Financial Fraud Prevention and Detection: Governance and Effective Practices

CHAPTER NINE

Finding the False Numbers

WITH THE INVESTIGATIVE STRUCTURE and approach in place, it is time to dig into the numbers. The objective is finding and correcting those entries that are false.

A DAUNTING TASK

It is difficult to state the objective without immediately acknowledging how tough it can be. A public company in a single year may have thousands upon thousands of accounting entries. Those perpetrating the fraud may have worked hard to break apart, disguise, and bury the entries that are false. Unless it has been nipped in the bud (a rarity), the fraud may go back for years. And there may be little reason to think that it is limited even to a single country. The fraud of a multinational public company may have been deliberately scattered through multiple countries around the globe.

Nor can the audit committee expect immediate cooperation and candor from those involved. Senior executives who are involved may be educated, articulate, persuasive, and by this point highly experienced in rationalizing and explaining away falsified accounts. Lower-level participants may not like it one bit, but may be concerned that exposure of the fraud, and with it their own complicity, will cost them their jobs and possibly put them in prison. If accounting manipulation at the company has become cultural, it may have taken on a life of its own as midlevel executives have independently hidden, and then tapped into, reserves. Thus, no single individual within the company may have any ...