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Joseph T. Wells - One of the best experts on this subject based on the ideXlab platform.

  • The Quarter-Million-Dollar Caper: A Fraudster Is Nipped in the Bud
    Journal of accountancy, 2004
    Co-Authors: Joseph T. Wells
    Abstract:

    Let's face it--conducting a routine audit of a good, stable client can be boring and repetitive. Every year seems much like the last: tracing and vouching, reconciling, ticking and footing, examining documents and ledgers, evaluating controls. But despite the humdrum, good auditors are always on the lookout for abnormalities. The following case study reveals how alert auditors uncovered a Fraud and, by behaving with professional integrity, turned a potentially bad situation into a positive one. THIS DOESN'T COMPUTE An auditor for a Canadian firm in Westmont, Quebec, was performing an audit procedure at a client's business when she came across something that made no sense. It involved comparing the aged accounts-receivable list with the current month's sales. Except for normal reconciling items such as cash sales, freight and insurance charges, the amount sold should equal that month's charges to accounts receivable. (Total sales for month + sales taxes + freight charges) - (Cash sales + payments on current accounts receivable during month + sales returns and allowances) = Current accounts receivable When she found the total reflected on current accounts receivable was higher than sales by nearly $250,000, she called the audit partner, Philip C. Levi, CPA, of Levi Katz, Montreal, who talked to us about his handling of the investigation. Levi, an experienced Certified Fraud Examiner, quickly discovered entries that alerted him to a possible problem: charge-backs on two different delinquent customer accounts. The net effect of the two entries was to simultaneously debit and credit the accounts-receivable subsidiary ledgers, which removed the customer charges from the 90-day aging column and reinstated the amounts as current. That was the reason why there was a $250,000 discrepancy. DEVELOPING A Fraud THEORY Levi was concerned. Why, he wondered, would the client be motivated to restate these two delinquent accounts as current? The business, an importer and distributor, was a closely held family enterprise. Using generally accepted Fraud examination techniques, Levi applied the Fraud theory approach to see whether he could solve the mystery. One possibility was that the charges in question were uncollectable. But he quickly discarded that theory; the amounts had been subsequently paid in full. Next, Levi reasoned that since the business was not public and the amounts involved did not affect profits or taxes, the overstatement of current receivables might have been done to satisfy the collateral requirements of a lender. Levi examined the client's bank loan documentation. Sure enough, the line of credit was limited to 80% of the company's receivables that were less than 90 days old. Had the accounts-receivable aging been stated correctly, the company probably would have been pressured by the bank to come up with money to correct the default. The client's cash position reflected that it did not have the funds to pay down the loan. A 1999 COSO study of 200 financial statement Fraud cases found that the CEO and/or CFO were involved at least 83% of the time. "In this case the charge-backs were actually made by a clerical employee," Levi said. "However, it made sense the clerk was acting on orders from upper management. Because the CEO was on vacation at the time of the charge-backs, I theorized that Tim, the CFO, was the one who had authorized the transactions. The clerk confirmed this." When the CEO returned to the office, Levi interviewed him to determine whether he had any involvement in the scheme. "It was clear he was shocked at what the CFO had done," Levi said. CONFRONTING THE SUSPECT Before interviewing the CFO, Levi consulted the client's legal representative to ensure both the company and he were on solid footing to avoid any exposure to legal action by the CFO. Experienced in Fraud examination and interviewing techniques, Levi made sure he would violate no individual rights. …

  • Protect Small Business: Small Companies without Adequate Internal Controls Need CPAs to Help Them Minimize Fraud Risk
    Journal of accountancy, 2003
    Co-Authors: Joseph T. Wells
    Abstract:

