One need not look too far to recall historical studies warning us of an increasing likelihood of fraud events in government.  Common-sense rationale stipulates that in competitive pursuits, companies doing fraud ultimately get caught: they experience diminished economic results, lose reputation, grow weak, and then they go out of business.

With public institutions, if countervailing forces do not exist, fraud and waste continue unabated for extended periods of time.  If scandals or bad behavior occur, how can we be surprised?  And, borrowing one impactful phrase from the confines of a June 6th Wall Street Journal commentary by Steven Law:

“There’s never just one cockroach.”  

Diligence in Fraud Prevention

So, whether an organization houses a few “bad apples” or is in itself a “bad barrel,” we must all be diligent, at all levels of an organization—our company, governmental institution, not-for-profit entity.

Several combinations of characteristics: inertia and complacency; an inability to face-down issues or challenges early in their life-cycle therefore letting avoidable problems fester far beyond any tolerable term; herd mentality and group-think; all of these ultimately cause or promote the wrong behavior within employees…by omission.

Perhaps even more importantly, if we as management do not communicate and exemplify common sensible, key behavioral and ethical principles, then we are perceived as tolerating any resulting behavior.

Let me say that again:  Not communicating or not acting rightly sends the clear and quickly-perceived message…that we tolerate the opposite: wrong choices and bad behavior.

Rule #1 through #3: Decide what’s important; Say it; Do it.  Rule #4: Repeat  rules 1 through 3.

Most importantly, at the base of right behavior throughout an organization must be two things forming its foundation…a sense of right and wrong, and, healthy skepticism…at all levels.

As examples:

• In M&A efforts, we utilize due diligence on purpose; to confirm what is and is not in place…what the numbers are…what the operations actually produce…what the capabilities and risks and results are or could be.
• In managing operations, we have business processes built over time, done with consistency, by people and through systems.  Within those business processes, we have our in-house experts executing transactions and activities…and they know better than anyone when something goes awry, or does not happen according to those processes and intentions.

Our job as managers, or subject matter experts, or conscientious employees, or valued contractors…is (FIRST) to be diligent, observant, add value.  If things get out of kilter, or cause our gut to get queasy, we must then act…and we must have trusted people to go to if we cannot fix it ourselves.

Create a Culture of Principle

Skepticism naturally results from: inquisitive people acting knowledgeably, with a principled sense of right and wrong.  But, if the culture or management approach is non-committal, or absent, or even worse…toxic…then principle gets shoved aside, or dies, or departs…and the wrong things happen.

So, the choices, messages, and therefore the tone from management all create the “culture.”  If management takes no position, communicates nothing substantively, then the wrong choices and behavior are neither prevented nor avoided.  “Herd-driven” or “group-think” approaches simply prolong the stupidity.

If action is taken by principled, knowledgeable and experienced people, and consistently communicated and reinforced…successful management teams emerge, along with sustained company success.  Let’s face it, everyone jumps the bandwagon of a winner…but winners are established and sustained by principled, communicated messaging…resulting in right action, regularly verified.

I am not an attorney.  So, as directed by counsel advising me in a 1st amendment suit I evaluated filing, DISCLAIMER language always “fronts” my presentation documents:

[These opinions, observations and examples are based upon Jim Wanserski’s acquired knowledge gained from: his fraud-uncovering experiences; project  consulting work; direct testimony (public information), evidence preparation, and exhibits developed or offered in a number of  those cases.]

It applies here too.

A personal pet peeve is the susceptibility of people from the likes of administrators, university professors—especially “ethics” ones, even former FBI agents, accounting and investigative organizations, who just seem to liberally desire and then place “perps on the podium.”  Numerous speakers’ bureaus and stables for “get your fraud expert-speaker here” drone on incessantly from the sidelines, in print and promotion, about such fare.  Sadly, a number of perps get to do their diatribe on the dais, and get paid for it too.  I’ve long-labeled this as simply a misguided version of American idol.  After all, what can we learn from the perp(s)?  If they were “the smartest people in the room,” why’d they get caught?

