Are you required to be licensed as a private Investigator?

8/13/2019 Are you required to be licensed as a private Investigator?

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CAREER CONNECTION Building your professional future

CFEs, examine this:Are you required to be licensedas a private investigator?

o U.S. CFEs need to belicensed as private inves-tigators (PIs)? The answer

isn t particularly straightforward. Itdepends on the jurisdiction in whichCFEs practice and the tlPes of workperformed. That could incluCe con-ducting fraud investigations, internalinvestigations for their employers,expert witness testimonies, litigationsupport services or independent white-collar crime investigations. CFEs that'practice in more than one jurisdictionmay be required to be licensed in someareas where they work but not others.

Fraud Magazinehas covered thisissue before ("lndependent CFEs Needto Check Their }urisdictions on PI Li-censure Lan'si'by ]ames S. Peet, Ph.D.'CFE, Januar,v/FebruarY 2012), but weneed an update.

iv{an-v CFEs u'ho lvork for privateemplovers - conciucting investigations^^l^l-, ^^ L^L^lr^f +L...i- ^*-l^.'.. -UtElI Url UcildiM lrrLrr rrrrylvlvrassume that onll inoependent CFEsin private praciice neeci to be licensed.Thati true in most states, but eightstates that require PI licensure pro-ride no such exception for employeesconducting internai ini'estigations onbehalf of their emplovers.

The 2013 Fraud Examiners L[.anualstates, "Fraud eramination is a meth-odolop tbr resolving fraud allegationstlom inception to disposition. I{orespecificallt, fraud eramination involvesobtaining eridence and taking state-ncnts. \\'riting retrorts. testih ing to

findings and assisting in the detectionand prevention of fraudl' lhis defini-tion includes many elements that aretraditionally associated with investi-gations, including those specif,callyincluded in various state statues thatrequire investigators to be licensed'

Each U.S. state, plus the District ofColumbia, has a different set of regula-tions that govern what defines an inves-tigator or private detective. A few stateshave no PI regulations at all, but somemunicipalities vrithin those states havetheir own regulations that must be ob-served ifan investigation is to be con-ducted within city limits. Likewise, eachCanadian province has PI licensurerequirements, Australia requires PIs tobe licensed at the state or territory level,but England and Wales discontinued allU.K. PI license requirements.

Some jurisdictions that previousl,vhad no licensing requirements haverorontlrr -o.co.l hillc thqt rrrill rennire''-^- - -t*^- -registration and licensing, and othershave bills pending that could chansecurrent regulations. States earn feesfrom licensing PIs, and the regulationsalso give states the power to disci-pline and limit what non-sworn 1all'enforcement personnel can do rthileconducting an investigation.Chart on Fraud-Magazine.comThe detailed chart at Frauci-\fasazi;le-com (available July l) accompai\rn


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I FRAUD'S FINER POINTS I Cu'" history applications

Raising frauds, not fundsFraud and abuse in studentfundraising activities, part I

his column is the first in athree-part series presentingmany scenarios of fraud and

abuse in student fundraising activities.We begin our discussion by illustratingthe different schemes fraud perpetratorsuse to obtain funds for personal benefitfrom public-sector ciubs and private-sector teams.

Skimming is thefraud of choiceSimilar to our discussion in the fanu-arylFebruar,v 2013 column, fraud andabuse in all qpes ofstudent fundraisingactir.ities is usuall,v a case of simple assetmisappropriation. In the ACFEs FraudTree, cash schemes (part of asset misap-propriationsj, l\ihich invohre stealing anentilri ii:i-'cis, iall inio three categories:larcenr', iraudulent disbursements andskimaring. Cash larcenv schemes in-volve ihe then of funds recorded in theentitr s aiiounting rccor,i:. ln lraudu-leni i.iisb'*isenent schernes, an indir-irj-uai makes a ciistribution of entin'fundsfor a iish,-xest iiurrose. Skimming, ihetnei-l oi lf,bcok iunis, is usuallr. at thehean ci srudeli tuliraising losses.Public-sector clubsIn mr-slare. \t-ashington, students inpublic schoois conduct thousandsof F.rndralslng aciirities each vear.S.iu,iells .:':li :1;ul:; a,ir rsors in each:ch.rci J:-:::a: -,o;;, ;iubr as a part oithe Asstr;:a:ec Slucent Bodr' lASB t

Program Fund and then conduct a widevariety of funciraising activities to fulfilltheir objectives. Most school depart-ments raise funds with rhe approval ofschool administrators. Athletic depart-ments raise the highest amounts forfoctball, basketball, soccer, baseballsoftbali and other sports.

