Volume 22 January 2019 Issue 4

Volume 22 January 2019 Issue 4

The Institute of Internal Auditors Long Island Chapter Newsletter

In This Issue… 1. President’s January Message

2. November 2018 Conference Recap “Ethics & Risk Management”

3. Employment

4. Long Island Chapter’s Upcoming February Conference: “Fraud Conference”

5. CIA Exam Prep

6. IIA Training Opportunities

7. Fraud Alert: “Other Types of Consumer Fraud – Part 3”

by Ernest Smith, CPA/ABV/CFF, CVA, CFE

8. LI Chapter 2018 – 2019 Officers and Board of Governors

Upcoming Events

Fraud Conference

Annual IT Conference

Annual Conference

February, 2019 Melville Marriott

March, 2019 Melville Marriott

April, 2019 Melville Marriott

Volume 22 January 2019 Issue 4

Happy New Year to all of our members. Hope everyone has made meaningful New Year’s resolutions. January is usually a busy time of year for internal auditors as we try to complete our 2018 audits while developing our plan for 2019. Don’t forget to include our remaining three IIA conferences this fiscal year in your audit plan for 2019. . We had a great turn out for our November conference on Ethics & Third-Party Risk Management. This conference included an interactive presentation on Ethics where the speaker, Kevin Jenkins, presented on diverse ethical issues that we face in the workplace. We also had Brian Kostek from Protiviti present on Third-Party Risk Management where he presented the group with some innovative auditing techniques. We had a great number of members who participated in our post-conference survey, so I thank you all for your feedback. We truly value the feedback as it helps us improve future conferences. Also, many thanks to Rocky Shankar, our conference chair and former president, who put together this program. Our next conference is our Annual Fraud Conference, which will be held on February 15, 2019. This conference is one of our most popular conferences as fraud topics are always very interesting and intriguing to our members. Our current Board member, Ernie Smith has again put together a great program for our members. Our program will kick off with the Nassau County Comptroller, Jack Schnirman and include a presentation from the NY Charities Bureau on the topic of Charity Fraud and an update on the 2018 ACFE fraud survey. Additionally, this year we will have real life “fraudster” Nathan Mueller presenting on Lessons he learned from an $8M Dollar Fraud. It is sure to be a fascinating presentation that you won’t want to miss. Our complete brochure is attached within this newsletter and conference registration will be opening up mid-January. We are still diligently planning our IT Conference to be held on March 29th and will include various hot topics including Internal Audit’s critical role in Cybersecurity, top technology trends, data governance and reliability and SOC for Cybersecurity. More detailed information to come in future newsletters.

IIA Long Island Chapter President’s Message – January 2019

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As a reminder, all of our programs are held on Fridays at the Marriott located in Melville, New York. We look forward to seeing you all at these upcoming conferences. Should you have any questions, please do not hesitate to reach me at (631) 756-9500 or email me at lagunzo@nsllpcpa.com. Best wishes for a successful 2019! Kind regards,

Lauren M. Agunzo, CPA

IIA Long Island Chapter President’s Message – January 2019

Volume 22 January 2019 Issue 4

Pictured above Kevin Jenkins Attorney at Law. Kevin presently teaches corporate and Organizational Ethics at New York University.

November 2018 Conference Recap “Ethics & Risk Management”

Event Summary

Our November Conference was on the topics of Ethics & Risk Management. Kevin Jenkins presented on diverse ethical issues facing companies in the workplace and society as a whole. Kevin’ session was very interactive and challenged attendees to apply concepts to real life ethical scenarios.

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Pictured above is Brian Kostek, Director at Protiviti, presenting on third party risk management.

Employment

REMINDER: For any current or recent Long Island chapter members who are seeking employment, please be aware that we have adopted a policy for you to attend chapter program events at no cost. You can register for any events that you would like to attend as a "guest" while you are between jobs. This is being offered at the discretion of the Long Island chapter board and you may be contacted to verify your status.

November 2018 Conference Recap “Ethics & Risk Management”

Our afternoon session focused on Risk Management. Brian Kostek who is a director at Protiviti presented on how organizations and audit teams can support the value creation process throughout the third-party risk management lifecycle with innovative and technological auditing techniques.

Volume 22 January 2019 Issue 4

Volume 22 January 2019 Issue 4

Fraud-2019 “Ain’t nothing like the real thing, baby…”

Friday, February 15, 2019 – Melville Marriott 8:30 am – 5:00 pm

(8 CPE/CPD Credits)

“Every job is a self-portrait of the person who does it. Autograph your work with excellence.”

