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Executive Roadmap to Fraud Prevention and Internal Control: Creating a Culture of Compliance, 2nd Edition

Book Description

How-to, authoritative guidance for creating a best-in-class fraud prevention and compliance program in any organization

Now in a Second Edition, this practical book helps corporate executives and managers understand the full ramifications of good corporate governance and compliance. It covers best practices for establishing a unit to protect the financial integrity of a business; theories and models on how and why fraud occurs in an organization; importance of strong internal controls; major compliance and corporate governance initiatives and milestones since 1985; and more. Complete coverage includes implementation guidance for a robust fraud prevention and compliance program, including sample policies, best practice examples, and a 14-point management antifraud program.

  • Covers fraud risk assessment and prevention guidance

  • Looks at global risk issues, including the Foreign Corrupt Practices Act (FCPA) and UK Bribery Act

  • Examines amendments to the Federal Sentencing Guidelines for Organizational Crime

  • Discusses Dodd-Frank Whistleblower Provisions

  • Explores enterprise risk management key program elements

  • Offers coverage of how fraud and compliance failures contributed to the financial crisis

  • Includes enhanced principles for fraud data mining

  • Presents new cases, checklists and real-world examples, expanded international coverage, and the latest technological tools

  • Shows executives and managers what their responsibilities are regarding fraud prevention, internal controls, and compliance

  • Provides an instructor's website, including a test bank

  • Other titles by Biegelman: Building a World-Class Compliance Program and Foreign Corrupt Practices Act Compliance Guidebook

  • Completely revised and updated, Executive Roadmap to Fraud Prevention and Internal Control, Second Edition is every manager's best resource for understanding all the complex issues and responsibilities associated with fraud and compliance.

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

    "Martin Biegelman and Joel Bartow convert their lifelong experiences and unparalleled knowledge into a concise, well-written book. They provide the essential tools to take aspirational goals for fraud prevention and compliance and build them into concrete and effective programs."

    —From the Foreword by Bradley J. Bondi, Partner, Caldwater, Wickersham & Taft LLP

    "Executive Roadmap touches all the bases on corporate fraud. The authors – both experienced fraud investigators and federal law enforcement agents – lay out the history and major milestones of corporate fraud, and discuss with precision the key issues facing today's executives and compliance leaders. The book provides a valuable overview for business leaders looking to develop and implement effective compliance programs and instill a culture of integrity in order to help their organizations defeat the challenges posed by today's sophisticated fraudsters."

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

    "Biegelman and Bartow provide great insight into not just how fraud occurs inside of companies, but why. Preventing fraud requires a solid understanding of both, making this book a must read for any executive who is serious about creating the compliance mechanisms and the corporate culture needed for effective fraud prevention."

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

    "Business leaders would be wise to follow the recommendations in this book. Fraud prevention is more than just creating a set of policies. As the subtitle indicates, it is essential to create a culture of compliance. Empty words accomplish nothing. The authors, both experienced fraud examiners, have spent decades investigating fraud, as well as developing strategies to prevent it. This book is an essential tool in creating an anti-fraud environment in any company."

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

    "Biegelman and Bartow's Executive Roadmap to Fraud Prevention and Internal Control is an essential guide for all who have an interest in eradicating corporate or institutional fraud. Written by experts in detecting and preventing fraud in its myriad forms, this book is a handy source for those who hope to avoid the predicaments that the authors have seen or in managing the crises that arise when the problems cannot be avoided. The new second edition is an indispensable addition to the libraries of internal compliance 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 & Bartow's book offers expert guidance to anyone tasked with understanding and tackling fraud in the workplace. Their straightforward approach informs the reader and provides a roadmap and guidance for implementation of an effective fraud mechanism within any organization – small or large. I plan to provide a copy of the book to my Board of Directors and executive members of management."

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

    "This next edition is extremely timely. It covers key topics that any management member needs to know in today's regulatory climate. These authors have used their extensive corporate and government experience to create a practical and easy to understand compliance guide. A superb resource for any executive."

    —Karen Popp, Partner at Sidley Austin LLP and former federal prosecutor and Associate Counsel to President Clinton

    "With executives increasingly on the hot seat when corporate compliance issues arise, clear guidance regarding risk areas and best practices is invaluable. Executive Roadmap to Fraud Prevention and Internal Control contains a timely combination of illustrative stories and practice tips regarding hazards in this complex area. It is a good resource for both corporate executives and the many professionals assisting corporations to prevent or detect fraud and build a culture of legal compliance."

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

    "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 incredible achievement: they have flawlessly bridged the chasm between the theoretical/academic and practical/tangible. This is a volume that should not be on the bookshelf of every manager interested in compliance and fraud prevention (which should be every manager); it should be dog-eared and open on the desktop of every such manager! Kudos to Messrs. Biegelman and Bartow!"

