The document provides details about a case study on forensic audit. It discusses what forensic audit is, types of fraud, the fraud triangle model, and the Satyam fraud case. The Satyam case involved falsified financial statements, inflated revenues and profits, fake bank balances and fixed deposits totaling Rs. 7,800 crores. Weak internal controls and governance failures at Satyam such as unethical conduct, false books, dubious roles of directors, auditors and banks allowed the fraud to occur and go undetected for years.
Forensic accounting is a specialty practice area where accounting, auditing and investigative skills are used to analyze information that is suitable for use in a court of law.
Forensic accounting is a specialty practice area where accounting, auditing and investigative skills are used to analyze information that is suitable for use in a court of law.
A powerpoint presentation giving basic insights on forensic audit,forensic auditors, how is the engagement conducted, its scope , the famous Satyam Case and the Nirav Modi case along with the RBI guidelines regarding the same. It is a presentation made for educational and awareness purpose and not to be copied or reproduced without prior consent.
The presentation provides overall insight of operational fraud risk management. It explains the operational fraud risk and mitigation strategies. The role of Internal audit and audit committee is further exemplified
An introduction to Forensic Audit is given with its examination with legalities. Time and Reasons which contributes to Forensic Audit, types of Frauds and Constituents of Forensic Audit are also included. We have also examined a distinction between Financial and Forensic Audit. To make it more user-friendly we have prescribed, the manner in which the frauds are detected and how a Forensic Audit is being concluded.
Forensic accountants use many tools to fine tune their fraud investigation process, yielding useable results during any fraud investigation. Learn more here.
CPAs responsibilities to detect fraud in audits, required approaches, types of financial statement frauds and specific case examples of different types of financial statement fraud
A powerpoint presentation giving basic insights on forensic audit,forensic auditors, how is the engagement conducted, its scope , the famous Satyam Case and the Nirav Modi case along with the RBI guidelines regarding the same. It is a presentation made for educational and awareness purpose and not to be copied or reproduced without prior consent.
The presentation provides overall insight of operational fraud risk management. It explains the operational fraud risk and mitigation strategies. The role of Internal audit and audit committee is further exemplified
An introduction to Forensic Audit is given with its examination with legalities. Time and Reasons which contributes to Forensic Audit, types of Frauds and Constituents of Forensic Audit are also included. We have also examined a distinction between Financial and Forensic Audit. To make it more user-friendly we have prescribed, the manner in which the frauds are detected and how a Forensic Audit is being concluded.
Forensic accountants use many tools to fine tune their fraud investigation process, yielding useable results during any fraud investigation. Learn more here.
CPAs responsibilities to detect fraud in audits, required approaches, types of financial statement frauds and specific case examples of different types of financial statement fraud
Discover the 4 most common types of forensic accounting investigation and what you need to know before hiring a forensic accounting investigator for your case.
State v. Mott: A Case Study in Forensic Sciencegcpolando
Presentation to Manchester College\'s Science Department; describes the legal aspects of forensic science in a trial presented by my elected prosecutor, Curtis Hill, and chief deputy, Vicki Becker.
How to Use Data Analytics to Detect Fixed Asset and Inventory FraudFraudBusters
FRN combines the high quality, authoritative anti-fraud and audit content from the leading providers, AuditNet ® LLC and White-Collar Crime 101 LLC/FraudAware.
The two entities designed FRN as the “go-to”, easy-to-use source of “how-to” fraud prevention, detection, audit and investigation templates, guidelines, policies, training programs (recorded no CPE and live with CPE) and articles from leading subject matter experts.
FRN is a continuously expanding and improving resource, offering auditors, fraud examiners, controllers, investigators and accountants a content-rich source of cutting-edge anti-fraud tools and techniques they will want to refer to again and again.
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The Forensic Report on the School Dept budget for FY 07 was presented earlier this year. This is my 2 cents on what it tells the voters and tax payers of Franklin, MA.
AWMA presentation on the use of stable isotopes and other environmental forensic techniques to determine the source of fugitive methane. Originally presented in 2007 at an AWMA conference in Calgary. The presentation covered an investigative of methane in areas around Calgary using different environmental and geoforensics techniques to identify the sources of methane at the different locations. A variety of analyses were used such as isotopic analysis, VOC analysis, and gas composition analysis.
Forensic accounting is an emerging discipline which helps in fraud detection and prevention and used as proactive and reactive tool for frauds management
Subject Forensic AccountngAs we move forward, and computer te.pdfakilastationarrymdu
Subject \" Forensic Accountng\"
As we move forward, and computer technology improves, we will have the ability to utilize
programs to look for \"red flags\" or anomalies within a companies books. The other side of this
coin is that this technology can also be utilized to conduct fraudulent operations, and an article in
Accounting today even suggests that this will be the direction that fraud goes in 2015.