-Author Unknown

Although it flew by, 2018 turned out to be an exceptional year for many of us. We look forward to a successful and healthy 2019 and our 2019 Annual Fraud Conference promises to have something for everyone… Our keynote presenter is the Honorable Nassau County Comptroller, Jack Schnirman. His sweeping victory into the office of the Comptroller of one of the largest municipalities in our country is a story for the history books. Comptroller Schnirman will provide an upfront look at what his office has undertaken including an assessment of his team, their objectives and strategic plan to continue to enhance and improve the functionality of the great county of Nassau. He will provide insight as to the specific challenges he is facing, accomplishments to date and his overall philosophy on the job at hand. Our day continues with a presentation as to the 2018 ACFE Report to the Nation on Fraud. We will review the most recent fraud survey and look more closely at Fraud in Your Backyard as we provide an update as to fraud on Long Island.

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Our next presenter, Yael Fuchs, Esq., is a prosecutor with the Charities Bureau and works closely with issues of fraud against charities and not-for-profit organizations. She will be highlighting for us the efforts her organization has made to crackdown on charity fraud and abuse within New York State and highlight the prevalence of this activity within the United States. This promises to be an intense and interesting discussion as to breaches of fiduciary duty, embezzlement and fraudulent solicitation. This is a session you will not want to miss! Finally, we will spend the afternoon with Nathan Mueller, (formerly a CPA) from Duluth, Minnesota. Yes, Duluth! And fraud does occur there as fraud has no boundaries and can happen anywhere. His crime of embezzlement was big and went on for nearly four years. Below, is a snippet from one of his recent presentations… Nathan Mueller

“I went into prison thinking my life was over, but it turned out to be a lifesaving and a life-changing experience,” said convicted fraudster Nathan Mueller. During his incarceration, he proclaimed that he became “the person I always wanted to be.” Unfortunately, Mueller and his family had to travel a rocky and costly path so he could become a changed man. Nathan was released in September from the Federal Prison Camp in Duluth, Minnesota after serving five and a half years for embezzling $8.5 million from ING, the insurance firm, from 2004 through 2007. Nathan will spend the afternoon with us highlighting his crime, presenting the “who, what, where, when and why” it happened including the quantitative and qualitative aspects of his exploits complete with details and lessons learned from being a convicted white-collar criminal. Please join us for what will be another action-packed day of fraud presentations that will educate and amaze us all. This promises to truly be an outstanding day and we look forward to seeing you all at the conference.

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About Our Speakers

Keynote speaker: Jack Schnirman is the current Nassau County Comptroller having been elected to office in November 2017. Jack is a native Long Islander. He has a proven record of turning around broken and corrupt government finances to improve services and save taxpayers money. After earning a Master’s Degree in Public Policy from the Harvard University John F. Kennedy School of Government, John return home to clean up local government. As Brookhaven Chief Deputy Town Supervisor, Jack took on the culture of corruption that earned the town the nickname “Crookhaven.” Jack helped stop the abuse of taxpayer dollars on no-bid contracts, patronage, and scandals. He stopped past pay-to-play schemes between Town Hall and vendors, including ending the annual theft of $70,000 in lawnmowers. He helped improve town services while saving taxpayers millions by implementing ServiceStat, a management initiative that helps hold town departments accountable. And he made government work better for the community by launching a 3-1-1-style constituent response system. As Long Beach City Manager from 2011 to 2017, Jack helped put the City on the road to recovery from the brink of bankruptcy, inheriting a $14 million deficit and near junk bond status after five downgrades. On Jack’s watch, Long Beach’s bond rating was upgraded twice and received nine consecutive credit positive reviews. Jack helped implement smart reforms—overhauling the city’s purchasing process to ensure all expenses are justified, stopping family members from supervising each other, instituting a new performance management program and creating a 3-1-1-style smartphone application for residents. Jack did all this in the wake of one of the greatest disasters to ever hit Long Beach, Superstorm Sandy. While reconstruction efforts lagged throughout Long Island because of incompetence and corruption, Long Beach rebuilt stronger, smarter and safer. Long Beach’s iconic Boardwalk was destroyed by Sandy, but under Jack’s leadership, the Boardwalk was rebuilt on-time and under budget. Jack lives in Long Beach with his wife and children. He is a member of the Government Finance Officers Association (GFOA), New York State Association of Counties (NYSAC), Energeia Partnership, New Deal Leaders and Truman National Security Project’s Partnership Program. Jack is on the advisory board of the Hofstra University Peter S. Kalikow School of Government, Public Policy and International Affairs, and he has served as a career advisor to the NYU Wagner School of Public Service’s Fellowship for Emerging Leaders in Public Service and as co-chair of the Curriculum Committee for the New Leaders Council. He is a former member of the New York Conference of Mayors, Mayors Against Illegal Guns and Regional Economic Development Council’s infrastructure working group. Jack has also previously served on the board of the Long Island Chapter of the New York League of Conservation Voters. Presenters:

Yael Fuchs, Esq. is the Co-Section Chief of the Enforcement Section of the Charities Bureau of the Office of the New York State Attorney General. Yael oversees the efforts of the Enforcement Section to investigate and litigate violations of New York laws governing not-for-profits and their agents, including breaches of fiduciary duty and fraudulent solicitation, and to work with the not-for-profit sector to improve compliance and governance. Yael also serves as Vice-President of the Board of the National Association of State Charities Officials (NASCO) and as an adjunct professor at Cardozo Law School.

