What on earth do fraud and infidelity have in common? Quite a lot actually. While there may be no scientific studies available that analyze the correlation between financial fraud and infidelity, anecdotal evidence obtained while working in the field of fraud investigation for more than a decade suggests there is a correlation.
A discovery of a corporate fraud has often led to the discovery of a secret addiction like gambling, alcohol, or drugs. Digging into the financial records of a suspected thief finds a spending problem, a secret source of income, or theft from another party. Discovery of fraud has also led to a spouse finding out about infidelity and the existence of a love child.
The reasoning behind the theory that fraud and infidelity are often related is simple: Fraud does not happen in a vacuum. It takes a certain mindset to be able to commit adultery and to be able to commit fraud. I have rarely seen extremely deceitful acts being confined to simply one part of a person’s life.Continue reading
Of all the fraud schemes perpetrated in our world today, financial statement fraud seems to get the least air time. That makes no sense, as financial statement fraud happens to be one of the most costly types of fraud.
The problem is that involved parties, both 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.
Financial statements are the measuring stick that numerous parties use to assess the financial health of a company. Falsified financial statements can mean only one thing – those assessments are faulty.
Financial statement fraud causes a median loss of $2 million per fraud scheme, according to the most recent occupational fraud study done by the Association of Certified Fraud Examiners. That amount dwarfs asset misappropriation schemes, which only cause median losses of $150,000 per scheme.Continue reading
When attempting to prevent corporate fraud, management must be aware of the warning signs and be willing to identify operational risk factors and implement effective solutions to the problems.
Operational red flags are among the most important red flags of fraud to be aware of. These are ways that the company’s operations may make it easier for someone to commit fraud and get away with it. Operational red flags of fraud can include some of the following:
Operating in “crisis mode” or “fire drill mode”: When companies don’t establish “normal” operations because there is always a crisis, it becomes next to impossible for employees to determine when something out of the ordinary is going on. A constant state of chaos means that it’s hard to pay attention to details, and things that might otherwise be considered unusual won’t be flagged.
No clear lines of authority: Employees must understand the pecking order within a company. If they do not, they will be unclear about who receives complaints, and they may be less likely to report suspicious behavior. Even in companies that utilize the “team” concept throughout, there is still a chain of authority that should be clear in case of trouble.
When we think of on-the-job fraud, we tend to think in extremes. One extreme is the teenage punk with orange hair and a nose ring, and he’s stealing cash out of the register or letting his friends have free chips and soda. The other extreme is that of the wealthy executive who runs off with millions by extracting lavish gifts and manipulating the company’s financial statements to boost the stock price and enhance his bonus.
The problem with these extremes is that they fail to consider the majority of thefts that go on within companies. Most occupational fraudsters steal between $10,000 and $500,000 from their employers. While these dollars can be significant to companies of varying sizes, they only represent the dollars directly taken by the employee.
A company’s cost of fraud goes far beyond the initial sums of money stolen by a dishonest employee. These costs range from some tangible negative effects, to other less tangible results throughout the company. One way or another, they all cost the company time, money, productivity, and potentially customer relationships.Continue reading
Tracy Coenen talks about what could happen if a debtor commits fraud during the bankruptcy process. The potential consequences include the denial of discharge of debts, bankruptcy cannot be filed for the same debts again, exempt property taken, or criminal charges.
Fraud is committed by real people. They have real families and real jobs. They often are just like you and me. But what makes thieves different from a lot of us is their ability to lie and steal. Most of us would never seriously consider taking something that does not belong to us, especially not significant sums of money.
But thieves are different. Those who commit fraud have taken that which is not theirs. They have cheated others. They have covered up their lies. What makes it okay in their minds to commit fraud? What is it about their moral code that allows them to steal? How do they justify their actions?
The answer is found in the fraud triangle, an old concept in criminology that still has wide acceptance in the fraud examination field. In order for fraud to occur, three things must be present, and each represents one side of the triangle. The three pieces of every fraud puzzle are opportunity, motivation, and rationalization. These are key to explaining why a fraud occurs.Continue reading
In divorce and child support matters, participants make claims about their income, but the documents often show something different. Memphis divorce lawyer Miles Mason explains the difference between claimed income and documented income.
The idea of performing a “fraud examination” sounds interesting to many. They don’t necessarily want to deal with the numbers that a forensic accountant wades through, but they like the idea of someone sleuthing and digging through records.
I’ll admit that the work I do is pretty darn interesting. Each case has its own intricacies and unusual spin.
In contrast, the idea of an accountant performing an “audit” on a company’s books doesn’t sound half as exciting. I’ve done both, and from my perspective, audits are far less noteworthy. They’re both necessary evils in the business world, and it’s important for executives, attorneys, and consultants to know the difference between the two. Buyer beware of what services a client is really buying.
Defining an Audit
There are many different types of audits that are all properly named, but they must be differentiated from one another. A typical bank audit for lending purposes is generally a limited scope examination of certain financial statement items. Each bank has its own guidelines for performance of those audits, and generally they are aimed at verifying the value of collateral.Continue reading
The best financial expert witnesses help win cases by artfully and simply communicating the facts through written reports and oral testimonies. And you can learn how to do it.
While waiting in the hallway outside the courtroom to testify as an expert witness, I thought of all the ways my testimony could go wrong. I had hours to contemplate opposing counsel’s questions for me. It was my first time testifying, and I didn’t want to blow it. But I relaxed as I eased into the witness chair and stole a glance at the jury. They were ordinary people who were just hoping to understand my calculations. I led them simply through the financial matters. From the looks on their faces, I think they understood.
In my testimony, I closely followed the main points of my prepared report. The counsel who had hired me showed large exhibits from my report, which illustrated my points. We easily walked the jury (and the judge) through the numbers. Opposing counsel tried but failed to confuse the jury members. I knew I had hit a home run when I saw the foreman nodding each time I made a point. His new understanding of the issues would prove invaluable during jury deliberations.
Competent and convincing expert witnesses are a vital part of cases involving economic damages and other financial calculations. Traditional accounting, financial and fraud examination skills just aren’t enough when it comes to litigation. A financial expert witness must be able to qualify as an expert in court and then effectively communicate in a written report and oral testimony to an opposing lawyer, a judge, and a jury who probably aren’t accountants or fraud examiners.Continue reading
It might be hard to believe, but each and every day companies are losing money because they not only give employees opportunities to steal, they encourage it.
How? By not providing adequate oversight. A clerk, for example, sees that an error in an account wasn’t caught by anyone. A purchasing manager notices that no one is watching over his vendor relationships, and won’t know it if he establishes a fake account. Employees are not stupid. They know when they are being monitored and when their work is being checked. They know when they are working in an environment ripe for fraud.
But you have honest employees, you say? You’re probably right. If we thought job applicants were criminals, we wouldn’t hire them. But situations occur where the temptation to steal simply becomes too much. Imagine owing money to a hospital or having an expensive (and necessary) car repair that you can’t afford. What if your child needs clothing or food? There may come a day in your life when your morals are challenged because you have a financial need and an opportunity at the workplace that seems too good to pass up.Continue reading