Learning About Fraud From Someone Who Has Committed It
Some of our best learning comes from working side-by-side with people who have experience. A real-life example illustrates why I urge business owners and executives to try to put themselves in the shoes of a dishonest employee.
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2007-11-19
PrintSome of our best learning comes from working side-by-side with people who have experience. I’ve found that true both personally and professionally. I’ve learned to fix gadgets by watching someone else take apart and put together an item. I learned the specialty of forensic accounting from a professional with over 25 years of experience, and working next to him taught me more than any textbook ever could.
And the same is true for learning about fraud. Who better to learn from than someone who has committed fraud himself? I had to see it to believe it, but it’s true.
For the last year, I’ve been working with Barry Minkow, a pastor in San Diego and a fraud investigator who co-founded the Fraud Discovery Institute. Barry became famous for the massive fraud he perpetrated as the owner of ZZZZ Best, a carpet cleaning company he started as a teenager.
From early on, Barry borrowed money at ridiculous interest rates and stole from friends and family to fund his business. He wanted to grow quickly, but didn’t have the means to do it alone. The more he grew, the more money he needed. The more money he needed, the more he borrowed, the more he needed money to pay back early lenders. An ugly cycle was created and Barry was quickly in over his head.
By all appearances, ZZZ Best was a thriving business with phenomenal growth. In reality, the bulk of the company’s “revenues” were fake. Barry and his cohorts created thousands of phony documents to fool banks and investors into believing that the company was something it was not. Millions of dollars were borrowed from banks and investors put in even more money.
Barry eventually got caught when a smaller dishonest deed from earlier years came back to haunt him, and professionals began digging into the accounting records. After a lengthy investigation and trial, Barry was sent to prison for his financial crimes. He emerged almost 8 years later and started on an honest career path.
What can be learned from someone who chose theft and dishonesty early in life? I have seen that quite a lot can be learned. I approach the problem of fraud from the perspective of what is right. That is, I know how the numbers are supposed to look, I know what the rules say, and I know how things should be reported.
In contrast, Barry looks at things from a completely different perspective. He looks at financial statements and other evidence and asks himself, “If I was going to commit fraud in this company, how would I accomplish it?” Our ability to combine our opposing perspectives has proven invaluable in our investigations.
This real-life example illustrates why I urge business owners and executives to try to put themselves in the shoes of a dishonest employee. Ask yourself, “If I was going to steal from this company, how would I do it?” My three part series “How to Commit Fraud and Get Away With It” earlier this year illustrates exactly that thinking. (See part 1, part 2, and part 3.)
Who would have thought that I could learn so much from someone whose business beginnings were so bad?
And the same is true for learning about fraud. Who better to learn from than someone who has committed fraud himself? I had to see it to believe it, but it’s true.
For the last year, I’ve been working with Barry Minkow, a pastor in San Diego and a fraud investigator who co-founded the Fraud Discovery Institute. Barry became famous for the massive fraud he perpetrated as the owner of ZZZZ Best, a carpet cleaning company he started as a teenager.
From early on, Barry borrowed money at ridiculous interest rates and stole from friends and family to fund his business. He wanted to grow quickly, but didn’t have the means to do it alone. The more he grew, the more money he needed. The more money he needed, the more he borrowed, the more he needed money to pay back early lenders. An ugly cycle was created and Barry was quickly in over his head.
By all appearances, ZZZ Best was a thriving business with phenomenal growth. In reality, the bulk of the company’s “revenues” were fake. Barry and his cohorts created thousands of phony documents to fool banks and investors into believing that the company was something it was not. Millions of dollars were borrowed from banks and investors put in even more money.
Barry eventually got caught when a smaller dishonest deed from earlier years came back to haunt him, and professionals began digging into the accounting records. After a lengthy investigation and trial, Barry was sent to prison for his financial crimes. He emerged almost 8 years later and started on an honest career path.
What can be learned from someone who chose theft and dishonesty early in life? I have seen that quite a lot can be learned. I approach the problem of fraud from the perspective of what is right. That is, I know how the numbers are supposed to look, I know what the rules say, and I know how things should be reported.
In contrast, Barry looks at things from a completely different perspective. He looks at financial statements and other evidence and asks himself, “If I was going to commit fraud in this company, how would I accomplish it?” Our ability to combine our opposing perspectives has proven invaluable in our investigations.
This real-life example illustrates why I urge business owners and executives to try to put themselves in the shoes of a dishonest employee. Ask yourself, “If I was going to steal from this company, how would I do it?” My three part series “How to Commit Fraud and Get Away With It” earlier this year illustrates exactly that thinking. (See part 1, part 2, and part 3.)
Who would have thought that I could learn so much from someone whose business beginnings were so bad?