    Denise, a bookkeeper for a small trucking firm in Birmingham, Alabama, wishes she had never heard of Ralph Summerford, CPA. Because of his thoroughness, Denise is facing several years in prison for embezzling $550,000 from her employer. At least she will look good standing before the sentencing judge: Denise spent a great deal of her illegal loot on head-to-toe cosmetic surgery. She blew the rest on a shiny new Lexus, luxury vacations, clothing and jewelry. And, of course, Denise had to have a big house to store all of her finery. Surprisingly, it wasn't the high living that made her employer suspicious. "The owner was going over the trucking company's budget when he noticed Denise's salary was listed at $38,000 a year," said Summerford. "But the business owner distinctly remembered that he had set her pay at $35,000." The owner pulled Denise's personnel file and discovered that someone had altered her pay record. It was obvious to him that no one but Denise would have been motivated to falsely increase her salary. Investigating further, he noticed suspicious-looking wire transfers from the company's bank account. That's when he called in Summerford. "Like a lot of small businesses, the trucking company had very limited accounting controls," said the veteran CPA, now a partner with Dixon Odom PLLC in Birmingham, Alabama. "In this case, the sole division of responsibilities concerned authorizing all the checks. While only the owner could sign checks, Denise did everything else: post the books, reconcile the checking account and authorize wire transfers." Her scheme was simple. After wiring money directly from the company bank account to her own, Denise would post the books, charging the funds transfer to one or more expense accounts. Then, when she reconciled the bank account, she simply would tear up the evidence. Summerford investigated the Fraud case, interviewed Denise's coworkers and assembled the documentary evidence including bank statements, wire transfer requests and deposit slips. He then prepared charts and exhibits summarizing the scheme, which he included in a written report to prosecutors. Summerford's work was used to indict Denise for her thefts. "Denise was well aware the owner did not review the bank statements," said Summerford, also a Certified Fraud Examiner. "And since the business was not audited, there was no independent review of Denise's work; yet almost any degree of scrutiny of the bank statement could have prevented this scheme." Summerford said most schemes like Denise's start out relatively small. "But when thieves avoid detection, it motivates them to steal even more," he said. "Many will continue to steal from a small business until it literally runs out of money and goes broke." Although the trucking company didn't go bankrupt, Denise's thefts were extremely costly. Small organizations face a serious Fraud problem: Dishonest employees will steal them blind. BIG CONCERN FOR SMALL BUSINESS Small businesses have every reason to worry about Fraud. According to the Association of Certified Fraud Examiners' (ACFE) "2002 Report to the Nation on Occupational Fraud and Abuse," the per-employee losses from Fraud in the smallest businesses are 100 times the amount of their largest counterparts. (The complete report can be downloaded at www.cfenet.com.) Thus, this is an area in which CPAs can be valuable consultants to their clients. Most small businesses don't have a need for a CPA to do a full audit; however, CPAs can provide a number of Fraud prevention services. * Employee education. CPAs can conduct on-site training for clients in the form of live presentations and/or computer-based education. * Internal control reviews. Reasonable internal controls are critical in a small business. A CPA can review the existing system and make recommendations for improvements. * Cash reviews and reconciliations. …

James E Burton - One of the best experts on this subject based on the ideXlab platform.

  • forensic accounting education insights from academicians and Certified Fraud Examiner practitioners
    Managerial Auditing Journal, 1997
    Co-Authors: Zabihollah Rezaee, James E Burton
    Abstract:

    Current initiatives in accounting education, while focusing on the importance of accounting instruction and teaching students how to learn, emphasize continuous lifelong learning and outcome‐based assessment. The public interest in forensic accounting, especially Fraud investigation, has encouraged the accounting profession to consider issuing new standards on Fraud detection. Presents a study which aims to examine current coverage and future direction and role of forensic accounting education. Describes a survey of both academicians and Certified Fraud Examiner (CFE) practitioners. Concludes that: the demand for forensic accounting education and practice will continue to increase and that forensic accounting education should be integrated into accounting curricula either as a separate course or through modules in accounting and auditing courses.

Ronald M. Mano - One of the best experts on this subject based on the ideXlab platform.

Douglas E. Ziegenfuss - One of the best experts on this subject based on the ideXlab platform.

