Group Teaches Firms to Chart Paper Trail on Inside Crime

Gene Mertz, a security manager in Arkansas for the Weyerhaeuser timber and paper company, recently finished compiling evidence on an employee accused of bilking the company out of thousands of dollars in a purchasing scam.

The employee worked for Weyerhaeuser’s land-leasing program and had bought dozens of cattle guards--grates in roads designed to keep livestock from escaping. The cattle guards were not showing up on the company’s property, and Mertz suspected that the manager had cut a deal with a contractor to sell the guards and split the profits.

Mertz said he built a case for prosecuting the worker using methods he learned from a new organization called the National Assn. of Certified Fraud Examiners (NACFE). The Austin, Tex.-based organization held its first convention in San Diego last week.

Mertz was one of about 150 members who attended seminars ranging from honesty testing and recognizing phony documents to computer fraud and recovering fraud losses.

The growing demand for training to help companies uncover white-collar offenders spurred creation of the organization in 1988, said NACFE founder Joseph Wells. The group, which is incorporated, posted revenues of about $700,000 last year, mostly from fees for training seminars, he said.

Wells, a certified public accountant who worked as business fraud investigator for the FBI for 10 years, is also the organization’s principal stockholder.

White-collar crime has always taken a heavy financial toll on businesses, but only recently are companies aggressively pursuing thieves from within, Wells said.

“Businesses didn’t want the publicity from internal fraud,” Wells said. “No one wants to admit they have thieves working for them.”

Companies would often do nothing more than fire offenders, which wasn’t much of a deterrent for other employees, Wells said.

But, as the savings and loan scandal unfolds and the public has become more aware of the pervasiveness of white-collar crime, executives are changing their attitudes about catching and exposing in-house criminals, he said.

Instead of sweeping problems under the rug, more executives are adopting policies to aggressively prosecute offenders to send a warning to other employees committing or considering illegal acts.

The association seeks to create a group of professionals with accounting and auditing skills who can recognize fraud and compile cases with a high probability of successful prosecution, Wells said.

“The traditional cop knows nothing about fraud, and the traditional accountant knows nothing about law enforcement,” he said. “This organization is a marriage of the two.”

Richard Brodfuehrer, director of auditing for Diamond Shamrock of San Antonio, Tex., said he works with three other certified fraud examiners to look for “red flags” in accounting documents that may reveal fraud.

Although Diamond Shamrock, a 5,000-employee petroleum refining and marketing company, has found no major incidents of fraud in the last few years, the possibility always exists, and accountants should always be looking for it, Brodfuehrer said.

“I think it has a deterrent effect,” he said. “It demonstrates that the company (won’t tolerate) fraud.”

The association, which had 500 members in 1988, now has about 3,000, Wells said. A certified member must have proof of education and experience in accounting and fraud investigation and must pass a two-day, 500-question examination. Eighty percent fail the test, Wells said.

Once certified, members must attend at least 20 hours of fraud-related training annually, Wells said. The association administers tests twice a year and conducts several training seminars in major U.S. cities.

Wells noted that the American Institute of Certified Public Accountants does not offer a single course on detecting or prosecuting fraud, and he accused accountants of shirking their responsibilities in that respect.

“Auditors are trained to audit, but they can do little else,” he said. “They don’t know how to gather evidence, interview witnesses, and put a case together. . . . Our purpose is to do whatever is necessary to bring a case to its logical conclusion.”

For Wells, that means full civil and criminal prosecution, which is often difficult to accomplish because of the paper trail that district attorneys have to wade through to make a case comprehensible to a jury.

Mark Hoffman, a white-collar fraud investigator for the Irvine Police Department who attended the convention, said his NACFE training and certification will help him compile fraud cases, a process he likened to “straightening out a plate of spaghetti.”

Prosecutors often reject fraud cases because they are too time-consuming, even though they involve more money than street crime, Hoffman said.

“White-collar crime victims can lose $100,000 in one scheme,” he said. “You can’t get that in a bank robbery or a liquor store robbery.”

Hoffman said the training will be especially helpful in pursuing types of fraud that have troubled investigators and prosecutors, such as schemes using computers.

“I think it has made me more aware of some areas that we don’t deal with on a regular basis,” he said.