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Prior to joining the OAG, Yael was a litigation attorney at a major New York-based firm, where she focused on internal and regulatory investigations, transnational litigation and pro bono asylum matters. She served as a foreign law clerk at the Supreme Court of Israel, where she provided comparative law advice to Justice Asher Grunis. Yael earned her J.D. from Columbia Law School, where she was a James Kent Scholar and an editor of the Columbia Human Rights Law Review. Nathan Mueller, CPA, holds a B.A. in Accounting from Gustavus Adolphus College and was a licensed CPA from 2002 to 2010. He has more than 13 years of public accounting experience and 10 years of corporate accounting experience with a focus on financial reporting, cash processing and accounting controls. After the reinsurance company Nathan worked for was purchased by ING for $6 billion, he played a key role in transitioning its operations onto ING’s enterprise resource planning system. Enabled by lax controls and unchecked authority to distribute funds, Nathan began embezzling money to pay off personal debt. What started as a $1,100 check to a credit card, spiraled into an $8.5 million fraud over the next four years. It was only a co-worker’s suspicions that brought the fraud to an end. After being caught, Nathan pleaded guilty and was sentenced to 97 months in federal prison. He was released in September of 2014. While serving his sentence, Nathan delivered over 60 speeches to a broad spectrum of groups and organizations including college classes, businesses, business organizations and non-profits. He has become a sought-after speaker for Compliance and Ethics presentations for diverse and notable organizations across the United States. Some of his most Noteworthy presentations to date include the keynote speech at the ACFE Global Fraud Conference 2015 in Baltimore with upwards of 3,000 attendees. Nathan has conducted fraud awareness presentations for Best Buy, General Mills and Nationwide Insurance to name a few. He also speaks frequently for many organizations including the IIA, ACFE, HFMA, ISACA and State CPA societies. Speaking and training are not the only avenues Nathan has pursued to bring fraud and ethics awareness to all industries, he has also co-authored "Lessons from an $8 Million Fraud" in the Journal of Accountancy which won the prestigious Lawler Award as the article of the year for 2015. Ernest Patrick Smith, CPA/ABV/CFF, CVA, CFE, Moderator is a Senior Partner with Nawrocki Smith LLP and leads the Special Services Practice which includes providing Internal Audit, Internal Control Review and Evaluation, Forensic Accounting/Business Valuation and Risk Management Services to for-profit, not-for-profit, governmental, banks/credit unions, insurance companies and other related entities. Ernie has extensive experience as a Financial Investigator regarding integrity, internal control and evaluation, business valuation challenges, fraud and other related situations. He has led numerous training services for his clients and professional staff on various topics relating to internal audit, internal control review and evaluation, business valuation, fraud and forensic investigations and practice standards. He is a member of several committees within the New York State Society of CPA’s including the Business Valuation Committee, Public Schools Committee and the Professional Ethics Committee. Ernie has provided assistance to counsel, through deposition testimony and trial testimony, in all aspects of litigation-related matters including mediation, arbitration and litigation. He has been recognized as an expert witness in accounting, business valuation and fraud related matters in both Federal and State Courts.

IIA Upcoming Chapter Conference

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Friday, February 15, 2019 Full-Day Program

Check-in and breakfast begin at 8:00 a.m. Program begins at 8:30 a.m. Lunch will be served at approximately 12 p.m. Dress is business casual.

How to Register: Please use the following online registration link: http://www.cvent.com/d/v6q7hl/4W If you are having trouble with the link, notify Carolyn Leahy at Carolyn.Leahy@nationalgrid.com. Cancellations must be made at least 24 hours prior to the event by contacting Lauren Agunzo at LIIIA@nsllpcpa.com or by phone @ (631)756-9500.

For Making Payments Offline: You should register online (see above) and in the payment section, select “check” or “other.” If not registering online, please contact us at LIIIA@nsllpcpa.com or call Lauren Agunzo at (631) 756-9500 x 229 at least 24 hours before to reserve your seat. Then complete and enclose this registration form, along with your check made payable to the IIA Long Island Chapter, and mail to: Institute of Internal Auditors LI, P.O. Box 442, Smithtown, New York 11787 or bring it the day of the seminar.

