1. 7/9/2014 1 CopyrightFraudResourceNet LLC Think Like a Fraudster To Catch a Fraudster July 9, 2014 CopyrightFraudResourceNet LLC President and Founder of White Collar Crime 101 Publisher of White-Collar Crime Fighter Developer of FraudAware Anti-Fraud Training Monthly Columnist, The Fraud Examiner, ACFE Newsletter Member of Editorial Advisory Board, ACFE Author of Fraud in the Markets Explains how fraud fueled the financial crisis. About Peter Goldmann, MSc., CFE

2. 7/9/2014 2 CopyrightFraudResourceNet LLC AboutJimKaplan,MSc,CIA,CFE President and Founder of AuditNet, the global resource for auditors (now available on Apple and Android devices) Auditor, Web Site Guru, Internet for Auditors Pioneer Recipient of the IIAs 2007 Bradford Cadmus Memorial Award. Author of The Auditors Guide to Internet Resources 2nd Edition CopyrightFraudResourceNet LLC Background Michael is a Director in KPMGs Forensic practice with more than 10 years of accounting and investigative experience. Michael is a Certified Public Accountant, Certified Fraud Examiner, and Certified in Financial Forensics. Prior to joining KPMG, Michael worked in public accounting providing tax and financial services to clients. Professional Experience Michaelhassubstantialexperiencemanagingandcoordinatinginvestigationanddataanalytical engagementsacrossseveralindustries.Michaelspecializesininvestigationsofsuspectedfraud, accountingirregularities,andmisconduct,includingfraudulentfinancialreporting, misappropriationofassets,andviolationsoflawsandregulations.MichaelincorporatesKPMGs dataanalyticalmethodologyintoinvestigationswhichincludetheuseofmanyrulesbasedand behavioralbasedalgorithmstouncoverpotentialfraudindicators,hiddenormaskedrelationships, andcontrolweaknessesacrossdisparatedatasets. Managed the investigation at a major utility company where company employees were accused of receiving kickbacks from contractors. Led the investigation of payments to contractors to determine overcharges, assisted the company file insurance claims for the overcharges, and provided expert testimony in Federal Court as a witness for the prosecution. All 14 company employees pleaded guilty. Michaelmanagedtheinvestigationintothepotentialregulatoryviolationofaninternationalbank. Duetofilingdeadlineshemanagedateamof25investigatorsoverthecourseoftwoweeks,which includethereviewofover50,000electronicdocumentsand20interviews.Duetotheinvestigation theinstitutionwasabletomeetitsfilingdeadlinewhichavoidedfinesandsanctionsfrom regulators. Michael P. Doyle Director KPMG LLP 345 Park Avenue New York, NY 10154-0102 Tel 212-954-2237 Fax 646-924-3357 email michaeldoyle@kpmg.com EDUCATION AND PROFESSIONAL AFFILIATIONS: B.S. Accounting, Queens College Member, American Institute of Certified Public Accountants Member, Association of Certified Fraud Examiners LICENSE/CERTIFICATIONS: Certified Public Accountant - New York Certified Fraud Examiner Certified in Financial Forensics TechnicalSkills: SQL, MicrosoftOffice Idea MicrosoftAccess 3. 7/9/2014 3 CopyrightFraudResourceNet LLC ProfessionalandIndustryExperience AndrewJ.CurtinisaManagingDirectorintheNewYorkofficeofKPMGLLPs ForensicAdvisoryServicepractice.Hehasmorethan20yearsofexperience conductinginternalfraud,moneylaundering,financialreportingand corruptioninvestigationsforfinancialinstitutionsandcorporations,and developingandreviewingcomplianceandbusinessethicsprogramsfor corporations,banks,insurancecompaniesandbrokerdealers. PriortojoiningKPMG,heservedinthelawdepartmentofCitigroupand TravelersInsuranceasChiefComplianceandPrivacyOfficer,ClaimServicesand ChiefAntiMoneyLaunderingandSanctions(OFAC)OfficerforCitigroups insuranceoperations.Hewasalsoresponsibleforimplementingantifraud programsandconductinginternalinvestigationsonbehalfofSenior ManagementandtheBoardofDirectors. Asaprosecutor,Andrewsupervisedandconductedtheinvestigationand prosecutionofcomplexfinancialservicesandinsurancefraud,money laundering,assetforfeitureandorganizedcrimecasesinbothstateandfederal