findings on fraud and error in financial statements

INTERNAL AUDIT &

FRAUD PREVENTION.

Real-life case studies of prevention and detection.

JOHN MILNER

John is an Irish Chartered Accountant and a part-ner of Kreston CSM. He has expertise in the areas of internal audit, due diligence, financial strategy and mergers and acquisitions. He specializes in internal control, risk evaluation and fraud preven-tion and detection.

He has managed the Internal Audit departments both internationally and in Mexico for companies such as Unisys and Waldo’s. He has held Finance Director positions for other companies such as AstraZeneca, where he successfully managed the finance, tax and legal merger as Corporate CFO.

He has worked extensively in Europe, Mexico and the United States and is financial advisor and a board member for a number of different compa-nies. He has successfully raised capital and per-formed due diligence for companies such as Masisa and Qualita.

INTERNAL AUDIT & FRAUD PREVENTION

ABOUT THE AUTHORS

CO-AUTHOR

MARTÍN GHIRARDOTTI

Martin Ghirardotti a partner with Lisicki, Litvin & Associates, a member firm of Kreston International, CEO of Resguarda (a whistleblower hotline), member of the Executive Committee of the Institute of Internal Auditors in Argentina, Vice President of INICA and a member of ACFE (Association of Certi-fied Fraud Examiners – U.S.)

He has participated as a guest speaker and panelist on numerous forums regarding money laundering, fraud, whistleblower techniques and internal audit for universities, private industry and government agencies in Argentina and throughout Latin Ameri-ca.

He has written many articles in Argentina for both business magazines and newspapers, such as La Nacion, Clarin, Ambito Financiero, Revista IDEA etc.

CO-AUTHOR

ABOUT THE AUTHORS


ENRIQUE PASTOR

Enrique is a member of both the Institute and Col-

lege of Public Accountants in Mexico.

He is a Certified Public Accountant and Tax Spe-

cialist from both of these bodies, is a Certified Au-

ditor and qualified to perform tax and social securi-

ty audits at a federal level and also at state level in

Mexico City, State of Mexico and Veracruz.

He has participated as a speaker at many different

tax forums throughout Mexico.

He is a Board member for many different compa-

nies in Mexico and often acts as their commissary

or auditor as required by law. He is the Treasurer

for CANIETI (the Electronics, Telecommunications

and Information Technologies Chamber) and is a

member of the Swedish-Mexican Chamber of

Commerce.

He was a recognized consultant for JICA (the

Japan International Cooperation Agency) in 2009

and is a partner of Kreston CSM.

INTRODUCTION AND PERFACE

ABOUT THE AUTHORS


MIGUEL DEL OLMO

Miguel is an Audit and Corporate Governance Partner of Kreston CSM. He is member of the Audit Committee for Kreston International for the Latin American region.

He has over 25 years’ experience, both interna-tional and in Mexico, as a financial and tax audi-tor. He has worked and given seminars in the United States, South Africa, Argentina, Brazil, Panama, Nicaragua and Guatemala.

He has particular expertise in Sarbanes-Oxley and Mexican Bankruptcy law. He is a certified Internal Auditor under ISO 9001 as stipulated by INLAC, the Latin American Quality Institute.

Miguel sits on the Audit Committee for many com-panies in Mexico.

CONCLUSIONS

ABOUT THE AUTHORS


CONTENTS

CASE STUDY 1FREIGHT OVERCHARGING:

PREFACE:

CASE STUDY 2MISAPPROPRIATION OF CASH AND CHEQUES:

CASE STUDY 3MANIPULATION OF ACCOUNTING RECORDS:

CASE STUDY 4ABUSE OF POWER BY CEO:

CASE STUDY 5TAMPERING OF CHECKS:

CASE STUDY 6GHOST VENDOR AND PERSONAL LIFESTYLE:

...............................

...............................

...............................

...............................

...............................

...............................

...............................

10

9

INTRODUCTION: ............................... 8

13

15

18

20

22


CASE STUDY 8FALSIFICATION OF REVENUES:

CASE STUDY 9USE OF ANALYTICAL TECHNIQUES TO DETECT FRAUD:

CASE STUDY 10VENDOR DUE DILIGENCE:

CASE STUDY 11FICTITIOUS MAINTENANCE AND WHISTLEBLOWER HOTLINE:

CASE STUDY 12GHOST EMPLOYEES:

CASE STUDY 13MISAPPROPRIATION OF COLLECTIONS(“TEEMING AND LADING”):

...............................

...............................

...............................

...............................

...............................

...............................

26

28

31

34

36

38

CASE STUDY 7MANAGEMENT FRAUD: ............................... 24

CONTENTS


CASE STUDY 15MANIPULATION OF CASH RECEIPTS:

CASE STUDY 16GHOST VENDOR:

CASE STUDY 17MISAPPROPRIATION OF CASH:

CASE STUDY 18MISAPPROPRIATION OF CASH SALES AND WHISTLEBLOWER:

...............................

...............................

...............................

...............................

42

44

47

49

CONCLUSIONS: ............................... 52

CASE STUDY 14DISCOUNTS TO FAMILY AND FRIENDS AND WHISTLEBLOWER:

............................... 40

CONTENTS


INTRODUCTION

8

We are pleased to share a collection of fraud case studies with our readers.

These are based on real-life experiences which we have accumulated over

the years, some from past experiences of having worked in different organiza-

tions and others from situations which we encountered with our clients in

Kreston ©. It is likely that our readers will be able to draw comparisons from

similar situations in their own particular environment and hopefully they will

serve as a preventative mechanism within their organization. In any environ-

ment, good controls, documented procedures and robust vigilance to ensure

compliance will help preserve the organization’s assets and help save money.

This is a joint collaboration between the Kreston offices in Mexico and Argen-

tina and the cases are based on real-life experiences whereby names of

countries, amounts of monies and industries have been amended to ensure

that the organizations involved are not compromised. The names of the

organizations have been excluded.

Kreston has a global practice in Internal Audit and Risk Management where-

by it helps its clients in measuring risks, defining and implementing controls

and implementing mechanisms to ensure compliance and reduce the risk of

fraud occurring.

Co-Authors

Dr. Martin Ghirardotti & John Milner

Editing, Introduction and Conclusion

Enrique Pastor & Miguel del Olmo

Published by Kreston CSM ©

All rights reserved 2013 “Kreston CSM”©. The partial or complete repro-

duction is prohibited without the prior written permission of the authors.


PREFACESince time began, the risk of fraud has existed in all organizations created by man. No matter

how big or small the organization, corporation or government, whether it is a group of ten

people or ten thousand, the potential exists for fraud to occur.

