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Recognizing and Preventing Fixed Asset and Inventory Fraud using Data Analysis
March 27, 2013
Special Guest Presenter:Katrina Kiselinchev, CIA, CPA, CFE, CFF
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Costliest Forms of Fixed Asset and / or Inventory Fraud
According to ACFE's "Report to the Nation on Occupational Fraud and Abuse": > 7% of Fraud Cases in Financial Statement Fraud with < 99 Employees > 15% of Fraud Cases in Non‐Cash Schemes Private Companies at 39%+ Of 2012 Fraud, $200K+ Per Incident Banking & Financial Services, Government, and Manufacturing—Highest Fraud %
It All Started With a Loan FailureDescription: The perpetrator and his companies were the guarantors of several large loans related to entertainment contracts. The loans were participation loans with several foreign banks. Fraud began with failure to record or disclose a liability caused by a failed loan.Perpetrator’s internal accountants relayed that the bankers had requested that the loss be kept off financial statements and that the external CPAs did not know about it. The fraud grew to include overstatement of assets andunderstatement of liabilities to keep the businesses functioning. Dollar loss: $236 million. What was done to conceal the fraud: Extensive internal collusion helped to hide the fraud.“Audit evidence” provided to external CPAs included falsified contracts and invoices that presented certain assets as company‐ owned.Assets that were sold were not removed from the books, assets that were borrowed were presented as owned, and certain guarantees of loans were not disclosed. How scheme was detected: A whistleblower tipped off authorities to the fraud.
ORANGE U GLADICALL, Tipster Calls Hotline at IMA Building Co. with anonymous tip that there is massive theft going on in the warehouse, as well as overstatement of assets to meet loan covenants.
“Concerns about All the Fixed Asset & Inventory Fraud”
Vendor Name Vendor ID & Site & Address Purchase Order History for X Time Period Posted & Approved by ID Budgets by Vendor / Item Comments Unit Cost Transfer to COGS Date of Sale Date of Transfer Changes to Fields & Who Made Them
Assets:Asset ID Depreciation for Period Total Depreciation Book Value Item Description Date of Sale Date of Disposal Loss / Gain on Sale
1) Complete Summary of Data & Findingsa) Total by Inventory Discrepanciesb) Total by Asset Discrepanciesc) Total by Depreciation Discrepancies
2) Determine Additional Tests to Run & Perform3) Discuss Findings with CEO Initially & Recommendations4) Complete Interviews with Employees 5) Review Gaps & Control Deficiencies & Provide Recommendations 6) Recommend Management Review for Cost v Benefit & Implement ASAP7) Determine if Client has Fraud Insurance Rider. If not, recommend.8) Contact Insurance Carrier (if applicable) & Begin Claim Process.9) Contact Authorities & File Report.10) Determine if Prosecution is Viable e.g. Dollar Amount, Management, etc.11) Complete Report (See ACFE.com) 12) Complete Supporting Doc for Insurance Co. & Authorities
Continuous Monitoring Complete Risk Assessment & Annual Audit Plan with Data Analysis Determine Monthly & Quarterly Tests by Priority Implement Data Analysis Testing Perform & Complete Ongoing Control Assessments