05 Sep

Conducting Corporate Fraud Investigations

The unthinkable has happened. We have good employees. Our people are honest. They don’t steal from us. They’re like family. We trust them. So it goes when a company discovers a fraud from within.

Then what happens?

After the initial shock wears off, it’s time to start investigating the situation. The company must know who did it, how the fraud was committed, and what controls can be put in place to stop fraud from happening again. This is all accomplished with an effective fraud investigation. Read More

28 Aug

Quicken Software Should Not Be Used For Lifestyle Analysis

Forensic accountants and Certified Divorce Financial Analysts often use Quicken personal financial software to complete the lifestyle analysis in divorce cases. Unfortunately, Quicken is not the best option for accurately and thoroughly analyzing a couple’s finances before and during divorce.

Why is it used so often? For years, Quicken was one of the better options available for compiling and analyzing personal finances. Also, since a fair number of consumers use Quicken to manage their finances, divorcing spouses sometimes provide a Quicken file to the attorney, which may be used as a starting point for the lifestyle analysis. The drawback to this is that clients don’t always keep accurate records, and the Quicken file is often incomplete or just plain wrong.

Quicken software should not be confused with QuickBooks software, which is a software package used for small business accounting. QuickBooks can be used effectively in divorce financial analysis, while Quicken is much more limited and does not produce as good a result in terms of accuracy or usability. Note, however, that even QuickBooks may not be the best option for litigation purposes. Read More

22 Aug

Detecting Overrides of Internal Controls

Where can employees, outside consultants, and board members look for evidence of override of internal controls? This isn’t a simple list of numbers or documents that must be checked off. Instead, looking for improper override of controls requires looking for red flags that point to something being amiss.<!–more–>
<li>Complete an analytical review, looking for unusual changes between periods in terms of dollars and percentages.</li>
<li>Look for large, round numbers that enhance the financial position, especially if these numbers just happen to occur at the end of an accounting period</li>
<li>Examine reversing entries at the beginning of an accounting period, looking for evidence that these entries relate to an improper entry at the end of the previous period</li>
<li>Determine whether transactions have been completed on an arms’ length basis, and with legitimate business partners</li>
<li>Look for evidence of undisclosed relationships or agreements</li>
<li>Listen carefully to employees who may be reporting wrongdoing or hinting that there is a problem</li>
When examining these things there are three critical items which are the most troublesome:
<li>Missing or altered documentation</li>
<li>Withholding of information</li>
<li>Unexplained variances in numbers</li>
All three of these suggest something is not right. If there is nothing to hide, why are things being hidden? That is often the first clue to a much larger problem.

<strong>Trust but Verify</strong>
The key reason why employees are able to steal from companies is that the employees are trusted. That trust is obviously inherent to being able to operate a business. If you don’t trust employees to do their jobs, the business cannot accomplish anything.

However, that trust should not be blind trust. Skepticism is an essential element for everyone involved in the process of ensuring that a company’s assets are protected and the financial statements are accurate.

The skepticism must go beyond simply acknowledging that fraud risks are present in every company. Professionals must be alert to the most likely risks and must be willing to ask difficult questions and required support for the answers given. The process of asking questions might be uncomfortable, but it’s necessary to get to the bottom of things.

Remember that if an executive is intent on overriding controls to cover dishonest or unethical behavior, she or he has also likely taken steps to conceal the override. These instances won’t just jump right out at you and announce themselves. Detecting the override of controls and the associated fraud or malfeasance will take a lot of work and a bit of luck. But it is nonetheless important to make the search for the override controls a regular (and important) part of the financial management of a company.

21 Aug

Auditioning For Paid Work

Do you audition for paid work?

A forensic accountant does a preliminary analysis for free. An author writes an article for free. A professional speaker gives a speech or facilitates a session at a conference for free.

We can probably all agree that SOMETIMES it makes sense to do a free gig. There may be a group you haven’t been able to get access to before or an opportunity to earn money in other ways

But how many people abuse the privilege? They think their “exposure” is enough for you to spend your precious time and not get paid or your ability to provide pro bono services is unlimited. Read More

20 Aug

Red Flags of Divorce Lies

Experienced family lawyers are familiar with the common ways spouses attempt to commit financial fraud in divorce: hiding or undervaluing assets, overstating debts, concealing income, and inflating or fabricating expenses. All of these are done in an attempt to get more than the spouse’s fair share in the property division, and to influence the amount of support that will be paid or received.

Successfully advocating for your client involves more than just knowing that these things occur during the divorce process. You must also be able to identify the red flags that indicate the financial issue(s) must be investigated further. Some are easier to spot than others, but once you have identified two or three red flags, it is time to get a forensic accountant involved. The financial analyst’s experience with fraud and deception will be invaluable in evaluating the red flags and determining if there is something of substance to investigate further.

Undisclosed Accounts
The most straightforward red flag is the discovery of undisclosed accounts. This could be direct evidence of a spouse attempting to conceal assets. However, the nature of the undisclosed account should be examined. Is it an old account that hasn’t been used in a long time? Is there little to no activity in the account? Is the balance in the account insignificant? In these situations, little weight should be given to the non-disclosure, since it is more likely an oversight. Read More

16 Aug

Fraud at GE Alleged by Harry Markopolos

Harry Markopolos, the whistleblower in the Madoff case (who was telling people for NINE years that a fraud was in progress), just released a report on General Electric (GE) saying that it is a bigger fraud than Enron.

It’s a massive (175 page) report that highlights problems with:

  • hiding $400 billion of losses in the insurance business
  • accounting in the oil and gas unit
  • liquidity

A web page set up to feature the GE report highlights the work and the findings:

  • The investigation of the financial statements and the accounting practices of General Electric has been in process for more than a year
  • 17 years of 10-Ks (2002 to 2018) were analyzed cover-to-cover
  • GE’s approach to business is called “Enronesque”
  • The accounting fraud has been going on for decades, with the company providing only top line revenue and bottom line profits for its business units (not reporting all sorts of expense line items)
  • GE changes financial statement formats every few years so people can’t compare numbers across multiple years

Read More

10 Aug

Wisconsin’s Lieutenant Governor Lies About College Degree

Mandela Barnes, Wisconsin’s Lieutenant Governor, has been lying about his college degree for  a long time. In May 2018, he tweeted a picture of himself at graduation at Alabama A&M. Except he didn’t actually graduate, despite what appears to be a diploma in his hand.

When caught in the lie, Barnes’s spokesman said that he has “been up front” and said that he “attended Alabama A&M, not graduated.”

Read More

09 Aug

Ocrolus Software Review

Ocrolus PerfectAudit SoftwareA few years ago, I reviewed data analysis software sold by Ocrolus called PerfectAudit. The software captures data, analyzes the data, and assists with fraud detection

Recently the company abandoned the Perfect Audit brand, and now just calls the product Ocrolus. The old website www.perfectaudit.com forwards to the Ocrolus website. PerfectAudit as a brand has essentially been scrubbed from the internet. This might correspond with a recent round of venture capital that was raised.

My unfavorable review of Ocrolus was met with requests from company representatives to remove it from my site. They were disappointed that my review of the Ocrolus software ranked well in Google searches.

Some improvements have been made to the Ocrolus investigative software, but some of my concerns are still valid. Have a look at my PerfectAudit software review if you want all the details, but here’s a summary of the concerns I still have: Read More