One person alone can commit a fraud. Where the group is more than one and collusion exists,

the fraud is easier to perpetrate and has the capacity of being of greater magnitude. In bygone

times, the fraud tended to be more rudimentary and usually involved the misappropriation of

cash or tangible items, such as inventory, cars or other assets. As society and commerce devel-

oped, frauds became more sophisticated and involved banks and check fraud. In recent times,

with the spread of e-commerce, electronic banking and the widespread adoption of ERP (Enter-

pise Resource Planning) systems across governments and corporations, the variety, complexity

and magnitude of frauds has increased dramatically. Whereas collusion between personnel

internal and external to the organization was necessary in the past, today it is possible for per-

sonnel external to the organization to perpetrate the fraud without help internally. This can be

done by the ability to access and hack the organizations’ systems.

The fact that fraud continues to be a factor with which modern business needs to cope, the need

to design and implement control, prevention and detection mechanisms is all the more neces-

sary. The controls need to be as sophisticated and as robust as the intelligence and planning

that goes behind the intention to commit a fraud. Auditors need to be as familiar and as capa-

ble in terms of using technology as their perpetrators in both preventing and detecting frauds.

Organizations need to continually invest in structures, processes and controls at all levels from

the Internal Audit Committee to the cashier at the store level. Neither should we lose sight of the

desire to have a capable and motivated workforce which is focused on achieving the goals of

the organization and has no wish to cause harm.

We have put together 18 case studies which share real-life experiences in a number of different

countries, where we realize that human nature can always fall to temptation, regardless of the

culture. These case studies bring home the realization that sometimes the fraud is much closer

to us than we may have imagined. We should always be conscious of maintaining and upgrad-

ing controls and procedures to ensure that the organization’s assets and financial records are

safeguarded and not in danger. It is important that we raise the necessary flags and ensure that

protective steps are taken, even if only a doubt exists that a fraud may take place.

Kreston has a global practice in Internal Audit and Risk Management whereby it helps its clients

in measuring risks, defining and implementing controls and implementing mechanisms to

ensure compliance and reduce the risk of fraud occurring.

Note: all amounts of monies in the case studies are denominated in US dollars.

9INTERNAL AUDIT & FRAUD PREVENTION

CASE STUDY 1.

COMPANY BACKGROUND

Argentinian subsidiary of a German parent manufactures and distributes industrial machinery

products with annual revenues of $84 million.

FINDINGS

Operations had requested that Internal Audit make a detailed review of Transport charges.

Internal Audit performed a detailed review of the Company’s database including an analysis of

the charges paid with deal by customer, volume and route of the machinery which was transport-

ed. The review resulted in the discovery of significant variations in the expenses incurred by the

Company in freight. The review revealed the following:

The excessive amount of kilometers charged. The freight supplier was billing distances in

accordance with a pre-determined table. The amounts charged per kilometer and distance

coincided with the table. Company personnel satisfactorily reconciled vendor invoices with the

amount of kilometers charged as per the table. Internal Audit checked the distances with

amounts as per guidelines issued by the government. These revealed distances as per the table

far in excess of those set out in the governmental guidelines. For example, the driving distance

according to the table for the journey from Buenos Aires to Rosario was 645 km, whereas the

actual distance was 298km, a difference which represented an overcharge of 116%.

The freight vendor was charging for additional routes. For example, the vendor had 2

deliveries on the route which started at point A and had drop-offs at points B and C, but he

charged the full routes from A to B and A to C, even though he had made only one trip. This

was in violation of the contractual agreement between the vendor and the Company.

The vendor was charging round trips, even though the vehicles returned empty, also in

violation of the agreement between the vendor and the Company.

10

FREIGHT OVERCHARGING


IMPACT

Total misappropriation of funds amounted to $1,243,298.

As a result of the review, a significant overcharge on most of the invoices issued by the vendor to the

Company was detected.

A comparison was made between the kilometers charged by the vendor and the actual distances.

This analysis revealed that the kilometers charged were in excess of the actual distances, in the majori-

ty of cases. The amounts overcharged are set out as follows:

The above misappropriation of funds was allowed to happen for the following reasons:

Failure by Operations personnel to review the route distances.

Failure by Operations to compare the vendor’s invoices with the documental support

such as shipping documents, driver and customer signatures etc.

Failure by the CFO and the Operations Directors to properly review and detect adverse

variations in Freight Expenses.

11

Kilometers charged by the vendor

Actual kilometers

Excess kilometers

Amount overcharged

YEAR 1 YEAR 2 TOTAL

$1,973,828

$1,088,443

$885,385

$717,162

$1,376,884

$750,412

$626,472

$526,236

$3,350,712

$1,838,855

$1,511,857

$1,243,398

CASE STUDY 1. FREIGHT OVERCHARGING


ACTIONS AND FOLLOW-UP

The Company suspended payments to the freight vendor and began negotiations to recover the over-

charged amounts. It began to reduce its freight business with the vendor, and once it had recovered

the negotiated amount, terminated its relationship.

The Company decided not to terminate the employment of the Operations personnel, concluding that

it was innocent oversight on their part. A number of corrective measures were implemented including

a more detailed review of the distances, rates charged and volumes shipped, for all vendors.

12

CASE STUDY 1. FREIGHT OVERCHARGING


CASE STUDY 2.

13

MISAPPROPRIATION OF CASH AND CHECKS

COMPANY BACKGROUND

A Chilean company imports and manufactures raw materials for the electrical industry in the construction sector with annual revenues of $150 million.

FINDINGS

The Treasurer was misappropriating funds from the Company. Upon receipt of collections in the form of cash and checks from the collectors, the Treasurer would deposit part of these funds to her own personal account and to the accounts of third parties who had no relationship with the Company. This was possible due to:

Lack of controls Conflict between Treasury and Credit & Collections and Little or no review by Internal Audit.

The Treasurer maintained the misappropriated balances in accounts receivable balances. When Internal Audit performed bank reconciliations, the Treasurer would request loan balances from a financial institution and return these loans once the audit was completed (the reconcilia-tions were not performed on a surprise basis). At the same time, Credit & Collections was not performing adequate controls over the receivable balances and was not circulating customers in order to verify balances.


14

IMPACT

The misappropriation of funds amounted to $230,000.

This fraud was allowed to occur due to the following: o Lack of adequate control procedures. The reviews performed by Internal Audit were noti-fied and planned in conjunction with the Treasurer.

o Credit & Collections was not performing customer circularization in order to verify account balances. Whenever an error was detected, a detailed review was not performed and Credit & Collections would request an explanation of the Treasurer who would quickly cover up any impropriety.

o Subsequent investigation revealed anomalies in the behavior of the Treasurer. Upon reviewing certain account movements, it was discovered that the Treasurer was addicted to gam-bling. A history of online betting and gambling was found in her computer during working hours. This lead management to conclude that the hiring and selection process was deficient in that these character traits in her personality had not been detected.