    —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 resource for leaders in the corporate world who have responsibility for fraud, integrity, and compliance. They send a clear message that addressing fraud is a two part process- establishing robust controls and detection measures; and creating a culture of compliance and integrity. This work provides a detailed tour through the world of fraud controls while keeping the importance of culture at the forefront."

    —Ronald C. Petersen, Executive Director, Global Security, Ally Financial

    "From the perspective of an ethics and compliance practitioner, Martin Biegelman's and Joel Bartow's new offering is a Thanksgiving feast. Too often, companies and organizations get caught up in the moment, and don't stand back to examine the cultural, organizational and historic reasons that fraud exists. Biegelman and Bartow plow that road, and use their insights to offer invaluable tips in the design of effective anti-fraud programs."

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

    "Biegelman and Bartow have indeed produced a functional roadmap for the executive to follow in fraud prevention and internal control. This book is a great asset for those engaged in the seemingly endless struggle to control fraud. A 'must read' for the industry."

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

    "As if Executive Roadmap to Fraud Prevention and Internal Control wasn't a powerful enough tool for fraud fighters, now Biegelman and Bartow have added fresh insight and advice to the second edition. With compelling updates on costly internal and external fraud and corruption, together with easy-to-read descriptions of latest fraud-fighting technologies, this is a must-read for fraud examiners, auditors, attorneys and others—whether they've read the first edition or not."

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

    "Fraud borders on the ubiquitous in contemporary corporate culture. This book provides a rich and comprehensive guide to crafting a state of the art fraud deterrence program. While the book is sure to better equip corporate executives and directors in their fight against fraud, I intend to draw heavily upon its content in educating accounting students who represent the CEO's and CFO's of the future."

    —Ingrid E. Fisher, PhD, CPA, Associate Professor and Chair of the Department of Accounting and Law, The University at Albany-SUNY

    "The book's exploration of fraud theories ranging from 'rotten apple' to the 'potato chip' (can't eat just one!), provides useful examination of the psychology of corporate fraud that explains its recurring nature and offers clues to creating a fraud resistant culture."

    —Zachary W. Carter, Partner and head of the Trial Group, Dorsey & Whitney LLP and former United States Attorney for the Eastern District of New York