If a company is suspected of fraud, or a whistleblower comes to the SEC with information fraud
examiners will get to work! HOW an auditor investigate it.
Solution
Fraud has become very complicated in this era of technology, and increasingly difficult to detect,
especially when it is collusive in nature and committed by top management who are capable of
concealing it.
Over the last two decades, there have been developments concerning fraud which some have
seen as marking significant extension to audit responsibilities. The business community,
especially the accounting profession, has become increasingly concerned about the rise in
management fraud. Recent internal reports suggest that employee fraud is pervasive, plaguing
both large and small organization alike.
If a company is suspected of fraud or a whistle blower comes to SEC,an auditor has to conduct
thorough investigation to get the root of the fraud and carry out necessary actions accordingly.
First,we will take a look at various types of frauds that can prevail and different investigation
procedures.
TYPES OF INVESTIGATION
The forensic accountant could be asked to investigate many different types of fraud. It is useful
to categorise these types into three groups to provide an overview of the wide range of
investigations that could be carried out. The three categories of frauds are corruption, asset
misappropriation and financial statement fraud.
Corruption
There are three types of corruption fraud: conflicts of interest, bribery, and extortion. Research
shows that corruption is involved in around one third of all frauds.
Asset misappropriation
By far the most common frauds are those involving asset misappropriation, and there are many
different types of fraud which fall into this category. The common feature is the theft of cash or
other assets from the company, for example:
Financial statement fraud
This is also known as fraudulent financial reporting, and is a type of fraud that causes a material
misstatement in the financial statements. It can include deliberate falsification of accounting
records; omission of transactions, balances or disclosures from the financial statements; or the
misapplication of financial reporting standards. This is often carried out with the intention of
presenting the financial statements with a particular bias, for example concealing liabilities in
order to improve any analysis of liquidity and gearing.
CONDUCTING AN INVESTIGATION
The process of conducting a forensic investigation is, in many ways, similar to the process of
conducting an audit, but with s.
Setting Up and Managing an Anonymous Fraud HotlineFraudBusters
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This Webinar focused on the subject in the title
FraudResourceNet (FRN) is the only searchable portal of practical, expert fraud prevention, detection and audit information on the Web.
FRN combines the high quality, authoritative anti-fraud and audit content from the leading providers, AuditNet ® LLC and White-Collar Crime 101 LLC/FraudAware.
This presentation is an overview of Fraud Risk Management in Indian companies and the role of the Board of Directors in the context of the newly enacted Companies Act, 2013.
The Association of Certified Fraud Examiners (ACFE) described forensic accounting as “the application of accounting skills to provide quantitative financial information about matters before the courts.”
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Case study on forensic audit
1. CASE STUDY ON FORENSIC AUDIT
Presented by Sandeep Das
Date : March 25,2016
2. -
• What is Fraud
• Types of Fraud
• Fraud Triangle
• What is forensic audit
• What are various audit techniques
• Required skills, characteristics and subject areas of knowledge
• International practices
2
SESSION OBJECTIVES
3. -
CFE definition of Fraud:
Fraud can encompass any crime for gain that uses deception as its principal modus operandous. Fraud is defined by
Black’s Law Dictionary as:
A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or
her detriment. Consequently, fraud includes any intentional or deliberate act to deprive another of property or
money by deviousness, deception, or other unfair means.
Fraud under Indian Companies Act 2013
Fraud has been comprehensively explained under Section 447(1) of the Companies Act 2013 -“fraud” in relation to
affairs of a company or any body corporate, includes – any act, omission, concealment of any act or abuse of
position committed by any person or any other person with the collusion in any manner – with the intent to
deceive, to gain undue advantage from or to injure the trust of the company or its shareholders or its creditors or
any other person whether or not there is any wrongful gain or wrongful loss .
3
DEFINITIONS
4. -
Fraud against a company can be committed either internally by employees, managers, officers, or owners of the
company, or externally by customers, vendors, and other parties. Other schemes defraud individuals, rather than
organizations.
INTERNAL FRAUD
Internal fraud, also called occupational fraud, can be defined as: “the use of one’s occupation for personal
enrichment through the deliberate misuse or misapplication of the organization’s resources or assets.” Simply stated,
this type of fraud occurs when an employee, manager, or executive commits fraud against his or her employer.