Name(s) IIA Member $175 Each

Non Member $225 Each

Student $30 Each

No. of Prepaid Subscriptions

Applied

CPE Y/N

CPD Y/N

Total $ $ #

Company Name: _______________________________________

Address: _______________________________________

Phone Number: _______________________________________

E-Mail Address: _______________________________________

IIA Upcoming Chapter Conference

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Directions to the Melville Marriott: From New York City: Take the Long Island Expressway (Route 495) to Exit 49 South. Take the ramp (right) onto the South Service Road. Turn left (North) onto Old Walt Whitman Road (Walt Whitman Road). From Eastern LI: Take the Long Island Expressway (Route 495) to Exit 49 North. Take the ramp (right) onto the North Service Road. Turn right (North) onto Old Walt Whitman Road (Walt Whitman Road). In case of weather emergency, the Melville Marriott phone number is (631) 423-1600.

IIA Upcoming Chapter Conference

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Spring Schedule: St. John’s/IIA CIA Exam Test Prep Course

Pass the CIA Examination Now! The Center for Executive Education of The Tobin College of Business of St. John’s University is pleased to announce that it will be presenting the CIA Examination Review Course using the new format effective January 2019 for the CIA Exam. Starting in February 2019, the prep course will be held at our Manhattan campus, conveniently located at 101 Astor Place. About the class: This premier CIA Exam preparation program is based on the IIA’s CIA Learning System, and delivers the global CIA exam syllabus in a blended learning format of customized workbooks and web-based learning software. Mike Fucilli, our experienced instructor, will lead you through the entire CIA exam syllabus in a structured and interactive live classroom environment to ensure that you understand and can apply the critical CIA topics. Prepare to pass the CIA Exam and arm yourself with critical tools and knowledge to excel in your internal audit career. Provided IIA Learning System materials include:

• Easy to-understand print modules that corresponds to the three-part CIA exam

• Extensive content organized by section so you can tailor your studies to meet your needs

• A pre-test to assess initial level of knowledge and develop a customized study plan

• Section-specific questions to reinforce concepts

• A post-test to gauge what you have learned and identify the areas requiring further study

• A final review test encompassing all review questions for additional exam practice

• Materials teach the entire 3-Part CIA exam syllabus, updated to align with the 2017 IPPF

And, the online tools are now optimized for mobile devices. Class dates:

Part 1: Internal Audit Basics February 9 and 23, 2019 Part 2: Internal Audit Practice March 9 and 23, 2019 Part 3: Internal Audit Knowledge Elements April 27 and May 11 and 18, 2019

CIA Exam Prep

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Registration Portal: https://sjureg.mycoursecenter.com/products/certified-internal-auditor-cia-exam-prep-feb-2019 Tuition schedule: Part 1: Internal Audit Basics: $850 Part 2: Internal Audit Practice: $850 Part 3: Internal Audit Knowledge Elements: $1,100 Combination Package: Parts 1, 2 and 3: $2,500 The registration cost includes all materials required for the course, valued at $205 for individual parts and $520 for the combination package. Program Details: Program Level: Update Delivery Method: Group Live Prerequisites: Background knowledge from prior education or work experience helpful. Advanced Preparation: None Field of Study: Auditing Recommended CPE Credit Hours: 7.0 hours per class session Developer: Mike Fucilli/ Center for Executive Education of St. John’s University Registration: To register for this session, go to https://sjureg.mycoursecenter.com/products/certified-internal-auditor-cia-exam-prep-feb-2019. In order to be awarded the full credit hours, you must be present, registering your attendance and departure on the attendance sheets maintained by the instructor. Refunds and Cancellations: All requests to cancel registration in a course must be made in writing prior to the course’s start date. There are no refunds after the course begins. Qualified substitutes will be accepted to any course at no additional charge. For more information regarding refund, complaint, and/or program cancellation policies please contact our offices at 212.277.5161. St. John’s University is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org. Contact: Herbert M. Chain, Executive Director, Center for Executive Education chainh@stjohns.edu 718.990.3974

CIA Exam Prep

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When the 2018 (GAM) Conference sold out, it proved that even after 39 years, it is still considered the “must-attend event” for audit executives. Each year, the program provides an empowering and inspiring experience for all attendees.

This year’s theme, Looking Ahead: Turning Disruption Into Opportunity is future-focused, solution-based, and undeniably immersive.

If you want to engage with global thought leaders who share unique perspectives and tangible tools and resources to help evolve both the professional practice of internal auditing and its perception, you will want to attend the 2019 GAM Conference.

.

EHSAC Webinar: Regulatory Update on Environmental, Health and Safety Compliance: Planning for the Year Ahead

February 6, 2019 2:00–3:30 p.m. ET Register Now. Auditing Third Party Risk Management

February 19, 2019 1:00–2:00 p.m. ET Register Now.

General Audit Management Conference March 11-13, 2019 Gaylord Texan, Dallas/Fort Worth, TX

IIA Training Opportunities

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Audit and Culture

March 19, 2019 1:00–2:00 p.m. ET Register Now.

Learn. Earn. Report. Retain.