AUDACITY knows no bounds.

To wit, example #1: note that the anointed “poster-boy” of the HealthSouth healthcare fraud is back in the news: (acquitted of criminal charges in the HealthSouth fraud case but found liable in a civil trial — see the link: http://www.bizjournals.com/birmingham/blog/2013/05/scrushy-wants-back-in-health-care-biz.html?ana=e_du_pub&s=article_du&ed=2013-05-10&u=kgSEhLuccYSm/NoFF2uEM6M69Oy)

As the link’s piece indicates, Scrushy has now petitioned a judge to lift the ban precluding him from serving as an officer or director for a public company, part of a settlement with The SEC.

How soon till we see him on the podium?

Two-wit, example #2: Who can forget renowned “perp” Barry Minkow of ZZZZ Best and his phony carpet-cleaning company-fame, sentenced to 25 years in prison, serving about 7 ½ years.  He then “emerged from prison as a Christian pastor and launched his new career, arguing that it takes a fraudster to know one” (WSJ-April 5, 2011).  Within a few years of the initial prison release, and doing misdeeds once again according to Marquet International’s White Collar Rogues Gallery, “Minkow was sentenced to 5 years in prison and ordered to pay $583 million in damages to (company) Lennar.”

The list of examples goes on and on and on…perps doing deeds, getting out, finding “sponsors,” and then getting paid to impart to audiences “lessons of vital import.”  Oh, and don’t forget their books, how-to or otherwise, that they offer as well.  Perhaps such bureaus, associations, accounting, investigative, and “ethics” organizations ought to face facts.  Could this simply be fraud foisted again, via another medium?

“Hope springs eternal” is inappropriate as a lesson audiences should be submitted to from the podium, and certainly not from “perps posing as preachers.”  Might administrators best recall: “Fool me once, shame on you; fool me twice, shame on me”?  Let’s call it what it is—naïve inanity (but I repeat myself)!

Should not the reaction be: “You’re putting WHO on the podium, to talk about what?  Are you kidding me?

That’s simply AUDACITY — hopelessly devoted.

Long ago a good friend, businessman, associate, highly-ethical person in my network clued me into the obvious: most times the secret to performance and success “is just blocking and tackling.”  Now in these days of: consultant-speak, nuanced-solutions, follow-the-herd mentality or at least the latest management theme-song, that revelation typically falls on deaf ears.  Such ho-hum advice is just NOT very exciting.  As a matter of fact, it is just downright boring, but quickly becomes lesson-learned #1 when you become a victim by falling into the realm of what was first ignored.

Dangerous territory to venture into, apparently…

Yet, day after day after day after day, we are reminded by real-life experts, literally across the board, who very simply emphasize facts gained from experience…you must focus on the fundamentals.  Coaches, mentors, trainers, chronically-successful business people, and now even administrators are confirming that uninspiring statement.

To wit: Joel Klein (former chancellor of the New York City public schools, and now EVP of News Corp.—who owns the Wall Street Journal) in an op-ed from April 19, 2013 entitled “What Education Reform Looks Like,” describes the approach taken by Matthew Goldstein, chancellor of the City University of New York:

“His 14-year tenure demonstrates what is possible when schools set a high bar for their students, faculty and leadership, measure progress toward those goals, and hold themselves accountable for meeting them.”

Or another education example that’s in the press a lot lately: school consultants continue to bemoan the efforts that too much time is spent in the classroom “teaching to the test.”  What apparently does not occur to many (most?) is that “the test” is a pretty fundamental threshold of knowledge required to just exist in the world, and many times even those tests get periodically “dumbed-down” to achieve a higher pass-rate, at the cost of educational quality.  Further, my network indicates that state tests given in Texas are done in a couple of hours in the high-achievement schools, yet students in achievement-gap schools are allowed to take all school-day to complete them…and it is a fundamental skills/knowledge test…but still, we shouldn’t be teaching to the test???