EXTERNAL FRAUD
External fraud against a company covers a broad range of schemes. Dishonest vendors might engage in bid-rigging
schemes, bill the company for goods or services not provided, or demand bribes from employees. Likewise,
dishonest customers might submit bad checks or falsified account information for payment, or might attempt to
return stolen or knock-off products for a refund. In addition, organizations also face threats of security breaches and
thefts of intellectual property perpetrated by unknown third parties.
4
TYPES OF FRAUD
5. -
FRAUD BASED ON INDUSTRY
Bank frauds
Corporate frauds
Insurance frauds
Health care frauds
Cyber frauds
Securities frauds
Consumer frauds
5
TYPES OF FRAUD
6. -
6
FRAUD TRIANGLE
The fraud triangle is a model for explaining the factors that cause
someone to commit occupational fraud
There are three factors that must be present at the same time in order for
an ordinary person to commit fraud :
Pressure
Opportunity
Rationalization
The First leg of the Fraud triangle represents Pressure. This is what
motivates the crime in the first place. The individual has some financial
problem that he / she is unable to solve through legitimate means, so he
/ she begins to consider committing an illegal act, such as stealing cash
or falsifying financial statement as a way to solve his / her problem. The
financial problem can be personal.
7. -
7
FRAUD TRIANGLE Cont.
The second leg of the fraud triangle is perceived Opportunity, which
defines the method by which the crime can be committed The person
must see some way he can use (abuse) his position of trust to solve his
financial problem with a low perceived risk of getting caught. Many
people commit white – collar crimes to maintain their social status, for
example acquiring expensive cars or houses etc. Fraudster not only has
to be able to do it in such a way that he will likely not be caught and
the crime itself will not be detected.
The third leg of the fraud triangle is Rationalization. The vast majority
of fraudsters are first time offenders with no criminal past; they do not
view themselves as criminal. They see themselves as ordinary honest
people who are caught in a bad set of circumstances. Consequently, the
fraudster must justify the crime to himself in a way that makes it an
acceptable or justifiable act.
8. -
Forensic meaning - the application of scientific methods and techniques to the investigation of crime.
What is Forensic Audit : A forensic audit is an examination and evaluation of a firm's or individual's financial
information for use as evidence in the court of law. A forensic audit can be conducted in order to prosecute a
party for fraud, embezzlement or other financial claims.
What is Forensic Accounting : Forensic accounting services generally involve the application of specialized
knowledge and investigative skills possessed by Accountants to collect, analyze, and evaluate evidential matter
and to interpret and communicate findings in the courtroom, boardroom, or other legal or administrative venue.
Difference between forensic accounting and forensic audit
In comparison, forensic accounting and audit differ in specific ways, as shown below: Forensic Accounting ● In
response to an event ● Financial investigation ● Findings used as evidence in court or to resolve disputes where
as Audit ● Mandatory ● Measures compliance with reporting standards ● Obtain reasonable assurance that
financial statements are free of material misstatement
8
FORENSIC AUDIT
9. -
9
FORENSIC AUDIT TECHNIQUES
Step 1
Understand business
Step 2
Identify possible fraud
exists
Step 3
Prescribed possible
fraud symptoms
Step 4
Use of technology to
collect data about
symptoms
Step 5
Analyse results
Step 8
Automate detection
procedures ( optional)
Steps 6
Investigate symptoms
Step 7
Follow ups (optional)
Analytical steps
Technology Steps
Investigative steps
10. -
Knowledge: Abilities:
Knowledge of Accounting standards / IFRS Interpersonal communications
Financial Data Analysis Strong verbal and written communications
Due Diligence Reviews Tracing illicit funds
Analytical
Embezzlement Integrity
Asset misappropriations Objectivity
Contract and procurement fraud Independence
Tax and related regulations
Compute applications
Skills :
Writing reports
Interview techniques
10
KNOWLEDGE, SKILLS AND ABILITIES FORENSIC AUDITOR
11. -
What are the internal control weakness
Lack of appropriate authorization for commission disbursements.
No clearly defined lines of authority, roles, or responsibilities.
No independent checks on performance.
Inadequate documentation policies.
Management override of internal controls
A willingness among employees and third parties, and lower level employees and
management, to collude to circumvent controls.
Insufficient written policies and procedures to direct department processing.
11
CASE STUDY – S ASSOCIATES
12. -
Lessons Learned
When an employee exhibits lifestyle changes, it should be a red flag. Going from a modest lifestyle to a lavish one can be an
indication that the individual is stealing from the organization.
Absent or weak internal controls are an invitation for fraud. A set of internal control procedures can help safeguard company
assets, ensure adherence to company policies, and promote efficiency and disclosure of reliable financial information. Many
internal controls are neither time-consuming nor expensive to put in place, and their benefits can be significant.