The IIA requires holders of its certifications and qualifications to report CPE or CPD credits by Dec. 31. For those who have yet to earn their required credits, including two in Ethics, opportunities remain to do so with IIA Training, from in-person seminars, online and OnDemand courses, and webinars, to Internal Auditor quizzes.

Review requirements and report your CPE/CPD credits now.

Prefer In-Person Trainings? For a list of upcoming in-person trainings in New York City Please Click the Link Below

Training Opportunities at the Microtek Training Facility in New York City

IIA Training Opportunities

Volume 22 January 2019 Issue 4

Other Types of Consumer Fraud – Part III by Ernest Smith, CPA/ABV/CFF, CVA, CFE

Telemarketing Fraud "Really, it's the truth," replied the confident voice on the other end of the telephone. "Normally, I don’t make these kinds of calls. I've got a whole staff to do that. I have 15 years of experience in the business. I'm currently in charge of a large staff. I have over 600 clients and manage over $60 million for those clients. I don't even need this account-but I want to provide this great opportunity to you." The script above is typical of the kind of messages used throughout the United States by telemarketing fraud artists. Fraudsters set up giant rooms (referred to as boiler rooms) in rented offices where they train salespeople to find and defraud victims. These professional fraudsters move from city to city using different names. Calling people in other cities and states in an effort to hinder law enforcement, these con artists swindle victims out of money. Gathering compiled lists from magazine subscriptions, they identify investors believed to be good targets. New recruits are given scripts like the one above and received specialized training to counter every possible objection. These recruits hook victims through promises of no risk investments, secret tips, and incredible rates and returns. The North American Securities Administrators Association, an association of state investment regulators, estimates that unwary investors lose about $1.0 million every hour to investment fraud promoted over the telephone. Throughout the last two decades, the tele-phone has become a major tool to defraud innocent victims. The opportunity to speak with a person directly makes telemarketing fraud more effective than Internet or mail-based approaches. Furthermore, the lack of face-to-face contact gives fraudsters added schemes and opportunities to commit fraud. Offenders can act as corporate or government employees without the victims’ knowledge. Younger perpetrators can impersonate middle-age authority figures in order to add credibility with older victims. Fraudsters can call anywhere anytime, making it possible to focus on more likely victims. In August 2004, when Hurricane Charley swept through Florida and destroyed countless homes, thousands of people applied for government grants to help cover the cost of damage. One year later, Hurricane Katrina hit New Orleans, Louisiana, and again thousands of victims sought government assistance. Fraudsters used these and other disasters to their advantage and committed fraud in two ways: First, fraudsters

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began calling hurricane victims and telling them that in order to process their government grants, they would need their bank account number and other personal information. As if the victims of the hurricane had not been through enough, they quickly saw their bank accounts drained. Second, fraudsters would call hurricane victims and them that in order to process their government grant they needed to pay up-front fees. Fraudsters had victims send these fees to PO boxes, where the fraudsters quietly took the money and vanished. Hurricanes Charley and Katrina are just two examples of how fraud perpetrators use disasters and other events to identify susceptible victims and perpetrate fraud. Another method is to solicit contributions under the guise of providing relief to victims only to use the money for fraudulent purposes. For example, in January 2010, a devastating earthquake in Haiti destroyed property and killed hundreds of thousands of individuals and severely affected millions of individuals on the island. A few days after the earthquake, the FBI released a fraud alert stating, "past tragedies and natural disasters have prompted individuals with criminal intent to solicit contributions purportedly or a charitable organization and/or a good cause." Apparently, fraud perpetrators will always look for ways to get other people's money-even when it involves massive suffering. Scams That Pray on the Elderly As with all consumer frauds, those who are most susceptible are usually the uneducated and the elderly. However, the elderly are more susceptible to telemarketing fraud than almost any other type of fraud. Fraudsters target the elderly for several reasons: First, many older individuals are extremely lonely and fraudsters use this loneliness to build a relationship of trust. Second, when elderly people are conned out of money, they rarely tell family and friends or even report the incident. The elderly are usually extremely embarrassed to admit that they have been a fraud victim. They are also afraid if they report the fraud, family members may deem them unable to care for themselves and take away their financial responsibility and independence. Third, the elderly are extremely trusting and many do not believe that someone would take advantage of them. Once defrauded, these gullible victims often go into a state of denial. Fourth, because fraudsters are able to build such strong ties between themselves and the victim, fraudsters will con elderly victim’s multiple times before the victim refuses to pay more money. Remember, fraud perpetrators are usually masters of manipulation. They focus on manipulating human traits such as greed, fear, excitement, and gullibility. Because the elderly are susceptible and reluctant to report fraud, it is important that family and friends of the elderly exercise special caution. If you personally know someone in your family who appears to have been defrauded by a telemarketer, it is important to void