Another, more personal example: in one of my own fraud-uncovering experiences, counsel gave me their instructions on how best to deal with testifying in front of a hostile lawyer.  You must own the facts, so the first directive was always, “just tell the truth.”  (I then recalled what my own daughters used to say when I stated the obvious to them: “Well duh, Dad!”)

Yet too many times we get distracted by other non-core, non-mission-critical things, and we get sloppy on the fundamentals.  Then we get bitten, sometimes badly.  So make sure that the requirements are covered, and build on top of them…don’t start another foundation that then crumbles when times get tough.

First things first, and then over and over again!

The local newspaper in Atlanta, GA executed one of the early investigative efforts into the historical, highly unlikely and overly-successful test score trends reported by the Atlanta Public Schools (“APS”).  This past week, the long-awaited story finally broke publicizing the criminal indictment of 35 administrators and teachers.  The “perp” walks were anticipated to occur in the AM on April Fools’ Day, most likely a fitting date indeed, for all concerned.

However, while holding fast to the “innocent until proven guilty” tenet of a free and “rule-of-law” society, the multitude of failings across a number of fronts is painful, even without knowing outcomes from to-be-decided settlements, jury trials, admissions, publicity, “told-you-so” pontificating, and etc.  Taxpayers unknowingly funded sham results…including bonuses earned on inflated metrics…misbehaving was rewarded…and the real victims are the children now  possessing substandard educations.  For one, I have DIRECT and incontrovertible PROOF that irrespective of geography, wealth-level, parental involvement (or not), abundant funding (or not)—witness even parochial schools–the overwhelming majority of students will learn from:

GREAT TEACHERS who are trained and content-educated, but who most importantly…care;

• who exhibit enthusiasm and integrity;
• who set high expectations/standards; and,
• who demand, and correspondingly–when earned, give respect, in the classroom and throughout their activities in our schools.

From both management and fraud detection experience, “corruption follows money and power;” and not necessarily in that order!  But leadership, oversight, countervailing forces, must be present, operative, and verifiable…in business, and in our educational institutions.  Within all organizations, expectations have to be set and understood; results have to be measured, and operational processes, people, and systems must be up-to-the-task for results to be achieved…and understood along the way.  Information must be “actionable,” especially if it confirms that “things aren’t going well” – and we now know that things weren’t going well with the longstanding record of “great” results in the APS…as much was fabricated, and we’ll likely know over the next year or so just exactly WHY, HOW, WHO…was responsible.

Shortly after the initial investigations, I attended a law firm-sponsored panel discussion featuring one of the local newspaper editorialists, a Georgia state legislative person, and a local university educational expert, led by a clearly blame-minded emcee.  The upshot of the discussion that morning was…the pressure by the business community made the problems happen within the APS.

Interestingly enough, over a year later, I heard APS superintendent Errol Davis speak…his talk particularly resonated with me because he’s gathered more than his share of educational credentials, degrees, and honors…then he was a very successful businessman (CEO of Alliant Energy)…and then he joined the University of Georgia system—in his so-called “retirement” years.  I occasionally use this quote in the 60+ management, fraud prevention and detection presentations I’ve made over the past 5 years:

Errol Davis:  Atlanta Public Schools interim superintendent, 1^st week in his new role; when hearing the story over and over, that the reason for the APS test scandal was “there was a lot of pressure to perform, and that’s what caused the cheating,” simply remarked, “You know, I’ve had pressure my whole life (as have most of you here today), and my reaction to such a silly “reason” is…that’s a whole lot of bunk.”   

Actually, he used a different word, but you get my drift.  His eyes didn’t fail him, nor did his common sense.

During the course of a career, people in management experience significant ups and downs, unless we are just mediocre across the board…not an optimal existence.

For most of us, we consistently work hard in order to: experience more growth spurts than career-damaging events; become more contributory than dependent; serve as a leadership example to the people around us, within our sphere of influence.

I have had the distinct pleasure to have witnessed and learned from, some significant leaders, and also from a few abysmally-poor ones.

