Due Diligence by Investigators

Expand your understanding of the deal by looking at your target from a different viewpoint

Steady pace of deals foreseen

A new year and predictions come out like snowflakes in January.  The mergers and acquisitions crowd is no different.  A recent poll in published in M&A magazine sponsored by KPMG predicted a “solid” 2014 as far as deal activity was concerned.  The poll asked the respondents several questions related to what they felt were critical drivers for deal creation and deal success in the coming year.  One of the items that kept popping up was the value of having solid Due Diligence as part of the deal.    

Define what you mean

Due Diligence can mean a lot of things depending upon who you ask as the concept can be applied across disciplines.  Accounting comes to mind.  As does finance and banking.  Several firms claim to have the right mix of research that covers all angles.  While this may be true, many other qualified outfits are out there who are specialized in specific types of research they can contribute to the overall research of the deal.  And because not all deals are the same, picking and choosing the right vendor to supply you with the information needed should be part of overall Due Diligence strategy.

Breaking down Due Diligence

For certain, CSI is not an accounting firm, nor do we possess the skill set required to analyze financial statements, investments and tax returns.  But we do offer something that enhances the overall value of Due Diligence. Investigative Research can cover a lot of ground but to simplify, the basic services are background checks and asset identification.  These items are not always considered as part of the Due Diligence equation but adding them can certainly fill critical gaps.  This information provides necessary insight into the business, its principles and their private and public lives.  And while not all bad information leads to a deal breaking apart, it certainly puts the deal makers in a better position to make decisions.

See your target in a different light

gideongartner.com

Public record research coupled with social media investigations have helped many clients understand the types of people they may be working with as deals unfold.  This information can apply to cultural integration of two merging companies to ensuring critical personnel are leading the type of lifestyle befitting their employment. Further, identification of assets held by company owners may go a long way to explaining balance sheet anomalies.

But merely gathering this information into a report is not enough.  If this research is part of a Due Diligence plan, it is important that the information gathered is organized and presented in a context that demonstrates an understanding that goes beyond the regurgitation of mere fact.  If the output ends up being confusing and imprecise, then that hinders the deal maker’s ability focus on the deal and mitigates the value of the research. Not good.

Focus on the deal; trust the research to the experts

If considering expanding the reach of Due Diligence research beyond financial statements, consider the following:

1. Even though there is a vast amount of information on the internet, don’t fool yourself into thinking you are capable of conducting background and social media research on your own.  Just because information is out there does not make you an investigator who knows ins and outs of the craft.  
2. Research into someone’s background can be quite extensive.  Set parameters with your researcher prior to engaging these services to ensure a focused outcome.
3. While you may have parameters set, investigative research may reveal leads which you may find worthy of exploring further.  If these arise, take additional time to consider expanding the research if the outcomes may be beneficial.    
4. Seek out a researcher with experience with M&A. Knowing the language of the deal makes explaining your needs that much easier. 
5. Demand a report that fits your needs.  If you want more information, less information, a summary, analysis or recommendations, ask for it.   

Disability Event Horizion

Communicate changes that impact your client as part of your anti-fraud protocols  

NY’s Finest Scammers 

It was recently reported that New York City Police and Firefighters were caught defrauding Social Security Disability Insurance benefits.  The disabilities being claimed were psychological in nature and many blamed the trauma they suffered was a result of the September 11 terrorist attacks. Several claims were investigated and 106 people were found to be involved in the scheme.

http://ehstoday.com/

The claimant’s were caught through the use of traditional surveillance and through observation of their social media posts.  The information gathered through these channels revealed their claims were not only invalid but also potentially fraudulent.   This allowed the investigators to deny the benefits and to charge the group with various levels of larceny.

A vulnerable system

Private disability carriers who have full time Special Investigation Units and ongoing anti-fraud training are typically well prepared to ferret out these scams. As for the SSDI, the Office of Inspector General is charged with protecting these funds.  But because the program is so large, it is hard to police.  Hearing about a scam that was discovered involving the SSDI fund is not that common.  Because it is hard to protect, the fund is vulnerable to fraud by the unscrupulous; including organized criminals.

