Focus on Fraud: 2014

Fraud Lessons Learned – The Barry Minkow Case

International Fraud Awareness Week is drawing to a close. In the spirit of understanding history so we are not doomed to repeat it, I would like to share one more post this week. Like a Swiss Army knife, this story has a little bit of everything. If you’d like to read about a case involving fraudulent financial reporting, a Ponzi scheme, securities violations, credit card fraud, or even mail fraud or tax evasion, this is the case for you.

Barry Minkow was the centerpiece of what is arguably the largest fraud of my generation, and perhaps many others before and since. Barry was the founder and CEO of ZZZZ Best (pronounced “Zee Best”),

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The Rise of Forensic Accounting

This week is International Fraud Awareness Week.  The business of fraud has been going on for ages, but the general practice of forensic accounting was only really formalized about 100 years ago.  The following infographic, produced by New England College’s School of Graduate and Professional Studies, takes you through a forensic accounting journey that starts with the formation of the FBI in 1908 and ends with Bernie Madoff in 2009, with a lot of information about the “industry” of forensic accounting included as well.  Enjoy!

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Set the Tone, Don’t Break It

Earlier this year, I attended a workshop where the discussion leader used this music video to demonstrate the power of social media. The more I thought about it, the more I thought it was a terrific demonstration of what not to do when it comes to setting a positive, winning tone at the top.

You may have heard of the “broken guitar” saga undertaken by Dave Carroll and his creative way to resolve his frustrations. The story is worthy of some attention, and his resolution was certainly effective. However, once I finished watching the video and basking in the genius of its creation,

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Ponzi – The Man and the Scheme

A common fraud scheme that typically makes the news is known as a Ponzi scheme.  Have you ever wondered why a Ponzi scheme has that name?  Did you know that it was named after a famous fraudster named Charles Ponzi?

The family of schemes known as Ponzi schemes has lasted long after Charles Ponzi departed this world, yet it was born from a business model that wouldn’t make any sense at all today.

In recognition of International Fraud Awareness Week, which is going on right now, I thought it would be interesting to share some background on one of fraud’s forefathers.

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Don’t gamble with your fraud prevention program

I realize that the large majority of you don’t work at a casino. But, when it comes to security and fraud prevention, there are plenty of lessons to be learned from practices employed by casinos. This article posted recently by the AICPA provides five observations of controls conducted by casino personnel that can be applied in any business or organization. It is a great article for anyone starting a fraud prevention program, as well as those looking to continually improve their existing ones.

The five examples provided are very good. In and around these examples are a couple of important lessons I observed and wanted to comment on.

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The case I’m examining today has not ventured into the legal arena as fraud.  However, it yields a valuable lesson because it stresses the power of the information contained in the footnotes in financial statements.

In my humble opinion, the footnotes that accompany basic financial statements are the most valuable components of an audited set of financial statements.  The footnotes contain details that aren’t apparent from just looking at the numbers, and they also include qualitative information that inherently won’t be included in the basic financial statements.

From this article, we learn that a publicly traded company entered into several real estate commitments that allegedly involved “corporate facilities.”  However,

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“The Wire” – a complex case of fraud

Some frauds are frighteningly simple and are made possible by a lack of critical internal controls or a real poor tone at the top.  Other frauds are extremely complicated and make us think (1) why in the world would someone go to all this trouble and/or (2) how are we supposed to catch something with so many moving parts?

These are good questions, and I don’t think the answer to the second question necessarily lies in crafting some new and complicated network of controls (although that doesn’t usually hurt). In my eyes, the most effective answer will come from a combination of three things that start at a level much higher than a review of individual transactions.

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The Masquerade – Not Just Fun and Games Anymore

This article discusses a pretty frightening trend in fraud called masquerading.  Masquerading involves someone outside the company mimicking the email address and related information in an email request for an electronic payment, or other things.  It looks just like “the real thing,” but will have some slight variations.  The article does a good job of describing the scam, the clear risks involved, and some preventive measures.  The thing to remember is that cash is king.  If you are wavering on whether to implement a particular internal control, if it involves cash you can never be too careful (particularly when it’s related to electronic payments). 

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Fraud Schemes: How Did it REALLY Happen?

We all read recounts of fraud schemes from time to time; some of them fairly short and others rather long and detailed.  At our firm, we gather and share cases in the news on what we call “Fraud Friday.”  The latest story shared on Fraud Friday is the source of this particular post. The thing that is typically missing from fraud tales is the point of view of the perpetrator.  How did they do it?  What was their motivation? Did they ever get nervous and think about stopping?  Did anyone get close to catching them along the way?  These human interest details are often missing from the facts of the case,

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Fraud continues to be a rampant epidemic and a terrible economic reality. If occupational fraud were a country, it would have a national economy ranking in the top-10 across the globe.

Thankfully, we have resources like the Association of Certified Fraud Examiners (ACFE) to provide knowledge about the problem and tools to assist in our defenses.  Every two years, the ACFE publishes its Report to the Nations on occupational fraud.  Occupational fraud is very different from other forms of fraud. It relates to “the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.”

Based on the ACFE’s study,

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