In 2009, high-profile fraud cases like the Ponzi schemes of Bernard Madoff and Arthur Nadel vividly illustrated the harm done to investors who placed their trust in these apparently successful money managers and then discovered their money had never been invested at all. News stories featured 90-year-olds forced by necessity to work in supermarkets, elderly people losing their homes because their life savings were gone, and wealthy retirees suddenly unable to pay their electricity bills. Charities were forced to curtail their services, lay off staff, and even close their doors forever as their funds evaporated. Almost every day, there are stories in the media about dishonest employees who have robbed their organizations of hundreds of thousands of dollars. Not so well-publicized are the countless smaller thefts occurring every day from cash registers, warehouses, and business bank accounts. Sadly, the organizations that have the most to lose — small businesses, family-run companies, churches, and charities — are often the most vulnerable because of their size and inexperience.
According to the Association of Certified Fraud Exaiminers, accounting fraud cost more than $994 billion in 2008, and the average organization lost 7 percent of its total revenue to fraud. How can you prevent this from happening to you as an investor, business owner, or a person attempting to acquire or merge with another firm? Read The Complete Guide to Spotting Accounting Fraud & Cover-Ups and you will be able to understand, detect, and avoid accounting fraud.
You will learn how to identify fraud, how to spot minor abnormalities that may hide fraud, how to spot forgeries, and how to prove your case, as well as what to immediately suspect and methods for uncovering scams. You will know what signs to look for, including excessive turnover of lawyers and auditors, changing professionals in the middle of a transaction, inconsistent information, and significant declines in stock prices.
In addition, you will know how to recognize the common maneuvers, earnings manipulation, premature and fictitious revenue, overvalued assets, undervalued liabilities, bogus revenue, expenses that have been shifted to another period, overstating revenues, understating expenses, and the misuse and misdirecting of funds.
This new book is filled with studies and discussions of fraud cases and how they could have been avoided, checklists for detecting accounts misdeeds, and advice from analysts, CFOs, and CPAs. This manual will be an indispensable aid for serious investors, industry pros, acquisition and merger managers, and small business owners alike. After reading this book you will no longer have to worry about accounting fraud and you can increase your company’s profits.
Foreword 9
Introduction 13
Chapter 1 Defining and Measuring Fraud 19
Association of Certified Fraud Examiners 20
Occupational Fraud 21
Chapter 2 The Scope of the Problem 25
Who is Hurt by Fraud? 26
Why Fight Fraud? 28
Chapter 3 Who Commits Fraud? 31
Scientific Study of White-Collar Crime 32
Gender, Age, Education, and Tenure 44
Collusion 45
Conditions Under Which Fraud Occurs 45
Fraud Appears to be Addictive 46
Fraud is Associative 47
Fraud Schemes Are Not Seamless 48
Psychopathic Behavior 48
Chapter 4 How Fraud is Detected 51
Chapter 5 Asset Misappropriation and Embezzlement 61
Skimming 66
Skimming red flags 75
Cash Larceny 79
Chapter 6 Fraudulent Disbursements 95
Billing Schemes 96
Making Purchases with Company Accounts 105
Payroll Schemes 111
Check Tampering 123
Chapter 7 Corruption 139
Conflicts of Interest 142
Bribery 145
Kickbacks and Illegal Gratuities 147
Detecting Bribery and Corruption 149
Corporate Espionage 161
Insider Trading 169
Chapter 8 Financial Statement Fraud 171
Financial Statement Fraud Perpetrators 172
Motivation 174
How Financial Statement Fraud is Committed 176
Generally Accepted Accounting Principles (GAAP) 177
Types of Financial Statement Schemes 181
The Sarbanes-Oxley Act of 2002 197
Chapter 9 Detecting Accounting Fraud Within an Organization 205
Techniques for Detecting Financial Statement Fraud 210
Financial Statement Analysis 214
Ratio Analysis 217
Data Mining 223
Chapter 10 For Investors: Detecting Financial Statement Fraud in Public Financial Statements 229
Where to Find Financial Statements 230
Foreign companies 234
Reading Annual Financial Statements 235
Red Flags for Financial Statement Fraud 248
Chapter 11 Detecting Seven Types of Financial Statement Manipulations 251
1 Recording Revenue Prematurely or Exaggerating Revenue 253
2 Recording Non-Existent Revenue 257
