Chapter 13
Tracing the Flow of Money
In this Chapter
Studying a company’s financials
Getting intimate with bank records, 1099s, and credit card statements
Interviewing key witnesses
Looking at your target’s lifestyle
Within a business, cash can be manipulated in two ways: It can either be misappropriated or “created” in a company’s financial statements. The first type of fraud occurs when employees or managers steal cash from a company. Small businesses are more susceptible to defalcation (misappropriation) of cash because they have fewer internal controls in place to detect the fraud. In large businesses, management can override the controls to perpetrate fraud.
The second type of fraud is rare and extremely difficult to carry out. The assumption here is that the cash and bank balances reported in the company’s financial statements are fake. To carry this out, someone has to artificially inflate the revenues first.
This type of financial statement fraud occurred in one of the largest corporate frauds in history involving Parmalat, a multinational Italian dairy and food company. ...
