Guest Author - Consuelo Herrera, CAMS, CFE
When crimes of the business world happen, forensic accountants bring into light tactics and tricks used by crooks to deceive naïve and trustful entrepreneurs. Their expertise and knowledge in areas such as finance, accounting, investigative audit, and strong knowledge of the law enables them to underscore in a court of law when organizations are victimized. Philip’s case, simple, yet happening often, illustrates the scope of what takes places before a forensic accountant is hired.
His friends had always known Philip as a devoted entrepreneur who went out of his way to earn new customers for his business. Long hours, long trips all over the world, and countless difficulties did not undermine his determination of making his corporation successful. Although everything seemed right, there was a gap between his efforts and his earnings. How could it be?
In his mind, he had not worked enough to reach the financial goals that he had set for his company, which in turn meant, push harder getting new customers. Not even for a moment thought Philip that something else was wrong. He had trusted employees who took good care of the business while he was away, not to mention his office manager. Oh! He knew that lady for many years! She really displayed ownership through each one of her actions. Who could ask for more? Melissa was charming on the phone so it was always gratifying for Philip to hear his customers praising him for having such a wonderful manager. If Philip needed an extra hand during the weekends to upload merchandise, Melissa was there for him. Philip did not even have to bother in making his deposits at the bank. Melissa received the money, entered it into the accounting system, yeah! you guessed it: she was also his bookkeeper. It saved Philip's corporation money.
Philip's trust in Melissa's integrity left no room for the slightest shadow of doubt.
Not only had Melissa control over contacting and choosing vendors, entering their information in the company records, negotiating discounts, collecting money, making deposits, but she also was so mindful about this business that she even helped shipping merchandise, even when it was late at night. Customers were her priority number one.
Philip was so blind about Melissa's commitment that he did not notice some changes in her lifestyle. While Philip, the owner, drove an old truck, Melissa purchased a beautiful red convertible, joined the local country club, and, to fit within this new world, she was taking classes on fine dinning.
It was not until one of her co-workers made a joke aloud that Philip started reasoning about those changes. Yes, he said to himself, "Melissa has not had a salary increase nor has she inherited money... wow! how can she afford all of this?
That situation triggered new thoughts and doubts regarding Melissa's new and unexpected wealth. Hello Philip! Open your eyes. He met with one of his old buddies, Mark, and mentioned to him his concerns. Philip's friend had no clue about accounting and business operations. All he cared about was sports, sports, and sports! Mark was a good friend, though; after bragging on his team’s latest achievement, his face adopted a thoughtful attitude that Philip did not want to disturb. Suddenly Mark exclaimed: You need a forensic accountant! I have seen it on TV. They can determine if an employee is stealing money from a business or cheating in any other way like using the company's assets for his or her benefit.
Philip could not wait to meet the forensic accountant that he had found listed in the Yellow Pages. His name was Alex. Thursday at 4:00 P.M., they were having a cup of coffee at his office. Philip described in detail Melissa's responsibilities and mainly, her unjustified way of living, apparently, beyond her means.
After Alex heard the whole version, he said that regardless of his findings, three things were very wrong in this situation:
· Improper segregation of duties;
· Lack of internal controls; and or
· Lack of monitoring.
Alex explained to Philip that fraud occurs in a corporation because three elements come together: pressure: financial difficulties, for example; motivation or need: desire of having goods that an employee cannot afford, or having a situation that he or she cannot control, and, lastly opportunity. The worst of them being opportunity. Many call it: crimes of opportunity.
When Philip heard Alex's explanations he became angry and disappointed at the preventable events that transpired within his company. It seemed clear to him that Melissa was stealing while he was working so hard. If she did, how did she do it, and how much did she steal?
Philip hired Alex for this special engagement. Within one week they would meet to go over his findings and the actions that would be taken going forward.
Philip was devastated trying to figure out why it had happened to him.
Philip is not alone. The 2008 Report to the Nation prepared by the Association of Certified Fraud Examiners determined that 77.6% of the corporations implement measures to prevent fraud only after they had discovered wrongdoing in their organizations.
Forensic accounting accomplishes its purpose when entrepreneurs become conscious about their own responsibilities in fostering an environment that prevents fraud.
The American College of Forensic Examiners International, ACFEI, has designations that help Forensic Accountants to learn the skills and abilities present in forensic accountants. Visit their page at: www.acfei.com