Tag Archive for: ACFE

Are you a victim of payroll fraud?

Payroll fraud is a serious issue that can have devastating consequences for businesses of all sizes. In this blog post, we’ll explore what it is, how it happens, and what you can do to prevent it.

What is Payroll Fraud?

Payroll fraud is a type of white-collar crime that involves the manipulation of a company’s payroll system to steal money from the organization. This can be done by employees or employers and can take many forms. Some common examples of payroll fraud include:

  • Ghost employees: These are fake employees who are added to the payroll system, and their paychecks are then deposited into the fraudster’s account.
  • Falsified timesheets: Employees may inflate their hours worked or claim overtime they didn’t earn.
  • Misclassification: Employers may misclassify employees as independent contractors to avoid paying taxes and benefits.
  • Unauthorized bonuses: Fraudsters may issue themselves or others unauthorized bonuses or raises.
How Does Payroll Fraud Happen?

Payroll fraud can happen in many ways, but it often occurs when there are weaknesses in a company’s internal controls. For example, if there is no segregation of duties between the person who processes payroll and the person who approves it, it becomes easier for someone to manipulate the system. Similarly, if there is no oversight of the payroll process, it becomes easier for someone to commit fraud.

How Can You Prevent Payroll Fraud?

Preventing payroll fraud requires a multi-faceted approach that involves both technology and human resources. Here are some steps you can take to reduce your risk:

  • Segregate duties: Make sure that no one person has complete control over the payroll process. For example, one person should be responsible for processing payroll, while another should be responsible for approving it.
  • Implement internal controls: Establish policies and procedures that govern the payroll process. For example, require two signatures on all checks over a certain amount.
  • Conduct background checks: Screen all new hires thoroughly to ensure that they are who they say they are and have the qualifications they claim to have.
  • Train employees: Educate your employees about what payroll fraud is and how to prevent it. Make sure they know how to report suspicious activity.
  • Use technology: Implement software that can detect anomalies in your payroll data. For example, if an employee suddenly starts working more hours than usual, this could be a sign of fraud.

By taking these steps, you can reduce your risk of falling victim to payroll fraud. Remember, prevention is always better than cure.

Conclusion

In conclusion, payroll fraud is a serious issue that can have devastating consequences for businesses of all sizes. It’s important to understand what payroll fraud is and how it happens so that you can take steps to prevent it from happening in your organization. By implementing internal controls, conducting background checks, training employees, and using technology to detect anomalies in your payroll data, you can reduce your risk of falling victim to payroll fraud.  If you feel you could be a victim of payroll fraud, a fraud investigation is the best way to find out.

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Following the Paper Trail for Corporate Fraud

How financial statements reveal corporate fraud

The U.S. economy is finally recovering from the effects of the recession, but at least one major financial risk remains — corporate fraud. Fortunately, a CPA certified in financial forensics (CFF) can help companies and investors minimize losses from fraudulent conduct by scrutinizing a business’s financial statements.

Fictional finances

Corporate fraud often is concealed when a company intentionally misrepresents material information in its financial reports. Such misrepresentations can result from the misapplication of accounting principles, overly aggressive estimates of figures and material omissions. For example, financial statements might report fictitious revenues or conceal expenses or liabilities to make a company appear more profitable than it truly is.

To cover fraud, perpetrators often conceal or omit information that could damage or improperly change the bottom-line results that appear in financial statements. Such omissions include:

  • Events likely to affect future statements, such as impending product obsolescence, new competition and potential lawsuits,
  • Liabilities such as loan covenants or contingency liabilities,
  • Accounting changes that materially affect financial statements — including methods of accounting for depreciation, revenue recognition or accruals — and are subject to disclosure rules, and
  • Related-party transactions, or those with a party with whom a member of management has a financial interest.

Perpetrators also might engage in fraudulent manipulation, particularly in the areas of revenues, expenses, reserves and one-time charges. Falsified financial statements can recognize sales prematurely, improperly value sales transactions (by, for example, inflating the per unit price) or report phantom sales that never occurred. Conversely, expenses can be manipulated by delaying their recognition — whether to match the expenses with their corresponding revenue or to avoid reporting a loss. Another trick is to improperly capitalize expenses so they appear on the company’s balance sheet rather than its income statement.