Faculty members, with the helpof students interested in learning theretail trade, manage these programs inmiddle schools, high schools, com-munity colleges and universities. Allgenerated revenue is public money,which the state audits.

Faculty advisors for public-sectorclubs manage all student fundraisingactivities, and the ASB fund treasurersmaintain the clubs' accounting records.Facult,v advisors normally skim revenuefrom event proceeds before they givernoney to the treasurers for deposit.Disbursement schemes are rare.

Faculq' advisors also teach studentshorl'to operate school stores and man-age other retail sales activities, such asconcession stands and sales of mer-chandise. (l'll discuss these activities insubsequent columns.)

Nfost schools knon they needproper internal controls over bothproduct inventort' and revenue, butthere are alwavs some that dontproperlv manage them. Their negli-gence discredits all other schoois thatdiiigendr- rtork to achieve financial andeducational successes.

ByJoseph R.Dervaes, CFE,ACFE Fellow CIA

The state of Washington has 294school districts. When I managed thestatewide fraud program for the stateauditor's office, there rvas tlpically anaverage of about eight schools per yearthat suffered a revenue loss ofapproxi-mately USD$6,800 each (USD$54,400annuaiiy). Tnese iosses pnmarii,v occurwhen one individuai is responsible forall club revenue n'iih no monitoring bvmanagers. Investigators oiten can't findthose responsibie because too manvpeople har.e had access to productinventory and monet'.

\\hen er-ternai auciitors determinethat a faculn adri-.or s responsible fora specifrc loss anou::, ie or she usualivmakes restitutioii :o ---:e scrrooi. Schoolsdiscipline some o: ie- ncnciuals. butothers simplr- resi= >coois rareh-re-fer these cases io: l:.::


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the schools normally have been madewhole. Prosecutors also usually dontaccept small-dollar cases because theyhave more important crimes to pursue.However, when they do prosecute thesecases, convicted fraudsters usually re-ceive jail sentences ofless than one year.

The information for the case stud-ies for pubiic-sector ciubs cited belowcomes from audit reports issued by theWashington State Auditor's Office (theexternal auditor for the schools).Case No. 1: sticky soft drinkand candy moneySchools often use vending machinesto raise funds. A student in charge ofcollecting money from machines placedit in a cloth bag without counting it andgave it to the ASB Fund cashier whostored it in an unlocked storage cabinetin the vault. The cashier and studentdidnt count this money together, asthey were required to, at the time ofthe transfer of accountabilit,v for thesefunds. In addition, the cashier didntissue a receipt to the student for theamount of monet she receii'eJ anddidnt inciude these ftrnCs in the dailvbank deposit as she should have.

A faculw advisor routineiv as-signs one studeni to replenish vendingmachine stock and iemove mc'rner', butideally trto peopie .nouia io tnisThe cashier iaier counted, receiptedand deposited the monev into the ASBFund bank acco'.int. Hoite-ter. 'rhe exter-nal auditor detern:ii:e'i ihat the anountof funds deposlitc ir'a: le:s thai theexpected re\.enue llom inr-enton- soldthrough the vending nachines.

No one co'.rlci iciertih theperson(s) responsib'le ior this loss be-cause too manr-peolie had access to theinr'enton'. and the :-n',)na\-r\'as stoiedin the unlocke,i ral:r


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FRAUD'S FINER POINTS Case history applications

Case No. 1: gambling her to be treated for her addictive the auction bank account. She returnedaway soccer club funds gambling habit and sentenced her to 90 about USD$8,000 of her own funds toA private-sector youth soccer club days in jaii. After meeting all of these the auction bank account to try to makebegan a new season in debt and obligations, she rvas subject to depor- partial restitution.almost bankupt because its former tation to her native country - South The school apparently didn't per-treasurer stole more than USD$72,000 Africa. (Source: The News Tribune, form a thorough background investi-- its entire savings - in 14 months. Tacoma, \ ash., "Ex-treasurer's trial set gation of the volunteer bookkeeper. IfThe clubi board of directors detected for March 31i' by Steve Maynard, Feb. they did, they would have discoveredthis misappropriation of pla,.,er and 19,2009, and "Pierce Countl', woman that she was in a court diversiontournament registration fees when admits stealing from soccer ciub," by program for a prior theft. Sentencingit investigated the reasons the club .,A.dam Lvnn, June 29, 2009.) information was not available on thiswasn t able to pay its bilis. A generous case. However, perpetrators of similarbenefactor and the local soccer asso- Case No. 2: going once, going twice crimes usually receive sentences ofciation loaned cash so the club can get ... fraud at the auction less than a year in jail and restitutionback on its feet. A voiunteer bookkeeper at a private- ofthe loss amount. (Source: "Book-

