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To Catch a Thief: Ex-FBI agent and higher education's first fraud institute target white-collar criminals

Enron did it. Worldcom did it. And Martha Stewart has been accused of doing it.

Gripping stories of criminally creative accounting and corporate misdeeds have made household names of Ken Lay and Jeffrey Skilling and chronicled the fall of august corporate giants such as Arthur Andersen. Ironically, the headline-grabbing, billion-dollar business scandals may also have given accounting degrees from top-tier institutions such as The University of Texas at Austin more cachet than ever before.

Joseph Wells
Joseph Wells

Businesses are learning the hard way that skilled accountants and auditors trained in fraud detection are worth their weight in gold if they can close the barn door before the million-dollar horse gets out.

“Even with all the unflattering headlines of the past few years, here at the McCombs School we haven’t seen a reduction in the number of students studying accounting,” says Ross Jennings, chairperson of the Department of Accounting at the McCombs School of Business. “If anything, the changes we’re seeing are distinctly positive, and more interest in the field has been generated. The high-profile scandals just emphasize how much difference a skilled, vigilant accountant or auditor can make.”

This does not surprise Joseph Wells, a seasoned ex-FBI agent, white-collar criminologist, award-winning author, philanthropist and adjunct professor at the McCombs School of Business who was preaching the importance of sleuthing long before “post-Enron world” was an overused catchphrase.

“Students have had such a positive reaction to Joe Wells’ class,” says Jennings. “And the topic area obviously is timely and important right now. Interest is only going to grow in the future, I imagine, because students will want to be in an industry that people view as crucial. Those graduates with fraud examination skills will be in the elite ranks, perhaps preventing another Enron-level disaster.”

In Wells’ class, students are treated to case studies of fraud as well as guest lectures from white-collar criminals who reveal the details of their illegal ploys.

“The best aspect of this fraud detection course is that it is taught by someone with personal experience in the field,” says Grant Smith, a graduate student at the McCombs School of Business who is in Wells’ class. “My goal is to work in the fraud examination area, and I definitely think that what I learned in the class gave me an edge during interviews this semester. This kind of course currently is not offered at most universities and played a large role in my choosing UT for graduate school.”

With 40 years in the fraud business, eight books on the topic under his belt and a flatteringly long list of honors, Wells is able to share valuable and practical insights with his students on everything from embezzlement to what makes a criminal tick.

Wall Street Journal article on corporate scandals

“I’ve seen all of the ‘how’ when it comes to fraud—there are, after all, only 15 ways that someone can commit fraud,” says Wells. “What makes people do what they do is the most fascinating part of this business. The majority of individuals would never consider killing, maiming or raping, but everyone lies. What seems to be consistent is that criminals, even white collar ones, can’t give up short-term rewards for long-term goals. These are regular people who take a job and don’t even think about committing fraud, but it’s a little like someone throwing open the doors of Fort Knox and telling these guys to help themselves—eventually they do.”

Wells’ lively anecdotes of crimes committed, tense stakeouts and fraudsters apprehended seem on the surface to hold endless variety and innumerable, novel details, but, in fact, the underlying structure of each fraud is elegantly simple.

According to Wells, every case of fraud contains three basic elements: pressure, opportunity and rationalization. Fraud detection professionals refer to this as the “fraud triangle.”

“The person who commits the crime starts to feel a pressing financial need of some kind,” says Wells. “It could be Ken Lay, for example, needing to show robust earnings at Enron for his investors or be fired, or it could be a single mom needing to get braces for her child. Opportunity is governed by a person’s position in a company—an executive is able to steal millions and cook the books for billions, but a bookkeeper at a little shop that has no certified public accountant (CPA) or auditor to oversee affairs is also in a prime position to commit a crime. Then the employee begins to rationalize—‘my boss passed me over for a promotion that I really deserved’ or ‘this is just sort of a loan and I’ll eventually pay it back.’”

Wells’ four decades of firsthand fraud examination experience has included 10 years as a special agent of the FBI, a time during which he assisted in nearly 200 criminal convictions, including that of former U.S. Attorney General John Mitchell for his involvement in the Watergate case. He also formed Wells & Associates, a consulting group of criminologists, and he is founder and chairman of the Association of Certified Fraud Examiners (ACFE), an organization of more than 29,000 anti-fraud professionals worldwide and the leading accrediting association of fraud examiners.

Person taking money out of a cash drawer

His involvement with the ACFE has allowed him to indulge a natural evangelical streak and intensify his efforts to educate professionals, the public and business students about fraud detection.

“My teaching experience at the McCombs School aroused my curiosity about the number of other universities offering fraud detection classes,” says Wells. “I found a study that indicated only around 2 percent of the university accounting programs nationwide provided courses in fraud, so we started the Higher Education Program at the ACFE. Would-be criminals can’t defraud someone who’s knowledgeable about this subject, and we need accounting graduates who know how accounting systems can be misused as well as used.”

The Higher Education Program provides free syllabi and teaching aids, training programs and textbooks to universities interested in fraud examination education. The ACFE also offers scholarships to university accounting students who show an interest in studying fraud, with Wells donating all of his book royalties and his University of Texas at Austin teaching stipend to the scholarship fund. For his work in higher education, Wells was named Accounting Education Innovator of the Year in 2002 by the American Accounting Association.

“The ACFE’s commitment to anti-fraud education has increased the number of colleges and universities offering dedicated fraud courses from around 10 to 145 in just two years,” says Toby Bishop, president and chief executive officer of the ACFE. “As more universities offer anti-fraud education, businesses and other employers will prefer to hire students who have this knowledge since they will be better equipped for success in today’s business environment.”

