Tampa Bay Chapter - ACFE http://TampaBayCFE.org November 2009

2009 ACFE Chapter of the Year Winner
President's Message

“And I'm proud to be an American, where at least I know I'm free, and I won't forget the men who died, who gave that right to me and I'll proudly stand next to him to defend her still today, 'cuz there ain't no doubt I love this land, god bless the USA”. - Lee Greenwood

If not only for a moment, I ask all chapter members to remember this Veteran’s Day, all the brave men and women who have served to protect our right to freedom and liberty. An unknown source once said that “The American military is, has always been, and will always recruit the best and finest of the crop of young men and women of the country and we will continue to shower them with appreciation, support and prayers, as we have always done. Veteran’s Day is an opportunity for us to express the special places they have in the hearts of American citizens and more by honoring the people who work in the various branches of the military.

I want to share with you that the success of our CFE study group is continuing. They meet every Tuesday night from 6 – 9 pm. This group is tenacious in their study as well as their networking. I encourage all chapter associates who are contemplating earning their CFE designation to get involved with this group. Thanks to CFE’s Consuelo Herrera and Pamela Ranney for making the program a success. If anyone is interested in joining the group, contact me and I will get you in contact with Consuelo and Pamela.

I still want to encourage anyone who is interested in presenting their fraud investigation stories at one of our future dinner meetings to notify Christine Dever to get you scheduled. We are also looking for quality speakers for our two-day seminar in May, 2010. Again, you may contact Christine or me if you or someone you know of would like to present.

As the chapter takes a holiday break I want to remind you that we are still in need of volunteers in many of our endeavors. Volunteering is extremely rewarding especially when you see the success of your work. So, if you are interested, contact any board member for details as how you can be of assistance.

I would also like to wish everyone a sincere Happy Thanksgiving. Please keep our men and women of the military forces in your thoughts and prayers. As a military veteran, I personally know the feeling of loneliness while serving in a foreign country during the holiday season. My heart goes to all who have served, and those serving today. God bless them.

Steve Hooper, CFE, CIA, CGAP, CCSA

President, Tampa Bay Chapter - ACFE

The Next Phase of the Mortgage Crisis:
Strategic Default

Strategic mortgage default appears to be the next wave that is about to crest in the ongoing sea of the mortgage crisis. A recent study by Experian and Oliver Wyman has revealed that not all mortgage loan defaults are initiated by distressed borrowers. An increasing number of defaults are being categorized as “strategic defaults.” These strategic defaults have vastly different characteristics to your average distressed borrower and have considerable ramifications to the housing market.

Strategic default on a mortgage is when a borrower decides to no longer pay on a loan even though they have the ability to do so. To them this makes sense; however, there are many consequences to this decision that affect the whole community and not just the borrower or lender.

The characteristics of a strategic default are considerably different to those of one caused by cash management issues. When cash management issues are present, a borrower may make payments sporadically and may also be late with other credit obligations. In contrast a strategic default will most likely go straight from perfect payment history to 180+ days in arrears on the mortgage and not be delinquent on any other credit lines. The study by Experian and Oliver Wyman also noted that a borrower with cash management issues would likely default on a home equity loan before defaulting on the first mortgage, whereas a strategic default would be more likely not to have defaulted on the home equity loan prior to defaulting on the first mortgage.

According to Guiso, Sapienza and Zingales (2009), in their report, Moral and Social Constraints to Strategic Default on Mortgages, 22% of homes in the United States have negative equity and in some areas, which are particularly susceptible to the fluctuations of the housing market such as Nevada, this figure reaches 50%. A strategic default is more likely to occur when there is considerable negative equity in a property. Not all borrowers who have negative equity are strategic defaulters however as the percentage of negative equity increases so does the likely hood that the borrower will default.

