Internal Auditors Association

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Internal Auditors Association

  1. 1. Internal InvestigationsInstitute of Internal AuditorsPalm Beach County Chapter June 15, 2012
  2. 2. History of the Company• October, 2001—Great Southern Detective Agency – Criminal Defense • State/ Federal court – Family Law • Surveillance
  3. 3. • September 2003 – Wendy joins the firm – Civil/personal injury• October 2005 – Consultant, policies and procedures• May 2006 – New name, new focus, new staff• June 2009 – Certifications (CLI, FRP)
  4. 4. Who We Are• Certified Paralegal (CP®)• Certified Fraud Examiners (CFE®)• Certified Criminal Defense Investigator (CCDI)• Certified Legal Investigator (CLI)• Bi-lingual• Federal, State and Former LEO• Forensic accountants• Certified technical forensic experts
  5. 5. What We Do• Since 2001 – Located over 1000 people – Conducted over 5000 interviews – Uncovered millions of dollars in assets – Verified credentials for executives, managers and experts – Performed detailed “due diligence” for corporations and financial institutions
  6. 6. What We Do• Harassment/Discrimination claims• Fraud and theft/embezzlement cases• Background investigations• Due diligence investigations• Drug cases• Net worth determinations
  7. 7. The (Workplace) Commandments• You shall not lie (on your application)• You shall not steal (from the jobsite)• You shall not kill (or assault a co-worker)• You shall not covet (your employer’s goods)• You shall not blaspheme (or make inappropriate comments to an employee)
  8. 8. Some Common Schemes• ‘Skimming’ and theft of cash• Billing (‘shell’ companies, vendor ‘refunds’)• Payroll (falsified hours, ‘ghost’ employees, commission schemes)• Misuse of company assets* (vehicles, supplies, computers)• Theft of inventory
  9. 9. Some Common Problems• Drinking or using drugs (driving, operating equipment)• Improper relationships*• Jokes, comments, e-mails• Disparate policy enforcement (‘inadvertent’ discrimination)• Ignoring ‘danger’ signals (threats, aggression, escalation)
  10. 10. How We Can Help• ‘Internal’ investigations team• Interviews, forensic analysis• Locate stolen property or money• Verify use of company assets• Identify dealers and abusers• Protect the workplace• Policy review and development
  11. 11. Attorneys and Investigators• Attorneys performing investigative interviews?• Costs, qualifications• Potential conflicts• Gathering information versus conducting depositions• Confidential vs. privileged (work product)• Oversight and coordination• Subsequent litigation; preparing for the lawsuit• Finally, what’s in a name?
  12. 12. Managing Employee InvestigationsReginald “Reggie” Montgomery, CLI, CPP, CFE, CP
  13. 13. Backgrounds• All new employees• If not all, then Sales, Purchasing, Transportation, Financial & all Upper Management positions• Criminal (Statewide if available and previous residential locations)• Motor Vehicle (on all employees who operate vehicles, SEMI-ANNUAL).• Credit (obtain signed release authorization during application process)• Employment• Education
  14. 14. Backgrounds - Optional• Civil Litigation• Database• References (neighbors, friends)
  15. 15. Computer Theft• Electronic data and hardware
  16. 16. EspionageCounter Espionage Sweeps (electronic counter- surveillance, de-bugging) – To do it right is expensive• Board Meetings• R & D Meetings• Sales Meetings• Planning Meetings
  17. 17. Case Study #1: Hewlett Packard• CEO orders an investigation into information “leaks” from the BOD to the press• Private investigators utilize “pretexting” to obtain personal identifiers and call information• Telephone records identify board member as source of information provided to journalist• HP prosecuted by state and federal authorities for use of pretexting; data brokers and investigators criminally charged
  18. 18. Hewlett Packard• Issue: How an outside investigator can screw up your case• The investigation became the focus of attention• The original wrongdoing (violation of ethical and fiduciary obligations) overlooked by the media and authorities• Legislation introduced to criminalize pretexting
  19. 19. Fraud• White Collar – Embezzlement – Phony vendor schemes – Skimming’ and theft of cash – Billing (‘shell’ companies, vendor ‘refunds’) – Payroll (falsified hours, ‘ghost’ employees, commission schemes)
  20. 20. Fraud• Blue Collar – Misuse of company assets* (vehicles, supplies, computers) – Theft of inventory• Other fraud indicators – Issues with harassment, inappropriate behavior, viewing pornography may indicate disregard for company policies,possible inclination for fraud schemes
  21. 21. Harassment• Get everything in writing• Put in personnel files• Competent Investigator to conduct interviews or polygraphs (voluntary)• Employment backgrounds (previous history of harassment?)
  22. 22. Loss Prevention• NEGLIGENCE SUITS• Surveys• Recommendations• FORESEEABILITY
  23. 23. Misconduct• Company policy violations – Written – Reviewed by outside counsel• Employee separations – Security concerns – IT coordination – HR documentation
