“Enron had a code of conduct. Enron had a hotline. And in the end, Enron had fraud.”
The statement above, from the website of the Austin, Tex.-based Association of Certified Fraud Examiners (ACFE) neatly summarizes the theme of this year’s Canadian fraud conference held recently in Toronto.
Beyond financial statement fraud, corporate dirty laundry in the energy industry ranges from taking pencils home from the office to paying off corrupt foreign officials. Earlier this year, a U.S. Defence Department report accused oil services giant Halliburton of overbilling in connection with U.S. operations in Iraq. Halliburton quickly paid the government $6.3 million US to cover the potential overcharge. This makes a lot of sense when you have contracts valued in the billions.
ACFE president and CEO Toby Bishop told Canada’s certified fraud examiners that they are going to be very important people in their companies, because fraud is about to bump up against new legislation in both the U.S. and Canada. Bishop reported that “after surveying 3,000 companies, we have yet to find one that has controls in place that will prevent fraud if it is conducted at the highest (CEO and CFO) levels.”
He went on to warn conference delegates that “people are going to go to jail” and that certified fraud examiners (CFEs) should think long and hard before advising management to sign off on financial documents if adequate controls are not in place.
Bishop also warned them against using the ACFE’s Fraud Prevention Check-Up tool without careful consideration. He said that conducting such an analysis might provide a “smoking gun” if fraud is later detected and management denies knowledge of it.
In spite of this gloom and doom, there were people at the meeting who believe that corporate fraud can be detected and even controlled.
“I’m a hopeful pessimist,” said Alan Gough, a former TV director who now operates one of Canada’s few response reliability practices out of Stratford, Ont. He watches video clips very, very slowly, looking for minute signs that may tell if people are faking it. “For example, when people are really sad, the inner corners of their eyelids go up,” he says. This is a natural human reaction. Of course, actors and fraudsters can do a good job of faking sadness, often by thinking of a sad moment in their own lives. But they probably won’t fool Gough.
“If a person is faking an emotion, it pretty well always arrives asymmetrically,” he says. “You just naturally have better control over one side of your body than the other. A real one happens symmetrically because different synapses are involved.”
He also explained, to the captivated audience that packed his session, that when people try to wipe expressions off their face it also happens asymmetrically. Gough claims that his methods can “determine the reliability of responses given by interview subjects with 80- to 85-per-cent accuracy.”
To those who question if this is science or voodoo, Gough recommends the work of Paul Ekman of the University of California. More than 30 years ago, Ekman proposed that there are certain “basic emotions” such as happiness, anger, surprise, fear and disgust. He believes that a trained observer can read telltale clues from a person’s face, especially by using a slow- motion videotape.
Ekman has done some fascinating experiments. He once offered people with strongly-held opinions $10 if they could convince an observer that they believed what they did, and $50 if they could successfully pretend to hold the opposing view. In an article, he admits that this kind of evidence is not conclusive, but “nevertheless, our videotapes do contain behavioral clues to deceit, which some people can recognize accurately but most do not.”
You can buy the Facial Action Coding System, based on Ekman’s work, as well as take training in its use.
It might not be a bad investment. Alan Gough brings us the distressing news that people who you think should be able to detect lying, such as lawyers and judges, are among the worst. Who’s the best? “Lifers in penitentiaries, because their continued survival depends upon being able to read people quickly and accurately.”
What about botox, that cosmetic surgery injection that takes away wrinkles? Some people also claim it’s being used to lie at job interviews, and to sport a better poker face in casinos. “I really hated it when botox came out,” says Gough. “I can certainly tell if someone has had a botox shot, but some of the usual facial clues aren’t there because the muscles are blocked.”
Gough is careful to point out that he never accuses anyone of lying. He simply identifies areas that should be investigated further because the expression is “compromised.”
If you want to play around with snitch-detection technology, you could try voice-stress analysis. There’s a freely downloadable product called TVSA3 – just pop that into a search engine. It does a pretty good job finding whoppers in sound clips such as Richard Nixon’s “I am not a crook” speech.
But Gough is skeptical, calling such tools simplistic. He demonstrates his own method of voice-stress analysis, with lots of cutting and winnowing and manipulating. Suffice it to say that if you want to have fun, go ahead, but if you’re really trying to catch a crook, you should seek professional help. You also need to think about relevant privacy legislation.
Despite the disparaging comments about Enron having had a code of conduct, hotlines, etc., the experts agreed that these techniques are still useful. The consensus was that as long as there are corporate bad apples out there, companies will need everybody – from the cleaning lady to the CEO – to keep their eyes peeled for fraud.
(Tom Keenan is a professor at the University of Calgary and an expert on technology and its social implications. He can be reached at keenan@businessedge.ca)