Of note in nearly everyone’s career, however, are those unique occurrences where we have been, proverbially: at the right place, at the right time, with just the right mix of skills, information, and subsequent solution. Those are the things that “prod us to keep going,” instill confidence, serve as a real boost to career path (and to compensation growth)! Looking backwards, one can perceive those keystone events as having taken on a providential sort of aura, a unique-to-you set of circumstances, a combination of luck, karma, even supernatural elements.

Or do they really?

Once analyzed, the lead-up to such events indicates that each such incident has its specific root cause, trigger-points, factual cause-and-effect. Many times we miss the critical-path relationships that led us to operate so fortuitously the first time, and we don’t do the same things when the next such challenge or opportunity arises. Experience is still the best teacher, yet we can become lazy in our operations, departing from our own “best practices.”

One of the “big three” golfers (and I’m dating myself here), said something like, “The more I practice, the luckier I get.” I suspect the same goes for leadership and management success. By the time we are well-entrenched in business or organizational success, some key traits have been developed. From my own experiences, and from those leaders I was privileged to have seen thus far, are these characteristics:

• A natural curiosity to figure things out, coupled with a sense of skepticism.
• Linked to that natural curiosity are the needs for: continuous learning and improvement.
• A sense of right and wrong…to “do the right next thing”.
• An ability to “connect the dots.”
• Clear and distinct professionalism.

Aristotle, loosely translated: “we are what we repeatedly do.” (We may just have to do it more often.)

Here’s a wonderful message copied word-for-word from a book by Dr. Rushworth M. Kidder, an ethicist I’ve heard speak three different times in and around Atlanta.  Professor Kidder passed away in 2012.

From his book, Moral Courage, page 274 and 275:

“What can I do?

That last question concerns the individual’s role in the face of evil.  It’s a profoundly moral question.  For many people the answer is “I ought to get involved, lend a hand, help out in some way.”  But there’s a nagging doubt.  Can my involvement really change the world?  Even if I, and all my friends and all their friends, had the courage to band together and help, could we make an impact?  Compared to the six billion people in the world today, we’re but a rounding error.  Can my moral courage really make a difference in the face of so much that violates the ethical canons of humanity?

I’m convinced it can.  Let me share a parable.

Some years ago, I interviewed a number of people in the States and overseas for a newspaper series on global education.  Among the interviewees were several African American men in their thirties.  Each had grown up in a terrible ghetto environment.  And each had “made it” and was successful.

Why, I asked them, had they succeeded?  Why had they not been gunned down at age eighteen in a neighborhood alley as, statistically, they should have been?  Each, using different specifics and a different name, told me essentially the same story: it was old Mrs. Smith in the fourth grade who really turned them around.

“But wait,” I asked them.  “You’ve just told me about your schooling, where you had dozens of dreadful teachers.  You’ve just told me about your large and dysfunctional family, where hardly anyone seemed to care.  You’ve just told me about your scores of friends—many now in jail, others now dead—who set all the wrong examples.  And now you’re telling me that, in the face of that relentless down-drag of depravity, Mrs. Smith alone lifted you up?”

“Yes,” each one said, “that’s exactly what I’m telling you.”

In itself, that fact doesn’t surprise us.  We all know, intuitively, the enormous power of a single right example.  The question is, WHY should that be so?  Why is it not equally true that a child raised in caring, attentive surroundings can meet one bad teacher and be plunged into a life of crime and vice?  Somehow that’s far less observable.”

…from this excerpt…A likely lesson for all of us:

Be that “Mrs. Smith” — to someone.

As evident with occurrences throughout public and private companies…and now even with the Woodruff Arts Center here in Atlanta, we must see fraud for exactly what it is.

My opinion (and experiences) lead me to the following:

With all the publicity the bad guys get, the time some of them get on the podium (in front of university, accounting, and even fraud investigation organizations—go figure), along with the undeterred and incessant Ponzi schemes, and the roster of “name” companies publicized as suffering fraud (and the larger fraud impacts against and within government)…one could surmise that there is an epidemic being foisted upon business.  Add in cyber crime, identity theft, phishing, and all the other fraud-related monikers we have to deal with, and it feels like a tidal wave of theft.

