Fraud Awareness Week Casts Spotlight on White Collar Crime

Forensic Accounting QLD Joins Ranks of Supporters for 11 – 17 November 2012 Awareness Movement

Forensic Accounting QLD announced that it will be participating in International Fraud Awareness Week, 11 – 17 November 2012 as an official supporter to promote anti-fraud awareness and education. Organizations around the world lose an estimated 5 percent of their annual revenues to fraud, according to a study conducted by the Association of Certified Fraud Examiners (ACFE).

As an official supporter of the movement (also known as “Fraud Week”), Forensic Accounting QLD joins hundreds of organizations who have partnered with the ACFE, the world's largest anti-fraud organization and premier provider of anti-fraud training and education, in a commitment to proactively fight fraud and help safeguard business and investments from this growing problem.

During Fraud Week, official supporters will engage in various activities, including: hosting fraud awareness training for employees and/or the community, conducting employee surveys to assess levels of fraud awareness within their organization, posting articles on company websites and in newsletters, and teaming with local media to highlight the problem of fraud.

Steven Ponsonby, Founding Director of Forensic Accounting QLD commented that “he and his team are being engaged more frequently these days to assist in fraud investigations”.  Frustratingly, he observes that many of the frauds perpetrated could have been avoided by the implementation of a few simple internal controls”.

ACFE President and CEO James D. Ratley, CFE, said that the support of organizations around the world helps make Fraud Week an effective tool in raising anti-fraud awareness.
“While fraud prevention and detection is a year-round endeavor, International Fraud Awareness Week provides a great opportunity to spotlight this serious problem and stress the importance of anti-fraud training and education,” Ratley said. “Businesses and organizations who are involved in this campaign show an understanding that spreading awareness is key in combating the worldwide fraud threat.
“This marks the fifth year since Fraud Week became an international movement, and once again, we want to say ‘thank you’ to all of the Fraud Awareness Week supporters for making it a reality,” Ratley said.

In its 2012 Report to the Nations on Occupational Fraud & Abuse, the ACFE found that:

• Fraud schemes are extremely costly. The median loss caused by the occupational fraud cases in the ACFE study was $140,000. More than one-fifth of the frauds involved losses of at least $1 million.

• Schemes can continue for months or even years before they are detected. The frauds in the study lasted a median of 18 months before being caught.

• Occupational fraud is a global problem. Though some findings differ slightly from region to region, most of the trends in fraud schemes, perpetrator characteristics and anti-fraud controls are similar regardless of where the fraud occurred.

• Small businesses are especially vulnerable to occupational fraud. These organizations are typically lacking in anti-fraud controls compared to their larger counterparts, which makes them particularly vulnerable to fraud.

• Tips are key in detecting fraud. Occupational frauds are much more likely to be detected by tip than by any other means. This finding reinforces the need for promoting awareness to foster an informed workforce.

For more information about increasing awareness and reducing the risk of fraud during International Fraud Awareness Week, visit www.FraudWeek.com.
The 2012 Report to the Nations is available for download online at the ACFE’s web site: ACFE.com/RTTN.  The Report is in PDF format.
About the Association of Certified Fraud Examiners

The ACFE is the world's largest anti-fraud organization and premier provider of anti-fraud training and education. Together with nearly 65,000 members in over 150 countries, the ACFE is reducing the incidence of fraud and providing the training and resources to fight fraud more effectively. For more information about the ACFE, visit www.ACFE.com.

Forensic Accounting QLD
With a Certified Fraud Examiner (CFE) on the team, together with our financial analysis and investigative expertise, Forensic Accounting QLD has the expertise to assist in investigating a fraud or fraud related matter.  We can also assist with undertaking a business health check and recommending relevant internal controls to minimize the risk of fraud in a business.

2012 ACFE REPORT TO THE NATIONS – OCCUPATIONAL FRAUD & ABUSE

Every two years the ACFE1undertakes a survey on fraud around the globe. The data presented in the 2012 Report is based on 1,388 cases of occupational fraud that were reported by the Certified Fraud Examiners (CFE’s) who investigated them. The frauds2occurred in nearly 100 countries onsix continents, (including Australia) and offer readers an interesting insight into the global nature of occupational fraud. Whilst, the full report can be accessed under the publications page of our website at http://www.faqld.com.au/publications.html, I have set out a summary of the report’s major findings below for your information:

• Organisations lose an estimated 5% of total revenue to fraud each year,

• The median loss caused by occupational fraudis $140,000,

• More than 20%of the reported losses exceeded $1 million,

• The frauds had been undertaken for an average of 18 months before being detected,

• Asset misappropriation schemes were by far the most common type of occupational fraud, comprising 87% of the cases reported with a medium loss of $120,000,

• Financial statement fraud schemes represented 8% of the cases in the study,but caused the greatest median loss at $1 million,

• Occupational fraud is more likely to be detected by a tip off than by any other method,

• Corruption and billing schemes pose the greatest risks to organizations throughout the world. For all geographic regions, these two scheme types comprised more than 50% of the frauds reported,

• Occupational fraud is a significant threat to small businesses – suffering the largest median losses,

1 http://www.acfe.com/

2 The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets

Reality and the Rose Coloured Glasses

The festive season is over and reality is knocking on the door.