3 Boosting Income with One-Time Gains 259
4 Shifting Current Expenses to an Earlier or Later Period 261
5 Failing to Record or Underreporting Liabilities 264
6 Shifting Current Revenues to a Later Period 266
7 Shifting Future Expenses to the Current Period as a Special Charge 267
Chapter 12 Preventing Fraud in Your Company or Business 269
Creating an Ethical Environment 270
Antifraud Education 273
Perception of Detection 273
Internal Controls 273
Employee Hotlines 276
Chapter 13 Conducting a Fraud Risk Assessment 279
Who Should Participate in a Fraud Risk Assessment? 280
Identifying Fraud Risk Factors 281
Evaluating Fraud Risk 282
Choosing and Implementing Strategies 284
Chapter 14 Conducting an Internal Fraud Investigation 287
Deciding When and How to Conduct a Fraud Examination 287
Confronting the Fraud Perpetrator 289
Preparing for a Fraud Investigation 289
Putting Together a Fraud Investigation Team 291
Conducting the Fraud Investigation 293
Results of a Fraud Investigation 293
Finding a Professional Fraud Investigator 294
Conclusion 297
Appendix A Useful Resources and Web Sites 299
Information on Occupational Fraud 299
Government and Regulatory Agencies 301
Internet Security 305
Financial Statement Research 305
Media 307
Conducting a Fraud Risk Assessment 307
Appendix B Glossary of Terms 309
Bibliography 319
Author Biography 331
Index 333
ShayEscobar
Posted June 18, 2010
For those of us still walking the tightrope between optimism and pessimism, the verdict is in . . . . the glass is half empty when it comes to human nature and if you don't want your nest egg empty as well, it is critical that you read The Complete Guide to Spotting Accounting Fraud and Cover-ups by Martha Maeda now.
This is a must-read for anyone involved in any capacity of a business. Vigilant owners and would-be owners should consider it their new bible and make it mandatory reading for any employee involved in their finances, since, as Maeda points out, there are many levels where fraudulent actions could be caught, but because of oversight, are not. One word of warning before taking the aforementioned advice: One man's science kit is another's Anarchist Cookbook and this book could do as much harm as help should it fall into the wrong hands . . . but perhaps that is just the pessimist talking. That being said, Maeda walks the reader through every aspect of fraud from the various types (financial statement, corruption, asset misappropriation, etc.) to detection of each in great detail. However, what many readers might find just as useful are the segments that profile the would-be embezzler; surprisingly, it's not what one would think.
Punctuating a highly readable and educational text are segments from newspaper headlines about costly fraud cases. This adds emphasis to the importance of the information presented and serves as a warning for the "it could never happen to me types." Case in point, even the coffers aren't safe from embezzlement. If your faith in the priesthood wasn't shaken by molestation allegations, reading the news story "Priest Calls Theft from Collection Basket his 401 K," should do it. Maeda uses this story to emphasize the point made by her research in Chapter 3, "Who Commits Fraud?" According to Cressey's Triangle, or the fraud triangle, any ordinary person can and just might commit fraud if three factors unite: personal motivation, the opportunity to do so, and means of justifying the criminal behavior. While the eternal optimists would like to think an employee would never betray them, Maeda's research clearly illustrates that under the right (or wrong) set of circumstances, almost any employee has the potential to commit fraud.
At this point the optimist might be questioning their employees, their religion, even the fidelity of their spouses. Is nothing sacred? Sadly, the answer is no when it comes to money. The Complete Guide to Spotting Accounting Fraud and Cover-ups addresses the realists by acknowledging that while there is no way to stop fraud entirely, there is still hope. Implementing the proactive approaches provided in the book may curb workplace dishonesty without going all 1984. By creating and maintaining an ethical environment, an employer may be able to minimize fraud without turning to the services of the Thought Police. However, just as your mother nagged you to be a good example for your little brother, Maeda points out that the attitude of senior management has a trickle-down effect on all the employees of an organization. So be prepared to set the example because no one likes a hypocrite, and it's a lot easier to justify stealing from one.