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confronting that person directly. Many parent child relationships have been strained and even irreparably damaged because children have approached the issue in a confrontational and/or threatening manner. Fraudsters will even manipulate a victims emotions to believe that they are more concerned about the welfare than the victims own family is, convincing the victim that his or her family is greedy and wants his or her money. When approaching a possible victim of telemarketing fraud, it is important to avoid words such as “defrauded,” “victimized,” “duped,” “swindled,” or any other word that the victim can possible interpret as confrontational or judgmental. Family members should approach the matter indirectly and patiently. Usually, if the victim of fraud is approached in a sensitive and respectful way, the person’s dignity will not be offended. As with all fraud, the effective way to combat telemarketing fraud is through prevention. Therefore, it is a good idea to educate parents, grandparents, or anyone else you believe might be susceptible to telemarketing fraud. Remember, because fraudsters need the voluntary participation of the victim, possible victims can defend against a fraud perpetrator by just saying “no” and handing up the telephone. Safeguards against Telemarketing Fraud There is never a legitimate reason to give Social Security, credit card, or other information over the telephone unless you initiate the call. If anyone ever asks for Social Security numbers or personal information, it should send a red flag that something isn't right. Fraudsters sometimes even act as government officials or other representatives to get this information. It is always risky to provide credit or bank account information over the telephone when making purchases. Consumers should only provide this information when they are purchasing something and have initiated the transaction. Even if the company is completely legitimate, the salesperson or representative who enters a consumer's information may capture the victim's credit card number, expiration date, and verification number and use the information later to commit fraud. A telemarketer who won't take no for an answer should send a red flag that something isn't right. Legitimate companies will send detailed information about a product or service. They will give consumers time to make an informed decision. They don't pressure individuals into buying something now. Language such as, "this special offer will no longer be available after today,” or “there are only a few products left-hurry and buy now” are also signals of fraudulent transaction. Magazine sweepstakes and prize-winning scams are often perpetrated via the telephone. Fraudulent companies usually require individuals to buy something or pay a fee to claim

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prize. However, it is illegal for a company to require consumers to buy something or pay a fee to claim a prize. Therefore, if a proposal or contest requires up-front costs it is probably fraudulent. Buying something should not improve chances of winning a sweepstakes or other contest. If so, the contest is illegal. In the last decade, it has become extremely common for fraudsters to deceive individuals who have been victims of fraud, telling them that for an upfront fee, they can recover their lost money. This is just another way for perpetrators to get more money from a gullible victim if an individual receives a telephone call from someone who claims to be from the FBI, Department of Justice, or any other government agency and insists that the individual send money, it is almost certain the call is coming from a fraudster. It is illegal for any federal law enforcement agent to as for “fees” or “taxes.” The FBI and Department of Justice receive funding from Congress through the appropriations process. If someone calls representing a government organization, consumers should write down their name, telephone number, and then call their local FBI office to verify validity. Remember, telemarketers will use any language they can to deceive possible victims. They are professionals and make money through manipulating victims' emotions. Consumers should never believe any promise of easy money. If someone promises money with little or no work, loans or credit cards with bad credit, or any type of moneymaking investments with no risk, it should signal that something is not right. When entering into transactions over the telephone, it is critical that individuals know with whom they are dealing. If someone claims to be from a certain com pay or organization, consumers should verify the dam: by calling a legitimate phone number of the organization, they are dealing with before giving out any personal information. If the company or organization is unfamiliar, individuals should check it out with the Better Business Bureau or a state consumer protection agency group. However, even if the organization being dealt with is not identified as a fraudulent organization, it still could be. To avoid detection, fraudsters start up new companies every few months. As a result, the fact that no one has made a complaint with the Better Business Bureau does not mean that the organization is legitimate. Avoid Sales Calls To minimize their risk to telemarketing fraud, consumers can avoid getting on marketing or calling lists by choosing to register with the national “do not call” registry. This is a free service provided by the federal government. Consumers can register either by phone or via the internet. The national do not call registry’s phone number is 1-866-290-4326 or 1-888-322-1222. Individuals can also register online at the website www.donotcall.gov. once