Segregation of duties is an integral part of operational control and can deter collusion among employees. Because frauds with
collusion are more difficult to detect, companies should have whistleblower hotlines for reporting indiscretions when
employees see them.
Lack of management review weakens detection of employee misconduct. Management should maintain documentary evidence
of its review and approval of all financial information to demonstrate that it has retained effective control over its financial
information.
Regular disbursements, such as commissions, should not be allowed without applying regular authorization processes and
closely watching all exception cases.
Customer control accounts should be regularly monitored and reconciled at least monthly. Any discrepancies should be
investigated adequately.
A fraud policy gives the perception among employees that management is serious about deterring fraudulent behavior. It
should make clear that violators will be terminated and prosecuted.
12
CASE STUDY – S ASSOCIATES
13. -
Enron
Sherron Watkins blew the whistle on Enron Corp. in 2001, the energy company based in Houston was deeply
involved in fraud, insider trading, conspiracy, bank fraud, making false statements to banks and external auditors,
and securities and wire fraud. When the dust settled, 18 people pleaded guilty and three more were found guilty in
court. Enron shareholders filed a $40 billion lawsuit after the company's stock price, which achieved a high of US$
90.75 per share in mid-2000, plummeted to less than $1 by the end of November 2001
Enron Corp. whistleblower and now a Houston-based lecturer on, and advocate for, ethical leadership Sherron
Watkins is passionate about internal audit’s anti-fraud responsibilities. Enron outsourced its internal audit
department in the early 1990s to Arthur Andersen, its external auditor, she says, “so low- level staff at Arthur
Andersen conducted internal audit work.” The accounting firm went bankrupt and dissolved as a result of the Enron
meltdown. Indeed, Watkins is so adamant about the role of internal audit that she says this to interviewers: “Would
the Enron frauds have been detected earlier or prevented completely had Enron maintained an internal audit
department?” To the extent that the answer is yes, there are steps that internal audit departments can take to stay
on top of potential executive fraud. Enron's $63.4 billion in assets made it the largest corporate bankruptcy in U.S.
history. Enron's auditor, Arthur Andersen, was found guilty in a United States District Court of illegally destroying
documents relevant to the SEC investigation which voided its license to audit public companies, effectively closing
the business.
13
WHAT HAPPENS WHEN EXECUTIVES GO BAD
14. -
Concern over conflict of interest between auditing and consulting raises the need for accounting firms to
separate their consulting activities from their auditing businesses.
Securitization and other legitimate structured finance deals have to be disclosed with sufficient depth and detail
to adequately inform sophisticated investors.
Management has to be free of material conflicts of interest because private investors rely on their business
judgment.
There should be a method or basis that distinguishes between structured finance transactions that should be
allowed from those that should be restricted. This requires regulatory re-examining of structured financing
transactions. However, a long-term perspective must be taken that excessive safeguards can stifle business
innovation .
The importance of taking corporate codes of conduct seriously and carefully thinking through their
implementation.
There is a move considering forcing firms to routinely change auditors and for accounting firms to separate their
consulting from their auditing businesses in an attempt to prevent Enron-style collapses.
14
LESSONS LEARNED FROM ENRON
15. -
Satyam
Background
On January 7, 2009, announced confession of over Rs. 7,800 Crore financial fraud and
he resigned as chairman of Satyam. He revealed in his letter that his attempt to buy
two companies was his last attempt to “fill fictitious assets with real ones”
Promoters were booked for criminal breach of trust, cheating, criminal conspiracy and
forgery under the Indian Penal Code.
A week after Satyam founder scandalous confession, Satyam’s auditors Price
Waterhouse finally admitted that its audit report was wrong as it was based on wrong
financial statements provided by the Satyam’s management. CFO confessed to having
inflated the number of employees by 10,000 this helped in drawing around Rs 20 Crore
per month from the related but fictitious salary accounts.
15
WHAT HAPPENS WHEN EXECUTIVES GO BAD
16. -
Satyam Cont..
According to SFIO report, Satyam founders , CFO and vice-president (finance) together hatched a conspiracy to
artificially increase the revenues and profits in the books. The report highlights that the falsification was done by
deliberately leaving loopholes in the Computerized Accounting System which uses ERP modules. The high-level
application landscape of Satyam internal applications has many links between various systems where either there
was no integration or there was weak integration. These loopholes were deliberately left to insert fictitious
invoices and fictitious bank statements to balance them without being detected. Very smartly fictitious invoices
were created in the invoice management system using regular login ids, falsely intimating that any of the
employees could be involved in this. In order to cover up these fictitious entries, the receipts were first accounted
with Bank of Baroda, New York branch, (account no- 120559) and they then were relocated as fixed deposits in
other accounts. With such artificial entries started giving a blooming picture of the company, the management
decided to put the surging profits in better investments.