    Table of Contents

    1. Cover
    2. Endorsement
    3. Series
    4. Title Page
    5. Copyright
    6. Dedication
    7. Foreword to the Second Edition
    8. Foreword to the First Edition
    9. Preface
    10. Acknowledgments
    11. Chapter 1: Fraud's Feeding Frenzy
      1. FRAUD'S FEEDING FRENZY STILL GOING STRONG
      2. WHAT A DIFFERENCE A FEW YEARS MAKE
      3. PERSONAL PIGGY BANK CONCEPT OF LEADERSHIP
      4. THE ROGUE EMPLOYEE
      5. THE CEO'S CHUTZPAH DEFENSE
      6. A SAMPLING OF CORPORATE FRAUDS
      7. THE DRIVE FOR CORPORATE RESPONSIBILITY
      8. FIGHTING FRAUD IS GUARANTEED EMPLOYMENT
      9. NOTES
    12. Chapter 2: Fraud Theory and Prevention
      1. FRAUD 101
      2. CORPORATE FRAUD
      3. THE ACFE 2010 REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE
      4. FRAUD PREVENTION
      5. PERP WALKS AS A FORM OF FRAUD PREVENTION
      6. EDWIN SUTHERLAND AND WHITE-COLLAR CRIME
      7. DR. DONALD CRESSEY AND THE FRAUD TRIANGLE
      8. FINANCIAL PRESSURE AND OTHER MOTIVES
      9. OPPORTUNITY
      10. RATIONALIZATION
      11. DR. W. STEVE ALBRECHT'S FRAUD SCALE
      12. FRAUD DIAMOND
      13. FRAUD THEORIES
      14. THE SHORT MEMORY SYNDROME
      15. RECIDIVIST FRAUDSTER
      16. NOTES
    13. Chapter 3: The Path to Greater Corporate Compliance, Accountability, and Ethical Conduct
      1. WHAT IS CORPORATE GOVERNANCE?
      2. A CULTURE OF COMPLIANCE
      3. COSO
      4. FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONAL CRIME
      5. SAS 82
      6. ARTHUR LEVITT AND THE “NUMBERS GAME”
      7. THE SARBANES-OXLEY ACT OF 2002
      8. NOTES
    14. Chapter 4: The Path to Greater Corporate Compliance, Accountability, and Ethical Conduct
      1. THE SAS 99 FIX
      2. PRINCIPLES OF FEDERAL PROSECUTION OF BUSINESS ORGANIZATIONS
      3. THE FINAL RULE OF THE SEC FOR SECTION 404 OF SARBANES-OXLEY
      4. THE PCAOB AND AUDITING STANDARD NO. 2
      5. STEPHEN CUTLER'S “GATEKEEPERS SPEECH”
      6. ENHANCED SENTENCING GUIDELINES: LESS CARROT AND MORE STICK
      7. FILIP MEMORANDUM
      8. 2010 AMENDMENTS TO FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS
      9. NOTES
    15. Chapter 5: Internal Controls and Antifraud Programs
      1. MANAGEMENT ANTIFRAUD PROGRAMS AND CONTROLS: THE 14-POINT PROGRAM
      2. MANAGING THE BUSINESS RISK OF FRAUD
      3. FRAUD RISK ASSESSMENT
      4. ENTERPRISE RISK MANAGEMENT
      5. NOTES
    16. Chapter 6: Financial Statement Fraud
      1. RECURRING THEMES IN FINANCIAL STATEMENT FRAUD
      2. COOKING THE BOOKS
      3. RED FLAGS OF FINANCIAL STATEMENT FRAUD
      4. WHY DO THEY TAKE THE RISK?
      5. GEITHNER'S 5 PRINCIPLES ON COMPENSATION
      6. THE PERCEPTION OF DETECTION
      7. IS SARBANES-OXLEY WORKING?
      8. THE GREED FACTOR
      9. MICROSTRATEGY BECOMES MICROTRAGEDY
      10. WHERE WERE THE STOCK ANALYSTS?
      11. NOTES
    17. Chapter 7: Internal Fraud
      1. FRAUDULENT DISBURSEMENTS AND ASSET MISAPPROPRIATION
      2. FALSE BILLING SCHEMES
      3. PAYROLL SCHEMES
      4. BRIBERY, KICKBACKS, AND BID-RIGGING
      5. NOTES
    18. Chapter 8: Former Fraudster and New Man
      1. CONVERSATION WITH WALT PAVLO
    19. Chapter 9: External Schemes and Scams
      1. PONZI SCHEME
      2. MADOFF FRAUD
      3. BUST-OUT SCAM
      4. CREDIT CARD FRAUD
      5. TOOLS TO STOP ONLINE FRAUD
      6. NOTES
    20. Chapter 10: Not Too Big to Fail
      1. IN THE BEGINNING
      2. TOO BIG TO FAIL POLICY BEGINS
      3. THE COMMITTEE TO SAVE THE WORLD
      4. MORAL HAZARD
      5. REGULATION SEEN AS RESTRICTING MODERNIZATION
      6. MORE DEREGULATION
      7. FORESHADOWING
      8. THE RISE OF SECURITIZATION
      9. WAS IT FRAUD?
      10. MISALIGNED INCENTIVES AT THE RATINGS AGENCIES
      11. THE GROWTH OF SUBPRIME LENDING
      12. WAS IT MORTGAGE FRAUD?
      13. EVOLUTION OF COLLATERALIZED DEBT OBLIGATIONS
      14. THE HOUSING BUBBLE BURSTS
      15. MISALIGNED INCENTIVES IN THE BONUS STRUCTURES
      16. MARK TO MARKET