As well as severe negative equity, the onset of strategic mortgage defaults occur for a number of reasons including overextending with multiple first mortgages and the onset of increased payments at the end of a teaser rate, which was offered by the lender to get the borrower into financing. During the housing boom many lenders offered Interest Only and Adjustable Rate Mortgages to allow borrowers to purchase properties they would otherwise have been unable to afford. Lenders argue these products were necessary especially in areas where property prices continued to increase well above the national average. The products allowed borrowers to finance considerably larger amounts of money than stricter guidelines would have allowed based on many factors including the continual rise of property prices. The initial payment for these products was manageable for most borrowers; however when the payment reset after initial teaser rates ended the payments quickly became unmanageable. When payments reset monthly payments can go from $1,800 per month to over $4,000 per month all while the property is decreasing in value as was the case with Joey Amacker of Newark that took out an option ARM for $624,000 to allow him to build an addition to his existing home. Amacker’s debt grew to $660,000 by 2008, and has now risen to around $725,000. Meanwhile, his property is only worth around $500,000.

Another significant difference between a strategic default and default caused by cash management issues, is the credit rating of the borrower. The majority of defaults are from sub prime and deep sub prime loans. In comparison the majority of strategic defaults within this group were from prime and super prime rated customers whose credit scores were between 801 and 990. The study by Experian and Oliver Wyman also showed that no matter how many first mortgages were held by a borrower, those who defaulted due to cash management issues generally defaulted at a lower and more constant rate than those who defaulted strategically. Strategic defaults are increasing rapidly compared to other types of default.

Housing markets, which are more susceptible to the volatile housing market are more likely to be affected by strategic default as a viscous cycle occurs. Florida and California both have a high concentration of Interest Only and Adjustable Rate Mortgages so will suffer more than other states. As foreclosures increase market values will decrease creating more negative equity; this in turn will increase the incidence of strategic default, which will then compound the problem and continue the cycle.

Many lenders will not pursue borrowers for the difference between the mortgage and the resale value, which is estimated to be around 28% less than the property value, even if the state allows them. It is too costly unless the borrower has considerable wealth. This together with little legal punishment or other major consequences leaves society reconsidering their moral beliefs on strategic default.

So what is the solution? Should potential strategic defaulters be offered modifications? The report by Experian and Oliver Wyman suggests yes to a certain extent. Some of their solutions include equity risk sharing and accelerated principal repayment as part of modification. Finding an agreeable balance between lender and borrower obligations is important if the continued increase in strategic default is to be reduced. Lenders and Borrowers created this impossible situation together through gambling that a good thing would never end. The lure of high profits in short periods may have clouded their better judgment. However both sides have to accept some of the responsibility and come to an agreeable conclusion that is acceptable to society as a whole.

TRAINING OPPORTUNITIES

Tampa Bay Chapter

Dinner Meeting January 12, 2010- Stop Reacting. Start Protecting Information - Michael Santarcangelo

Dinner Meeting February 9, 2010- Ethics - Behavior (Un)becoming of a Department Manager -

Dinner Meeting March 9, 2010- Crime Stoppers of Tampa Bay - Debbie Carter

Dinner Meeting April 20, 2010- TBD-Annual Meeting

11th Annual Fraud & Computer Crimes Seminar

May 18-19, 2010
Ruth Eckerd Hall
Clearwater, Florida
1111 McMullen Booth Road
Clearwater, FL 33759

Association of Certified Fraud Examiners

Conducting Internal Investigations
Dallas, TX
January 28-29, 2010

Professional Interviewing Skills
Tampa, FL
February 25-26, 2010

21st Annual ACFE Fraud Conference and Exhibition - Washington DC
July 25-30 2010

2009 - 2010
OFFICERS & DIRECTORS

PRESIDENT
Steve Hooper, CIA, CFE, CCSA, CGAP
Clerk of the Circuit Court Hillsborough County, FL
(813) 276-2029 x3703

VICE PRESIDENT
Christine Dever, CPA/CFF, CFE
City of Tampa
(813) 274-7166

SECRETARY
Ellen Wilcox, CFE
Florida Department of Law Enforcement
(727) 298-2482

TREASURER
Laura Krueger Brock, CPA/CFF, CFE, CVA
Kirkland, Russ, Murphy & Tapp, P.A.
(727) 572-1400

