How To Prevent Fraud

Speaking Engagement Scheduled - Salter College - May 2012

05/04/2012 10:42:00

After meeting with Director of Career Services at Salter College, West Boylston, MA. Mr. Walker will be a guest speaker to the Accounting II class and will be discussing the realities of working in an accounting career, the basic requirements of work-papers at year-end for audit purposes, and the importance of internal controls in the deterrence of Fraud.

Company's "Story" in Worcester Business Journal 2012 Business Profiles Edition

05/01/2012 18:16:00

Forensic Accounting Specialists is very excited to have ourselves included in the Worcester Business Journal's 2012 Business Profiles edition. This can be viewed via the following link.

If you have questions regarding the firm's areas of practice please call 978-821-3469

Is Cash Going Out the Door!! Fraud in Purchasing, Payables & Payments

03/06/2012 13:09:00

The basic payables function requires the collection of documentation to properly authorize a cash disbursement. This is a fundamental business operation.

Evaluating/Mitigating Risk in Fraudulent Cash Disbursements requires looking at the Inputs into the payables system to evaluate the existence (or the risk for) the presentation of false statements as the legitimate basis for cash payments (Outputs):

The Basic Payables Process (Fraudulent Disbursement)

To accomplish this kind of evaluation a company needs to address the following:

1) Current Internal Controls

a. Purchasing authorization levels and assignments

b. Disbursement authorization levels and assignments

c. Segregation of duties (not limited to the following)

i. Payroll

ii. Bank Account Reconciliation

iii. Purchase Processing and Authorization (Controls)

iv. Payment Processing and Authorization (Controls)

v. Receiving/Inventory

2) Distribution Record

a. Application of Benford’s Law

b. Vendor validation/approval due diligence

c. Patterns (Duplication) Analysis

d. Detailed Evaluation of Supporting Documentation (dependent

on findings)

Forensic Accounting Specialists recommends an annual evaluation of the above outline to mitigate the probability of on-going payables fraud, and to minimize loss attributable to such fraud actions, when identified.

Please call 978-821-3469 to schedule an initial free consult about your testing operation’s payables function.

What is the Impact of Fraud?: Some Examples

01/26/2012 11:41:00

Different Fraud Schemes impact the basic Financial Statements is a variety of ways. The following examples provide very simple logic flows of three types of fraudulent behaviors 1) Billing or Payables Schemes, 2) Premature or Fictitious Revenue Recognition, 3) Skimming Schemes. The general themes of the analysis necessary to identify the "Red Flags" associated with thee schemes are cited. (Note: Impact on Statement of Cash Flows has been ignored here for simplicity within diagrams)

Please contact Forensic Accounting Specialists (978-821-3469), or via www.forensicaccountingspecialists.com) to discuss how we apply the financial analytics to identify this type of behavior and mitigate the potential losses these schemes represent.

1) Billing/Payables Loss via Shell Company

2) Violation of Revenue Recognition Rules

3) Skimming of Sales

Over-Dependence Upon Audits to Deter Fraud

01/02/2012 21:24:00

The engagement of an licensed audit/CPA firm to perform an annual audit, complete with compliance testing, for the purpose of publishing financial statements is not an adequate effort by an organization to deter fraud. Even in the environment under SOX, the audit firm does not approach its engagement with the purpose of fraud detection or subsequent investigation. Under SOX it is the responsibility of the CEO/CFO to certify that the organizations internal controls are adequate, and have been reviewed by the CFO within the last ninety days. The SAS 70 audit, which examines the internal controls of those service companies providing inputs into a user (under SOX typically) organization, does specifically examine the internal controls and will then attest to that organizations controls being active and in place, but is often limited to a single time frame and as such will not capture evidence only made visible from time-series analytics.

Neither SOX or SAS 70, or the prototypical annual audit for the purpose of having financial statements published after review by a licensed CPA is an adequate tool for the detection of, the deterrence of, or the prevention of frauds. The possible exception may be the large scale manipulation of the financial statements by executive management for the purposes of earnings manipulation.

For an organization to be proactive in its approach to fraud prevention, it must develop employee awareness, a monitoring system to provide continuous oversight on high-risk areas and related operating metrics, and have a well-communicated policy on what constitutes a fraud action and how that action, if found, will be addressed by the organization.

Forensic Accounting Specialists can assist you in creating such a proactive approach.