Fraud Solutions: Fraud News Update 10.27.16

Fraud News

Fraud News Update 10.27.16 – This week’s edition of the Fraud News Update features: What Wells Knew (and when they knew it), Fraud Prevention (man and machine), Food Fraud Impact, The Infamous Yates Memo (insurance may not cover you), Are Most CEO’s Frauds (not the Wells scandal) and Data Breach Myths Are Bunk.

As leaders in the fraud consulting arena, read on for more topical information and our insights, observations and unique commentary on some of the weekly fraud news stories.

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What Wells Knew… When They Knew It

Fraud News Update 10.27.16 - Wells Fargo FraudThere’s been a lot of talk about the Wells Fargo account and ethics debacle. So, the question is who knew what and when did they know it? These facts are really important to the timeline of events and management accountability (or lack thereof) in this case. Senate testimony from the CEO was that he didn’t know about the account issue until 2013.

However, a former employee claims that they not only sent a letter to the CEO in 2007 making him aware of the unethical account practices but ultimately won a federal whistleblower case against the bank in 2008. Assuming that’s factual, it would appear that Wells ultimately ignored the issues raised by the whistleblower and in case you’re wondering about that strategy, it’s never a good plan.

Now, I’ll buy the fact that a senior management executive could say that they don’t remember seeing a letter… it happens. Executives have gatekeepers that handle those kinds of things for them. So, in reality the 2007 letter may not have actually been seen by the CEO. However, it would have been forwarded to other senior executives for handling and claims of that magnitude would likely have triggered notification back to the CEO.

The letter should have also gone to investigators and other internal departments with accountability for these kinds of governance issues. Then, it would go to the audit committee before lastly going to the board. Secondly, a whistleblower lawsuit is a big deal and should have triggered all sorts of executive, audit, governance, legal, board and CEO notifications. So, I’m having a hard time buying into the “I didn’t know about the account practice until 2013” testimony.

As for the bank now saying they’ll “add it to their investigation” is seriously insulting everyone’s intelligence. This is like “closing the barn doors after the horses have already bolted.” Again, given the chain of events that occurred since at least 2007, none of this should now be a newsflash to the Board at all.  The investigation Wells keeps referencing should have been done at least ten years ago!

It’s a day late and a dollar short…there’s trouble in Mudville!

Fraud Prevention (Man and Machine)

Fraud News Update 10.27.16: Fraud Prevention - Man and MachineEffective enterprise fraud risk management methodologies are so much more than just “man or machine.” One or the other may work somewhat, but the reality is that companies who are extremely effective in mitigating fraud risk integrate a holistic fraud prevention approach (consisting of men, women, machines and software too!).

Appropriate balance and weighting are integral measures in determining how well your enterprise fraud risk program is performing. The failure to think about a balanced and complete fraud risk management solution is often the difference between profit or a big hit to the bottom line. Add regular training, education, awareness and an effective fraud policy to the list and you’ve got something cooking.

Food Fraud Impact

Fraud News Update 10.27.16: Food Fraud IniativeSpeaking of cooking, in last week’s Fraud News Update, we featured a piece on the new wave of “food detectives”…scientists ferreting out fraudulent and intentionally mislabeled foods. I commented that food impersonation might be one of the hottest trends in the industry as most people are unaware that what’s described on menus, and in packages, may very well not be what it’s represented to be.

So, we’ve learned that Michigan State University has a food fraud initiative and according to CNBC, Food fraud hurts your wallet and makes you sick.  Read on… unless of course you can’t “stomach” the thoughts of fraudulent foods any further.

MSU claims “food fraud is costing consumers $30 billion to $40 billion a year worldwide.” Who knew?! Some of the agencies investigating include the U.S. Food and Drug Administration (FDA) , the U.S. Department of Agriculture, Interpol, Oceana, National Oceanic and Atmospheric Administration (NOAA) etc.

The Infamous “Yates” Memo

Fraud News Update 10.27.16: Yates Memo - Fraud AccountabilityIn November 2015, we posted an article, U.S. Urges Early Company Reports in Bid to Charge Employees on our LinkedIn company page. The article discussed the U.S. Justice Department’s new initiative to hold corporate employee’s personally liable for business wrongdoing. The new individual accountability plan was authored by U.S. Deputy Attorney General Sally Yates and the document outlining it is now referred to as the “Yates” memo.

The Yates memo release probably caused a swell of D&O (Directors and Officers) insurance policy sales with companies looking to cover legal costs associated with these types of wrongdoing through specialty insurance. However, it would be a mistake to think that insurance covers ALL claims as the reality is that it does not.

As claims for legal costs associated with wrongdoing start to get submitted in the new accountability era, we’re starting to see some claims denied, in whole, or in part.  John O’Donnell and Scott Balber, Herbert Smith Freehills, LLP, discuss their legal take on this issue: The Push for Individual Accountability and D&O Insurance Coverage.

Apparently, D&O insurance doesn’t solve everything!

Are Most CEO’s Frauds?

Fraud News Update 10.27.16: CEO FraudIn light of recent financial services events, it’s a pretty good question. Interestingly, however, this article isn’t about the Wells Fargo fraud account scandal or even their former CEO for that matter. The author’s examining the oft used, and abused, executive term thrown around by people in business claiming the CEO title. He’s putting forth the notion that by true definition these folks aren’t really CEO’s, or even close. Did he nail this one or completely miss the boat here?

The title, Why Most CEOs Are Frauds calls out the question: Is this type of business title misrepresentation really a subtle form of fraud? Things that make you go hmmm.

Data Breach Myths are Bunk

Fraud News Update 10.27.16: Fraud Facts vs Fraud MythsLast week, the Fraud Solutions blog focused on Target’s 2013 data breach. People talk about the long-term impacts that breaches have a but a random comment by a colleague led me to question breach impact in greater detail. Do data breaches actually have the long-term business impacts that everyone suspects they do? Or, after getting financially clobbered, is it business as usual? What do you think? Read my insights in Breach Myths Debunked: Long Term Business Impact

Fraud News – The Bottom Line

Fraud – empowering people to break the law. It’s a way of life for some and every fraud has a story. At Fraud Solutions,we’re passionate about helping customer’s mitigate enterprise fraud risk management losses. Being proactive is key, so, follow us each week as we cover the fraud beat with added insights, information and unique commentary on stories making the fraud news.

Those are our insights. What are yours?

For more information on how we can help your businesses prevent enterprise fraud risk, conduct fraud risk assessments, provide fraud training, develop fraud content, reduce major fraud losses and improve operational ROI, contact us to schedule an initial consultation. No obligations…just unique insights from an industry leader.