The Fraudster's Perspective
Weston Smith, HealthSouth

Reviewed by Ruoheng Du

Weston Smith, who alerted federal investigators in 2003 to the massive accounting fraud perpetrated at health-care giant HealthSouth, joined Notre Dame MSA students for the fifth fraud seminar. At the very beginning, Weston shared a video introducing Richard, the founder of HealthSouth with the audiences. To start the presentation on this case of ethical malpractice, Weston talked about the tone at the top, referring to those traits we typically see in leaders and further linked this mindset to the fraud. Then he explained to the audience how HealthSouth management planned the scheme by three stages. Firstly, he displayed the balance sheet, highlighting the significant change of cash balance between two years, implying manipulation of contractuals and bad debts, as well as improper capitalizations. To wrap up the first stage, Weston concluded that auditing the effect is as important as auditing the cause. In the second stage, he further illustrated how HealthSouth cooked the book by looking at free cash flow and leveraging acquisition accounting, and therefore emphasized the importance of subsequent events testing. In the last stage, Weston led audiences to focus on the nature of those one-time and extraordinary charges and consistency between substance and form. 

 

The Litigator's Perspective
Andy Richmond, Cornerstone Research

Reviewed by Zhitao Liu

Andy Richmond is a forensic accounting expert who has led independent forensic accounting investigations and he has years of experience in investigating high-profile fraud schemes. In this session, Andy engaged the audience by introducing his involvement in the investigations of famous schemes including Bernie Madoff, Stanford, and HealthSouth, and by role-playing the thinking process of a fraudster. He also provided many interesting insights on how fraudsters “cook the books” in real world to show us the importance of forensic accounting investigations and how forensic accounting change according to the development of technologies and social culture. During this session, Andy used his understanding of the fraud triangle from an investigator’s perspective to lead our thoughts and explain how we should use our judgment and proper design of systematic controls to prevent fraud through minimizing the “opportunity” part of the triangle. From my perspective, the most interesting part of this session is when Andy shared statistics, general profile, and analysis on three different categories of occupational fraud (asset misappropriation, corruption schemes, and fraudulent financial statements), in which he discussed many real-world frauds he investigated and the incentives behind them. 

 

The Interrogator's Perspective
Chris Norris, Wicklander-Zulawski

 

Reviewed by Jack Jesse
Chris Norris, of Wicklander-Zulawski Associates, details psychology-driven interrogation tactics implemented by his firm. Ultimately, Norris explains, soliciting a confession requires an understanding of the mind. People who have committed crimes grapple with the fear of being found out. Many are also overwhelmed by guilt and deep down, a desire to resolve the issue. This often arises from a sense that the crime is already known. Therefore, the key for an interrogator is to earn the subject’s trust. When an interrogator is perceived as trustworthy and the subject feels they can speak freely, he or she becomes much more likely to cooperate. Whether the interrogator employs a direct or indirect approach, several commonalities exist among all these conversations: it is crucial to establish one’s credibility, ease the gravity of the situation, and show a level of understanding. Interrogation is a delicate dance as well as a science, and Norris emphasizes the crucial human element of these interactions. Even if fraudsters know they have been found out, they may withhold information purely out of disdain for the interrogator. As Norris says, in an interrogation when the underlying facts are known; the goal is getting the subject to tell the truth acknowledge them as such, and this doesn’t happen without human connection across the table.

The Regulator's Perspective
Matt Jacques, Securities and Exchange Commission

Reviewed by Phillip Christopher

In the second installment of the Financial Statement Fraud Seminar Series, Matt Jacques shares his advice to Notre Dame students and alumni on fraud risks in financial statement preparation. Jacques currently serves as the Chief Accountant in the Enforcement Division of the Securities and Exchange Commission (SEC). He has led teams at the SEC in conducting forensic investigations of high-profile accounting fraud and anti-corruption financial matters. Prior to working for the SEC, Jacques worked in the public accounting arena for notable firms such as Arthur Anderson and Ernst & Young. In this session, Jacques emphasizes the importance of staying on guard against financial fraud as he describes how easy it can be for an unassuming accountant to be pulled into potentially unethical practices. He provides suggestions and procedures that an individual may implement to recognize fraud risks and avoid being caught up in violations of the law. Additionally, he touches on the risks and opportunities for fraud in relation to the recent COVID-19 pandemic. Following his presentation, Jacques participates in a Q&A with the audience discussing matters that include but are not limited to the future of accounting, challenges that fraud investigators face, and the importance of data science in accounting.

 

The Justice Department's Perspective
Sean Berry, United States Attorney's Office

Reviewed by Daniel Richardson

The fourth edition of the Financial Statement Fraud Series featured Sean Berry, a prosecutor for the US Department of Justice with decades of experience investigating and prosecuting complex white collar crimes. Mr. Berry provided listeners with a comprehensive review of his day-to-day litigation procedures and the subtle intricacies involved with the profession. From the outset, he emphasized that federal prosecution is by far the worst case scenario for someone caught in a fraud scheme. The moment a person’s name shows up on an indictment document is both life-changing and career limiting, no matter what level of involvement they may have had in perpetrating the fraudulent activity. He notes that most of these individuals are not criminals in the traditional sense of the word. However, it is not uncommon for one small fraudulent action to eventually lead to a slippery slope of bad decisions and regretful conduct. He mentioned the “pressure” component of the fraud triangle, in particular, as many members of the audience are beginning their accounting careers soon. Although we all strive to make a good initial impression on our colleagues, it is critical that we always act right and remember his parting words: “Be careful out there”.

 

The Law Enforcement's Perspective
L Christopher Knight, FBI

Reviewed by Daniel Richardson

“Sometimes in life, things don’t always work out according to plan.” This was the primary message that Chris Knight echoed to the audience as he kicked off the sixth edition of the financial statement fraud series. Mr. Knight has over 15 years of experience as a forensic accountant with the FBI. He originally set out to pursue a big four accounting job at Arthur Andersen after graduation from Indiana University. However, he had to quickly change career plans when his offer was rescinded amidst the Enron scandal in 2002. Throughout the presentation, listeners were provided with a comprehensive overview of the FBI as a whole and his specific role within the agency. Whether it is corporate, investment, or healthcare fraud, entities continue to find unique ways to misrepresent themselves and their respective financial position. The offender is typically identifiable across all cases, but the offense itself is invisible. The most difficult part is ultimately trying to prove the intent of the fraudster so that the pieces of the investigative puzzle can be put together and tell the full story.

 

Bringing It All Together - Roundtable Discussion
 

Reviewed by Daniel Richardson

For the final financial statement fraud series seminar of the year, each of the previous six presenters came together for an informative and interactive discussion panel. Andy Richmond served as moderator for the morning’s activities, providing meaningful lessons for the audience to bring along with them in both their current and future career endeavors. In order to succeed in the fields of forensic accounting and government service, a few common themes were most prevalent. Chris Knight emphasized the necessity of bringing a constant curiosity into everything you do. Chris Norris focused on the importance of practice and repetition when you are trying to develop an expertise in your respective field. Additionally, Weston Smith offered the advice of being constantly unpredictable, avoiding confirmation bias, and never being afraid to ask the “why” behind the what. It is evident that these men are living out these lessons, and I think the concluding thoughts from Mr. Richmond summarize this notion best: “Learning is a lifelong skill, it does not end at graduation.”