In reality, fraud is just a business problem, another cost of doing business…that’s all.  And that’s how we should be dealing with it: as a problem to be solved, minimized, addressed, fixed…and the culprits too.

We have data that indicates the best sources of uncovering fraud, in priority order.  We know the likely places, how long it goes on before it gets caught, and case studies give us lessons-learned across-the-board.  We’ve all likely identified controls and best practices within our businesses, moved to highly-effective systems, added and exploited the top-notch people we have hired for our organizations, and developed first-class business processes.  We know how things are supposed to work, what results to expect, when something goes awry…and bad guys do get caught.

But what happens first:

• weaknesses get exposed,
• money gets saved,
• cash flow accelerates,
• business processes become world-class, and,
• we learn our businesses very well.

In our recurring and specialized business efforts, we find unproductive processes, capital, and people—uncovering waste and dumb things, before we ever find fraud and crime, and those experiences occur all of the time.

So, fraud is just another business problem to deal with, to minimize.  It may just be time we treat it as such, instead of some external monolith that gets “done to us” as victims.  If we are the victims of anything, it just may be from acting like one.

We all know Stephen Covey of “Seven Habits” content and fame. Covey’s original book, sequels, speeches, programs…even the copycats…all talk about developing and sustaining good “habits.” We can also recall other authors, speakers, speech-writers, and so on who extolled the benefits of consciously-chosen, repetitive behavior, all the way back to Aristotle, who indicated:

“We are what we repeatedly do. Excellence, then, is not an act, but a habit.” Aristotle likely also had it right when he indicated that we learn by imitation and practice: “We become just by doing just acts, temperate by doing temperate acts, brave by doing brave acts.”

Or more classically told as,

“We become just by the practice of just actions, self-controlled by exercising self-control, and courageous by performing acts of courage.”

Events and circumstances are encountered and dealt with one-by-one, experience-by-experience. These decision-points (hundreds of thousands over the course of a life), require a person to HAVE TO MAKE choices. Done appropriately, “choices-made-with-purpose…or consistency…or guided by something” then lead to habits, and habits become virtues, and virtues ultimately lead to and form character, and character is likely the STUFF of leadership.

Keeping on this “virtue” theme, Thomas aKempis (an Augustinian) wrote the following: “The time of adversity shows who is of most virtue. Occasions do not make a man frail, but they do show openly what he is.” Many other and blunter quotes directly address that same idea; for instance, you’ve likely heard… “that which does not kill you only makes you stronger” , or… “it’s not how high you soar when things are going great, it’s how high you bounce after you’ve hit bottom.” (that one’s attributed to General George Patton).

So, I suspect this “march to leadership”…is a long process, a marathon. As I look back on my short career thus far, I have to agree with some of those classic quotes, and as I look at my experiences, I have proven to myself that there are no “sound-bite” solutions to leadership. As a matter of fact, an idiom I’ve often heard is that, “one should be leery of sound-bite conclusions.”

Leadership, in my opinion, is done Bottoms-Up.

It is also the result of the combination of, or an accumulation of, and/or must depend upon:

1. A developed CORE…a set of principles, beliefs, internal guidance-things that each of us have…or hopefully WILL have. (formed or influenced by…family, belief systems, education).
2. A matured approach to decision-making that is clearly influenced by CORE.
3. Applied to tens-of-thousands of experiences (where we MUST make choices), which then result in habitual behavior (good, bad, or ugly).

So, from experience, leadership arises from a really long, drawn-out process, and it’s likely NEVER totally completed…that’s what I have been influenced to believe. From CORE, supplemented with education, applied to choices and decisions to be made (“experiences”) — subject to some developed decision-making process, then result in: habits, virtues, character, to…leadership.

…or not.

Oh, and studies have indicated that good leadership qualities resemble…ethical principles.

