Fighting Fraud - Allan Bachman, Association of Certified Fraud Examiners
Allan Bachman has fought fraud since the early 1970s, and he's seen the crimes evolve in both sophistication and scale.

In an exclusive interview, Bachman, Education Manager for the Association of Certified Fraud Examiners (ACFE), discusses:

The evolution of fraud schemes;
The most common types of fraud seen today;
Types of training available to help detect and prevent fraud.

Bachman, CFE, MBA, is responsible for seminar development and the educational content of all ACFE conferences and online learning. Most recently he worked in Higher Education as director of an audit unit and was project manager on several IT implementations specializing in security. His largest fraud investigation for over $1.5 million was conducted during this time.

Previously Bachman worked in or consulted for retail, real estate, manufacturing and has done extensive small business consulting where he has actively worked a number of fraud cases. His fraud investigation experience extends back to the mid- 70's and has continued throughout today. He became a CFE in 1993.

TOM FIELD: What are the most prevalent types of fraud today, and what does it take to fight them? Hi, I'm Tom Field, Editorial Director with Information Security Media Group. I am talking today with Allan Bachman. He is the Education Manager with the Association of Certified Fraud Examiners. Alan thanks so much for joining me.

ALLAN BACHMAN: Not a problem.

FIELD: Just to get us started today, why don't you tell us a bit about yourself, your background and your current role with the ACFE?

BACHMAN: Well, I started as basically a general ledger accountant right out of college in the early 70's and discovered a number of odd occurrences in the organization I was working in. And long story short, found that I had a proclivity to just uncover fraud. I was seemingly finding fraud everywhere I looked, and it got me a reputation as somebody who was worthy of having on board, and I was recruited out of that organization into other organizations, and I was primarily used to uncover and investigate and prosecute fraud. Now after all of these years, I became Education Manager in the last three years here at the Association of Certified Fraud Examiners. I had been a member since 1993, when I was officially certified as a fraud examiner, having 20 years of experience behind me, and I have been working with this organization ever since.

FIELD: Now, Allan, as I understand it you have been fighting fraud then since the mid-70's?

BACHMAN: A little earlier than that, but absolutely, yes, in a variety of forms for a variety of organizations.

FIELD: So, how have you seen fraud schemes evolve over the years?

BACHMAN: I'd say fundamentally it is technology. What people used to do manually using white out and altering documents to make a fundamental fraud, they now do on computers. And it is a very, very technological savvy society, and as a result the frauds have evolved technologically as well. The issue of computer forensics is this huge one now for those investigating fraud because resident artifacts on a computer that can contribute to an investigator's work are not as easy to pull apart as what I used to do, which is just plug through the file cabinets until you found evidence that you needed to make your case.

FIELD: What do you find to be the most common types of fraud that you are seeing today?

BACHMAN: I think that [according to] our 2008 Report to the Nation, pretty much corruption is the number one of fraud. Bribery and corruption are huge because of the volume of money involved that is available for that sort of thing. What we also seeing are dirty schemes where we have fictitious vendors, people creating false employees. They are skimming, of course, where you are altering the books to steal cash outright. There is massive financial statement fraud, as you have seen in the media -- ponzi schemes are getting a lot of press these days. It is a lot of the same old frauds that have existed; they are just being done in new and creative ways.

FIELD: Now, Allan, tell us a little bit about the Association, please, and the type of work that you do there as a group.

BACHMAN: Well, we are a member services organization, and there are a number of these types of organizations not just for fraud, but also for other professional societies. We were formed in 1988 by Joseph Wells, and he came up with the idea that really there was no one group really looking into the issue of fraud. So he created this organization, and we now have close to 50,000 members worldwide. We are represented in 125 countries; about half of our membership are certified fraud examiners, and the others are associates and student members, and we are working with a number of higher education institutions to get fraud into the businesses and management curriculums.

Our membership includes everyone from external auditors to internal auditors, law enforcement, federal, local, state ... we have, as I said, international members who are also part of our organization, private investigators, insurance investigators, bank examiners, risk people and compliance people. So we have quite a diverse group of members in our organization.

FIELD: I know as Education Manager you have conducted training sessions for international groups, you have taught college course. What would you say the types of training are that you typically offer and to whom?

BACHMAN: Well, we offer to all of the groups that I just mentioned, and then anybody who might be interested in our training. We don't restrict it, so anyone can come to any one of our trainings. We do a number of training seminars throughout the country. We also hold conferences in a number of places. We have an international conference that we hold once a year -- this next year is going to be in Washington, D.C. We have conferences in London, Australia and Canada, but we also hold seminars, one- and two-day seminars, on training mortgage fraud, banking fraud, financial statement fraud, interviewing techniques for auditors, conducting internal investigations. These are just some of the courses that we offer to people so that they can build their skill set and have these tools available for them when they do uncover a fraud.

FIELD: I have got to think that the enrollment in these classes isn't getting any smaller these days.

