As business systems have grown more complex and moved into a digital world, they’ve created more opportunities not only for fraud but also for uncovering fraud. It is my contention that auditing should be the number one reason for exposing fraud. And that requires a shift in mindset as well as the right techniques.
Throughout my blogs, I have stressed the importance of knowledge. For this month’s blog, I am sharing what I believe to be valuable information as you think through your company's fraud prevention and detection policies. We will be taking a look at the recently approved Corporate Transparency Act. I would strongly suggest that you educate yourself and then determine if your company’s policies and internal controls need to be updated.
We looked at how to create fraud risk statements using the payroll function in the last blog. In this blog, we’ll look at how to apply the fraud risk statement in a fraud audit program.
But first, the Trivia answers:
Was Christmas ever illegal?
In this blog, we're looking at how to write a fraud action statement using the payroll function as a way to understand the starting process for a fraud audit.
But first, here are the answers for the trivia from the last blog:
1. What was the biggest corporate lawsuit settlement? $206 billion, paid by the nation’s four largest tobacco companies.
2. Excluding the tobacco lawsuit, what is the aggregate dollar value of the next 10 large corporate settlements? $88 billion dollars.
In this blog, we're going to talk about the Fraud Action Statement, the "what" part of the Fraud Risk Statement, but first the answers to the fraud trivia from the last blog:
What was the first recorded financial collapse? Medici Bank went insolvent in 1494 due to extensive spending. Check out Business Insider’s List of the worst company collapses in history.
Who coined the phrase “White Collar Crime”? Criminologist Edwin Sutherland created the phrase in the 1930s
The answers to last month's trivia and the setup to this month's topic on the people behind the fraud
What industry was Equity Funding in? Insurance.
What fraud risk statement occurred in Equity Funding? False Revenue to a false customer.
How did the fraud become known? A whistleblower, who most likely was part of the cover-up at one time.
How many employees participated in the cover-up? Over 100!
Is it true that the auditors went to jail? Yes. Apparently, the jurors thought that negligence in performing an audit is as serious as participation in fraud.
The answers to last blog's trivia:
Nick worked in the Singapore office: Internally what was the slang term for the Singapore office? Fortress Singapore. FYI, this is not a reflection on Singapore the country but the management in the Singapore office.
What was the name of the account Nick used to process his unauthorized trades? 88888
Why did the auditors fail to detect the unauthorized trades? The illicit stock trades were recorded in the 88888 account. The IT department was told that the 88888 account was an error-clearing account, therefore no need to print the 88888 account on the stock trading register.
What event caused Nick’s fraud scheme to become visible? An earthquake in Japan caused the market to go in a different direction than his expectation causing the losses to become larger than he could conceal.
Why is this important to the auditing profession? My guess, since the auditors were auditing around the computer, they did not know about the 88888 account. Fraud data analytics would have had the opportunity to detect these trades. At least, I hope.
Studying historical cases of fraud provides great learning opportunities.
Who caused the failure of a bank via illicit stock trades? Nick Leeson
Who almost caused the failure of a bank due to illicit stock trades? Jérôme Kerviel
What carpet cleaner was listed on Forbes? Barry Minkow
Which was the first widely publicized case of computer crime to conceal a financial statement fraud? Equity Funding. I remember when this case was first publicized, and I must admit, it started with my fascination with fraud as an auditor.
Fraud Trivia: Famous Scammers - answers to the last blog
What is the name of the first “confidence man”? William Thompson
What is the name of the first “confidence queen”? Bertha Heyman
Who sold an imaginary country? Gregor MacGregor
Who sold the Eiffel tower? Victor Lustig
Lastly, who is famous for selling Brooklyn Bridge, Madison Square Garden, Metropolitan Museum of Art, Grant’s Tomb, and the Statue of Liberty? George Parker
Last Month's Trivia answers
What are the 10 most common sources of food fraud? Hint: Identify the food item.
According to scientists, the most common sources of food fraud are olive oil, milk, honey, saffron, orange juice, apple juice, grape wine, vanilla extract, and fish. Think about that the next time you go to the grocery store!
