Fraud Investigations

Financial fraud investigations or accounting fraud investigations are normally aimed at examining any malpractices in terms of finances. In the modern business world, there are a variety of business frauds that can deteriorate a business from within and outside. Some of these frauds especially white-collar corporate frauds are hard to detect and prevent since they are planned in a very delicate and structured manner.

Financial Fraud Investigations

A business, financial or accounting fraud refers to fraudulent and illegal activities executed by individuals or entities in order to get or provide a favorable financial outcome. It can be in the form of manipulating the financial statements, claiming fraudulent insurance money as well as other financial and corporate frauds.

Accounting fraud is not a new concept and it has been there since the inception of businesses. However, with technological advancement and the involvement of too many stakeholders, businesses now are more exposed to accounting frauds than ever before and are hiring CPA firms to conduct fraud investigations and financial fraud analysis.

Financial Crime Investigations

Financial crime investigations are normally requested by individuals, small businesses, large corporations, and even nonprofits when an accounting crime or a financial crime happens and this is when managers manipulate the figures of the financial statements’ items to make the company look good and hide losses or bad health of the corporation.

Normally, manipulation in the financial statements matters since potential investors and lenders primarily make decisions by analyzing the financial statements of a company and alterations in the financial statements would mislead them. This is exactly where a CPA firm or a certified financial fraud investigator is hired to conduct financial or accounting fraud investigations.

Examples of accounting crime include:

Understating expenses in order to make the company look more profitable
Overstating expenses to avoid a hefty tax bill. In the US, tax evasion is a crime that may give rise to monetary penalties, imprisonment, or both
Overstating revenue figure (sales) in the Income Statement
Other Assets & Liabilities misstatements such as fictitious assets to lenders, and omitting liabilities to make the company look less risky.

Accounting crime is quite common in big organizations since they have to window dress for commercial loan brokers, potential investors, and banks. The most famous example is Enron Scandal which resulted in a $74 billion loss in 4 years and the billions that employees lost in pensions.

Types of Frauds in Accounting

Below is the list of some prominent accounting frauds:

Financial Fraud: It is the intentional act of deception involving financial transactions for personal gain. Money laundering and terrorist financing are the two most significant financial frauds. In addition, financial fraud includes tax evasion, bribery, corruption, and telemarketing fraud.
Corporate Fraud: Corporate fraud includes strategic issues like theft of information, damaged reputation, and compromising customer/client information.
Insurance Fraud: Claiming false insurance money by individuals or insurance companies refusing to honor legitimate claims.
Identity Theft: Identity theft is mainly used for false withdrawals from banks and using another person’s name or credentials to gain benefits.
Business Asset Abuse: Business asset abuse involves falsely using a business’ name, property, computers, or other current and non-current assets to receive benefits. It also involves an individual or a company attaching their name to your company in order to make a profit or gain other commercial benefits.
Procurement Fraud: Procurement fraud is deliberate deception in the procedure-to-pay process. In simple terms, when an employee responsible for purchasing items teams up with a supplier and buy items from the supplier at an above market value, and in response the employee receives a kickback.
Fictitious Business: In fictitious business fraud, an individual creates a false vendor in order to direct payments to related parties.

These accounting frauds result in huge monetary losses and damages to goodwill. Therefore, every business should have robust measures in place to detect and prevent such fraud. If you suspect an accounting fraud being committed in your organization, there are various ways to investigate the fraud.

Accounting Fraud Investigations

The approach to investigating an accounting fraud depends on things like the position of the personnel(s) involved, damages caused by the fraud, and the nature and intensity of the fraud itself.

Whenever you come across an alleged fraud or notice a suspicious or illegal activity in your organization, decide whether it’s worth investigating. Your decision should be based on reasonable basis and data available to believe that a fraud has been committed. In addition, you should perform a cost-benefit analysis of the investigation because it’s not just worth it if a potential $500 fraud costs you $5,000 for investigation.

The next step is deciding on whether to investigate the fraud internally or hire an external forensic accounting and fraud expert. External investigators are impartial and can be relatively expensive whereas, internal investigators give you control over the investigation.

How Can JS Morlu Help In Accounting Fraud Investigations?

We are trusted business advisors and public accountants based in Virginia with over 10 years of excellence in the field and have worked with clients from different sectors and size.

If you suspect an accounting fraud in your organization, or have been wrongly suspected / victimized for an accounting fraud, our forensic accountants can help investigate the matter.

Our fraud investigators hold prestigious academic credentials and field expertise meaning that they are well aware of the complicated business and social issues. Our fraud investigators include compliance specialists, technology specialists, public relations professionals, and other accounting specialists.

Accounting fraud should be detected and prevented as soon as you suspect it. If it is not timely dealt with, it can have a multiplier effect on the financial and reputational damages that it may cause to your business.

Post Accounting Fraud Precautions

It is equally important to learn your lesson and place robust measures in place in order to reduce or completely eradicate the likelihood of accounting frauds. To make sure our clients stay safer, we at JS Morlu recommend safety measures that smartly detect and prevent accounting frauds.

In a nutshell, below are some post accounting fraud precautions.

Strong internal controls such as installing security cameras in your warehouse or implementing segregation of duties to reduce manipulations in books.
Restrictions on irrelevant employees to access sensitive data to reduce data theft and other procurement frauds.
Keeping an eye on contractors and other industry players in order to prevent asset abuse.