DIRECTOR
Mark Dubina, CFE
Tampa Port Authority
(813) 241-1893

DIRECTOR
Sharon M. Shaw, CFE
Tel: (727) 674-8399

DIRECTOR
Debbie Venanzio, CFE
Branch Banking & Trust Co.
Tel: (727) 302-5498

DIRECTOR
Bill Miles, CFE
Florida Department of Law Enforcement
Tel: (863) 701-1474

DIRECTOR
Gary Chapman, CIA, CGAP, CFE
City of Tampa
Tel: (813) 274-7163

CHAPTER TRAINING
Wayne Boytim, CFE
Retired
(813) 274-7167

There are many more Interest Only and Adjustable Rate Mortgages due to reset in 2010 and 2012 so adequate solutions need to be implemented immediately to avoid further adverse effects to the housing market and the societal view of strategic default. In the future, closer scrutiny needs to be given at origination using revised risk models, which are developed in line with current default trends. Of course, in addition to this more consideration needs be given to the long-term consequences to society and our economy if the deal does go sour.

Author:
Sharon M. Shaw, CFE
Director, Tampa Bay Chapter ACFE

Sources
Understanding Strategic Default in Mortgages
Moral and Social Constraints to Strategic Default on Mortgages
The Art of Strategic Mortgage Defaults: The Coming Wave of Foreclosures in California.
Homeowners who 'strategically default' on loans a growing problem

News from the ACFE

ACFE "Professional Interviewing Skills" seminar coming to Tampa Bay in 2010

We are delighted to announce the Association of Certified Fraud Examiners has chosen a to hold their Professional Interviewing Skills seminar on February 25-26, 2010 at the Doubletree Guest Suites in Tampa.

This two-day, interactive course will teach you how to be more effective in asking direct and follow-up questions, while evaluating both verbal and non-verbal responses, so you can be a better listener and observer during subject interviews.

For more information about the seminar and how to register click here.

CFE's Needed for the 2009 Global Fraud Survey

The ACFE's Report to the Nation on Occupational Fraud and Abuse is among the most widely quoted sources on white-collar crime statistics in the world. The 2009 Global Fraud Survey is now open and available online, and the results of this bi-annual study on the costs and effects of fraud on business will be compiled and published in the 2010 Report to the Nation on Occupational Fraud and Abuse. In recognition of time you spend completing the survey, the ACFE will credit you with two hours of ACFE (non-NASBA) CPE. Join CFEs throughout the world in making your voice heard and supporting the global fight against fraud. Click here to access the survey.

Scholarship Deadline Change

The new deadline for the Ritchie-Jennings Memorial Scholarship is January 15, 2010. Please encourage accounting, business, finance, and criminal justice majors to apply. Through the scholarship program, the ACFE Foundation supports the education of collegiate students around the globe. If you have any questions about the scholarship program, please e-mail Keely Miers: scholarships@ACFE.com

Free Archived Webinars For Members

As part of the ACFE's 20th Anniversary, they have provided free webinars exclusively for ACFE members:

ACFE members can log into the ACFE website and find the webinars under announcements.

CHAPTER NEWS

Our Chapter is a Proud Sponsor of International Fraud Awareness Week

Intense financial pressures during the economic crisis have led to an increase of fraud, according to a survey of fraud experts conducted by the Association of Certified Fraud Examiners (ACFE). It is against this backdrop that the ACFE urges organizations worldwide to participate in International Fraud Awareness Week, November 8-14, 2009 to help cast a spotlight on this urgent problem.

This weeklong campaign encourages business leaders and employees to proactively take steps to minimize the impact of fraud by promoting anti-fraud awareness and education.

To find out more about International Fraud Awareness Week and fraud prevention resources click here.

Student Board Activities

The student board is scheduled to present another panel at the University of Tampa on November 18, 2009. If you are interested in sharing your career stories with some students please contact Christine Dever. Our last panel was a huge success thanks to the dedication of our members. Thank you to all of you who have participated.

Dinner Meeting News

At our last dinner meeting on October 13, 2009, FDLE Special Agent Telly Sands presented "New Trends in Retail Theft". Her presentation was extremely informative and gave our guests a closer look at the problem of organized retail crime both locally and nationally.