The Australian Securities and Investments Commission (“ASIC”) statistics show that February company collapses in Australia totalled 1,123, which represents an increase of 117%.  This is the highest monthly insolvency figure on record, and represents a 44% increase over the five year monthly average of 780.
         
While historically there has always been a general increase in the number of insolvencies during February that follows the Christmas/New Year period, February2012 has seen an increase of 31%, higher than for the same month last year and 47% higher than the five year February average of 766.         

The latest insolvency figures reflect the difficulties facing many businesses with the Global Financial Crisis (“GFC”) continuing to have a lag effect.  
 
It would appear that the February figure is an early indication that during the 2012 calendar year, the numbers of insolvency appointments are likely to remain at GFC levels, which have been experienced since 2009.

I am seeing the major banks move very quickly to preserve their security.I am also seeing first hand and being told of situations where the Australian Taxation Office (“ATO”) taking unprecedented and in my opinion uncommercial action against companies and businesses in financial distress.  I have no doubt that this action is being driven by the incumbent federal government’s pressure on treasury who in turn is pressuring the ATO to collect the outstanding taxation liabilities.

We are seeing a record number of winding up proceedings by the ATO in the Federal Court and in one instance, a garnishee notice being issued within 6 weeks of a business lodging it’s overdue BAS’s and attempting to bring its business affairs back into line with the assistance of the new external accountant.                   

To any business that is in financial distress, the message in all this is simple and clear, take off the Rose Coloured Glasses and have a look at Reality as this is not the time to be complacent.                                                                 

The ASIC website sets out a number of factors that may indicate financial distress/impending insolvency, refer to the following link: Indicators of Insolvency.

The list is neither exhaustive, nora definitive indicator of insolvency, however, if your business is experiencing a number of these indicators, I would strongly recommend that you seek independent,external professional advice outside that of your current accountant.
I suggestadvice outside of your current accountant as unfortunately and far too often, I have seen that the current accountant for the business goes to the same optometrist that the business owner goes too.

It is never too early to seek independent professional advice when faced with dealing with a business in financial distress.  In this regard, I would recommend that you discuss the issues with one of the following specialists:

• Turnaround Management Specialist,
• Insolvency Practitioner,
• Independent accountant

Alternatively, please do not hesitate to contact me directly and I will recommend an appropriate professional to assist you.

Remember: If you are facing financial distress, the timing for a successful turnaround/restructure is Sooner not Later – Act Now!                                                

Steven D Ponsonby is a Chartered Accountant CA, a Certified Fraud Examiner CFE and Insolvency Practitioner IP and is the founding Director of Forensic Accounting QLD, a specialist Forensic Accounting practice based in Queensland. Steven has been assisting insolvency practitioners and accountants with the restructuring of many businesses over the years, both formally and informally in a range of areas, including undertaking independent business valuations for the purpose of a formal restructure, and can be contacted via www.faqld.com.au.

Family Law – Blame it on the GFC

I have been amazed at the number of family law matters that our firm has been involved in recently where the answer to the “Significant” decrease in turnover and/or loss of profitability has been to attribute this to the GFC.

As forensic accountants, in undertaking a valuation of a business for family law purposes, or any purpose for that matter, we have a professional responsibility to consider all the facts and circumstances surrounding the particular business to ensure that our expert reports are relevant, appropriate in the circumstances and take into account ALL relevant factors to ensure meaningful advice is provided to a wide range of stakeholder and other parties, including the Court.

Therefore, whilst, it would be remiss of us not to consider any legitimate effects of the GFC on a business, equally, we also have a professional obligation to GFC, i.e. Get it Fundamentally Correct.

Typically, we find that one party to the relationship is the key business driver and it is this person who often seeks to “minimise” the value of the business in conjunction with their professional advisors, to the detriment of the other party to the proceedings.

Where are we seeing “adjustments” being made or closer scrutiny being required?

• Acquisition of items of plant and equipment that are subsequently expensed,
• Pre-payment of expenses, i.e. rent and other lease commitments,
• Deferment of sales to impact on turnover,
• Loss of interest and drive in the business,  (note, this maybe a genuine loss),
• Purposely running the business down, thereby causing the business value to be eroded,
• Manipulation of inventory items, i.e. running down stock levels or writing off stock that may not be obsolescent,
• Putting private expenses thru the business,
• Cash sales not being recorded,
• Non-commercial rates of salary, super and other benefits being provided,
• Sale of the business for undervalue and/or to a non-arm’s length purchaser,
• Adoption of the tax depreciated written down value of plant and equipment, rather than looking at the “going concern” value.

I am also seeing situations where the value of the business (if the proprietor accepts that the business has a value), then the value is solely attributed to the Proprietor and without,the proprietor, no value can be attributed.  Whilst, this is an interesting theoretical argument, in the interests of assisting with any matrimonial proceedings, I suggest that the Family Court will not adopt the same view in this regard.

I would also caution professional advisors (i.e. the accountant to the businessas an example) should consider carefully a situation where they purport to act in both parties interest, when clearly they are not.

I cannot emphasis strongly enough the importance of seeking independent professional advice, i.e. a solicitor specialising in family law to ensure the interests of all parties to family law proceedings are looked after.

Steven D Ponsonby is a Chartered Accountant CA, a Certified Fraud Examiner CFE and Insolvency Practitioner IP and is the founding Director of Forensic Accounting QLD, a specialist Forensic Accounting practice based in Queensland and can be contacted via www.faqld.com.au.