Erin_E_Schmidt
Posted March 23, 2010
When I first started 'The Complete Guide to Spotting Accounting Fraud & Cover-Ups' by Martha Maeda, I thought I was going to be bored. Actually, this book is quite fascinating. It promises to be easy to read, and it lives up to that promise, even for someone who'd had no background in accounting or finances. There are plenty of examples, including the cases of Bernard Madoff and Martha Stewart and examples from Coca-Cola, AOL, the International Olympic Committee, and more that show how the lessons apply to real life. As a psychology major, I found the discussion of psychopathic personality disorder in business especially fascinating.
This book is also very thorough. It discusses in detail the different kinds of frauds that are most likely to occur, why the occur, and who is most likely to be involved in them. More important, it details the ways owners of businesses large and small and investors can keep an eye out for the various kinds of fraud. Numerous resources went into researching this book, and Maeda shares the particularly valuable and user-friendly resources with the reader. According to the introduction, organizations in the USA lose about 7% of their annual revenue to fraud, or an estimated $994 billion total. For these reasons, anyone who runs a business or a charity (even church groups) or who has investments should read through it at least once.
CJohnson28
Posted March 22, 2010
Martha Maeda's comprehensive look into the criminal world of fraud outlines everything you need to know about fraud in her book, "The Complete Guide to Spotting Accounting Fraud and Cover-ups."
Whether a small-business owner or a corporate CEO, this book will help any reader regardless of prior knowledge or experience with fraud learn how to spot and stop fraud in its tracks.
Maeda's clear writing style and exhaustive research will allow anyone to grasp not only the various types of activity that constitutes fraud - everything from skimming, check tampering and embezzlement to corporate espionage - she also helps the reader get inside the head of a person committing the crime.
For example, in her third chapter, "Who Commits Fraud?" Maeda doesn't just outline a general profile of someone who may commit fraud, she cites hard studies that are still widely used today in fraud investigations.
Maeda recognizes that fraud does not just sprout out of simple greed, but can become a full-on addiction that prays on people with multi-layered problems. These problems, Maeda says, can be the result of personal failures that these people believe can be solved secretly and quietly by violating the trust of employers for personal gain.
With Maeda's insight into the mind of a person who commits fraud, the reader is then guided through a series of strategies with how to deal with fraud, from detecting it to when to alert the authorities to launching an internal investigation within a business.
The result is a book that is not only helpful but also a fascinating look into the psyche of white-collar criminals.
My husband is a great hard-working guy; however he is way too gullible. He believes in every get-rich- quick scheme that comes his way, and the last time I looked we were far from rich. In fact, I would like to have the money back he has lost by those who have bilked him out of a few bucks - some being employees he knew and trusted. Since getting back what we lost probably won't happen, I have bought him this book so we can finish paying for our child's braces and save for college. While not all get-rich-quick-schemes are fraud and not all employees steal, he needs to know how to spot fraud and how to protect our finances.
The authors explain that "fraud is the theft of assets from a company or individual through the manipulation and abuse of legitimate processes." This can make it difficult to detect because it seems so above-board - and it can happen to anyone. Financial savvy victims of Bernie Madoff did not think they were giving their money to a crook. For years they believed their money was safe. It wasn't. His Ponzi scheme was eventually uncovered and many people lost their life's savings. You can prevent this from happening to you.
This book makes clear to us layman What Fraud is, Who Commits Fraud, How Fraud is Detected, What Financial Statement Fraud is, How to Spot Accounting Fraud in an Organization, the Seven Different Types of Financial Statement Manipulations, How to Prevent Fraud and How to Assess and Conduct an Investigation on Fraud. She also points out to us what Asset Misappropriation and Embezzlement are and how to spot Fraudulent Disbursements. It is no wonder that average people like me just don't get how complicated and established financial larceny is. This is why we all need this book. Ms. Maeda has explained in very understandable details what we need to know. This is a book I will buy for other family members and keep handy for years. I was surprised at how much I didn't know about accounting fraud and financial cover-ups and am delighted to finally find a book that explains it all to me - and my husband - so we will never be in the dark again. A valuable and necessary book for everyone, I want to thank Ms. Maeda for enlightening me. I will never be without this book, and neither will my husband. I'll make sure of that.