The Treasurer was fired and a criminal law suit was taken against her in order to recover the monies stolen. Controls were reviewed and tightened in the areas of Treasury, Credit & Collec-tions and Personnel Selection. A Financial Dashboard was also updated to help prevent the reoccurrence of such a fraud. The Manager of Internal Audit was also fired for not performing surprise audits of the Treasurer.

CASE STUDY 2.


MISAPPROPRIATION OF CASH AND CHECKS

15

MANIPULATION OF ACCOUNTING

RECORDS

COMPANY BACKGROUND

Chilean subsidiary of a Canadian parent imports specialized industrial machinery, with annual

revenues of $110 million.

FINDINGS

Internal Audit discovered a reimbursement to the local CEO for the amount of $45,456, arising

from the return of a vehicle which he had acquired from the Company on October 31, 2012, via

a deduction from payroll. On October 31, 2012, the vehicle, which was the property of the Com-

pany, was sold to the CEO at a price of $38,781. (The CEO had the option to acquire the vehicle

at a pre-determined price).

The CEO returned the vehicle and sold it to the Company in November 2012 at the higher price

of $45,456. A check for this amount was issued by the Company to the CEO on the same day

(November 11, 2012).

Upon the review of the supporting documentation, it was revealed that the accounting entry of

November 11, 2012 was made in December 2012. The journal entry for the check was booked

in the SAP system on December 16, 2012 and the CEO signed as having received the check on

December 23, 2012. This was the only check dated in the month of November in this period. All

prior and subsequent checks were dated in December. The check was issued in December but

booked to the accounting system with a November date. The date on the check was deliberately

manipulated so as to give the impression that the vehicle was reacquired by the Company on

November 11, 2012, when in fact this took place a month later.

During the time that the vehicle was the property of the CEO, it was involved in an accident and it

was resold to the Company in a damaged state. This apparently was the reason that the local

Chilean CEO did not want to retain the ownership of the vehicle.

Internal Audit had also observed that the check was prepared by an employee who worked in the

Accounting Department. Corporate Policy requires that Treasury was solely responsible for the

custody and emission of all checks, a breach of which occurred in this case. Segregation of duties

was not applied in the emission of the check and the date and the accounting records were delib-

erately altered.


CASE STUDY 3.

16

FINDINGS

The transaction was registered in the system in November, when in fact the check was prepared in December.

At the date of the publication of Internal Audit’s report, the Company was unaware as to the loca-tion of the vehicle.

IMPACT

The Chilean CEO did not have the authority to act on behalf of the Company in the purchase and sale of Fixed Assets with himself, without written approval from Corporate Head Office in Toronto.

The above situation was allowed to take place due to the following:

Lack of segregation of functions. Accounting had access to checks and was also respon-sible for the accounting records. Treasury did not have total control over the custody and emis-sion of checks.

Deliberate alteration of the date on a check. Accounting issued the check with a Novem-ber date, when in fact the check was issued in December.

Lack of control in the system. A document was allowed to be booked in December, with a November date.

Abuse of power by the local CEO, who was not authorized to purchase and sell vehicles with himself.

Lack of internal control. Controlling performed an incorrect transaction upon the verbal instructions of the CEO. Controlling should have received written approval from Head Office.


RECORDS


CASE STUDY 3.

17


Both the CEO and the Controller were fired by Corporate Head Office. Treasury took complete control of the checkbooks and modifications were made in the SAP system such that transactions could not be booked with any date other than the date of the transaction.


RECORDS


CASE STUDY 3.

18

COMPANY BACKGROUND

Company manufactures ships, with operations in Mexico, Colombia and Brazil, has over 5,000 employees and annual revenues of $280 million.

FINDINGS

As part of its expansion plan, the Company acquired a company in Brazil, for a price of $45 million, in order to initiate operations in that market.

As part of the integration of the Brazilian acquisition into the existing operations, two cars which formed part of the Fixed Assets of the new company could not be located. An investigation revealed that, as part of the acquisition process, the CEO of the acquired compa-ny had sold these vehicles to himself at a price of ten cents each. These vehicles had a market value of $70,000 and $65,000 each, both having been acquired by the Company in the previous six months. The CEO was able to perform these transactions on behalf of the Company as in prior years Corporate Head Office had assigned wide legal powers to him. The Company had trans-ferred the legal ownership of the cars to the CEO.

Meetings were held subsequent to the acquisition whereby requests were made of the CEO to return the cars.

ABUSE OF POWER BY CEO CASE STUDY 4.


19

IMPACT

The abuse of power by the CEO resulted in the Company suffering a financial loss of $135,000.

This loss was caused by an abuse of power by the CEO. The powers in the organization were

clearly established in the Delegation of Authority Policy and in the Company Vehicle Policy, in

which it was established that the CEO had the option to acquire vehicles which had been

assigned to him at a pre-established preferential price once a period of three years employment

had been reached.


The Company appointed a new CEO from within its own organization rather than award the

position to the CEO from the acquired company. It also initiated a criminal lawsuit against the

CEO on the basis of fraud in order to recover the two vehicles.

ABUSE OF POWER BY CEO CASE STUDY 4.


20

COMPANY BACKGROUND

Company sells auto parts with over 335 branches in over 20 cities in the United States and annual revenues of over $115 million.

FINDINGS

The Company used to pay vendors by preparing and mailing checks manually as a means of paying its outstanding invoices. It had sent two checks for $145,000 and $183,000, respective-ly, to two separate vendors in order to pay outstanding invoices.

When performing the monthly bank reconciliation statement, the issued checks were identified on the bank statement as having been cashed. Within the following sixty days, the Company was contacted by the vendors requesting the pay-ment of their outstanding invoices, which they claimed had been past due by over sixty days. The Company checked their accounting records and confirmed that the invoices had been paid in full. The Company requested copies of the cashed checks from the bank, which revealed that the payee on both checks had been altered falsely so that they were cashed by unidentified third parties in a fraudulent manner.

TAMPERING WITH CHECKSCASE STUDY 5.


21

IMPACT

The Company suffered a loss of $328,000 as a result of the fraudulent alteration of two checks in the payment of vendors’ invoices.


