forensic accounting - msa 220 i – spring 2014 today’s topics n fighting fraud n fraud prevention...
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FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Today’s Topics
Fighting Fraud Fraud prevention Early detection Fraud investigations Legal intervention
Preventing Fraud The 13 Shenanigans
Fighting Fraud
FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Fraud Prevention
Culture of honesty and integrity Manage by example Hire the right people Communicate expectations Positive work environment Proper handling of fraud
Enterprise risk management Identify risks-likelihood and impact Implementing controls Widespread monitoring Effective audit function
FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Fraud Detection
By chance By intent-new trend
FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Fraud Investigation Predication: circumstances that lead to past,
present or future fraud Using the evidence square
Testimonial evidence Documentary evidence Physical evidence Personal observation
Using a variation of the fraud triangle Investigation of theft Investigation of concealment Investigation of conversion Direct inquiry
FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Investigation Process
Establish truth Use experienced investigators Guard hypotheses Prudent communication Independent corroboration of information Avoidance of questionable techniques Fair and objective reporting
FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Legal Action
None More than 50%
Civil Good for non employees
Criminal Restitution and jail time Harder to convict Higher degree of evidence
Preventing Fraud
FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Creating the Culture
Not everyone is honest Desperate people do desperate things!
Four ways to establish the culture Hire honest people and train them Cultivate a positive work environment Spread a relevant and understandable
code of ethics Provide employee assistance programs
FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Hire and Train Honest People
30-40-30! (honest, swing, dishonest)
Privacy laws create problems Resume fraud Reinforce company policy
If it is to be “no tolerance”; make it no tolerance
FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Positive Work Environment
Happy employees usually won’t rip you off!
“I don’t get mad, I get even” mentality
Note the list in the text.
FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Code of Ethics
Make it relevant and understandable
Emphasize who gets hurt Promote open discussion
FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Employee Assistance Programs
We are all human We can all use help
6:1 return ratio for EAPs Combine with your Management by
Objectives (MBO) program Private MBOs
The 13 Shenanigans
FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Howard Schilit’sFinancial Shenanigans
3rd Edition published in 2010 Accounting gimmicks in financial
reports Schilit: president of the Financial
Shenanigans Detection Group, LLC International expert on financial
fraud
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FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Three Families—13 Shenanigans
The categories Earnings manipulation shenanigans Cash flow shenanigans Key metrics shenanigans
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FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Earnings Manipulation Shenanigans
1. Premature recognition of revenue2. Recognition of bogus revenue3. One time items masked as recurring
items4. Deferral of expenses5. Hiding expenses6. Shifting revenue into the future7. Shifting expenses into the present
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FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Cash Flow Shenanigans
8. Shifts to operating cash increases9. Shifts to investing cash decreases10. Misuse of mergers11. Unsustainable generation of cash
flow
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FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Key Metrics Shenanigans
12.Overstating performance metrics13.Distorting performance metrics
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FORENSIC ACCOUNTING - MSA 220 I – Spring 2014
Transparency is the Key
Are the #’s telling the story or making the story?
Is the company managing the business or managing the #’s?
“What is, is?” versus “What is. Is!”
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