Fraud and Regulatory Enforcement

Article, Financier WorldwideApril 2013

Insurance / Legal / Forensic Investigation

Randy Wilson, an RGL partner in the St. Louis office, was interviewed for Financier Worldwide’s “Fraud and Regulatory Enforcement Annual Review.” Randy spoke with the publication about the current climate of corporate fraud and corruption in the United States.

To what extent have you seen a notable rise in the level of corporate fraud, bribery and corruption uncovered in the United States in recent years?

Wilson: We have seen a noticeable rise in the discovery and resulting prosecution of fraud, bribery and corruption cases. Interestingly, with the increase in awareness of the potential, magnitude and pervasiveness of these crimes, it is surprising that these crimes continue to be discovered at alarming rates. One of the primary factors in my view is the continuing effect of the economic recession in the US that began in the late 2000s. The lingering slow economic growth since the recession of 2008 and 2009 coupled with the continuation of relatively high unemployment has provided ongoing motivation for fraud and corruption, especially in the occupational fraud categories such as misappropriation and financial statement fraud. Although, greed and need remain as ongoing motives for the commission of these crimes. Another factor that we have seen as the fallout of the economy and reductions in workforce that have occurred since the recession began is the strain on segregation of duties and resulting reduction in functionality and effectiveness of internal control systems.

Are there any specific types of fraud that seem to be appearing more frequently in the current climate?

Wilson: Fraud appears as it is discovered and investigated. In that context, we are continuing to see large scale mortgage fraud cases dominating the landscape. Similar to a bankruptcy situation, the entity that is upside down due to significant reductions in property values (or income) as compared to the outstanding debt (or expense) on the property too often leverages today on the anticipation of tomorrow’s improvement in property values. When that value or income increase doesn’t materialise, the result is an inability to meet one’s debts as they come due and the situation is ripe for the prospect of motive to commit fraud. Another alarming trend is the continuing discovery of Ponzi schemes. The incidence of discovery of Ponzi type investment schemes is seemingly unabated with large magnitude cases continuing to occur. One such case discovered just last year was a massive internet Ponzi scheme that was reportedly in excess of $600m. There also does not seem to be an abatement in the volume and magnitude of occupational fraud cases such as embezzlement and financial statement fraud. Collusion of employees with outside parties such as vendors and suppliers also continues to be a category of concern.

Have there been any regulatory changes implemented in the United States that are designed to combat fraud and corruption?

Wilson: The Dodd-Frank Act continues to dominate the landscape of regulatory changes in the United States in that it provides the SEC with the authority to reward tipsters whose information leads to significant monetary sanctions against entities and individuals committing such frauds. In addition, mortgage securities fraud has prompted regulatory changes to address those issues. One such change that is notable is a renewed vigour and frequency on the part of regulators in enforcing existing laws such as Antitrust or the Foreign Corrupt Practices Act (FCPA) which seems to be experiencing an increase in suits and prosecution.
Do regulators in the United States have sufficient resources to enforce the law in this area? Are they making inroads in this area?
Wilson: The US Justice Department and the current presidential administration have clearly stated that fraud prevention is a priority, which has resulted in an observed increase in cases that are filed and won against perpetrators. The administration created a Financial Fraud Enforcement Task Force which has augmented the resources in this area. There is a contemporaneous battle going on in the fight against cyber-crime, which is a significant threat and corollary to the fight against fraud and corruption. It appears that these battlegrounds are testing the available resources of the system to combat them, yet it appears that the US government has the resolve to continue the fight with appropriate resources.

Are companies more at risk of regulatory investigation and prosecution? What penalties could they face for failure to comply?

Wilson: With the advent of the Office of the Whistleblower (OWB) established by the Dodd-Frank Act, companies are clearly at more risk of regulatory investigation and its resulting probability for prosecution. Generally speaking, the penalties range from written warnings that may be released and covered by the media to financial penalties, suits filed against both corporations and the individuals involved, restrictions in abilities to operate in non-compliance areas, as well as the subjective financial consequences that come from high-profile corruption impact on a company’s reputation and revenues.

What role are whistleblowers playing in the fight against corporate fraud? What impact do you expect whistleblowing to have on business practices going forward?

Wilson: The Dodd-Frank Act provided the SEC with the authority to provide financial rewards to whistleblowers and the Office of Whistleblowers (OWB) has been playing an important role in the fight against fraud and corruption. As is the case with fraud hotline programs, reports of suspicious activity or information from the general public is a viable and cost-effective way to expedite discovery of fraudulent activity. Given that the OWB is relatively young, having only been established in 2011, it is actively looking into ways to effectively encourage these anonymous reports of fraud or questionable activity.

What general steps can companies take to proactively prevent corruption and fraud within their organisation?

Wilson: We must begin with the premise that fraud cannot be prevented in its entirety. Where individuals or business owners have a motive and the propensity to commit fraud they will find opportunity. Minimising the opportunity to commit fraud as well as maximising the prospect of discovering fraud or corruption if attempted must be the objective of any fraud prevention system. This system would of course be even better where there is ethical management or regulatory control that takes seriously its steps and action to fight against fraud. This includes the investigation and prosecution where appropriate of all suspected incidents of fraud or corruption reported. The best an entity can hope for is to improve its probability of discovering fraud in the normal course of business or through anonymous tips from employees, vendors, suppliers or the public. This requires physical, software and cyber safeguards, division of duties of employees with access (or constructive access) to assets, surprise audits as well as routine comparisons of actual to recorded transactions and other internal control measures designed to detect fraud. We also see that assertive and ethical leadership within entities and governments further improves the likelihood that fraud will be discovered and dealt with assertively thus improving the overall effectiveness of the fraud prevention program.


Randall Wilson
Partner, Director of Fraud and Fidelity Services
RGL Forensics
+1 636 537 5589

Mr Wilson has been involved in the field of forensic accounting for more than 25 years. He works with insurance companies and attorneys on matters involving forensic accounting, financial damages and litigation support. Mr Wilson has testified as an expert witness in state and federal courts, depositions, arbitrations and mediation on behalf of both plaintiffs and defendants. He has participated in seminars, presentations and has lectured regarding investigative accounting, fraud, insurance claims analysis and measurement of damages to members of the insurance and legal profession. He also teaches a graduate course in forensic accounting at Webster University in St. Louis.


As appeared in Financier Worldwide, Annual Review, Fraud & Regulatory Enforcement, April 2013.


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