Tracy talks about the types of damages that an expert may be asked to calculate in securities fraud cases, such as realized/unrealized gains on investments, margin interest, and more.
Some companies think they are protected against employee fraud because they have strong internal controls. Often, that’s the case. Good controls mean the rules are followed and the money is properly accounted for.
Sometimes, however, good controls are meaningless. What about the controls over the controls? All the rules and designated procedures in the world are meaningless if management has the ability to override them at will. When these overrides go unchecked, the company is often no better off than if they didn’t have any controls in place.
Indeed, the risk that management will override controls established to prevent fraud and ensure accurate financial statements is great. It is a constant risk as executives are in a position to manipulate numbers and direct employees to aid the manipulation. They can easily fabricate transactions or modify numbers to craft the financial statements to report whatever their hearts desire.
When a divorce or a child support issue is looming, it’s amazing how a quickly a closely held business starts “losing money.” I use quotes because such a situation is so predictable. One party wants to protect her or his assets, and when there is a business involved, the motivation to hide money can be stronger than usual.
The types of businesses that can be prone to manipulation of the books include restaurants, retail stores, doctor or dentist offices, construction companies, auto dealerships, and law practices. This list isn’t exhaustive by any means, but it provides good examples of businesses at risk of financial maneuvering.
In 2008, I started writing here about Milwaukee Public Schools (MPS) because the district was presenting the numbers in a dishonest way, complaining that they were underfunded.
I was appalled that a school district could waste $1 billion a year and repeatedly say that they just don’t have enough money. Despite massive spending, the district has some of the worst educational outcomes in the country:
For the 2018-19 school year (they didn’t produce any data for last year), MPS had 18.4% of its students proficient in English language arts (i.e. reading and writing) and 14.8% proficient in math.
Let that sink in for a moment. More than 80% of MPS students cannot read and write at grade-level.
Are you more likely to be selected by the IRS for a tax audit if you file an extension for your income tax return?
Tracy Coenen talks with Miles Mason, Esq. about a divorce case of his in which a forensic accountant was able to find significant financial frau
How should your accounting records be provided to your forensic accountant? Tracy talks about how she wants to receive the general ledger and related data. (Hint: Digital is preferred over paper.)
How would you know if your company was being ripped off by a dishonest employee? Most companies miss all of the warning signs that could help stop a fraud early. Studies suggest that the average fraud scheme within a company lasts 18 months. That’s a year-and-a-half that one or more employees are stealing from the company without being caught. The average internal fraud leads to average losses in excess of $100,000. The longer the fraud goes on, the more that is stolen.
There’s not always science behind finding fraud. Frauds committed by employees are most often discovered because of a tip from someone else. Or they are discovered by accident. (Accident? Yes. That doesn’t say much for a company’s checks and balances.)
So in reality, companies rely on the observations of employees to help detect fraud. It therefore is important to be aware of some warning signs that the company might be the victim of occupational fraud and abuse.
Tracy Coenen talks about the prevalence of fraud allegations related to construction projects and the work a forensic accountant can do in construction claims. She goes through the basics of the financial analysis performed on the numbers and documents related to the construction project.
Listen to me on The 1958 Lawyer Podcast with Ron Backstahler and Kirsten Mayfield of Amata Law Office Suites.
We also talk about how Encyclopedia Brown inspired me. And a bit about the work I do as a fraud investigator and the approach I take to my forensica ccounting engagements. You also get to hear me use one of my favorite phrases, “investigative intuition.”
Spotify Podcasts: https://open.spotify.com/show/66vtl4wFvVbIqL7LjAEjQj