In this case, it was clear that coordination was a part of the formula to defraud.  Leading this scam were a group of “advisors” who directed the claimant’s behaviors in an attempt to make their bogus claims believable. These “coaches” received kickbacks from the claimants in exchange for their advice. This strategic configuration to illicitly harvest funds from the trust fund is by definition organized crime.

What brought this case together though, was the cooperation between the Office of Inspector General, the NY district attorney’s office and their relationship with police and fire internal affairs. What forced this alliance was the exploitation of an event (9/11) and the PTSD it caused.  Or in this case, allegedly caused.

It’s different when businesses protect money

Private disability carriers also utilize surveillance and social media research to identify claimant behaviors that might be incongruent with their limitations and restrictions.  While these tools are powerful, it is the keen observation of the claim manager that is critical to the discovery of red flag indicators in a claim.  

Claim managers have the most intimate contact with the file and the claimant during the life cycle of the claim. As such, it stands to reason that they must receive comprehensive and consistent anti-fraud training to ensure suspect claims are identified.  However, for good anti-fraud efforts to work, it is  important that these critical employees see the bigger picture.

Flow of information is key

While private disability carriers or self-insured’s might not experience a scam as large as the one identified in New York, the potential exists for several claims to be filed related to a specific event experienced by a client- akin to the mass PTSD claims caused by 9/11.  

When these changes or events become apparent, it should be top of mind for claim professionals to communicate this information throughout their organization, especially to claim managers who are on the ground floor.  For instance, if a client announces that a plant is closing, the claim managers should be made aware of this as employees might file disingenuous claims in an attempt to extend income during a layoff.

Turn information into wisdom

Keeping a keen eye out for events that impact businesses you insure is a wise and healthy thing to do.  But keep in mind this information is not just useful to those in upper management.  Recognize how important this type of information could be to your front line employees.  In summary, keep in mind the following tips:

1. Anti-Fraud training should include fostering awareness of the client’s business situation.  
2. Claim managers need to be made aware of the changes to client’s status so that they can react appropriately to claims.
3. Claim Directors and above need to take it upon themselves to not only inform the claim managers of a change or significant event a client experienced but also demonstrate what that change might mean to claims and claim operations.
4. Be aware that weaknesses caused by changes my be exploited by coordinated efforts.
5. Know that incentives for third parties can influence claimant behavior.  

Don’t have an SIU?  Contact CSI for professional claim investigations and anti-fraud training.

A Most Dangerous Game

Guest blogger and Personal Protection Expert Sam Rosenberg explains the rules of the Knockout Game and how you can win it.

The Set-Up

By now, you've likely heard of a phenomenon called the Knockout Game. The rules are quite simple.  A single member of a gang of juveniles blind-sides an unsuspecting passer-by with a sucker punch, the goal being to knock the victim unconscious in a single blow. Typically, these attacks occur from behind, or as the victim is distracted by other members of the gang.  No target seems to be off limits.  Pregnant women, children and the elderly have been included among the victims.  This most dangerous game has resulted in serious injury and more than one death.

To police and most people, knockout game attacks are random and unpredictable.  Yet, as with all human violence, it is neither random nor illogical—even if this logic is pathological.  To understand, predict, and prevent this manifestation of violence requires an understanding of predatory logic in general.

Human Predators

www.humanevents.com

Human predators are opportunists, who fundamentally prey on the conscience and goodness of decent people. They live in a world devoid of decency.  A world ruled, rather, by a perversion of the notion of respect.  To the predator, aggression and dominance equals respect, and respect is everything.

The predator’s notions of right and wrong are also corrupted: “if I can get away with it then it is ‘right’, if I can’t then it is ‘wrong’.  Further, the conscience that governs decent people is absent or thoroughly corrupted in predators.

Predator’s Weakness

Those who seek respect through aggression are in fact some of the biggest cowards, with the weakest psychology.  They never achieve respect, only fear. And when they run into someone who isn't afraid they collapse like a house of cards. This is why even the most desperate predator is careful in how they select their prey.   Because they know – deep down – that they can only succeed if the target is unable or unwilling to fight back.  They are fundamentally cowards lacking the confidence and resilience to challenge someone who could fight back.  For them to succeed, the attack MUST be one sided.