  • An Examination of the Professionalism of Fraud Examiners
    Southern Business Review, 2001
    Co-Authors: Douglas E. Ziegenfuss
    Abstract:

    The Association of Certified Fraud Examiners (ACFE) was established in 1988 in Austin, Texas, as a for-profit organization to "reduce the incidence of Fraud and white-- collar crime and to assist the membership in its detection and deterrence" (ACFE, 2000). Eleven years after its birth, the ACFE has approximately 25,000 members in nearly 90 local chapters spread around the world (ACFE, 2000). The ACFE membership includes auditors, accountants, Fraud investigators, loss prevention specialists, attorneys, educators, and criminologists. The ACFE maintains and promotes the Certified Fraud Examiner (CFE) designation. The central research issue of this study is to determine whether CFEs have attained professional status. This designation is important given the relatively brief existence of the ACFE and the ACFE's for-profit status. Characteristics attributed to professional groups are identified, and ACFE programs and services are evaluated to determine which of the characteristics are possessed by the ACFE. The relationship between ACFE members' perception of the usefulness of the ACFE code of ethics and the members' ethical perceptions and judgments are examined to determine if the ACFE Code actually influences the ethical decision-- making of CFEs. Characteristics of Professions H. C. Wilensky, in The Professionalism of Everyone (1964), describes the stages that occupations undergo in attaining professional status: (1) the occupation is done full-- time for hire; (2) the occupation requires specialized training, usually at a university; (3) the occupation's practitioners form a professional organization; (4) the occupation's practitioners agitate to win the support of law for the protection of the job territory and its sustaining code of ethics; and (5) the occupation! s practitioners establish a formal code of ethics to eliminate the unqualified and unscrupulous, protect clients, and emphasize the service ideal. Indeed, Wilensky felt that the norm of selflessness is an essential mark of a profession. CFE's and the ACFE appear to have many of these characteristics. First, Fraud examining is often a full-time job and even a career. Organizations hire Fraud Examiners to prevent and detect Fraud and to recover lost resources. Many individuals have had careers as Fraud Examiners, and clearly the first characteristic is present. Second, Fraud examining requires specialized training. Evidence of this can be seen in the demand for training courses offered by the ACFE and other organizations and in the emergence of specialized courses in the curricula of some colleges and universities. Clearly, the second characteristic is present. The third characteristic, the formation of a professional organization, is met by the ACFE. However, the fourth characteristic, "those performing the occupation agitate to win the support of law for the protection of the job territory and its sustaining code of ethics," has not been met and probably will not be met in the foreseeable future. The last characteristic, "a formal code of ethics to eliminate the unqualified and unscrupulous, protect clients, and emphasize the service ideal," appears to have been met by the issuance of the ACFE Code of Ethics and the establishment of the ACFE Trial Board to handle allegations of code violations. An important issue that must be addressed is whether the ACFE code actually influences the ethical decision-- making of CFEs. If the code does, then this characteristic is present and CFEs have attained professional status. However, if the code does not influence the ethical actions of CFEs, then this essential characteristic of professionalism is lacking and CFEs have not attained professional status. Previous Studies Louwers, Ponemon, and Radtke (1997) categorize previous ethical studies involving accountants as either models of ethical decision-- making or studies of accountants' ethical behavior. …

Zabihollah Rezaee - One of the best experts on this subject based on the ideXlab platform.

  • forensic accounting education insights from academicians and Certified Fraud Examiner practitioners
    Managerial Auditing Journal, 1997
    Co-Authors: Zabihollah Rezaee, James E Burton
    Abstract:

    Current initiatives in accounting education, while focusing on the importance of accounting instruction and teaching students how to learn, emphasize continuous lifelong learning and outcome‐based assessment. The public interest in forensic accounting, especially Fraud investigation, has encouraged the accounting profession to consider issuing new standards on Fraud detection. Presents a study which aims to examine current coverage and future direction and role of forensic accounting education. Describes a survey of both academicians and Certified Fraud Examiner (CFE) practitioners. Concludes that: the demand for forensic accounting education and practice will continue to increase and that forensic accounting education should be integrated into accounting curricula either as a separate course or through modules in accounting and auditing courses.