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Today’s Topics
Fighting Fraud
Fraud prevention
Early detection
Fraud investigations
Legal intervention
FORENSIC ACCOUNTING - BA124 – Fall 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 - BA124 – Fall 2014
Fraud Detection
By chance
By intent-new trend
FORENSIC ACCOUNTING - BA124 – Fall 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 - BA124 – Fall 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 - BA124 – Fall 2014
Legal Action
None
Civil
More than 50%
Good for non employees
Criminal
Restitution and jail time
Harder to convict
Higher degree of evidence
FORENSIC ACCOUNTING - BA124 – Fall 2014
Howard Schilit’s
Financial 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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Three Families—13
Shenanigans
The categories
Earnings manipulation shenanigans
Cash flow shenanigans
Key metrics shenanigans
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Earnings Manipulation
Shenanigans
1. Premature recognition of revenue
2. Recognition of bogus revenue
3. One time items masked as recurring
items
4. Deferral of expenses
5. Hiding expenses
6. Shifting revenue into the future
7. Shifting expenses into the present
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Cash Flow Shenanigans
8. Shifts to operating cash increases
9. Shifts to investing cash decreases
10. Misuse of mergers
11. Unsustainable generation of cash flow
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Key Metrics Shenanigans
12.Overstating performance metrics
13.Distorting performance metrics
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