courtintheOfficesoftheNewYorkStateAttorneyGeneralandtheNewYork CountyDistrictAttorney. EducationandProfessionalAffiliations Mr.CurtinreceivedhisA.B.fromCornellUniversity,CollegeofArtsandSciencesandhisJ.D. fromSt.JohnsUniversity,SchoolofLaw. HeisamemberoftheStateBarinNewYorkandConnecticut. ANDREWJ.CURTIN ManagingDirector KPMGLLP 345ParkAvenue NewYork,NY101540102 Tel2128727742 Fax2124098792 Cell9149806959 emailacurtin@kpmg.com Function and Specialization Mr.Curtinspecializesinintegrity advisoryservices,including,anti moneylaunderingandsanctions complianceandregulatoryand fraudandmisconduct investigations. CopyrightFraudResourceNet LLC This webinar and its material are the property of FraudResourceNet LLC. Unauthorized usage or recording of this webinar or any of its material is strictly forbidden. We are recording the webinar and you will be provided with a link access to that recording as detailed below. Downloading or otherwise duplicating the webinar recording is expressly prohibited. Webinar recording link will be sent via email within 5-7 business days. NASBA rules require us to ask polling questions during the Webinar and CPE certificates will be sent via email to those who answer ALL the polling questions The CPE certificates and link to the recording will be sent to the email address you registered with in GTW. We are not responsible for delivery problems due to spam filters, attachment restrictions or other controls in place for your email client. Submit questions via the chat box on your screen and we will answer them either during or at the conclusion. After the Webinar is over you will have an opportunity to provide feedback. Please complete the feedback questionnaire to help us continuously improve our Webinars If GTW stops working you may need to close and restart. You can always dial in and listen and follow along with the handout. Webinar Housekeeping 4. 7/9/2014 4 CopyrightFraudResourceNet LLC Theviewsexpressedbythepresentersdonotnecessarilyrepresenttheviews, positions,oropinionsofFraudResourceNetLLC(FRN)orthepresenters respectiveorganizations.Thesematerials,andtheoralpresentation accompanyingthem,areforeducationalpurposesonlyanddonotconstitute accountingorlegaladviceorcreateanaccountantclientrelationship. WhileFRNmakeseveryefforttoensureinformationisaccurateandcomplete, FRNmakesnorepresentations,guarantees,orwarrantiesastotheaccuracyor completenessoftheinformationprovidedviathispresentation.FRN specificallydisclaimsallliabilityforanyclaimsordamagesthatmayresultfrom theinformationcontainedinthispresentation,includinganywebsites maintainedbythirdpartiesandlinkedtotheFRNwebsite Anymentionofcommercialproductsisforinformationonly;itdoesnotimply recommendationorendorsementbyFraudResourceNetLLC 7 Disclaimers CopyrightFraudResourceNet LLC Introduction What is Profiling? Global Profile of a Fraudster Drivers of Fraud Where is Fraud Committed? Your Questions Conclusion Todays Agenda 5. 7/9/2014 5 CopyrightFraudResourceNet LLC ProfileoftheFraudster 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. CopyrightFraudResourceNet LLC What is Profiling? Therecordingandanalysisofaperson'spsychological andbehavioralcharacteristics,soastoassessorpredict theircapabilitiesinacertainsphereortoassistin identifyingaparticularsubgroupofpeople. 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. 6. 7/9/2014 6 CopyrightFraudResourceNet LLC Whoisthetypicalfraudster?Arethere anydefiningfeatures,traits,orbehaviors thatcouldhelpyouidentifythose individualswithyourorganizationmore likelytoperpetratefraud. 