No More Street Crimes
Occupational Frauds by Category — Frequency

How Occupational Fraud is
Committed
Occupational Frauds by Category — Median Loss

How Occupational Fraud is
Committed
Initial Detection of Occupational Frauds
Asian Cases

Victim Organizations
Frequency of Anti-Fraud Controls8

Victim Organizations
Position of Perpetrator — Frequency

Perpetrators
Position of Perpetrator — Median Loss

Perpetrators
Position of Perpetrator in Asia — 196 Cases

Perpetrators
Age of Perpetrator — Frequency

Perpetrators
Age of Perpetrator — Median Loss

Perpetrators
Department of Perpetrator — Frequency

Perpetrators
Behavioral Red Flags of Perpetrators

Perpetrators
Income Statement
Profit is an Estimate
Cooking the Financial Books

Assumptions (What ingredients to include)
Estimates (How much to include)
You may assume that...
Increase Revenue
(Revenue Recognition)
Round Trip Recipe
Pre-Paid Services 4
Million
Compa
Vender
ny
Current Revenue 1
Million

Reporting more revenue
Deferral of Revenue Recipe

Custo
mer

1
Millio
n

2 Million

Balance
Sheet
Umearned
Revenue

Current
Revenue

Manipulatin...
- Sold equipment on four-year leases, including
service and maintenance.
- Booked all the revenues up front.
- Xerox mis-s...
Channel Stuffing
Company inflates sales
figures by forcing more
products
through
a
distribution channel than
the channel i...
Reduce Expenses
(Matching Principle)
Capitalize Expenses Recipe
Expen
ses

8 Million
8M
illio
n

Balance
Sheet
Capital
Income
Satement
Expenses
- Grow rapidly by buying other
garbage companies. But
didn't know to run them.
- Changed the depreciation of
their 20,000 ...
Underreporting ‘line costs’
(interconnection expenses
with other telecommunication
companies) by capitalizing
these costs ...
Are the accountants making the right
judgment decisions?

Questions:

Who controls your organization?
Balance Sheet
How Accountants Cooked the Books
How Accountants Cooked the Books
How Accountants Cooked the Books
How Accountants Cooked the Books
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  • *“Other” category was not included in the 2010 Report.
  • *“Formal Fraud Risk Assessments” category was not included in the 2010 Report.
    Note: The percentages for frequency of anti-fraud controls reflected in 2010 Report contained a computational inaccuracy. The percentages included in this chart have been corrected.
    8The following key applies to the charts on slides 125-128:
    • External Audit of F/S = Independent external audits of the organization’s financial statements
    • Internal Audit / FE Department = Internal audit department or fraud examination department
    • External Audit of ICOFR = Independent audits of the organization’s internal controls over financial reporting
    • Management Certification of F/S = Management certification of the organization’s financial statements
  • *“Other” category was not included in the prior years’ Reports.
  • *“Other” category was not included in the prior years’ Reports.
  • *“Other” category was not included in the 2010 Report.
  • Note: The percentages for behavioral red flags displayed by perpetrators in the 2010 Report contained a computational inaccuracy. The percentages included in this chart have been corrected.
  • This is not real profit
  • Many managers think that income statement shows how much the cash the company earned during the period
    How much they spend and how much left over. And the left over amount will be the profit / No
    Income statement focuses on revenue and expenses and profit
    Accural Accounting method
  • When you make decisions you should look at the Assumptions What are they (what to include and what not to include) – estimates how they are implemented – Bias of the implemeation– implications of the implemattion
  • How Accountants Cooked the Books

    1. 1. No More Street Crimes
    2. 2. Occupational Frauds by Category — Frequency How Occupational Fraud is Committed
    3. 3. Occupational Frauds by Category — Median Loss How Occupational Fraud is Committed
    4. 4. Initial Detection of Occupational Frauds
    5. 5. Asian Cases Victim Organizations
    6. 6. Frequency of Anti-Fraud Controls8 Victim Organizations
    7. 7. Position of Perpetrator — Frequency Perpetrators
    8. 8. Position of Perpetrator — Median Loss Perpetrators
    9. 9. Position of Perpetrator in Asia — 196 Cases Perpetrators
    10. 10. Age of Perpetrator — Frequency Perpetrators
    11. 11. Age of Perpetrator — Median Loss Perpetrators
    12. 12. Department of Perpetrator — Frequency Perpetrators
    13. 13. Behavioral Red Flags of Perpetrators Perpetrators
    14. 14. Income Statement
    15. 15. Profit is an Estimate
    16. 16. 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.
    17. 17. Increase Revenue (Revenue Recognition)
    18. 18. Round Trip Recipe Pre-Paid Services 4 Million Compa Vender ny Current Revenue 1 Million Reporting more revenue
    19. 19. Deferral of Revenue Recipe Custo mer 1 Millio n 2 Million Balance Sheet Umearned Revenue Current Revenue Manipulating revenue
    20. 20. - 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.
    21. 21. 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.
    22. 22. Reduce Expenses (Matching Principle)
    23. 23. Capitalize Expenses Recipe Expen ses 8 Million 8M illio n Balance Sheet Capital Income Satement Expenses
    24. 24. - 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 - Took a pretax charge -a onetime write off- of 3.54 billion against its earnings
    25. 25. Underreporting ‘line costs’ (interconnection expenses with other telecommunication companies) by capitalizing these costs on the balance sheet rather than properly expensing them. In June 2002, the company admitted it had inflated its profits by $3.8bn between January 2001 and March 2002. By the end of 2003, it was estimated that the company's total assets had been inflated by around $11 billion
    26. 26. Are the accountants making the right judgment decisions? Questions: Who controls your organization?
    27. 27. Balance Sheet

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