In addition, the ACFE provides certification to qualified anti-fraud specialists, keeps track of continuing education credits, designs training for members and presents about 60 seminars and conferences worldwide each year. The organization has customized onsite training for business organizations and offers to the business community a free, interactive CD on the dangers of fraud, as well as free newsletters.

With so much ground covered, it might seem that nothing remained for Wells to do in the field of fraud education and examination but sit back and enjoy the fruits of his labor. Never a person of small ambitions, however, Wells has continued to dream big, envisioning an academic institute that would study the causes of and cures for fraud, disseminate grants for research projects and gather existing scholarship on fraud in one centralized location.

Fraud Triangle: Opportunity, Pressure, Rationalization

Last year he approached Dr. Stephen Limberg, then chairperson of the Department of Accounting, with his proposal and met a receptive, enthusiastic audience. Limberg and Dr. Urton Anderson, a professor of accounting, agreed to poll a sampling of academic areas on campus and gauge interest, with the goal being to make the institute a highly multi-disciplinary endeavor that welcomed collaboration from a large number of sources.

“Joe Wells came to me with this exciting idea for an institute that would be an intellectual nexus, which would promote education and high-quality research on fraud in all its forms,” says Limberg. “I and Dr. Urton Anderson talked to representatives in various areas on campus, and queries were sent to the vast array of outside constituents who would benefit from and contribute to the institute—law enforcement agencies, CPA firms, professional organizations and associations, businesspersons—and the response has uniformly been positive and supportive.”

Because of the diligent work of Limberg, Anderson and Wells, the Institute for Fraud Studies became a reality this fall. Dr. William Black, a professor in the LBJ School of Public Affairs and former director of litigation for the Federal Home Loan Bank in Washington, D.C., has been named interim executive director. In order to emphasize that the institute will reach far beyond any one academic department in scope, it will be housed at the LBJ School.

“Our institute is the first of its kind anywhere in the world, as far as I know,” says Black. “And it’s badly needed. This current U.S. wave of corporate scandals at one point represented $7 trillion dollars lost in market capitalization and U.S. stocks. That’s mind-numbing. Medicaid fraud alone is estimated to be $11-12 million, and the Federal Trade Commission has estimated that tens of millions of Americans have been victims of identity theft—that’s a form of fraud—with that number more than doubling each year.”

William Black
Dr. William Black

Like Wells, Black has spent decades in the trenches and seen firsthand the magnitude of losses attributable to white-collar crime and fraud. And like Wells, he has a sense of mission and a bottomless energy when it comes to the task of educating policymakers, professionals, the public and university students about fraud.

According to Black, the institute will serve three major purposes once it is fully staffed and functioning, the first being extremely selective, high-quality research. In addition to research produced in the various academic areas on campus, the institute also will draw upon the work of scholars outside The University of Texas at Austin.

“There’s an incredible paucity of research on major financial crimes and vastly more money spent researching small property and blue-collar crimes,” says Black. “If you look at criminology, you see around nine blue-collar criminologists for every white-collar criminologist. It’s even more disproportionate when you look at research dollars given out.”

As Black points out, when the U.S. Justice Department releases survey results, for example, which indicate that property crime has fallen to an all-time low, the seemingly—and erroneously—upbeat announcement is possible only because so many fraud cases often go uncounted.

“This all harks back to the research that we’re eager to do,” says Black. “We want to publicize hard facts about fraud and create a Web site where anyone can go to learn more about it and get accurate, up-to-date information and meaningful statistics. Right now, it’s like, if you don’t count it, it doesn’t exist. That’s an inherent problem with fraud—many of the most successful frauds go completely undetected.”

Inextricably linked to research, the second major function of the institute will be education, expanding upon the efforts of the ACFE. Ideally, within the institute several educational modules and programs will be created that can be exported to other universities, saving them the effort of “reinventing the wheel.”

Article on accounting fraud in The New York Times

“Wells’ course in the UT business school already has served as a model for other business schools, and we want to build upon successes like that,” says Black. “At most universities you can go through economics, for example, and get a Ph.D. without ever hearing the word ‘fraud.’ The same problem exists in law schools. It’s very clear that the worst business failures—the ones that cost the scores of billions of dollars—overwhelmingly had fraud involved.”

Tied to the goal of education, the third purpose of the institute will be outreach and service. Black hopes to go well beyond study and research and to develop national policies that will help restrain fraud and eventually significantly reduce it.

Although the institute is still in its infant stage and has a staff of one—Dr. Black—he already has begun to venture out and do presentations at governmental agencies and universities, responding to a steady stream of e-mails from institutions hungry for more information on fraud.

Like Wells, Black is passionate about eliminating fraud and shrinking the number of Wall Street dramas in which corrupt CEOs and complacent auditors take center stage as well as the number of small businesses that can be eliminated in one fell swoop from the theft of a dishonest bookkeeper. Considering the far-reaching efforts of the ACFE, the growing number of business schools in which ethics courses and fraud detection classes are beginning to figure prominently and the newly created Institute for Fraud Studies, the future of white-collar crime already is beginning to look very different.

“Any work you do in this field—in fraud detection and the stamping out of big-money white-collar crime—is a win-win as far as I’m concerned,” says Black. “This corruption is not good for corporations. It’s not good for shareholders. It’s not good for the country. Doing what Wells and I do and what many of these very smart accounting graduates are going to be doing is so much more a calling than just an intellectual interest. It’s, in a manner of speaking, ‘the Lord’s work.’”

Kay Randall

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  Updated 2014 October 13
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