Best practice recommends using printed checks generated from computer systems to pay ven-dors, rather than prepare them manually, and have them collected in the offices of the paying company by authorized representatives of the vendor. Electronic wire transfers are considered an even more secure form of paying vendors assuming that required control procedures are implemented. The Company changed its policy on paying vendors by restricting the use of checks to exception-al cases only and moved to electronic wire transfers, the required controls being implemented in the process. The Company informed the Police of the check fraud. An investigation to find the culprits was initiated but was unsuccessful.

TAMPERING WITH CHECKSCASE STUDY 5.


22

COMPANY BACKGROUND

Colombian company provides Information Technology services with annual revenues of over

$48 million.

FINDINGS

An Accounts Payable Associate entered a false new vendor in the Master File in the computer

system, under the concept of systems development. Each week he would register fictitious

invoices with the forged signatory of the Systems Development Director. At the same time, due

to the lack of segregation of duties and inadequate supervision in the Treasury Department, the

same associate would prepare checks for amounts of between $500 and $600 each. The asso-

ciate worked on the eight floor of the building. The procedure to pay vendors was such that

another person in Treasury would bring the checks to the ground floor, to the Cashier’s office,

where vendors would arrive to collect these checks.

The AP Associate intervened and modified the process whereby he personally delivered the

checks to the Cashier. Instead of delivering the checks for the ghost vendor, he would keep the

respective checks and subsequently cash them at the bank. This did not arouse any suspicion

due to the low value of the amounts of the checks.

Over time the Company noted a distinct change in the associate’s lifestyle whereby his clothes,

car and personal trips did not correspond with the salary which he received from the Company.

This resulted in the Company ordering an investigation.

IMPACT

The Company suffered financial losses of up to $90,000 over a period of two years, as a result

of the fictitious invoices generated by the AP associate. This fraud was allowed to occur due to

the following:

GHOST VENDOR AND PERSONALLIFESTYLECASE STUDY 6.


23

IMPACT

Lack of segregation of functions in that IT had no control over new vendors in the system. Accounts Payable was able to add new vendors to the system.

Lack of control in that the Company allowed such a large volume of manual checks to be generated.

Inadequate supervision by the Treasurer and the Manager of Accounts Payable.

Lack of segregation of duties which allowed the associate to take physical control of the checks whereby he pretended to personally deliver the checks to the Cashier.


The Company fired the AP Associate and proceeded to recover the majority of the funds which had been stolen from the Company. It also implemented the following changes:

Greater supervision by the Treasurer and the Manager of AP.

The procedure for adding new vendors was modified such that all new vendors could be added only by IT with the approval of Purchasing.

Significant reduction in the use of checks.

Increase in compliance with Internal Control.

More reviews by Internal Audit

GHOST VENDOR AND PERSONALLIFESTYLECASE STUDY 6.


24

COMPANY BACKGROUND

An Argentinian subsidiary of an English company imports and distributes parts for the automo-bile industry with annual revenues of $223 million.

FINDINGS

Management manipulated the financial results of the subsidiary by booking the following entries in the local accounting records:

Freight charges from third party vendors were deferred and booked to the Income State-ment over a period of 6 months, rather than charging them directly to expense, as required by accounting best practices. This resulted in profits being inflated by $3.6 million.

Importation Costs. The Company’s normal carrying period for inventory was 60 days, during which time it should have expensed the corresponding importation costs related to this product. Rather than book the importation costs to cost of goods sold over 60 days, it booked them over 180 days, resulting in the asset value of inventory being overstated by the amount of $6.4 million.

Deferred Advertising Expenses. The Company deferred advertising expenses on the basis that it expected to have higher sales and improved financial results in a later period, at which time it planned to book the corresponding expense. This resulted in profits being overstated by a total of $2.8 million.

Inventory Shrinkage. The Company had a historical shrinkage rate of 3.2% of sales, resulting from product being stolen, damaged or lost due to poor controls. Rather than book the 3.2% to cost of sales, the Company decided to understate costs and overstate profits by booking a lower amount of 0.8% to cost of sales. This resulted in profits being overstated by $5.8 million.

MANAGEMENT FRAUDCASE STUDY 7.


25

All of the above was revealed by the Internal Audit Department as part of their detailed reviews.

In order to comply with best accounting practice, a negative adjustment totaling $18.6 million

was booked to account for all of the above, resulting in the subsidiary recording a loss for the

fiscal year, rather than a profit. These adjustments were reviewed and approved by the external

auditor as part of its statutory review.

IMPACT

The Company negatively impacted the results for the year to the amount of $18.6 million, due

to the deliberate manipulation of the financial records. This practice is known as management

fraud. The situation was caused by the following:

Failure to follow Generally Accepted Accounting Principles.

Failure to follow Company’s Policies and Procedures.

Collusion between the CEO and the CFO to allow the adjustments to take place.

Deliberate manipulation of the financial results of the Company.


Corporate Office in England decided to terminate the employment of both the CEO and CFO,

on the grounds of deliberate manipulation of the financial statements.

The new management team reviewed Accounting Policies and implemented workshops with per-

sonnel to ensure that Policy would be strictly followed going forward.

MANAGEMENT FRAUDCASE STUDY 7.


26

COMPANY BACKGROUND

A U.S. subsidiary of a Swiss corporation imports and manufactures chemical products with

annual revenues of $418 million.

FINDINGS

The CEO of the subsidiary attempted to falsely inflate revenues by the amount of $18 million in

a specific month. The operation was detected and detained by the Finance Director of the Com-

pany. The detailed findings are set out as follows:

As part of the monthly operational and financial review, the CEO realized that the subsidi-

ary was not going to achieve its monthly goal for revenues or profits.

The Company had customer orders for the amount of $18 million. The manufacturing

production of the products in these orders had not yet commenced.

A few days prior to the month-end close, it was determined that the production of the

above-mentioned products was to begin 15 days into the following month. It was unclear as to

whether the Company would have been able to successfully ship the products to the customers

during the following month.

The CEO instructed the Finance Director to create a revenue provision of $18 million, the

value of the orders.

The Finance Director clarified that the revenue did not comply with the revenue recogni-

tion requirements under U.S. or international GAAP (generally accepted accounting principles).

A telephone conversation was held with the regional Finance Director for NAFTA, whose

position was in agreement with that of the U.S. CEO.

FALSIFICATION OF REVENUESCASE STUDY 8.


27

FINDINGS

The following day the U.S. Finance Director sent an email to his regional counterpart (copying the U.S. CEO) requesting written authorization in order to book the revenue provision of $18 million.

He received an immediate response from the regional Finance Director denying any knowledge of the operation and instructing him not to book the revenue provision. The revenue provision was not booked.