In some cases, fraudulent financial statements show reserves that have been calculated using bad-faith estimates. For example, fraudsters could justify a smaller amount of reserves by underestimating the percentage of uncollectible receivables. One-time charges, such as a write-off of goodwill or charge for research and development costs for a specific product, can further distort financial statement figures.

Reading between the lines

When fraud is suspected, a forensic CPA can dig into complex financial statements and uncover manipulation that might not be apparent to the untrained eye. A fraud expert begins by reviewing the suspicious statements for unusual trends and relationships. Any leads are followed by more intensive forensic accounting work, such as analysis of specific transactions, journal entries, work papers and supporting documentation. This type of examination goes far beyond a standard annual audit.

The CPA also may employ several types of analyses. Vertical analysis compares the proportion of each financial statement item — or groups of items — to a total within a single year that can be measured against industry norms. Horizontal analysis compares current data with data from previous years to detect patterns and trends. Financial ratio analysis calculates ratios from the current year’s data and compares those with previous years’ ratios for the company, comparable companies and the relevant industry. The expert, of course, must have experience in the subject industry and be able to recognize noncompliance with Generally Accepted Accounting Principles.

In fact, noncompliance is a significant red flag for financial statement fraud. The Association of Certified Fraud Examiners (ACFE) has identified several other behavioral red flags, including employees who live beyond their means and exhibit a cavalier attitude toward internal controls.

Keep a lid on fraud costs

The ACFE has estimated the median loss in financial statement fraud schemes at $1 million — to say nothing of the public relations damage that rogue executives who manipulate the numbers can cause. With their vast experience in crawling over financial statements, qualified forensic CPAs can help limit your clients’ losses.

This information is, in part, © 2014 TRTA

 

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What Types of Cases Do Forensic Accountants Handle?

Hiring forensic accountants for cases involving fraud investigation, litigation support, disputes and more

With the seeming rise in corruption and financial related crime in both the for- and non-profit sectors, identifying when forensic accounting is required can help to uncover evidence and limit overall risks to your company or organization. Just this month, International Relief and Development (IRD) was suspended from working with the US Forensic Accounting in word collageGovernment over alleged misuse by the organization’s senior executives of finances. Kris Manos, IRD’s interim president who was brought in, hired an outside forensic accounting firm to audit finances, including charges on the credit card of former president, Arthur Keys, who retired last July. Reported in the Washington Post on February 9, 2015, it claims that a top USAID contractor allegedly billed taxpayers for Redskins tickets, alcohol. It is in cases such as these where forensic accounting is needed to uncover the details and possible cover up or hiding of evidence. This can usually be uncovered when investigated and analyzed properly by a qualified and experienced forensic accountant. Read on for more areas of business and financial operations where forensic accounting comes into play.

Fraud

Cheryl Jefferson and Associates summarizes fraud as “…the act of one party deliberately misrepresenting the truth or fact, in order to obtain something of value from or causing damage to another party.”

According to a survey conducted by the Association of Certified Fraud Examiners and reported in their 2014 Report to The Nations on Occupational Fraud and Abuse, organizations typically lose 5% of annual revenues each year to fraud, with the median loss totaling $145,000 and 22% of those being at least $1 million. The report goes on to reveal that the 3 primary categories of fraud are asset misappropriations, corruption and financial statement fraud. These statistics along with report details make a compelling case for anti-fraud expertise to identify fraud and recover losses.

Litigation Support

Comprised of several elements including discovery, fact finding, transaction testing, trial assistance and settlement, forensic accountants apply their expert accounting skills & knowledge to ensure the necessary analysis and evidential findings are determined for success of the case.

Dispute Analysis

Handling cases of disputes properly requires forensic accounting. Some of the areas of disputes can involve calculating commercial damages, settling financial matters from contract disputes, handling a violation of the False Claims Act or infringement of patents & intellectual property. These types of cases require forensic accountants to uncover the details and allow optimal resolution.

Bankruptcy

As laws involving bankruptcy & insolvency become more stringent, forensic accounting becomes necessary to assist in preparing the case, offering the proper records and providing the proper evidence for court proceedings.

If you know or believe your company or organization is involved in internal criminal activity or you are facing litigation, forensic accounting is necessary to ensure you are uncovering accurate findings, gathering the appropriate evidence, and garnering the expert support as litigation unfolds. Make certain your accountants hold the required expertise and knowledge for forensic accounting.

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