how accountants cooked the books

No More Street No More Street Crimes Crimes

How Occupational Fraud is How Occupational Fraud is CommittedCommitted

©2012 Association of Certified Fraud ©2012 Association of Certified Fraud Examiners, Inc.Examiners, Inc.

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Occupational Frauds by Category — FrequencyOccupational Frauds by Category — Frequency

How Occupational Fraud is How Occupational Fraud is CommittedCommitted

©2012 Association of Certified Fraud ©2012 Association of Certified Fraud Examiners, Inc.Examiners, Inc.

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Occupational Frauds by Category — Median LossOccupational Frauds by Category — Median Loss

©2012 Association of Certified Fraud ©2012 Association of Certified Fraud Examiners, Inc.Examiners, Inc.

66

Initial Detection of Occupational FraudsInitial Detection of Occupational Frauds

Victim OrganizationsVictim Organizations

©2012 Association of Certified Fraud ©2012 Association of Certified Fraud Examiners, Inc.Examiners, Inc.

77

Asian CasesAsian Cases

Victim OrganizationsVictim Organizations

©2012 Association of Certified Fraud ©2012 Association of Certified Fraud Examiners, Inc.Examiners, Inc.

88

Frequency of Anti-Fraud ControlsFrequency of Anti-Fraud Controls88

PerpetratorsPerpetrators

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Position of Perpetrator — FrequencyPosition of Perpetrator — Frequency

PerpetratorsPerpetrators

©2012 Association of Certified Fraud ©2012 Association of Certified Fraud Examiners, Inc.Examiners, Inc.

1100

Position of Perpetrator — Median LossPosition of Perpetrator — Median Loss

PerpetratorsPerpetrators

©2012 Association of Certified Fraud ©2012 Association of Certified Fraud Examiners, Inc.Examiners, Inc.

1111

Position of Perpetrator in Asia — 196 CasesPosition of Perpetrator in Asia — 196 Cases

PerpetratorsPerpetrators

©2012 Association of Certified Fraud ©2012 Association of Certified Fraud Examiners, Inc.Examiners, Inc.

1122

Age of Perpetrator — FrequencyAge of Perpetrator — Frequency

PerpetratorsPerpetrators

©2012 Association of Certified Fraud ©2012 Association of Certified Fraud Examiners, Inc.Examiners, Inc.

1133

Age of Perpetrator — Median LossAge of Perpetrator — Median Loss

PerpetratorsPerpetrators

©2012 Association of Certified Fraud ©2012 Association of Certified Fraud Examiners, Inc.Examiners, Inc.

1144

Department of Perpetrator — FrequencyDepartment of Perpetrator — Frequency

PerpetratorsPerpetrators

©2012 Association of Certified Fraud ©2012 Association of Certified Fraud Examiners, Inc.Examiners, Inc.

1155

Behavioral Red Flags of PerpetratorsBehavioral Red Flags of Perpetrators

Income StatementIncome Statement

Profit is an Estimate

Cooking the Financial Books

Assumptions (What ingredients to include)

Estimates (How much to include)

You may assume that they’re accurate down to the last dollar. Not true! The balance in the cash account is exact, but virtually every other number you see in a financial report is based on an estimate.

Increase Revenue(Revenue Recognition)

Round Trip Recipe Round Trip Recipe

CompanCompanyy

VenderVender

Pre-Paid Services 4 Million Pre-Paid Services 4 Million

Current Revenue 1 Million Current Revenue 1 Million

Reporting more revenue Reporting more revenue

Deferral of Revenue Recipe Deferral of Revenue Recipe

CustomCustomerer

Balance SheetBalance SheetUmearned Umearned Revenue Revenue

2 Million2 Million

1

1

Million

Million

Manipulating revenue Manipulating revenue

Current Current Revenue Revenue

- Sold equipment on four-year leases, including service and maintenance. - Booked all the revenues up front.

- Xerox mis-stated four years' worth of profits, resulting in an overstatement of close to $6bn.

Channel Stuffing

Company inflates sales figures by forcing more products through a distribution channel than the channel is capable of selling to the world at large.

Reduce ExpensesReduce Expenses(Matching Principle) (Matching Principle)

Capitalize Expenses Recipe Capitalize Expenses Recipe

ExpensExpenseses

Balance Balance SheetSheet

CapitalCapital

8 Million8 Million

8 Million8 Million Income Income

Satement Satement ExpensesExpenses

- Took a pretax charge -a one-time write off- of 3.54 billion against its earnings

- Grow rapidly by buying other garbage companies. But didn't know to run them.

- Changed the depreciation of their 20,000 tracks from 8-10 years to 12-15 years and did the same for their 1.5 million dumpsters

By the end of 2003, it was estimated that the company's total assets had been inflated by around $11 billion

In June 2002, the company admitted it had inflated its profits by $3.8bn between January 2001 and March 2002.

Underreporting ‘line costs’ (interconnection expenses with other telecommunication companies) by capitalizing these costs on the balance sheet rather than properly expensing them.

Questions:

Who controls your organization?

Are the accountants making the right judgment decisions?

Balance SheetBalance Sheet