Anonymous
Posted March 19, 2010
This book's subtitle--Everything You Need To Know Simply Explained--provides an accurate summary of its purpose and contents. Written by economic historian Martha Maeda, The Complete Guide, defines fraud, looks at the scope of the problem, who commits fraud, how it is detected and how to conduct a fraud investigation or risk assessment.
The book provides a solid and sobering overview for businesspersons defining and using terms they will understand. Maeda includes a list of online resources useful for anyone needing to learn about and to conduct a fraud investigation in his or her business.
For anyone who doesn't believe that fraud is one of the biggest challenges faced by businesses, some of the facts included will quickly change the reader's mind. For example, the most common occupational fraud is committed by accounting 29%) or upper management (18%) staffs and nearly all (93%) of those caught are first time offenders.
Maeda includes a list of online resources that would also be useful to anyone needing to learn about and to conduct a fraud investigation in his or her business
The Complete Guide to Spotting Accounting Fraud and Cover-Ups by Martha Maeda provides the reader with fourteen chapters plus appendices and references of information about accounting fraud. By breaking it down into the types of fraud and how they can be accomplished the book makes it easy for company management and investors to research and recognize possible accounting fraud. One typing error on page 11 leaves out one or more words in a sentence but other than that the book was error free.
As the book details how each fraud can be accomplished it provides statistics, red flags and methods for preventing fraud for both small and large business entities. The book also gives the reader resources on how to obtain help in discovering fraud including professional fraud investigators. The Complete Guide to Spotting Accounting Fraud and Cover-Ups delivers what it promises.
My husband is a great guy; however he is way too gullible. He believes in every get-rich- quick scheme that comes his way, and the last time I looked we were far from rich. In fact, I would like to have the money back he has lost by those who have bilked him out of a few bucks - some being employees he knew and trusted. Since getting back what we lost probably won't happen, I have bought him this book so we can finish paying for our child's braces and save for college. While not all get-rich-quick-schemes are fraud and not all employees steal, he needs to know how to spot fraud and how to protect our finances.
Martha Maeda explains that "fraud is the theft of assets from a company or individual through the manipulation and abuse of legitimate processes." This can make it difficult to detect because it seems so above-board - and it can happen to anyone. Financial savvy victims of Bernie Madoff did not think they were giving their money to a crook. For years they believed their money was safe. It wasn't. His Ponzi scheme was eventually uncovered and many people lost their life's savings. You can prevent this from happening to you.
This book makes clear to us layman What Fraud is, Who Commits Fraud, How Fraud is Detected, What Financial Statement Fraud is, How to Spot Accounting Fraud in an Organization, the Seven Different Types of Financial Statement Manipulations, How to Prevent Fraud and How to Assess and Conduct an Investigation on Fraud. She also points out to us what Asset Misappropriation and Embezzlement are and how to spot Fraudulent Disbursements. It is no wonder that average people like me just don't get how complicated and established financial larceny is. This is why we all need this book. All is explained in very understandable details what we need to know. This is a book I will buy for other family members and keep handy for years. I was surprised at how much I didn't know about accounting fraud and financial cover-ups and am delighted to finally find a book that explains it all to me - and my husband - so we will never be in the dark again. A valuable and necessary book for everyone, I want to thank the authors for enlightening me. I will never be without this book, and neither will my husband. I'll make sure of that.
Overview
In 2009, high-profile fraud cases like the Ponzi schemes of Bernard Madoff and Arthur Nadel vividly illustrated the harm done to investors who placed their trust in these apparently successful money managers and then discovered their money had never been invested at all. News stories featured 90-year-olds forced by necessity to work in supermarkets, elderly people losing their homes because their life savings were gone, and wealthy retirees suddenly unable to pay their electricity bills. Charities were forced to ...