The relationship between the U.S. CEO and his Finance Director became tense, the former claiming that the Finance Director was not working as a team player in order to achieve the goals of the Company.

IMPACT

There was no impact, financial or otherwise, for the Company as the transaction was not booked.

The attempt by the CEO to falsify the financial statements with the support of the regional Finance Director (commonly known as management fraud), was unsuccessful due to the profes-sionalism and integrity of the Finance Director of the business unit.


The above incident was the first and only attempt by management to falsify the financial results of the business unit. Although the relationship was strained, the CEO and Finance Director sub-sequently managed to work in harmony, both working within the standards of the Company and according to best practices.

FALSIFICATION OF REVENUESCASE STUDY 8.


28

COMPANY BACKGROUND

A Canadian subsidiary, with a French parent, distributes and markets soft drinks products with

annual revenues of $214 million.

FINDINGS

Internal Audit was using financial reports to detect trends in costs and expenses which lead to the

detection of a fraud. The details are explained as follows:

Internal Audit was using an application to access the date bases and financial systems of

the Company.

As part of a purchasing and procurement review, Internal Audit applied its IT tool to access

the historical data base of purchases of packaging material: labels, bottles, bottletops, cardboard

boxes, etc. This tool helped in revealing a number of significant variations in cost of sales for these

products over a period of time. The application generated a graph which illustrated the tenden-

cies and increase in costs as a percentage of sales over a period of time.

Internal Audit requested and received detailed information of product cost details from

other plants throughout the world, from Corporate Head office in Paris, together with the corre-

sponding variations from standard or normal cost.

The comparison of the prices for the Canadian subsidiary versus standard costs for a

sample of some of the products is set out as follows:

LABELS

BOTTLES

CARDBOARD BOXES

BOTTLETOPS

STANDARDPRICE

ACTUALPRICE

%

0.87

1.21

15.41

0.42

1.14

1.46

23.47

0.66

31

21

52

57

USE OF ANALYTICAL TECHNIQUES TO DETECT FRAUDCASE STUDY 9.


29

FINDINGS

With the help of this information, Internal Audit performed a more detailed review, increased its testing and found the following:

A number of the vendors had common owners even though they came from different sectors. Family relationship between some of the purchasing personnel and the vendors. Lack of transparency in the selection process of vendors. The failure to seek alternative quotations from other vendors, as required by Company Policy.

Internal Audit concluded that the overcharging in prices by vendors resulted in a misappro-priation of funds of the Company to the amount of $3.6 million.

Collusion between the Purchasing Director, 2 members of the Purchasing Department and vendors.

The Company suffered a loss of $3.6 million for the following reasons:

The lack of transparency in the Purchasing Department.

The failure to comply with Company Policy by not obtaining alternative quotations from other vendors.

The failure to comply with the Code of Ethics which prohibits family relationships between employees and vendors of the Company.

The inability of local management to detect significant variations from standard costs.



30


The Company took the following actions:

Termination of employment of the Purchasing Director and two buyers. Termination of the relationship with five vendors. Revision, update and publication of a new Purchasing manual, whereby controls and transparency were strengthened as part of the process. The Company succeeded in reducing its annual product costs by more than $5 million as a result of the selection and appointment of new vendors.



31

FINDINGS

The Company provided food services to corporate clients throughout Mexico, whereby it was responsible for pro-viding meals to the employees of these companies in plants and other large installations. It hired an external firm to perform a due diligence of its vendors, which resulted in the discovery of the failure to comply with Company Policy in the following instances:

In a number of instances, chicken was being stored with-out refrigeration by vendors in their facilities.

The Company hired vendors in Reynosa 210km in distance from the customer’s facilities in Monterrey, where it had a considerable number of suitable alterna-tives within a short proximity of 5km. The vendor in Reynosa was transporting food products by road in trucks without refrigeration.

The external vendor witnessed food deliveries at 10pm and 2am at the customers’ facilities, delivery times which were neither normal nor permitted by the Company.

The Company was buying food products from agents and brokers rather than going direct to producers. The Company did not have clear documented quality standards.

COMPANY BACKGORUND

A Mexican company provides food services to the corporate sector with annual revenues of $63 million.

VENDOR DUE DILIGENCECASE STUDY 10.


32

FINDINGS

It was more common to use small rather than large institutional vendors. The Company’s level of purchasing was sufficient to be able to obtain large volume discounts.

The external firm hired to perform the due diligence obtained alternative external quotations which revealed that current vendors were overcharging significantly. The percentage overcharged by food category are listed as follows:

As a result of the above findings, the external firm performed a lifestyle check on the Purchasing Manager, as requested by the Company:

The external firm interviewed the Purchasing Manager, who explained that he lived in a home of modest standards and which he had financed mainly by a bank mortgage.

A credit check was performed on the Purchasing Manager, upon his written authorization. This credit check revealed that a bank loan had not been obtained.

The title of the house where he lived was in his name and had a value which was significantly higher and disproportionate to his level of income.

The Purchasing Manager agreed to hand over to the external firm his bank statements to prove his income and expenditure but this didn´t occur.

The external firm concluded that the Company was overcharged by its vendors by the amount of $2.4 million.

MEAT

CHICKEN

COLD MEAT

GROCERIES

22%

27%

17%

15%


CASE STUDY 10. VENDOR DUE DILIGENCE

33

IMPACT

The misappropriation of funds to the amount of $2.4 million was allowed to take place due to the following:

The lack of a process to monitor the moral integrity of employees in positions of confi-dence, especially those in procurement.

The lack of quality standards for food vendors.

Negligence on the part of Internal Audit.

The Company put itself and its customers at a health risk by using small and non-institu-tional vendors.


The Company implemented the following:

It implemented a Transparency Policy whereby employees in positions of trust (including its buyers) were obliged to deliver a list of their patrimony (assets and debts) to the Company once a year.

All managers, directors and buyers were required to sign a new Code of Conduct once a year, declaring in writing that they were not participating in any fraud or illegal acts.

The Company implemented a Quality Program with its vendors, whereby periodic audits of its vendors, their installations and transport vehicles were performed using strict guidelines.

The Purchasing Manager resigned from the Company, without receiving any compensa-tion, on the basis that the Company would not take any legal action against him.


CASE STUDY 10. VENDOR DUE DILIGENCE

34

COMPANY BACKGROUND

A Chilean company provides ambulance emergency services. It has annual revenues of $80 million with over 700 ambulances and 3,000 employees.

FINDINGS

Repairs and spare parts represented one of the principal costs of the operation of the ambulanc-es. The company used a software application to control the maintenance and repairs, by means of which each vehicle is assigned a unique number to which all repairs and costs are charged. Each part taken from the warehouse had to be charged to a specific ambulance. Where this was not the case, the written authorization of the Spare Parts Warehouse Manager was required.

