Steps for Fraud Auditors (Half 8)

In our subsequent two blogs regarding shell firms, I’ll spotlight real-life shell firm schemes detected by our agency utilizing the fraud audit methodology mentioned in our blogs. Bear in mind, all these schemes had been present in giant publicly traded firms utilizing the fraud audit methodology mentioned within the final seven blogs. I’ve modified the names of the businesses to respect the confidentiality of our shoppers. It is very important be aware that there have been no allegations, no whistleblowers, and no leads.

As you learn, ponder the next questions:

If you’re performing a conventional inside management audit, utilizing a random pattern, would your audit have detected the fraud scheme?

As you see the purple flags that brought about us to be suspicious, at what level would you may have been satisfied that you just wanted to cease auditing and begin investigating?

Shell Firm One

A vice chairman brought about R. Consulting, Inc. to be added to the seller grasp file. The vice chairman stole $130,000 in a single month by means of 4 invoices numbered in a sequential sample: 1, 2, 3, and 4. The primary two invoices bore the identical date, and every bill was beneath the management threshold (nevertheless, collectively the primary two invoices exceeded the management degree). All transactions had been recorded in the identical value middle. The bill description indicated “consulting companies.” We recognized this as a created shell firm scheme with the motion assertion being a false billing.

Pink flags

1. 1. The corporate was a brand new firm on the grasp file.
2. 2. The Bill quantity sample was sequential.
3. 3. The bill numbers had been low.
4. 4. All invoices had been recorded in the identical value middle.
5. 5. The primary two invoices within the mixture circumvented the approval course of.

Shell Firm Two

On this instance, the perpetrator created three totally different shell firms with totally different addresses in several states. The transactional evaluation revealed the scheme as a result of all three firms used the identical bill numbers, dates, and bill quantities.

The hyperlink between the three totally different firms occurred within the doc examination. The three invoices for every month had the identical error on the paper bill. The coincidence instructed to us that the invoices for the three totally different firms had been created by the identical particular person. They had been additionally recorded in the identical value middle. The group’s losses from the shell firm scheme had been $19,800, and the entire losses from all of the perpetrator’s schemes exceeded $150,000.

Pink flags

1. 1. The corporate was a brand new firm on the grasp file, apart from that, there was nothing suspicious within the grasp file knowledge.
2. 2. The handle was a avenue handle, which means no P.O. Field or suite quantity.
3. 3. Three totally different firms in three totally different cities in the identical value middle all had the identical bill quantity, similar bill date, and the identical bill quantity.
4. 4. Bear in mind, all three firms had been in vastly totally different geographic areas.
5. 5. The spend degree for every firm was precisely $6,600. Usually, relying on the corporate’s dimension, this spend degree wouldn’t be excessive sufficient to get a re-assessment.
6. 6. If you happen to examine the primary and second examples, the entire losses are comparable, however the person transactions are very totally different.
7.  

The ethical of the story is usually the perpetrator does one giant scheme and typically they commit plenty of small schemes. When you discover a fraudulent transaction, goal your audit to the perpetrator sphere.

Shell Firm Three

Lunoid Inc. outsourced laptop programming companies for greater than $5 million per 12 months. We investigated a possible shell firm that supplied programmers who labored remotely. First, we recognized the general-ledger classes that might lend themselves to a pass-through scheme. Subsequent, we in contrast bill quantity patterns amongst all distributors in the identical common ledger class to find out the traditional sample of vendor invoices. The bill quantity evaluation didn’t reveal any sturdy clues. Nonetheless, anomalies within the line-item description happily revealed the perpetrator. Although line-item descriptions normally aren’t helpful in figuring out shell-company schemes for companies, we adopted the outdated adage, “If you happen to don’t look, you may’t see.”

Pink flags

1. 1. On this FDA undertaking, our evaluation was carried out by common ledger class by vendor. Our FDA interrogation was based mostly on our educated guess as to the kind of fraud scheme that might possible happen in that class. Our skilled judgment.
2. 2. The corporate was a brand new firm on the grasp file. Let me clarify this idea, new is a relative idea. On this FDA undertaking, we used 48 months as a brand new firm.
3. 3. Our change evaluation for the class signifies a change in distributors.
4. 4. The brand new vendor and the outdated vendor had been in the identical zip code however at totally different avenue addresses.
5. 5. On this firm, all contract workers are assigned a badge with a quantity.
6. 6. The road-item description on the bill mirrored a badge quantity for every contract programmer on the bill. From a management perspective, we will solely knowledge mine for the date that accounting enters into the system. Now we have had sufficient initiatives the place the line-item description was simply insufficient.
7. 7. We carried out a replica quantity check on the line-item description. The check was duplicate badge quantity and totally different vendor quantity. If accounting had not entered the data into the accounting system as mirrored on the bill, we’d not have been capable of detect this scheme.

Shell Firm 4

Manunte Inc. used a vendor, SLP Consulting Inc. The invoice-number sample was sequential, however all of the invoices had been in a 30-day interval. We didn’t see any sample within the bill dates or quantities. The invoices began with a excessive five-digit bill quantity that supplied the phantasm of an present firm. To be clear, SPL Consulting was an actual firm working within the market.
Our investigation decided that the spouse of the vice chairman of human assets at Manunte was offering these consulting companies for a complete value of $120,000. We recognized SLP Consulting as a conflict-of-interest shell firm.

Pink flags

1. 1. The corporate was not a brand new firm on the grasp file, however the vendor had not been utilized in two years.
2. 2. The grasp file knowledge gave the impression to be in keeping with an actual firm working within the market.
3. 3. Nonetheless, as a result of the seller title didn’t describe the character of the enterprise, we thought-about {that a} purple flag. Not an amazing purple flag, however a purple flag.
4. 4. Primarily based on our expertise we contemplate vendor names with abbreviations (SLP) as a purple flag.
5. 5. Sure, the bill numbers had been sequential however all of the invoices had been inside a thirty-day interval.
6. 6. Sure, the bill quantities had been spherical numbers, however I consider spherical numbers aren’t an anomaly for skilled companies.
7. 7. Typically even when the info patterns don’t strongly scream shell firm, you will want to depend on your skilled expertise.
8. 8. Our first audit step is at all times a authorized background test. That’s how we decided the enterprise proprietor was the spouse of the VP of Human Sources.
9. 9. In full disclosure, the president of the subsidiary knew concerning the relationship however by no means required disclosure to company headquarters.

Fraud Trivia Another Attempt!

Okay, I’m going to take an opportunity, right here is my electronic mail, lvona@leonardvona.com If in case you have an thought for fraud trivia, I’ll listing your fraud trivia, give your credit score, in order for you credit score or I’ll listing the supply as nameless. All I ask is that you just present a supply of the data.