A long time ago, I ran the internal audit department of a major telecommunications company.  Among a host of other things, the group I directed covered the waterfront on: internal control testing across the multi-billion organization—both telecom and non-telecom operations, performed comprehensive information technology and environmental reviews, as well as significant operational/analytical projects.  We dealt with policy-violating behavior, identified inefficient business practices, and even brought forward a number of strategic observations.  However, the majority of the work was core-based; we had responsibility to perform very-focused review work, and we stuck to our knitting.

And…we uncovered fraud.

One particular incident involved a classic example: inappropriate acceleration of revenue recognition.  The president of a subsidiary was in line to become the boss of a combined operation after an impending deal.  He along with his complicit CFO made a conscious decision to recognize revenue well ahead of contract terms.  The Controller of the division then faced a hard, “I can get fired if I do this, and I can get fired if I don’t” choice to make.  After deliberating, he confidentially came to me for “assistance” to uncover the fraud.  We constructed cut-off procedures to test contract and revenue recognition results, and, we “caught” the fraud.  Ultimately, that Controller kept his job, his boss and his bosses’ boss…did not.

After reporting to my direct management, then to the executive suite, I brought the information to the audit committee.  The conversation was civil, but solely because management had terminated the offenders…the right thing to do.

After the full Audit Committee meeting, the chairman dismissed management from the session, and requested the public accounting firm audit partner and me, to remain.  He then ceremoniously removed his coat, walked to one end of the conference room to close the French doors, then solemnly walked to the other end of the room and did the same there.

Sitting down, he rolled up his sleeves…then asked this surprise question:

“What DIDN’T I ask you that I should have?”

I had an answer…not as good of one as when he asked me again at the NEXT audit committee meeting, but acceptable.

Most importantly, his behavior exemplified a management and leadership awareness that I have never forgotten.

“…Most fraud schemes are discovered when the main perpetrator confesses to authorities after being caught (a la Bernard Madoff) or when they are close to getting caught…”  (this “journalist” is, in my opinion…“Uninformed”)

I am amazed at what can get published these days; well, maybe not.  The first amendment is a wonderful thing, and if you “live” by the pen but avoid known facts, you likely position yourself at a dead-end-place, in the crosshairs of something very common-sensible–let’s call that something: hard data that obliterates your “claims.”  I’d also liken it to irrefutable evidence.

This column uses data, informed judgments, and yes—opinions, mine and others.  However (“neither am I an attorney, nor am I an idiot” – quoted here from someone I respected very much), effort is used here to name sources of hard data to justify either the direct position taken, or, to explain the data supporting the positions — from those source-studies.

Very simply: FACTS allow my disagreement with the initial “Uninformed” quote, which came to me via Google alerts…so, the most fundamentally-available data has…served its purpose.

From Daniel Patrick Moynihan: “Everyone is entitled to their opinion, but not their own facts.”

The “author” of the (“Uninformed”) lead-off statement must not understand the most basic of facts from the Association of Certified Fraud Examiners.  The best source of uncovering fraud is…Tips…from:

• an employee,
• a customer,
• a vendor,
• even “anonymous” is included in this category.

All from studies executed and published by the ACFE within that organization’s Reports to the Nations.

Repeating from a blog posting of at least a year ago… (plus 2012′s data):

The Association of Certified Fraud Examiners (“ACFE”) distributes its “Report to the Nations on Occupational Fraud and Abuse” every two years. Their studies have dissected thousands of fraud cases, provided multiple slices of the data, and a number of key findings. Of specific relevance here are the following two charts, displaying a clear winner, but for a not-so-obvious, yet-entirely-logical reason.

The primary take-away here is not that “Tips” clearly represents the best source of uncovering fraud, but that we are not fully realizing the robust value of that BEST source (a tip from an employee, a customer, a vendor). An even more important insight, however, is WHY that source is so powerful…

…The further up from the bottom you go, the higher the knowledge of the business processes, and therefore the greater the aptitude to catch fraud…not a difficult concept, right?

Another quote for you all (and for “Uninformed” too):

Michael B. Mukasey/WSJ: Two basic rules of both journalism and history: “…if you ask the wrong questions you get the wrong answers, and if you don’t look for facts you won’t find them.”