Internal Audit used to perform periodic physical cycle counts with the objective of verifying the inventory balances. The results of these cycle counts were satisfactory in that the physical bal-ances always coincided with the system. Even though the cycle counts did not present any variations, a group of mechanics decided to repeat the same repair work on the same vehicle a number of times in the same year. This was done by means of collusion between the drivers and the mechanics whereby the drivers would request a fictitious service or mechanical repair work in order to ensure that the corresponding spare part was requested from the warehouse. This was performed successfully as the Company did not have a mechanism in place to check the reasonableness of the work performed. The drivers would subsequently sell the spare parts in the black market and share the proceeds with the mechanics. The situation was discovered as a result of a whistleblower who filed an anony-mous report via the Company’s hotline.


FICTITIOUS MAINTENANCE AND WHISTLEBLOWER HOTLINECASE STUDY 11.

35

IMPACT

Once the above situation was determined a full audit was performed of all spare parts utilized

with a value higher than $200 and the use of the part was compared to the useful life of each

ambulance. Also it was determined that spare parts had left the warehouse without the required

signature of the Warehouse Manager.

The estimated loss to the Company from stolen spare parts was calculated at $430,000 and

was allowed to take place due to the following:

The lack of adequate controls to control the issuance of spare parts from the warehouse

and the lack of supervision by the Spare Parts Warehouse Supervisor.

The lack of reasonableness checks to ensure that the use of spare parts and the cost of

maintaining each vehicle were reasonable.

Poor control environment in the Company resulting in the ambulance drivers being able

to realize the ease with which they could steal the spare parts.


The Company implemented the following control measures:

It terminated the employment of 5 mechanics and 16 drivers.

All spare parts repair requests with a value above $300 had to be approved by the Main-

tenance Manager.

Modifications were made to the system such that all unusual repairs would produce an

alert and allow the maintenance request to be fully checked to ensure that the request was

authentic.


FICTITIOUS MAINTENANCE AND WHISTLEBLOWER HOTLINECASE STUDY 11.

36

COMPANY BACKGROUND

A Mexican company provides medical emergency services with annual revenues of $200 million

and over 700 employees.

FINDINGS

The external auditors of the Company discovered that salaries had continued to be paid in the

name of employees long after their employment had been terminated by the Company. In the

case of one employee who had resigned from the Company in April, salary deposits had been

made for each one of the subsequent months of the calendar year. This was determined by

comparing payroll records with the bank accounts of the Company. By reviewing the payroll

records, it was revealed that the payroll deposits were being made to the bank account of the

same individual, who worked in the payroll department. This individual had access to the pay-

roll modifications in the system and was able to access the employee bank account details and

modify them to include his own bank account details, in the case where employees were leaving

the Company. In this way, the corresponding employee was able to continue receiving payroll

deposits for former employees.

The investigation was extended to the previous five years and a total of 23 cases were identified,

all in the name of the same individual, who would keep the payments to his account (in the

name of the former employee) alive for a few months and then remove the employee from the

system. This individual worked in Human Resources and had access to the magnetic cards

which controlled the access of all employees to the facilities. In the case of these 23 cases, he

ensured that the respective magnetic cards were not destroyed and he would continue to register

the entry and departure of these former employees so as to maintain their employment “alive”

in the system.

IMPACT

The total losses were estimated at $621,000, which included both the salary amounts deposited

to the above payroll employee and also the social security payments made by the Company to

the respective authorities.


GHOST EMPLOYEESCASE STUDY 12.

37


The guilty party’s employment was terminated by the Company and criminal action was taken against the employee. The following corrective actions were taken by the Company:

The assignment of a new employee responsible for updating employee hires, terminations and payroll changes in the system.

All employee terminations were checked against subsequent payroll payments, by Accounting.

Surprise checks of employee assistance were performed subsequently by Accounting and compared to the system assistance log-in.

1

2

3


GHOST EMPLOYEESCASE STUDY 12.

38

COMPANY BACKGROUND

An Argentinian company distributes and sells books through a chain of 20 bookstores with annual revenues of over $100 million.

FINDINGS

The Treasurer of the Company was able to perpetrate a fraud due to the lack of internal controls in the organization. The responsibilities of the Treasurer included collections and the corre-sponding updating of the accounting records, which represented a lack of segregation of func-tions. The Company had the practice of having a large number of unidentified collections from customers. These amounts represented deposits from different bookstores and would remain as unidentified deposits on the bank reconciliation statements for a number of months. When new deposits were received by means of cash or bearer checks, he would steal these amounts and replace them with the old unidentified deposits, destroying the most recent receipt. This practice is referred to as “teeming and lading”. The Treasurer was able to perform these defalcations due to his ability to access collections and the accounting records and to the weak controls over bank reconciliations.

IMPACT

The total defalcation amounted to $120,000 and was allowed to take place due to the follow-ing:

Lack of segregation of duties between the control over collections and the accounting records.

The failure by Credit & Collections to pursue old past due accounts receivable balances. The Treasurer was able to apply recent collections to these balances. These were often minor balances outstanding from customers who were no longer doing business with the Company.


MISAPPROPRIATION OF COLLECTIONS

(“TEEMING AND LADING”)CASE STUDY 13.

39

IMPACT

Lack of control. The most recent receipts relating to deposits which were misappropriated by the Treasurer were also cancelled by him. These cancellations went undetected by Internal Audit. Lax internal controls and reasonableness checks as the Finance Manager was unaware as to the accumulation of past due receivable balances which were above average for the indus-try.

ACTIONS AND FOLLOW UP

The Treasurer’s employment was terminated by the Company and a criminal lawsuit was initiat-ed against him in order to recover the misappropriated funds. Access to the accounting records by the new Treasurer was not permitted. A full review and overhaul of Policies and Procedures for Treasury, Collections and Accounting took place resulting in a new Finance Dashboard being implemented, to allow the Company the ability to monitor all financial ratios and metrics going forward.


MISAPPROPRIATION OF COLLECTIONS

(“TEEMING AND LADING”)CASE STUDY 13.

40

COMPANY BACKGROUND

A U.S. company sells electro domestic products through a chain of 100 retail outlets with annual

revenues of over $1,000 million.

FINDINGS

The manager of one of the retail outlets was applying discounts above the amounts established

for purchases by family and friends. The manager had been applying these discounts for the

previous five years but in the last year both the amount and frequency of the discounts increased

substantially. This defalcation went undetected until another employee in the same retail outlet

filed an anonymous report via the Company’s whistleblower hotline.