BACHMAN: No, not at all. We also find that people will come back to a course more than once just to keep the skills sharp. It can never get too much training; I think you can never have too much background and support in what you are going for. As I mentioned earlier, the computer forensics is also another big topic in our seminars these days, as fraud examiners are trying to understand exactly the mechanics of how this works and how computers store data and store information and store evidence that they may need in their investigation and how to get at it.

FIELD: Well, that is a good topic, and you have touched on this to some extent, but I would be curious from your historic perspective: What do you find to be the biggest challenges in fraud detection and prevention today?

BACHMAN: Probably awareness, certainly in terms of prevention. Creating an environment in an organization where people are aware that management is watching, management is concerned and that management is actually going to take action in case they do come upon a fraud. That there is an ethical tone at the top set so that people can look towards management as this is the right way to do things. One of the other big challenges is that when a fraud is uncovered, most of the frauds are uncovered not by auditors and not by fraud examiners, but they are uncovered by whistle blowers, tipsters, people who have had the moral courage to step forward and say something is wrong here. "I think something is going on, and I don't know what it is, or I do know what it is, but I want to tell somebody." That is the number one, far and above the number two and three spots, the way that frauds are uncovered, people coming forward. And that takes a certain strength of character.

A lot of frauds--fraud by its very nature is hidden, so a lot of fraud goes uncovered until somebody steps forward and says "I just don't get this; this just doesn't make sense," and then an auditor or a fraud examiner might step in and start looking at that based upon that tip. The biggest challenge would be getting people to come forward when they see something wrong.

FIELD: Interesting. A follow-up question to that if I may, Allan. We hear an awful lot this year about the insider threat and how that has heightened, and I guess what I am curious about is are we as professionals trained more to look to the outside for fraud and might miss what is happening underneath our noses, so to speak?

BACHMAN: Nobody really likes to know that a fraud is occurring under their noses. I have had fraud victims in complete denial when you show them all of the evidence of what has been transpiring and what has been transpiring for some time; where I have actually said "We want to do a full investigation, can we pursue this?," and they are so in denial in the "it can't happen here" that it's hard to understand. People should look within their own organizations. They see fraud on the outside and they wipe their brow and say "Whew, it hasn't happened to me!" But as I said, fraud is hidden so they are not going to know it; it is not going to rear its ugly head as obviously as one might think.

I think owners of organizations, managers of organizations, shareholders and the public need to keep asking questions and keep pushing for accountability, and I think in that way you will make frauds harder to perpetrate. It won't go away completely, but they will be harder to perpetrate if there is a heightened awareness.

FIELD: Now, you have talked about how fraud has evolved. I am curious about how the requirements to fight fraud have evolved. What would it take for a professional to join the field today and do what you started to do 30 something years ago?

BACHMAN: As I said, I more or less stumbled into it, but a lot of--there are law enforcement people who are assigned to white collar crime units. They need to be trained, and they need to keep their skill set up. They need to be of pace with those people who are committing frauds. If the people who are committing frauds are more savvy than the people chasing them, then they will get away for a longer period of time. So a constant training mode needs to be established for anyone who is fighting fraud, whether it be an internal auditor, an external auditor, or law enforcement or whoever, they need to be fully apprised of how frauds are committed, how they are being committed today and what are those tool sets that they need in order to continue to stay one step, I want to say ahead, but in effect you are one step behind the fraudster. One step behind the fraudster is pretty close.

FIELD: As one of my colleagues always tells me, every time law enforcement builds a ten-foot wall the fraudsters build an 11-foot ladder.

BACHMAN: Well, that's an interesting comment, and that reminds me of a quote that I once heard in an old comedy routine where they were talking about the great train robbery and they were asking Scotland Yard about the mastermind behind, and the spokesman for Scotland Yard said, "We would prefer not to refer to them as masterminds; it depresses the men."

FIELD: Allan, one last question for you. If you could boil it down, what advice would you give to someone that is looking to start -- or in some cases re-start -- a career in fraud prevention or detection?

BACHMAN: Well, if they have got a business with clients right now, they can help create the awareness, they can offer services to them so that they can get their foot in the door to do investigations when an organization encounters fraud. Not all organizations have auditors, not all organizations have the internal skill sets that are required to investigate a fraud of the 21st century, if you will. And those types of teams and those types of skill sets can be readily trained on and learned, but not every organization can afford to have that kind of team available to investigate a fraud.

So an organization that does consulting services, that does advisory services, financial advisory services, might want to look into building a skill set that includes accounting forensics, digital forensics, and some investigative skill sets that go beyond their norm of, let's say, tax auditing or general accounting.

FIELD: Alan, I very much appreciate your time and your insight today.

BACHMAN: Not a problem.

FIELD: We have been talking with Allan Bachman, Education Manager for the Association of Certified Fraud Examiners. For Information Security Media Group, I'm Tom Field. Thank you very much.




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