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consumers have registered on the do not call registry, companies can still call if a consumer has inquired about a product, applied, or made payments on or purchased an item within the last 18 months. Registration expires every five years; therefore, consumers must register with the registry periodically. The registry does not track number changes or disconnections. Therefore, if a consumer has received a new number or been disconnected, it is necessary to reregister. When signing up for a service, buying a product, or communicating with an organization, individuals will often sign a contract that gives an organization permission to contact them or give their information to marketing agencies. Therefore, it is important to read all contracts, order forms, and other correspondence before signing any document. Marketing agencies update their own records with the do not call registry every three months. As a result, some agencies do not stop calling individuals for a while after they register with the do not call registry. If telemarketers ignore the fact_ that an individual’s number is on the do not call registry, can be liable for up to $16,000 in fines. Some agencies, such as nonprofit groups, charities, political organizations, and survey groups are still allowed to call consumers. However, if these organizations use professional organizations to raise funds, they must honor requests not to call. Telemarketing Fraud Involves Large and Small Transactions Telemarketing frauds can involve large or small transactions. Large transactions usually involve some type of investment scam, while smaller transactions usually involve sweepstakes, bogus fees, or magazine subscriptions. Large transaction frauds usually provide much more benefit for the perpetrator; however, they require considerably more effort and are riskier to the perpetrator. We have seen investment scams as large as $50,000-$100,000 per victim. Smaller transactions usually involve amounts anywhere from $10, $15, or $20 to a few hundred dollars. The smaller the transaction, the easier it is for fraudsters to deceive them. Once a perpetrator has had success with a victim, the perpetrator will continue to call that victim using other fraud schemes. Telemarketing fraudsters are innovative and come up with new ways and means to defraud consumers every day. Investment Scams Investment fraud is any fraud that is related to stocks, bonds, commodities, limited partnerships, real estate, or other types of investments. In investment fraud, perpetrators usually make fraudulent promises or misstatements of fact to induce people to make investments. Investment frauds are often set up as Ponzi schemes. Investments frauds can occur within or outside business organizations. An example of investment fraud in a business were the loans made by General Motors Acceptance Corporation (GMAC) to a Long Island, New York, automobile dealer: John McNamara, a wealthy car dealer, conned $436 million from GMAC. He first set up a

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company, Kay Industries, to produce invoices showing he was buying vans. The vans did not exist. Then he sent inventories to GMAC to get a 30-day loan, worth about $25,000, for each van. Over seven years, he got $6.3 billion in loans, and he used most of the money to pay off old loans. He paid back a total of $5.8 billion over the seven years. He pocketed $436 million-about 7 percent of the total loans-and invested it in real estate, gold mines, oil businesses, and commodities brokerages. While GMAC thought it was loaning money to a legitimate car dealer, it was really investing in a classic Ponzi scheme (a scheme in which early investments are repaid with subsequent investments; see previous discussion). The only difference between this investment scam and one that is perpetrated outside an organization was that this investment scheme had only one investor, GMAC. An example of an investment scam that took place outside a business organization and involved numerous investors was the AFCO fraud covered in Chapter 13. While the company sounded legitimate, returns to be paid to homeowners were based on inflated financial statements and empty promises. The investment was nothing more than a twist on a traditional Ponzi scheme. Early investors were paid the returns from Utah called the president of AFCO "one of the most ruthless swindlers seen in these parts." The president of AFCO sweet-talked about 650 people, many of them business professionals, into investing some $70 million in his schemes. He later declared bankruptcy, foreclosing investors' chances of getting their money back. More recently, what is believed to be the largest and longest running Ponzi scheme in history came to light in December 2008 when two of Bernard Madoff’s sons reported to authorities that their father had been running a massive Ponzi scheme for decades. Bernie Madoff was the former chairman of the NASDAQ stock market. In March 2009, Madoff plead guilty to 11 federal crimes involving defrauding investors of billions of dollars. He was sentenced to 150 years in prison, the maximum allowed, and is currently serving time. When Madoff’s scheme unfolded, approximately $18 billion was missing. As of late 2018, the value of the assets collected is expected to total approximately 13.0B or 75% of the loss amount. However, the trustee in charge of collecting the assets has several lawsuits pending where he is attempting to obtain funds from individuals who took out more money than they invested or who he contends should have known the scheme was a fraud. Recoveries from the net winner in a Ponzi scheme are known as claw backs but are subject to a complex litigation process numerous lawsuit have been filed in the Madoff case. The Madoff fraud began decades earlier when Madoff offered guaranteed returns of around 10 to 12 percent His initial clients were wealthy individuals in the Jewish community that Madoff associated with. As such, Madoff’s scheme is an example of affinity fraud mentioned previously.