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. CopyrightFraudResourceNet LLC SomeThoughtsontheProfile oftheFraudster Theeverchangingfaceofthefraudster Thereisnofixedfaceofafraudster.Thefraudstersappearancechanges torespondtorapidfluxinthemodernbusinessworld. Complexityofchangingfactors Factorsaffectingthefraudsterprofileincludetheopportunityofthe day,relationshipsonanorganizationalandglobalscale,thelatest technologies,andsociopoliticalandeconomicissues. Collusion Thecollusiontrendsuggeststhatorganizationsmayneedtoreach beyondtheorganizationitself,perhapsincollaborationwithother similarorganizationsandlawenforcement/regulatorybodies,to combatfraudsters. Technology Thefraudsterofthefuturewillbeshapedbyfactorssuchas technology,theinterconnectednessofthebusinessworld,aswell asthetraditionalfrauddriversofopportunity,rationalizingand motivationsofgreedandfinancialgain. v 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. 7. 7/9/2014 7 CopyrightFraudResourceNet LLC GlobalProfileoftheFraudster KPMG examined white collar crime investigations conducted by KPMG Member Firms across three regions where we were able to identify the perpetrator and could provide detailed contextual information on the crime. The analysis identifies: fraudster profiles and details of the more common types of fraud environmental conditions that tend to enable fraud the impact of fraudsters capabilities The context in which fraudsters ply their trade across the countries in which KPMG operates The findings in this study are contrasted, where possible, with our 2007 and 2011 analysis to highlight shifts in patterns and to provide a perspective on emerging trends.2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. CopyrightFraudResourceNet LLC Methodology KPMG gathered data from fraud investigations conducted by our member firms forensic specialists in Europe, Middle East and Africa (EMA), the Americas, and Asia- Pacific regions between August 2011 and February 2013. KPMG analyzed a total of 596 fraudsters who were involved in acts committed in 78 countries. KPMG Investigations leaders provided insight into the difficult question of profiling a fraudster. v 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. 8. 7/9/2014 8 CopyrightFraudResourceNet LLC Which Gender Commits More Fraud? 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. CopyrightFraudResourceNet LLC Who in the Organization Commits Fraud? 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. 9. 7/9/2014 9 CopyrightFraudResourceNet LLC Fraudsters are Unlikely to Stand Out 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. CopyrightFraudResourceNet LLC Fraudsters Salaries 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. 10. 7/9/2014 10 CopyrightFraudResourceNet LLC In 2010 men committed approximately___ times as many frauds as women A. Two B. Three C. Four D. Five Polling Question 1 CopyrightFraudResourceNet LLC KPMGs2013Globalprofiles ofthefraudsterkeyfindings 70percentoffraudstersarebetweentheagesof36and55 61percentoffraudstersareemployedbythevictimorganization.Ofthese,41percent wereemployedthereformorethan6years Whenfraudstersactedalone,69percentoffraudswereperpetratedover1to5years.Of these,21percentofthefraudsincurredatotalcosttothevictimorganizationof$50,000 200,000and16percentcostatotalof$200,000500,000.In32percentofthesecasesthe costtothevictimorganizationexceeded$500 000,exceeding$5 000 000in9percentof thesecases. Analysis shows that there is no fixed, but rather a continuous morphing, face of a fraudster. Organizations thus need dynamic responses to fraud risk and may have to anticipate the impact of these changes in the behavior of fraudsters Based on an analysis of the 596 fraudsters, some of the key observations are: In70percentoffrauds,theperpetratorcolludedwithothers acontinuingrisingtrendsince 2007 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. 11. 