,this book will be beneficial for middle and lower-level executives andmanagers to help them understand their roles in fraud prevention. Itwill also be of value to fraud investigators, prosecutors, academics,students, and anyone with an interest in the world of fraud. Eachchapter starts with an Executive Summary detailing the key pointsand takeaways from each chapter. Executive Insights and exhibits areused in various chapters to emphasize important concepts and pro-vide case studies. We have designed the book to be user friendly—thereader does not have to be a CFE to understand the concepts and pro-cedures described. By setting out the generally accepted standards forfraud prevention along with new recommendations, this book helpsexecutives establish a world-class fraud investigation and preventionprogram. A discussion of the enforcement landscape helps the readerunderstand the implications of fraud and the need for compliance atevery turn.

In all the years we have been investigating fraud and corrup-tion, we have yet to see a decrease in the problem. We probablynever will. However, there have been changes in how fraud is ad-dressed. Tougher laws against corporate wrongdoing have been en-acted with greatly increased prison sentences for those convicted. Itis not the best of times for fraudsters; it is definitely a good time forguardians and gatekeepers. There has never been a better time to bea fraud investigator. Any corporate executive, manager, or employee

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contemplating a journey to the “dark side” should keep in mind thatfraud and noncompliance will be met with the strong arm of the law.

This book will be your roadmap to an understanding of corporatefraud, the implementation of fraud prevention, and the creation of aculture of compliance. Lastly, it is our honor and privilege to be yourguides on this journey.

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Acknowledgments

Writing a book such as this is never an easy task, and we could nothave completed it without the wisdom, assistance, and encourage-ment of others. First, to our friend and mentor, Joe Wells, founderand Chairman of the Association of Certified Fraud Examiners(ACFE), a true fraud prevention visionary: He encouraged us towrite this book and helped us along the way.

Daniel Biegelman again provided extraordinary assistance in con-tributing ideas, research, and content while helping with editing andproofing. Martin Biegelman’s wife, Lynn, reviewed the manuscript,providing valuable feedback and suggestions.

A special note of thanks to our executive editor, Timothy Burgard.Tim gave us the original opportunity to write this book and thenguided us through the writing and publishing process. He did it againwith this second edition, and we are especially grateful. We also wantto acknowledge Helen Cho, Stacey Rivera, and Todd Tedesco atJohn Wiley & Sons, who were invaluable in helping us successfullynavigate through the production process.

We acknowledge those who provided ideas, content, and assis-tance: Jim Ratley, John Gill, Dick Carozza, Brock Phillips, TammiJohnson, Jerry Bamel, Gaurav Ajmani, Karen Popp, Frank Goldman,Walt Pavlo, John McDermott, George Stamboulidis, Mark Kirsch,AnthonyMigliaccio, Patricia Sweeney, and Aaron Beam. Dr. RichardHurley provided rich feedback on our first edition that helped usmake this book even better, and for that, we owe him a debt ofgratitude.

Our deep appreciation to Bob Tenczar who provided guidanceand content for the enterprise risk management (ERM) section inChapter 5. As Senior Director of Enterprise Risk Management atMicrosoft Corporation, Bob’s unique subject matter expertise inbuilding a world-class risk management program has made him amuch-sought-after thought leader in the field.

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xxviii ACKNOWLEDGMENTS

A special thank you to Barbara Thompson for sharing her richknowledge and experience in conducting background checks dis-cussed in Chapter 13. Her wisdom and contribution are much appre-ciated.

Whenwewanted someone to read our second editionmanuscript,we again turned to a dear friend, DeWayn Marzagalli. DeWayn, aformer federal agent extraordinaire, provided a keen eye and con-structive comments.

Our special appreciation to Bradley Bondi for writing the Fore-word to our second edition. Brad is an exceptional litigator, prolificauthor, and a respected speaker. Thank you again to John Connorsfor the Foreword to our first edition. As the CFO ofMicrosoft Corpo-ration, he built a world-class finance organization and led by examplein creating a culture of compliance and integrity.

To those dedicated law enforcement professionals and CFEs whofight fraud and corruption on a daily basis, we salute you. It is theirwork that we recognize in this book. They are the ones whose unflag-ging efforts hold corporate fraudsters accountable while protectingthe common good.