Because of its financial woes, the sector school was charged with one keeper charged with steaiing fromclub had to eliminate player award count of first-degree theft for allegedly schooll'by Herald staff, The Herald,programs and cancel adult volunteer stealing USD$30,981 in 22 months Everett, Wash., March 12,2005,httpillcoaching classes. The current treasur- from a bank account that contained tinlurl.com/d9ktysb.)er said, "We have been on a very tight money from annual fundraising auc- -budget and unable to serve our kids tions. The bookkeeper, 37, was ine of Lessons learnedthe way we would like to, but we have two people authorized to sign checks Let's review some of the finer points ofbeen able to make ends meetl' for the auction bank account. Normally, tiaud and abuse in student fundraisins

The former treasurer, 43, trans- there wouldnt be any reason for the activities.ferred USD$40,000 from the club's bookkeeper to issue any checks on the Private sectol governing bodiesbank account to her personal bank account because she lvas simply and public sector entities should:account without authoritli ShealsomadeunauthorizedATM The school apparently didn't perform a thoroughwithdrawals from the club's hankaccount at a tocal.rrino u-nj-^"' background investigation of the volunteer bookkeeper.wrote 12e unauthorized checks to lf they did, they would have discovered that She was in alocal casinos totaling more than JusD$8,000, according to charges court diversion program for a prior theft.filed by the counn pros*.utingattornev's office. supposed to rransfer aii the funcls . Establish formal written policies.

The governing boCi.iicrr't moni- directlv to anorher school bank account procedures and internal controls fortor club financiai activiii closell beiore from rlhich disbursements transpired. all student fundraising activities.the loss, but you can be suie it dces Tu.o citizens complained that . Monitor the profitabili-,"- of aii i';l.j-now. At least trvo members reriert their credit cards rvere charged twice raising events to ensure their finan-bank statements at meei:::qs. ald ai for their purchases at the auction. This cial expectations have been met.ieast two or three mernbers ierieri the prompted an inrestigation that uncov- Fraud examiners must understandclub's bank activitr online. The current ered the losses frorn the auction bank the differences between public-secto:treasurer, a CPA, also pre:ents n']onthiv account. Inr-estigaiors found that the clubs and private-sector teams and rhecash flow statements and baiance booReeper didn't transfer any auc- fraud scheme of choice for each rrhe:sheets to the governing bodr-. tion funds to the schooli disbursement assessing the risk of fraud.

The former trea-surer plEaC*d s.;ill account during this period. Instead,fo 10 counts of first-degree rr.l1 rn a she made numerous unauthorized cash Planning for successplea bargaining agreemeni ',.-l:h lie rrithdrartals and issued manv check to Managers must plan for successcounty prosecutor. Tire rucqe c:derec herself and her personal creditors from when conducting student fundraisns

FRAUD-lvlAGAZ li C3'.'


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activities. Part 2 in this series discusses a suc-cessfui plan for successful fundraising, whichcomes from my life experiences dealingwith fraud and abuse in all qpes of studentfundraising activities in my state. We will alsodiscuss 'gross profits testing" - the mostcommon internal control weakness associat-ed with retail sales events. There's much moreto come. Get ready. r f [/[Regent Emeritus foseph R. Dervaes, CFE'CIA, ACFE Fellow, is retired after nore than42 years of government service. Hei presi-dent emeritus of the ACFE's Pacific North-west Chapter. His email address is:j oeandpe ggydervaes@centLlryel. net.

CAREER CONNECTION, CONTINUED FROM PAGE 13

(such as conciucting employee interviews);and offering court testimony and preparingwritten reports that may be used in crimi-nal or civil court or offering referrals forprosecution.Do yourself a favorDr. loseph T. Wells, CFE, CPA, lounCer andChairman of the ACFE, expressed his opinion succinctly in the January/Februarv 2012article. "lfthere is any chance at all that astate licensing board could vie'lv You a'. holci-ing out as an investigator, do vourseif a iar-or-,-) ^-r l:-^-^^-J \{.-..^frL.^^ .r^r.L^^-1.dilu

5gtllLcll)cu. ^rldll) ul lllL:L Jldls lr\:::u)

are self-funding and activel,v look iar anlonethat can be construed to be uniicensedbecause it adds to their coffers. lt{oreover. ifcourts or opposing ccunsel can hran: ','t-';as an unlicensed investigator, voui :asg i"'::llikely suffer severe damagel' I FF*Beth A. Mohr, CFE, is manaqing laitileiof McHard Accounting Consuitine LI-C ::Albuquerque, N.M. Shes a retired S:r l'..':.'police officer and a licensed ;r:r::rinvestigator, Her email address is:bmohr@thelv{cHardfi rm con

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