The Prey’s Strength

Imagine, if you will, encountering a wolf while walking in the woods.  It locks eyes in a hard stare.  The hair on its back stands up; it bars its teeth, and begins to snarl.  If the wolf attacks, would you be justified in saying afterwards “but I never saw it coming”?  The warning indicators of predatory humans are not quite as obvious…or are they?

Now, imagine you are walking down the street and you see a person or group that causes you to feel fear.  Are you not being warned?  Are your instincts not telling you to avoid that situation, just as it would tell you to back away from that wolf?

Trusting your hardwiring for survival

Fear is good.  It is a messenger that wakes you up and is not something you need to overcome in your life. It is simply an impulse to be understood.  But most people try, at all costs, to override this impulse, or they mistakenly believe that experiencing fear somehow means that they lack courage.  But intuition allows you to know, without knowing why, and when safety is at stake, intuition communicates through fear.

Denial, however, is the exact opposite.  Denial is seeing the facts, yet choosing to disregard them.  Denial could flat-out get you killed, and it will always leave you vulnerable.

Situational awareness 

Attention is the active embracing of your primal instincts.  It is something that must be cultivated.  It must be practiced, and done so consciously.  Pay attention to your environment and trust your instincts no matter what the person looks like, and no matter how your logical mind desires to interfere or make excuses.

Recognize that all violence is situational.  When you allow yourself to be preoccupied, particularly with technology, you shunt your senses to such a degree that your mind cannot do its job, and you create a situation of vulnerability, even if you wouldn't otherwise have been perceived as vulnerable by a predator.

Winning the game

As predators are inherently cowards, you don’t have to be bigger, stronger, faster, better to deter them, you just have to be willing and able.  Willingness comes from ability.  Train the body, the mind follows. To recap in 4 simple rules:

1. Accept, first and foremost, that there are predators out there who will prey mercilessly on those whom they perceive as vulnerable.
2. Your first objective is to cultivate situational awareness, and to trust your intuitive threat recognition software.
3. If you perceive threat, move.  Get off the “X”, as we say in protection terms.  Take decisive action to avoid the situation and remove yourself as a target of opportunity.
4. Training is invaluable as it tunes your awareness and makes you a less inviting target, but remember that there are no silver bullet techniques if you don’t follow rules 1 through 3 above.

Sam Rosenberg is an internationally recognized expert on personal and institutional security.  A former Marine officer and close protection specialist, he is the director of global protective services for CSI.  His Pittsburgh based company INPAX | Academy of Personal Protection, provides comprehensive training and consulting services for individuals, families, corporations, and schools nationwide.  Read Sam’s full article on the knockout game here.

Active Shooters

Knowing what to listen for can prevent insider attacks

Perceived injustice sparks shooting

The nation and especially Colorado are again reeling from another student turned active shooter.  The tragedy of the latest school shooting left two students wounded and the shooter dead from a self-inflicted shotgun wound. A motive for the shooter’s rampage quickly emerged in the press.  It was cited that that he sought to avenge his demotion on the debate team and when he entered the school, he verbalized he was seeking the teacher who demoted him.

http://blogs.edweek.org

In trying to understand what makes someone turn into an active shooter researchers have categorized threat types. Given that this shooter was a student who attended the school he attacked, he is labeled an “Insider”.  And on the surface, the attack appears to be reactive as the motive that is known at this juncture makes it appear as if he was responding quickly to a slight he endured.  However, the weaponry compiled by the shooter and the announcement of his target indicates a well-planned, proactive attack. Understanding what makes up an active shooter is an important component of developing effective countermeasures.  

Thought out and planned 

Academics who study shootings tell us that people don’t just snap.  Rather, there is an escalation by the shooter that includes preparation and broadcasting of his intent.  In this case, the shooter gathered a shotgun, an ammo belt with ammo and a machete.  He made Molotov cocktails, packed them in a backpack and set out. He entered the school with a grudge and was in a mental state prepared to shoot another human.  