It is estimated that Organized Retail Crime gangs are committing retail fraud, which costs retailers an estimated $30 billion every year, this fraud leads to higher consumer prices and also contributes to terrorist financing.

The case discussed by Special Agent Sands was "Operation Beauty Stop". This case was investigated by a task force, which was comprised of members from FDLE, Polk County Sheriff's Office, Hillsborough County Sheriff's Office and the Office of Statewide Prosecution. The investigation took eight months and resulted in the arrest of 18 individuals who were charged with RICO & Conspiracy to Commit RICO by the office of statewide prosecution, Tampa.

The investigation revealed that between 2002-2006, Coburn had purchased in excess of $110,000,000 worth of stolen HBC & OTC products from mid level fences that received the stolen HBC & OTC from boosters in Florida and North Carolina.

Sixteen of the eighteen defendants pled guilty to RICO and/or Conspiracy to Commit RICO and gave proffers/sworn statements before the Statewide Prosecution and taskforce members. Court ordered restitution, investigative and prosecution costs were imposed.

Steven Coburn -7 years prison followed by 8 years probation. Coburn gave a sworn proffer before SWP, taskforce investigators & loss prevention - Target & Publix

Teri Parrish - 10 years prison followed by 5 years probation and gave a proffer to SWP & taskforce investigators

IN THE NEWS

Target Accused of Organic Food Fraud - Target is accused of misleading consumers by stating products are organic when in actual fact they may not be

Medicaid Fraud: A $60 Billion Crime - Criminals become more sophisticated

Kroll - Global Fraud Report – Annual Edition 2009/2010 - An in depth view of fraud around the world

Fulbright’s 6^th Annual Litigation Trends Survey Report - Trends & Insights into senior corporate counsel thinking

More Training & Events

Two ACFE courses in one location - Fraud Prevention & Mortgage Fraud December 14 -16, 2009 Las Vegas, NV. For more information click here.

Auditing and Preventing Fraud in Accounts Payable - December 2, 2009, Webinar. For more information click here.

How to choose a credit counseling organization

Reputable credit counseling organizations advise you on managing your money and debts, help you develop a budget, and usually offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

A reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If a firm doesn’t do that, consider it a red flag and go elsewhere for help.

Once you’ve developed a list of potential counseling agencies, check them out with your state Attorney General, local consumer protection agency, and Better Business Bureau. They can tell you if consumers have filed complaints about them. (But even if there are no complaints about them, it’s not a guarantee that they’re legitimate.) The United States Trustee Program also keeps a list of credit counseling agencies that have been approved to provide pre-bankruptcy counseling. After you’ve done your background investigation, it’s time for the most important research — you should interview the final “candidates.”

Questions to Ask

What services do you offer? Look for an organization that offers a range of services, including budget counseling, and savings and debt management classes. Avoid organizations that push a debt management plan (DMP) as your only option before they spend a significant amount of time analyzing your financial situation.

Do you offer information? Are educational materials available for free? Avoid organizations that charge for information.

In addition to helping me solve my immediate problem, will you help me develop a plan for avoiding problems in the future?

What are your fees? Are there set-up and/or monthly fees? Get a specific price quote in writing.

What if I can’t afford to pay your fees or make contributions? If an organization won’t help you because you can’t afford to pay, look elsewhere for help.

Will I have a formal written agreement or contract with you? Don’t sign anything without reading it first. Make sure all verbal promises are in writing.

Are you licensed to offer your services in my state?

What are the qualifications of your counselors? Are they accredited or certified by an outside organization? If so, by whom? If not, how are they trained? Try to use an organization whose counselors are trained by a non-affiliated party.

What assurance do I have that information about me (including my address, phone number, and financial information) will be kept confidential and secure?

How are your employees compensated? Are they paid more if I sign up for certain services, if I pay a fee, or if I make a contribution to your organization? If the answer is yes, consider it a red flag and go elsewhere for help.

To read more helpful advice from the FTC click here.

More Information

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.