7/9/2014 11 CopyrightFraudResourceNet LLC KPMGs2013GlobalProfiles oftheFraudsterkeyFindings Based on an analysis of the 596 fraudsters, some of the key observations are: 93percentoffraudswerecommittedinmultipletransactions.For42percentofthese frauds,theaveragevalueperindividualtransactionwasbetween$1,000and$50,000. Themostprevalentfraudismisappropriationofassets(56percent)ofwhich embezzlementcomprises40percentandprocurementfraudmakesup27percent.The secondmostprevalentfraudisrevenueorassetsgainedbyfraudulentorillegalacts(24 percent). Whenactingincollaboration,74percentoffraudswereperpetratedoveronetofiveyears.With regardtovalue,18percentoffraudshadatotalvalueof$50,000200,000and16percentofthe fraudshadatotalvalueofgreaterthan$5,000,000.In43percentofthesecasesthecosttothe victimorganizationexceeded$500 000,exceeding$5 000 000in16percentofthesecases. For53percentofthe198fraudsterswherecorruptconductwaspresent,weakinternal controlscontributedtotheperpetrationofthefraud.Corruptionwasacommon elementincasesofcollusion 29percentofcollusionrelatedcasesinvolvedbribery. Continuing rising trend of collusion and greater financial impact thereof may require organizations to extend defenses against fraudsters beyond the internal processes and controls 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. CopyrightFraudResourceNet LLC KPMGs2013GlobalProfiles oftheFraudsterKeyFindings Thelevelandnatureoftheopportunityforfraudsaffectthefrequencyandbehaviorof fraudsters.Managingopportunityaffectsthetypeoffraudsterorganizationscanencounter. Greed,financialgainandfinancialdifficultyremainstrongmotivatorsofthefraudster. Emotionisnotakeyfactor,butethicalandculturalcontextseemmorerelevantinrationalizing fraud.This,inturnisaffectedbythewayethicsandmoralsareinstitutionalizedinregulations. Collusionisagrowingtrendandprobablyrepresentsthefraudstersresponsetotheincreasing globalconnectednessofbusinessandthecomplexitiesofthemodernbusinessworld. We also make the following observations based on the analysis and insights of our investigators: Environmentalfactorsaffectthebehaviorofthefraudsterandchangesinenvironmentdrive changesinthefraudstersbehavior. Cybercrimeandtechnologyisagrowingareaofinteresttofraudsters.These,alongwiththe risingtrendincollusion,mayindicatefuturepatternsoffraud. 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. 12. 7/9/2014 12 CopyrightFraudResourceNet LLC Managers commit more frauds than non- managers A. True B. False Polling Question 2 CopyrightFraudResourceNet LLC ThreeDriversofFraud: Opportunity Inordertounderstandafraudstersprofileitisusefulto considerthreedriversoffraud: Opportunity Peopledonotcommitfraudwithoutanopportunitypresentingitself. Apluralityoffraudstersinthesurveyedcaseshasworkedinthevictim organizationformorethansixyears,andnearlythreequartersofthefrauds wereconductedovera15yearperiod.Thisimpliesthatfraudstersdonot joinanorganizationwiththeaimofcommittingfraud.Butopportunity presentsitselfthenandisidentified,fuelledbypersonalcircumstancesor pressurestomeetaggressivebusinesstargets,whichcreatetheconditions conducivetofraud. Howdoestheopportunitypresentitself?Accordingtothesurvey,54percent ofthefraudswerefacilitatedbyweakinternalcontrols.Thissuggeststhatif organizationstightenedcontrolsandthesupervisionofemployees,the opportunityforfraudwouldbeseverelycurtailed. 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. 13. 7/9/2014 13 CopyrightFraudResourceNet LLC ThreeDriversofFraud: Motivation Motivation Fraud,aswithmostcrimes,requiresamotivation,andforthe596 fraudsters,theoverwhelmingreasonforcommittingfraudisfinancial. Surveyrespondentswereoffered14possiblemotivationsandcould selectasmanyastheybelievedappropriate.Outofatotalof1,082 motivationslisted,614weremotivesofgreed,financialgainand financialdifficulty,andafurther114wererelatedtobusinesstargets. Greedinfrequentlyseemstospilloverintoobservablepatternsof behavior.Only18percentofthefraudstershadexpensivehobbiesand 17percentdroveexpensivevehicles,hardlydistinguishingfeatureswhen thefraudsterisaseniorexecutive. Tounderstandafraudstersprofileitisusefultoconsiderthree driversoffraud: 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. CopyrightFraudResourceNet LLC v ThreeDriversofFraud: Rationale Rationale Fraudsters,aswithothertypesofcriminal,will frequentlyprovidearationalefortheirdeeds. Angerandfearwereimportantfactorsin10percent orlessofthe596fraudsters. 