The motive of a reactive “revenge” killing is plausible but it does seem that his issues may have been piling up on him for a long time.  Press stories reveal the shooter was a gifted student who was outspoken and bullied for his beliefs. He was also enduring the recent divorce of his parents.  In the post-event analysis, it may come out that these factors contributed to this escalation.  It is likely to be revealed that the shooter did broadcast his intentions prior to the event as is typical of active shooters.  

Reaction to a broadcast….albeit late in the game

It is known that at the time of the attack the shooter did broadcast his intentions.  When he entered the school, he announced he was looking for the teacher who allegedly wronged him.  Quick thinking by those who heard this broadcast alerted that teacher who, in turn, fled the building. Law enforcement credited the flight as a good tactical decision which removed shooter’s intended target from his equation.  If the reports are accurate, the event lasted less than 90 seconds and the shooter was found dead inside the school within 20 minutes of it happening.  Getting the target out of the building may have shortened the event and saved lives.  

Active shooters intend more than death and end up leaving clues 

Active shooters can also be called avengers and avengers perceive an injustice. They announce their intentions ahead of time because they are similar to the stalker and the serial killer.  Their actions are not a cry for help; rather they do it for the thrill.  Avengers need to be remembered and they need to inflict psychological damage as well as physical.  This is their “fun”.  As an insider, this shooter broadcast his intentions on a specific target – the teacher. Outsiders, it is believed, triangulate their actions.  Their motives are more difficult to discern.  None-the-less, because of their need to be remembered and inflict psychological damage leaves them vulnerable to detection prior to the event.  

Shooter’s pre-event language is the key to detection

There is a point in time prior to an active shooting called the Pre-Event Threshold.  During this time, potential active shooters display certain behaviors and of critical importance utilize revealing language.  Being tuned into this language is necessary to stopping such events:  

1. Avengers start by perceiving an injustice
2. Avengers then feel victimized…listen for “because” or “but” in their language.
3. Avengers then externalize…..listen for “you”, “he”, “she”, “them”, “they” in their sentences. 
4. Avengers will then develop a grudge.  
5. Avengers will then become obsessed with the grudge.  This can be seen as a closed loop in their thinking.  All that they do or say is related to their obsession. 
6. Avengers finally take action.  They perceive it as their only option.

If a person is behaving in this manner, they are likely on a path to becoming an active shooter.  This intelligence should be believed and acted upon.  

A word of caution; be aware of people who minimize this information.  They reveal themselves by using the word “just” in sentences like “he’s just having a bad day”.  Don’t be fooled into ignoring this intelligence because you may be overlooking an obvious threat.  

I would like to acknowledge a significant influence for this post was Dr. John Nicoletti who explained these principals in a speech he gave at a safe school symposium held at Columbine High School in 2013

Seeking an elusive truth

Flaws in criminal justice system can lead to errant convictions

We the people, in prison

The prisoner population in the US is large.  Roughly 1.6 million citizens were imprisoned in 2010 and another 1.4 were under supervision of parole and probation officers.  The US also imprisons more people per capita than any other comparable nation; about 500 people out of every 100,000 people. Only recently has the prison population seen a decrease but even then, it is a minimal drop.  The decrease has been attributed to everything from new thinking in rehabilitation methods to correctional budget cuts.  None-the-less, given the size of the prison population, mistakes pertaining to the guilt or innocence of defendants will be made.

The dream of unbiased justice

The expectation for excellence in the criminal justice system is very high when it comes to investigating and prosecuting crime.  On one hand society demands law and order and for the right of victims to attain justice.  At the same time, we require the standard of reasonable doubt to balance our thinking.  If not, many innocent people might end up being wrongfully imprisoned. Famous for this sentiment is English jurist Sir William Blackstone who commented “It is better that ten guilty persons escape than that one innocent suffer”; words taken to heart by the founding fathers.  However, because the justice system is made up of people, it will generate its fair share of errors, oversights and even malicious intents and invariably, innocent people are sentenced to prison or even death.  

