08 Oct

Doing Criminal Defense Work

Defendants in criminal cases such as tax fraud, money laundering, or embezzlement often need forensic accountants to help evaluate complex financial situations. Should you provide expert witness services to criminal defendants? Tracy discusses the work and some of the issues that should be considered.

08 Aug

Behavior of Upper Level Executives Who Commit Fraud

A while back we talked about behavioral red flags of fraud, which are the signs that someone might be involved in a fraud at work. Some of the most common red flags are living a lifestyle that exceeds a person’s earnings and unusual attitudes on the job (being combative, possessive of their work, etc.)

The same red flags don’t necessarily apply to upper-level executives, or they’re just not as easy to spot. In this video, Tracy talks about some of the warning signs we might see with top executives who are committing fraud. Most commonly, we see a higher level of greed and arrogance when committing fraud (which, coincidentally, may lead to the person’s downfall).

24 Jul

What is Money Laundering?

Money laundering is fun to talk about. It just sounds cool to begin with. And the whole process is fascinating to me.

It is important to know that money laundering is not a fraud scheme. It is a crime that is committed to cover up other crimes, but it is not the same thing as fraud. The primary purpose of money laundering is to take money that has been received from criminal activities (dirty money) and make it appear legitimate (clean money).

Dirty money can come from illegal activities such as drug dealing, prostitution, robbery, bribery, illegal political contributions, tax evasion, or fraud. The laundering process hides the real origin of the money and makes it look like it came from a legitimate source. Read More

14 May

Finding Hidden Income in a Cash Business

I love working on divorce cases where one spouse is trying to hide money.

When a business owner has a cash business and is getting divorced, sometimes the income coincidentally (or not so coincidentally!) drops dramatically.

What can we do to investigate that? It’s hard. The business owner knows that cash leaves no paper trail and is difficult to prove.

But all is not lost. There are techniques we can use to find indirect proof of the amount of cash a business should be generating (even if the owner isn’t reporting all of it). Read More

20 Feb

Signs of Fraud

There are many signs of fraud occurring within companies or with individuals. What are some of the signs we may see that indicate fraud is occurring? During a fraud investigation I am looking for signs that things are wrong. What clues may exist that things are not as they seem? Are there deceptions or misdirections that seem unusual that an honest person wouldn’t engage in? Are things set up in a way such that the environment is ripe for fraud to occur?

Apparent Control Weaknesses

When readily apparent major deficiencies in a company’s control procedures are identified, they should be considered warning signs that fraud could be occurring. All companies have some things that are not as secure as they should be. However, when the controls over a company’s assets and data are severely deficient, that is cause for alarm.

Some of the most common characteristics that might be considered severe deficiencies include: Read More

22 Jan

Financial Statement Fraud in Public Companies

How prevalent is financial statement fraud in public companies? In this video, Tracy Coenen talks about the most recent COSO report on fraudulent financial reporting at U.S. public companies. The most common financial statement fraud that companies engaged in was improper revenue recognition, followed by the overstatement of asset or the improper capitalization of expenses.

What benefits do companies and their executives receive from financial statement fraud?

  • The stock price goes up because the company is more profitable.
  • The company’s debt rating goes up.
  • The company is likely to be able to refinance its debt and therefore can reduce its interest expense. The company may also have fewer debt covenant restrictions associate with its debt.
  • Executives win because they will probably get higher bonuses that are tied to the profitability of the company, and their stock options will be more valuable.
14 Nov

Financial Statement Fraud: How It Is Done

Financial statement fraud happens is one of the most costly types of fraud. It is a significant problem because people inside and outside the company rely on the information provided in the financial statements. They assess the financial results and make predictions and decisions about the future of the company based on those results.

Upper management or company owners are the ones who are usually responsible for financial statement fraud. Executives are entrusted with entire companies. They have access to nearly all data and employees, and they can exploit this access to commit and conceal fraud.

The power the executive has by virtue of her or his position in the company is closely linked with the high cost of financial statement fraud. Power and access within a company make it possible for larger frauds to be committed and covered up. Read More

27 Sep

Fraud in Churches

There may be nothing more disheartening in the world of fraud investigation than a church employee caught embezzling. Unfortunately, there are fairly regular news reports of financial fraud at churches. Fraud hits churches hard. Many churches operate on shoestring budgets to begin with. A sizable fraud can put a church on the brink of financial collapse.

And it’s appalling to think this is happening in a place that many view as the most sacred and the most likely to attract honest people. Unfortunately, churches and other non-profits aren’t immune to fraud. In fact, they often set themselves up to be even more vulnerable to fraud than your average business.

Diverting Donations

Historically, churches were often run largely by pastors who had little to no business training. But the time has come for churches to get serious about operating like real businesses. Read More

24 Aug

Conducting Internal Fraud Investigations

Fire drill training in grade school always included the mantra, “Stop, drop and roll.” This was the prescribed course of action if you were on fire. Professionals sometimes refer to tragedies in companies as fire drills. When a major internal theft occurs, it is akin to catching on fire, and needs to be met with swift action.

Where there is smoke, there might be fire. There are numerous potential red flags that might point to internal theft – things like missing or altered documentation, numerous unexplained accounting entries, excessive customer complaints about account balances, and disregard or override of procedures.

While one red flag alone does not necessarily mean a fraud has occurred, the presence of numerous red flags increases the suspicion of internal fraud. It is important to quickly identify the red flags, determine who might be responsible, and take quick action to extinguish the problem. Read More

20 Jan

Personal Red Flags of Fraud

As victims of occupational fraud reflect on crimes committed against their companies, they wonder if there were any signs that a fraud was occurring. They wonder how a trusted employee could steal from the company. Sadly, frauds are committed by people in positions of trust. What is it about those people that leads them to commit fraud?

Corporate thieves have many things in common with one another. There are many tell-tale characteristics about people and their lifestyles that signal the potential for fraud. These range from personal financial circumstances to attitudes on the job. A few of these traits alone do not indicate the potential for fraud, but the probability rises as we identify more of the characteristics.

Work Habits

Employees who steal from their employers often appear very dedicated. They work long hours and seem willing to take on extra responsibilities. For a normal person, these would be desired traits. An employee who helps accomplish more is seen as an asset to the company. For someone with the potential for fraud, however, these characteristics are worrisome.

Read More