The SFIO probe also takes a call on the account statements of the company with the Bank of Baroda highlighting
jacking up of the books ever since 2001-02. The report also clarifies that the company had booked false fixed
deposits and interests in five banks namely, ICICI, HSBC, HDFC, BNP Paribas and Citi Bank. On the reconciliation of
these statements the company books showed major gaps with the actual existing deposits.
16
WHAT HAPPENS WHEN EXECUTIVES GO BAD
17. -
Satyam Cont...
The investigation also throws light on the company's paying excess taxes on the non-existing assets and also
indulging in forging current account balance statements. This helped the company forge quarterly details of
outstanding balances of fixed deposits and interest earned on them. The report says that by showing a rosy picture
of the company, the promoters were jacking up the share price and simultaneously selling off their holdings raking
in handsome money. The company, apart from this, is also believed to have issued American Depository Shares
worth $ 15.2 crore out of which only $ 5.25 crore were brought in to the country. The SFIO investigations also throws
light on the company's desperate attempt to acquire Maytas Infrastructure (MIL) and Maytas Properties (MPL), an
act done under the pressure from external investors who were pressing for better use of liquid asset shown in the
balance sheet. The report states that the promoters and the CFO were fully aware of the precarious financial
position of the company and the large number of fake fixed deposit and fake bank balances created in the books
since 2000-2001 onwards.
17
WHAT HAPPENS WHEN EXECUTIVES GO BAD
18. -
Following are the common governance problems, which have been noticed in the collapse of
Satyam:
Unethical conduct - Founders wanted to make money by avoiding paying taxes, cooking books, and pay offs;
revealed some alarming truths that he was concealing for a long period by confessing to a fraud of Rs 7,800 crores
($1.47 billion) on Satyam’s balance sheet.
A case of false books and bogus accounting-These figures of accrued interest were shown in balance sheets in
order to suppress the detection of such non-existent fixed deposits on account of inflated profits. The investigations
also detailed that the company had deliberately paid taxes of about 186.91 crores on account of the non-existent
accrued interests of Rs 376 crores, which was a considerable loss for the company.
Unconvinced role of independent Directors -The Satyam episode has brought out the failure of the present
corporate governance structure that hinges on the independent directors,53 who are supposed to bring objectivity
to the oversight function of the board and improve its effectiveness. They serve as watchdogs over management,
which involves keeping their eyes and ears open at Board deliberations with critical eye raising queries when
decisions scent wrong
Questionable role of Audit Committee -The true role of audit committee in précis is to ensure transparency in the
company, that financial disclosures and financial statements provide a correct, sufficient and creditable picture and
that, cases of frauds, irregularities, failure of internal control system within the organization, were minimized, which
the committee failed to carry out18
WHAT HAPPENS WHEN EXECUTIVES GO BAD
19. -
Following are the common governance problems, which have been noticed in the collapse of
Satyam:
Dubious role of rating agencies - Credit rating agencies have been consistently accused of their lax attitude in
assessing issuers and giving misleading ratings without thorough analysis they failed to warn market participants
about the deteriorating condition of company.
Questionable role of banks - While sanctioning short term loans why not the banks posed any question as to
why the company which was supposedly cash rich as per the financial statements was taking loans from them.
Fake audit - PricewaterhouseCoopers (PwC)’s audit firm, Price Waterhouse, was in the auditor for Satyam and
have been auditing their accounts since 2000-01. The fraudulent role played by the PricewaterhouseCoopers
(PwC) in the failure of Satyam matches the role played by Arthur Anderson in the collapse of Enron.
Partners of PwC according to the SFIO findings, had admitted they did not come across any case or instance of fraud
by the company. However, founder admission of having fudged the accounts for several years put the role of these
statutory auditors on the dock.
19
WHAT HAPPENS WHEN EXECUTIVES GO BAD
20. -FC
20
INTERNATIONAL PRACTICES
The Foreign Corrupt Practices Act of 1977 (FCPA) is a United States Federal Law known primarily for
two of its main provisions, one that addresses accounting transparency requirements under the
Securities Exchange Act of 1934 and another concerning bribery of foreign officials. The act was
amended in 1988 and in 1998.
United Kingdom (UK) Bribery Act 2010, The Act is concerned with bribery. Very generally, this is defined
as giving someone a financial or other advantage to encourage that person to perform their functions
or activities improperly or to reward that person for having already done so
21. www.sbsandco.com/wiki
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