16percentoftheresponsesmentionedbeingunder remuneratedasbeingimportant. Theonlyemotionthatappearssignificantisasense ofsuperiority,whichisimportantfor36percentof thefraudsters.Maybelinkedtothefactthat29 percentofthefraudswerecommittedbyexecutive directors,thelargestsinglejobtitle. Tounderstandafraudstersprofileitisusefultoconsiderthree driversoffraud: 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. 14. 7/9/2014 14 CopyrightFraudResourceNet LLC 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. PersonalityandCapability: EmotionalMotivations CopyrightFraudResourceNet LLC Future patterns of fraud may be determined by: A. Growing corruption B. Cybercrime, technology and collusion C. Pressure to falsify financial records D. All of the above Polling Question 3 15. 7/9/2014 15 CopyrightFraudResourceNet LLC 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. PersonalityandCapability: AttributesofaTrustedPerson CopyrightFraudResourceNet LLC 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. PersonalityandCapability: DriversofCorruptBehavior 16. 7/9/2014 16 CopyrightFraudResourceNet LLC FraudbyIndustry Industriesshouldhaveuniquefraudrisks,butintheindustries listedbelowthemostcommontypeoffraudwas misappropriationofassets. FinancialServices Pharmaceuticals Consumer&IndustrialMarkets Mostly embezzlement Energy&NaturalResources PublicSector&Information Communications&Entertainment Mostly procurement fraud v 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. CopyrightFraudResourceNet LLC The only emotional factor that is significant in determining if someone will commit fraud is: A. Arrogance B. Eagerness to please C. Sense of superiority D. Sense of inferiority Polling Question 4 17. 7/9/2014 17 CopyrightFraudResourceNet LLC v NewTechnologyandthe Fraudster Newtechnologyhascreatednoveltypesoffraudbehavior andbroughtnewcapabilitiestothefaceofafraudster: Cyberrelatedcrimesoccurredbyvirtueofinfectionsof computersystemswithmalware,attacksoncomputer networks,etc. Cyberfraudsterswereemployedbythevictim organization,mainlyinIT,butalsoinfinanceand operations. 67%ofthefraudstersincyberenabledfraudsactedin collusionwithothers,whowerealsomostlyemployed bythevictimorganization. 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. Organizations are struggling to keep pace with the growing technological sophistication of hackers. A few years ago, hackers were motivated by political objectives and disrupted computer networks to make an ideological point; but it is only a matter of time until fraudsters harness the full power of technology for financial gain. CopyrightFraudResourceNet LLC Conclusions v 2014KPMGLLP,aUSALLPandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative("KPMG International"),aSwissentity.Allrightsreserved. Changesintheenvironmentspawnnew capabilitiesthatdrivedifferentbehavior. Organizationsmustconstantlyadapttheir strategiesformanagingfraudrisktothe changingrelationshipbetweenthedrivers (motivation,opportunityandrationale)and behaviorsandcapabilities. Thedynamicopportunityoftheday,relationships onanorganizationalandglobalscale,thelatest technologies,andsociopoliticalandeconomic issueswillshapethefraudstersprofiletimelessly. Onemustalsonotforgetthetypicalfraudster maylikelyremainthetenured,trustedemployee. Theoneyoumayneverhavesuspectedbecause wedonotlook. 18. 7/9/2014 18 CopyrightFraudResourceNet LLC More often than not, people join an organization with the intention of committing fraud A. True B. False Polling Question 5 CopyrightFraudResourceNet LLC Questions? 19. 7/9/2014 19 CopyrightFraudResourceNet LLC ComingUp 1.HowtoDetectFraudulent Documentation,Wed.,July16,1:00 PMEDT 2.BuildingDataAnalyticsintoYour AuditandRiskAssessment,Wed., July23,11:ooAMEDT CopyrightFraudResourceNet LLC Peter Goldmann FraudResourceNet LLC 800-440-2261 www.fraudresourcenet.com pgoldmann@fraudresourcenet.com Jim Kaplan FraudResourceNet LLC 800-385-1625 www.fraudresourcenet.com jkaplan@fraudresourcenet.com MichaelDoyle KPMGLLP AndrewCurtin KPMGLLP Thank You!