Technology won’t solve all inequities

The advent of DNA technology has changed the way cases are investigated and adjudicated.  DNA has also exonerated hundreds of wrongfully imprisoned citizens.  Groups like the Innocence Project have dedicated themselves to bringing this technology to bear in cases where the potential for error is great.  But DNA is not always a component of decisions that wrongfully land defendants in jail.  Academics have identified several other factors that cause errors in cases that can lead to errant convictions.

Human imperfections

Identifying the truth can be challenging when you realize the outcome of these critical factors hinge upon the integrity, professionalism and unseen motives of the people involved.

1. Eyewitness misidentification. Research shows that human recall is not infallible.
2. Faulty Forensic Science.  The science and the scientist are not always credible. 
3. Bogus confessions/admissions.  Defendants ignorantly self-incriminate or are coerced to hide the truth.  
4. Government Misconduct.  Measurements of success (convictions) can cloud the judgment of the people who make up the system. 
5. Informants.  The motivation and truthfulness of informants is not always known.  
6. System stress.  Overworked and underfunded defense council perpetuates bad outcomes.  

www.theguardian.com

Moving toward a better system

Making justice accessible to all in need is a noble endeavor and efforts to form a more perfect justice system are underway.  Contributing to this goal, professional investigative firms like CSI can act on behalf of the defense before the case goes to trial.  Validating or deconstructing the facts as gathered by law enforcement can make or break the outcome of the case. Investigation of cases post-conviction can also validate the legitimacy and integrity of suspect decisions.  In the long view, this fact checking can challenge the status quo of the criminal justice system and raise its standard of excellence.  It may also prevent or reverse undesirable outcomes along the way.

Safe School Initiatives

Reasons to invest in violence prevention go beyond threat mitigation

Consequences of unsafe schools

juvenilejusticeblog.web.unc.edu

Research has shown that unsafe schools have been linked to poorer health in students and cause an increase in dropout rates. Academically, unsafe schools yield lower test scores and lower gains in academic performance over time.

Poorer performance from educators is also seen as a result of unsafe schools. What is worse, students who attend unsafe schools tend to take matters into their own hands when it comes to resolving conflict.

Academic enhancement supports reasons to fund safe schools initiatives 

Certainly investing in safety and security measures for the sake of creating a safe environment is the right thing to do.  But financially, to do all the things necessary to improve the situation may not be feasible.  But when you add in the academic benefits of improved safety to the equation, the paradigm changes and the leverage to secure funding may be increased.  This may be difficult to realize, however, as the synergies between safety and academic performance are not always palpable.

A safe school climate

Studies of safe schools revealed several common characteristics shared by these institutions.  And by looking at them side by side, you can see safety and security measures enable the existence of these attributes.  

1. The main focus of educators and management is academics.    
2. Genuine respect between peoples is evident.
3. Positive attitudes which manifest themselves through a moral respect for the school.  School is a place that is cared for by students and teachers.  It is a place they like to attend.
4. Effort and achievement is recognized and rewarded.  
5. Fairness. Discipline rules are clearly stated and equally enforced. Nothing creates more resentment when one group (say athletes) gets away with more or are treated more leniently than another group.  This breeds hatred, anger and ultimately violence.  Even a perception of unequal justice factors into behavior.
6. A clean and orderly school.  Custodial staff is given support and due respect.  Teachers make diligent efforts to mitigate chaos in hallways. Both custodians and teachers are engaged with students in the halls.
7. High teacher morale and exceptional professional performance.  

Evaluate and then evaluate again

Efforts to keep schools that are currently safe as well as efforts to rehabilitate schools that are unsafe have something in common.  How to get there or how to sustain it requires continuous process improvement.  Part of the cycle of improvement is to assess the current situation.  Assessment is a place to start or is can be a place to re-evaluate.  Either way, it is critical to success.