      17. WERE THEY MISLEADING THE MARKET?
      18. RISK MANAGEMENT IS HARD
      19. BEAR STEARNS
      20. FANNIE MAE AND FREDDIE MAC
      21. LEHMAN BROTHERS
      22. MERRILL LYNCH
      23. AIG
      24. TARP
      25. TOO BIG TO FAIL POLICY
      26. WAS ANYONE DOING THINGS RIGHT?
      27. LOOTING: AKERLOF AND ROMER
      28. NOTES
    21. Chapter 11: Designing a Robust Fraud Prevention Program
      1. ONLY ROBUST WILL DO
      2. THE INVESTIGATIVE RESPONSE
      3. THE FINANCIAL INTEGRITY CONCEPT
      4. INVESTIGATIONS CODE OF CONDUCT
      5. TECHNOLOGY SOLUTIONS
      6. EMBEDDING A FRAUD PREVENTION PROGRAM IN INTERNAL AUDIT
      7. WHERE FRAUD WILL BE FOUND
      8. ABUSE CANNOT BE IGNORED
      9. EMPLOYEE COOPERATION WITH COMPANY INVESTIGATIONS
      10. INVESTIGATIVE PLAN
      11. CONDUCTING INTERVIEWS
      12. ROLE OF HUMAN RESOURCES
      13. INTERACTION WITH CORPORATE EXECUTIVES AND THE AUDIT COMMITTEE
      14. PROSECUTION AS A FRAUD DETERRENT
      15. RECOVERY OF DEFRAUDED ASSETS FROM FRAUDSTERS: MAKING FRAUD LESS PROFITABLE
      16. INTERNATIONAL INVESTIGATIONS
      17. ONGOING DISCUSSIONS WITH COMPANY LEADERS
      18. QUARTERLY FRAUD DISCUSSIONS WITH THE EXTERNAL AUDITOR
      19. NOTES
    22. Chapter 12: Whistleblowers and Hotlines
      1. WHAT ARE WHISTLEBLOWERS?
      2. THE GOVERNMENT'S USE OF INFORMANTS AND WHISTLEBLOWERS
      3. WHISTLEBLOWERS ARE CORPORATE SENTINELS
      4. SARBANES-OXLEY WHISTLEBLOWER REQUIREMENTS AND PROTECTIONS
      5. DODD-FRANK ACT
      6. IRS WHISTLEBLOWER PROGRAM
      7. HOTLINES: BUILD IT RIGHT AND THEY WILL CALL
      8. THE FALSE CLAIMS ACT
      9. NOTES
    23. Chapter 13: Time to Do Background Checks
      1. FCRA REQUIREMENTS
      2. WHAT IS A BACKGROUND CHECK?
      3. THERE IS NO ONE-STOP SHOPPING FOR CRIMINAL RECORDS
      4. THE BEST INDICATOR OF FUTURE BEHAVIOR IS PAST BEHAVIOR
      5. THE TREND TOWARD RESTRICTING USE OF BACKGROUND SCREENING TO PREDICT JOB PERFORMANCE
      6. RESUME FRAUD AND AN ADEQUATE BACKGROUND REVIEW
      7. IT IS NOT NECESSARY TO BE FORT KNOX
      8. ARE BACKGROUND CHECKS WORTH THE COST?
      9. THE ROLE OF HUMAN RESOURCES IN BACKGROUND CHECKS
      10. NOTES
    24. Chapter 14: Training, Training, and More Training
      1. BUILDING FRAUD AWARENESS THROUGH TRAINING
      2. THE ROLE OF FRAUD INVESTIGATORS IN TRAINING
      3. TRAINING FOR CHIEF EXECUTIVES AND DIRECTORS
      4. NEW EMPLOYEE ORIENTATION
      5. MANAGERS ARE ROLE MODELS
      6. NEW MANAGER TRAINING
      7. FRAUD PREVENTION TRAINING FOR FINANCE EMPLOYEES
      8. TRAIN YOUR ACCOUNTS PAYABLE DEPARTMENT: LOOKING FOR FRAUD ON THE FACE OF THE INVOICE
      9. TRAIN THE AUDIT STAFF TO DATA MINE
      10. NOTES
    25. Chapter 15: Global Fraud and Corruption Risk
      1. GLOBAL CRACKDOWN
      2. DEVASTATING COST OF CORRUPTION
      3. FCPA PROVISIONS
      4. GLOBAL ANTI-CORRUPTION EFFORTS
      5. OECD CONVENTION ON COMBATING BRIBERY
      6. UK BRIBERY ACT
      7. TRANSPARENCY INTERNATIONAL
      8. COMPLIANCE PROGRAM DESIGN
      9. CONTROL COMPONENTS, INC.
      10. NOTES
    26. Chapter 16: The Feds Are Watching
      1. THE GOVERNMENT'S “SHOCK AND AWE” STRATEGY
      2. SNAPPING THE BONDS OF LOYALTY: JOINING TEAM AMERICA
      3. THE CHALLENGES OF RUNNING A BUSINESS WHILE ATTEMPTING TO PROSECUTE A COMPLICATED CIVIL FRAUD CASE
      4. MAKING THE BEST OF A BAD SITUATION: WHAT TO DO IF THE FEDS SHOW UP AT YOUR DOOR
      5. NOTES
    27. Chapter 17: A Fraud Prevention Culture That Works
      1. CRITICAL ROLE OF COMPLIANCE
      2. FRAUD NEVER TAKES A HOLIDAY
      3. HAVE A ZERO TOLERANCE FOR FRAUD AND MEAN IT
      4. GATEKEEPER ROLE OF THE AUDIT COMMITTEE
      5. THE WALL STREET JOURNAL RULE
      6. A FRAUD PREVENTION VISIONARY: INTERVIEW WITH DR. JOSEPH T. WELLS ON THE FUTURE OF FRAUD AND FRAUD PREVENTION
      7. FROM A COMPLIANCE INITIATIVE TO A CULTURAL MIND-SET
      8. THE ROAD AHEAD
      9. NOTES
    28. Appendix: ACFE Fraud Prevention Checklist
    29. About the Authors
    30. Index