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Later, his clients became hedge fund managers (including J. Ezra Merin, former chairman of GMAC) collected hundreds of millions of dollars by simply being a conduit between wealthy investors and Madoff. One investor who lost more than $1 billion of his clients’ money, Thierry de la Villach, reportedly committed suicide when he realized Madoff was a fraudster. While Madoff’s investors included many wealthy and famous individuals such as Zsa Zsa Gabor and Steven Spielberg, other investors include charities and university endowment funds such as the endowments of business school at Yeshiva University and the New York Law School. Unlike many Ponzi schemes, Madoff did not offer outrageous rates of return, but rather, claimed he had a stock investment strategy that allowed him to return a steady rate in both good and bad times. Harry Markopolos first questioned Madoff’s investment strategy when he sent an extensive report to the SEC in the late 1990’s that detailed why he believed it was mathematically impossible to achieve the returns the Madoff was claiming, among other things. His report to the SEC listed numerous red flags to which the SEC failed to effectively respond. One of the first individuals other than Madoff who plead guilty to his role in the Madoff fraud was David G. Friehling. Friehling was Madoff’s public accountant who issued clean audit options on the Madoff fund under the name Friehling and Horowitz, a three-person accounting firm that employed two accountants and a secretary. Friehling admitted later that he had never conducted the audits that formed the basis of his audit opinions. Apparently, Friehling was much like the hedge fund managers who were happy to take their fees and look the other way. A purported audit of this massive fund by a two-man accounting firm may been the largest red flag of all and probably should have been identified by a competent hedge fund manager. The ultimate reason for discovering the Madoff fraud is probably due to the severe economic recession that occurred during 2008. Because of the recession, many individuals were trying to liquidate their investments. As such, Madoff was unable to meet the large amount of redemptions. During this recession, numerous Ponzi schemes came to light, many of which were smaller but still amounted to hundreds of millions of dollars. However, another massive scheme that was revealed at this time was an operation run by Robert Allen Stanford. Stanford is alleged to have lost billions of dollars in a Ponzi scheme that was the basis of Stanford Financial Group of companies. These companies had numerous business outlets that sold certificates of deposit that paid double-digit returns. The group’s headquarters were on a small island in the West Indies known as Antigua. Stanford was knighted by the country of Antigua in 2006 and, as such, was known by the Antiguans by the name of Sir Allen Stanford. In October 2009, the National Honors Committee of Antigua and Barbuda voted unanimously to strip Stanford of his Knighthood. Investment fraud such as Ponzi schemes can have devastating effects on the individuals and the economies involved in the schemes. There are numerous red flags or fraud symptoms that signal

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potential investment fraud. Anyone considering investing money or other assets in any organization, real or fictitious, should watch for the following symptoms, which have been associated with numerous investment scams:

1. Unreasonably high guaranteed rates of return 2. Investments that do not make sound business sense or that lack detail of how the business

operates. 3. Pressure to get in early on the investment 4. Use of a special tax loophole or a tax avoiding scheme. 5. A business that is new in town and does not offer an adequate history of where its

principals came from and what their operations were in previous locations. 6. A business with a history of bankruptcy or scandals. 7. Appraisal figures and/or financial claims that have not been soundly verified. 8. Project dependency on kickbacks, complicated marketing schemes, special concessions

to people who have money, or unwritten deals that can’s be talked about because of domestic or foreign laws.

9. Unaudited financial reports or adverse opinions given on financial reports. 10. Investment success that is dependent on someone's "unique expertise" (such as an

uncanny ability to predict commodity prices or unusually good salesmanship) for financial success

11. Representation of the emotional desirability of holding an investment as its principal attraction

12. Insufficient verification or guarantee of an investment 13. Dependency on high financial leverage for success Investor liability for debts that are not

paid 14. Luxurious lifestyles of principals, even though the business is relatively new 15. An investment that is not suitable for your risk tolerance 16. Pressure to put all your savings into a particular investment 17. Inability to pull out or liquidate the investment Inducements that make investors feel

sorry for the principals an or put in additional money to help them overcome temporary problems

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Executive Board Lauren Agunzo President Jeffrey Speed EVP & Treasurer Biju Beegum and Adrian Lawrence VP & Asst. Treasurer Vikas Dutta VP & Chief Information Officer Carolyn Leahy VP & Asst. Chief Information Officer Vincent Colletti and Anthony Cervoni VP & Operations Officers Brian Austin and Larry Karp VP & Membership Thomas Comiskey VP & Secretary Board of Governors Rocky Shankar Past President Ellen Caravella Past President Lauren Bady Governor Brian Blisard Governor Lucille Brower Governor Roy Garbarino Governor Ed Gelfond Governor Ronald Goldman Governor Pinak Guha Governor Joseph Horowitz Governor Prabhat Kumar Governor Michael Lanning Governor Joel Lanz Governor Robert McNair Governor Maria Michaelson Governor Lauren Nichols Governor Russ Safirstein Governor Dawn Scala Governor Alice Seoylemezian Governor Ernest Patrick Smith Governor Jason Stepnoski Governor Rita Thakkar Governor Chris Wright Governor District Representatives Raquel Marin-Oquendo District Representative Sarah Saunders District Advisor

Long Island Chapter 2018 – 2019 Officers and Board of Governors

Volume 22 January 2019 Issue 4

Committee Chairs Committee Dawn Scala Historian Chris Cariello Website Administrator Lucille Brower Certification Lauren Nichols & Roy Garbarino Academic Relations Ellen Caravella Finance Jason Stepnoski & Lauren Bady Communications Brian Austin & Larry Karp Membership Development Alice Seoylemezian & Rocky Shankar Evaluate CVENT Maria Michaelson Program Support Rita Thakkar CAE Roundtable Russ Safirstein Employment