IMPACT

The discounts resulted in total losses of $50,000 to the Company.

The fraud was allowed to happen due to the following:

Lax control environment and lack of reasonableness controls. The Finance Manager had

not realized that the average discounts for that retail outlet were higher than the normal average,

especially in the previous year. Neither had he detected the cases of sales at below cost generat-

ed by the discounts.

Lack of supervisory controls. The Store Manager was able to authorize the discounts with

out any review or approval by a higher authority within the organization.

Having discovered the defalcation the Company analyzed the behavior of the Store Man-

ager and discovered that he had been offering and selling the stolen products online at levels

below normal retail prices.


DISCOUNTS TO FAMILY AND FRIENDS AND WHISTLEBLOWERCASE STUDY 14.

41


The Store Manager’s employment was terminated by the Company and criminal action was initi-ated by the Company to recover the misappropriated funds. The procedures for granting employee discounts on products at the store level were revised and the IT system was amended to control the maximum amounts that could be approved by managers.

The Internal Audit Manager’s employment was also terminated by the Company due to his inability to detect the fraud.


DISCOUNTS TO FAMILY AND FRIENDS AND WHISTLEBLOWERCASE STUDY 14.

42

COMPANY BACKGROUND

A Spanish subsidiary of a German holding manufactures and sells chemical products with annual sales of $40 million.

FINDINGS

The Sales Manager was authorizing sales to a customer, one of whose shareholders was an ex-employee of the Company. The sales to this customer were correctly registered in the books. In collusion with another employee of the Company, the Sales Manager falsely inflated the cash receipts such that the amount recorded was higher than the actual payment. This resulted in a liability being generated for this customer. This liability was settled by the shipping of additional product to the customer.

As the customer was suffering financial difficulties, the Company accepted deferred payments for its invoices. The Company was allowed to discount these deferred payments with the bank, before their maturity, resulting in a financial cost.


MANIPULATION OF CASH RECEIPTSCASE STUDY 15.

43

IMPACT

The falsification of the cash receipts resulted in product to a value of $130,000 being shipped to the customer. The Company also incurred financial costs of $20,000 due to the discounting of the documents. The above losses were allowed to take place due to the following:

Lack of control procedures, including the fact that the Company did not have an Internal Audit function.

Credit & Collections failed to circularize customers on a regular basis to reconcile bal-ances.

Failure by the Finance Manager to detect a credit balance with the customer, which of its own was quite unusual.

The Finance Manager also failed to escalate the fact that the Company was receiving documents from the customer with deferred payment dates. This was not an accepted practice for other customers. The failure to perform regular physical cycle counts in the plant. By performing a physical inventory just once a year, all differences were booked to cost of sales, resulting in the inability of the Company to detect the above defalcation.

ACTIONS AND FOLLOW UP

The employments of both the Sales Manager and the individual responsible for modifying the cash receipts were terminated by the Company. Procedures were modified to ensure greater control over sales, cash receipts and collections.


MANIPULATION OF CASH RECEIPTSCASE STUDY 15.

44

COMPANY BACKGROUND

A Mexican subsidiary of a French holding distributes pharmaceutical products with annual sales of $300 million.

FINDINGS

Two years previously the Company had performed a restructuring of its Accounts Payable function by automating payments to vendors to ensure a speedier fulfillment of its orders from vendors

A new wire transfer system was implemented allowing automated electronic transfers to be made to the Company’s vendors.

The new system caused quite a number of problems, as the Accounts Payable personnel was not properly trained on how to use the new system.

One of the employees in Accounts Payable registered an anonymous complaint via the whistleblower hotline complaining about the new system and requesting an improvement in the process. This resulted in the Company deciding to initiate a special audit of the process with particular emphasis on bottlenecks and the whole implementation process.

The auditor discovered a number of segregation of duties issues with personnel in Accounts Payable. He also discovered a number of invoices with unusual services and for round sum amounts ($4,000, $5,000 etc.) on a monthly basis.

Upon further investigation by the auditor, he discovered that the bank account to which the monies were being deposited corresponded with the bank account of one of the employees in Accounts Payable.

The Accounts Payable employee that was perpetrating the fraud had generated a ghost vendor in the system, together with fictitious invoices and had set up the bank account such that all payments were made on a monthly basis by wire transfer.


GHOST VENDORCASE STUDY 16.

45

IMPACT

The above resulted in the misappropriation of funds to the amount of $60,000 in one year. The following breakdown in controls allowed the fraud to occur: The configuration of the system profiles of personnel in Accounts Payable was not proper-ly set up and did not have a correct segregation of functions. For example, the same individual was able to add a new vendor, register invoices and process the payment.

Internal Audit did not participate in the implementation of the new vendor payments system. The new vendor payments system did not contemplate any delegation or escalation pro-cess based on the amounts of the payments.


A full documentation of all the invoices related to the fraud was performed in the presence of a notary public. The evidence was presented to the employee, who made a full confession accept-ing culpability for the fraud. The employee resigned from the Company and subsequently returned the stolen funds.


CASE STUDY 16. GHOST VENDOR

47

COMPANY BACKGROUND

An Argentinian company sells cars and agricultural machinery with annual sales of $120 million.

FINDINGS

Due to a lack of controls and dishonesty, the Treasurer was able to perpetrate a fraud resulting in a loss to the Company of $80,000. The details are set out as follows:

The Treasurer was responsible for receiving cash from the sales of cars and agricultural machinery in certain cases. It was common for some customers to pay in cash in the rural parts of Argentina.

He was responsible for controlling these cash receipts and delivering them to the transport company, whose responsibility was to deposit these monies to the Company’s bank account.

The Treasurer would take monies from the cash receipts and keep them for his personal use with the balance being handed over to the cash transport company. He would subsequently register the full sale in the Company’s accounting system, triggering a difference between the monies deposited and the amount of the full sale.

The Treasurer was able to cover up the fraud as he was also responsible for preparing the bank reconciliation statements and did not perform any follow-up on the outstanding differences caused by his own dishonesty.

The Treasury liked to gamble and was seen (by an anonymous individual) betting large amounts of money in a casino. This person informed the CEO of the Company, who in turn instructed that a full audit be carried out.


MISAPPROPRIATION OF CASHCASE STUDY 17.

48

IMPACT

The total amount of money stolen by the Treasurer amounted to $80,000. The following circumstances permitted the fraud to occur:

Lack of segregation of functions in that the Treasurer was responsible for receiving cash and updating the system. A correct segregation of functions would ensure that one person is responsible for receiving cash and another for updating the accounting system.