  24. 24. Labor Disputes• Coordinate Physical Security• Coordinate transportation of employees on and off site• Protect employees and facility• Get qualified expert in field that knows how to cooperate with both parties (if possible) in non- confrontational manner!• Video/film (confer with qualified labor counsel)
  25. 25. Polygraph• Know when to and when not to• Employee notification• Qualified expert to conduct polygraph
  26. 26. Surveillance• Worker’s Compensation Fraud• Theft• Harassment• Violence• Absenteeism• Justification for termination needs proof!• “Manned” and “unmanned” video
  27. 27. Undercover Operation• Very dangerous, must be handled properly• Usually requested to resolve theft, drug usage• White or Blue Collar, operative must be smart and report only to Investigator. Findings to be reported confidentially and daily.• Provides collateral information re: policy violations, management issues, undisclosed liabilities• Coordination with law enforcement in cases involving contraband
  28. 28. Violence (see Harassment)• Get everything in writing• Put documents in personnel files• Competent Investigator to conduct interviews or polygraphs (voluntary)• Employment backgrounds (previous history of harassment or violence)
  29. 29. Workers’ Compensation• Review reports (accident and medical)• Conduct surveillance
  30. 30. Employee Theft• Verify initial report• Attempt to quantify losses• Initiate appropriate techniques for apprehension• Report findings• Make recommendations and initiate corrective controls
  31. 31. Case Study #2: Asset Misappropriation• Employee utilizes company vehicle for personal business• Surveillance to establish daily and “after hours” activities• Research to identify business entities at various locations• Covert contacts to confirm personal business enterprise• Documenting for submission to corporate counsel
  32. 32. Resources for Employee Investigations• Voice Print Identification• Statement Content Analysis• Law Enforcement• Countermeasures• Covert Cameras• Net Worth Analysis
  33. 33. Resources for Employee Investigations• Profiling• Polygraph and Interview• Forensic Accountants• Computer Forensics• Due Diligence
  34. 34. Resources for Employee Investigations• Surveillance• Undercover Operatives• Civil Litigation (plaintiff and defense)• Contingency Planning• Facility security cameras and access control• News and media reports• Confidential informants
  35. 35. Resources for Employee Investigations• The List of Resources for Employee Investigations is only limited to the Investigator’s imagination, corporate policy, local, state, and federal laws
  36. 36. • Endless waiting, increasing anxiety• Facts of surveillance: – Patience, patience, and more patience – Minimal intake of fluids – Staying focused and in “alert” mode – Blending in – Physical discomfort (heat/cold, cramped quarters, thirst, hunger) – Sense of humor required
  37. 37. Case Study #4: The Investment• Viatical settlements passed as an investment opportunity• Terminally ill patients have life insurance policies with significant death benefits• Patients “sell” the policy and assign the benefits to a third party “broker” in exchange for a portion of the death benefit• Tens of millions invested by pension funds
  38. 38. • Patients receive immediate cash to pay for “quality of life” support, medications, or travel• Broker then sells “shares” of the policy to investors/groups• Investors collect a share of death benefits when the patient/policyholder dies• Monies collected from investors used to purchase insurance policies from terminally ill patients• Policies reviewed by medical personnel to confirm diagnoses and life expectancy• Returns of 40% “guaranteed”
  39. 39. Issues to discuss• You are on the audit committee of a state pension fund tasked with performing due diligence• What are the elements that should be reviewed and verified before making a significant institutional investment?• What items would you ask to see from the broker?• What processes would you utilize to verify information provided?
  40. 40. Behind the Curtain in Oz• $110M taken in by FinFed/ABS• Only $6M in policies actually purchased• Only one nurse to review medical policies• Two lawyers “certified” that procedures were established and followed, and that they personally reviewed the files• Shares were determined to be securities; brokers not registered/licensed to sell securities• Patients were living beyond initial life expectancies
  41. 41. Behind the Curtain in Oz• Fraudulent insurance policies uncovered• No institutional investor conducted more than cursory examination before investing millions• Millions spent on lavish lifestyles: homes, cars, jets, travel• Initial investors paid “returns” from proceeds from new investors (Ponzi)• “Hey, it’s the 90’s!”
  42. 42. Behind the Curtain in Oz• Outcome: Federal prosecution of all participants• Sentences of 5 to 50 years• Lawyers disbarred• Investors large and small lost millions• Pension funds threatened with insolvency• The largest Ponzi scheme in Southern District of Florida at that time• All for want of a quality audit and appropriate due diligence
  43. 43. And, finally…Thank You!• Mark J. Murnan, CLI, CFE• mark@completelegalinv.com• 561-687-8381• “Like” us on Facebook: Complete-Legal- Investigations-Inc• Sign up for our newsletter• Make it a great weekend!

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