Get the money, make the effort

If you secure funding and commit to the journey of making a school safer, you and your safety and security consultant may benefit from incorporating the following suggestions in the plan of action:  

1. Start with taking an inventory of the school’s climate based upon the characteristics of a safe school as mentioned above.  
2. Listen to the students.  To be aware of the level of bullying, drugs, and unhealthy peer pressure going on, go to the source. 
3. Break the code of silence.  Students who act as informants are afraid of reprisal, not only against themselves, but also against the person they are telling on.  This reveals the importance of #5 above. The perception of unequal justice or excessive punishment that could ruin a student’s life, even though that student may be a threat to the safety of others, causes informants to say nothing.    
4. Invest time and treasure in bullying prevention and intervention programs with unambiguous policies and procedures that support these efforts. 
5. Promote a culture of safety and respect.  This has to start at the top.  
6. Take steps to ensure all students have a trusting relationship with at least one adult.  Even if it is not a family member. 
7. Make continuous process improvement part of any safety and security program.  This ensures you sustain the progress you made and helps to improve upon your successes.   

I would like to acknowledge Dr. Del Elliot who was a significant influence for this post.  Dr. Elliot explained these principals in a speech he gave at a safe school symposium held at Columbine High School in 2013.

Vulnerability Analysis

It is cheaper to mitigate threats ahead of time than to pay for a disaster after the fact.

Who will protect this business? 

The task of shrinking risk to a level we can live with falls upon the shoulders of many different people.  Some, who own businesses, must do what it takes based upon their knowledge and understanding of what needs to be protected. Others are hired to do nothing but make businesses safe and secure.  Either way, this is no easy task given the many areas of vulnerability that could be addressed.  Couple that with keeping business operations unburdened by extra security measures and you find yourself in a challenging situation.

Despite the challenge, it is always recommended that you invest in protecting your business by whatever means are available.  And given the variety of assets that need protected – from people to trade secrets – it sometimes takes an expert to get the job done.  Even though it is your business or your purview, obtaining an outside perspective can be healthy and wise.

Protect the front door, the back door or both?  

One of the challenges in protecting a business is first identifying what needs protected.  It may not be as obvious at you think.  This is especially true if your focus is on running the business and making money.  In the big scheme of things, you know your competitive advantage needs to be protected.  This is also true for your physical property and your people.  But what may not be obvious is that all three interact to some degree.  What that means is that any valid security solution will need to encompass and integrate all aspects of your operation.  This is where a vulnerability analysis comes in handy.

A good starting point.  

In general, a vulnerability analysis is a top to bottom, front to back review of your physical plant and your associated safety and security program.  In addition to the physical make up of the property, the analysis looks at elements like technology, behaviors, patterns and adherence to procedures. With established programs, the analysis is able to review current standards and practices for practicality and effectiveness. For businesses without plans in place, it is a good starting point because it starts from scratch and finishes with a complete picture of where you are and where you need to go.  

The right approach with fringe benefits.  

Certainly, a vulnerability analysis of your business can lead to a safer and more secure environment.  Safe and secure is desirable for obvious reasons. What might be overlooked is that with these attributes, you are likely to see better performance from your staff.  This has also been shown to be true for learning environments.   So investing in protecting your business unburdens your employees from distracting concerns and frees them up to focus on the job for which they were hired.  

Commitment needed up front.

Contracting with a safety and security expert to evaluate your business is a wise investment.   And if you do take this step to protect your business, here are a few things to keep in mind:  

• Be prepared to be challenged by the findings.    Sometimes overlooking the obvious is embarrassing but good leaders know they are not perfect and that professionals are out there to help, not hinder. 

• Commit to making the recommended changes.  If you cannot get to them all right away, start somewhere and build on it. It’s okay to take it one step at a time, just keep moving forward.  

• If you budget for a vulnerability analysis, make sure you have funding left over to cover upgrades.  While you don’t know what will be discovered during the review, some changes may be critical and need to be installed quickly.  

• Use the analysis to create a new awareness of safety and security. Many changes are dependent upon human compliance.  You may have to enforce changes initially to mold the culture but eventually it will become habit for your employees.

• Safety and Security is an ongoing endeavor.  Use the vulnerability analysis to make a plan.  Review it regularly and involve other employees in the process.  Finally, track your progress toward meeting your safety and security goals.  If you don’t measure, it won’t happen.