The Accounting Department did not perform the bank reconciliation statements, as should be their responsibility to ensure a correct segregation of functions. This would help ensure vigilance over the control of cash and the booking of the sale in the system.

The Company also maintained Petty Cash balances. These were checked periodically by Accounting, who used to perform surprise cash counts. This is a correct control but should have been extended to control over the cash sales performed by the Company.


The Company’s lawyers documented the fraud together with the support of an accounting fraud expert. They reviewed the documentation and prepared a file detailing the misappropri-ation of funds with dates and amounts.

The Treasurer’s employment was terminated and a criminal lawsuit was initiated against him.

The Company made a complete review of its internal controls and made changes to ensure that the correct segregation of functions and control and supervisory mechanisms were put in place to safeguard the assets and accounting records of the Company.


MISAPPROPRIATION OF CASHCASE STUDY 17.

49

COMPANY BACKGROUND

Grupo gastronómico con 50 locales a la calle. Facturación anual estimada 72 M USD anual.

FINDINGS

The manager of a restaurant in Buenos Aires with one of the highest sales was able to misap-propriate funds by working in collusion with the cashier and another employee of the restau-rant:

The restaurant is located in a shopping mall close to an area with a high concentration of secondary schools. The students were regular customers of the restaurant, paid by cash and did not request receipts for their meals.

During peak hours, the cashier, manager and other employee colluded to exclude approximately one out of every four sales from the accounting system used to record the sale. The cash was safeguarded in the cash register at the time of the sale and was removed later at the end of the shift.

The cashier was the sole person with access to the cash register, which could be opened only by registering a sale. The cashier would book the sale at a very low price, being a fraction of the real value of the meal (at a unit price of $0.02, for example, instead of $8.63). In this way, he was able to open the cash register, book the sale (at a very low value), give the change to the customer and leave the excess in the cash register. This was applied in the case of cash sales, which represented a high percentage of business.

It was possible for the cashier to cover up the fraud by not issuing a receipt to the customer, which, as already mentioned, the customer did not require.

At the end of the shift or working day, the manager and the cashier would reconcile cash receipts with the system and ensure that the excess was taken by them. They would then proceed to perform a closing of sales and cash for the day.


MISAPPROPRIATION OF CASH SALES AND WHISTLEBLOWERCASE STUDY 18.

50

HALLAZGOS

The manager was responsible for preparing and submitting a weekly report to the Inventory Control Department. This report was falsely manipulated by the manager to ensure that any shrinkage was disguised to cover up the missing sales.

An Internal Audit Department existed but they were negligent in that they did not perform any surprise visits to verify cash sales or an inventory of stock. The fraud was detected by means of an anonymous report filed by another employee of the restaurant via the Company’s whistleblower hotline.

IMPACT

The total fraud perpetrated by the employees in the restaurant was estimated at $360,000. The following breakdowns in the Company’s internal control system allowed the fraud to take place:

The system allowed changes to be made to the unit values such that meal items were booked at a fraction of their normal retail price.

Internal Audit was not reviewing the value of the unit items which were sold. This could have been easily checked against the menu prices. Neither was this detected by Operations, whose job it was to control the operation of the restaurants.

Internal Audit did not perform surprise cash counts or inventory cycle counts.

The three restaurant personnel who colluded to perpetrate the fraud had not taken vacation in over 24 months, a situation which should have been detected by Human Resources and Internal Audit.

Operations did not properly control shrinkage for the restaurant.



51


Once the whistleblower filed his report, a full investigation took place, with the participation of Legal, Internal Audit and Human Resources.

An auditor was sent to the restaurant as a mystery shopper and did not receive a receipt for his meal, as required by Company Policy. A surprise cash count was performed and this revealed a large excess of cash in the cash register. The fraudulent activities were documented, the three employees’ employment was terminated by the Company and a criminal lawsuit was initiated with the objective of recovering the monies stolen. The system was modified to prevent any future alteration of the unit prices.



52

We have witnessed some of the most creative and imaginative schemes to perpetrate frauds,

within organizations; in these cases corporations. Even though these have involved some of

the most devious and selfish mechanisms, we are firm believers in that most of human behavior

is focused on being creative and on growing value for the organization. Often the discontent-

ed and demotivated seek their reward with a self-justification as a means of getting back at the

promotion or pay rise which never took place. They feel that the monies gained by the fraud

are just desserts for opportunities which did not come their way or compensation for the

rewards earned by others.

It becomes our responsibility to learn from these frauds and ensure that the adequate controls,

structures and risk minimization techniques are implemented to prevent re-occurrence. We

need to keep abreast of latest techniques and technologies to ensure that the organization is

best prepared for the least expected. Training and staff development are key elements at all

levels.

As external consultants and specialists in internal audit, corporate governance and promoters

of best practices, our job is to stay close to our clients and help them design and implement the

best controls and standards available, at all times. We also need to ensure that the “tone at

the top” is established by adopting the highest ethical standards in the organization. This

example from the top is probably the most effective and least expensive method in achieving a

fraud-free environment.

In Kreston we are always striving to achieve the highest standards by developing technologies

such as whistleblower hotlines, business analytical tools and data mining techniques all focused

on improving our clients’ controls and profitability.

We hope that these case studies will be a useful tool in terms of allowing us to stand back and

take a second look within our organization to prevent these frauds from taking place.

Unless…….they have already occurred?

INTERNAL AUDIT AND FRAUD PREVENTION

Kreston CSM. ©

CONCLUSIONS


KRESTON INTERNATIONAL: [email protected]

KRESTON MÉXICO:John [email protected]

KRESTON ARGENTINA:Martín [email protected]

AUTHORS: John MilnerMartin GhirardottiCOPY STYLE:Enrique PastorMiguel del OlmoCONCLUSIONS:Miguel del OlmoDESIGN:Alejandra Jiménez.

POSTED BY:Digital Army.

Legal:

Kreston International © (Kreston) is a worldwide network of experienced, independent accounting firms, each with its own established client base. Each firm is a member of Kreston International ©, a com-pany registered in the UK and limited by guarantee and does not provide services to the clients of its member firms.

Each firm is a separate entity, and as such has no liability for the acts or omissions of any other member firm.

Kreston CSM, S.C. is a firm of accountants and busi-ness consultants belonging to Kreston International ©.Kreston International © (Kreston) is a worldwide network of experienced, independent accounting firms, each with its own established client base. Each firm is a member of Kreston International ©, a com-pany registered in the UK and limited by guarantee and does not provide services to the clients of its member firms.

Each firm is a separate entity, and as such has no liability for the acts or omissions of any other member firm.


findings on fraud and error in financial statements

Documents