A CPA's Guide to Committing Fraud

Source: Journal of Accountancy

CPAs can do a better job of preventing, detecting, and deterring fraud by learning how fraudsters think. Using six case studies involving almost $4 billion in combined losses, this article shows CPAs how they can learn from fraudsters' motives and methods.

In one scheme, for example, a senior executive, in an effort to save the business, worked with a small group of co-conspirators to falsify the company's financial statements. With the help of a low-level accounting clerk who received an excessive salary as hush money, the co-conspirators “altered the financial statements to include fictitious cash, nonexistent fixed assets, and bogus goodwill from acquisitions.” The result was a $2.9 billion loss. The perpetrator was a former employee of the company's auditing firm and used his familiarity with the firm's methods to conceal the fraud.

The fraud was discovered when an executive sold a large amount of stock on the eve of a disappointing earnings report, triggering an insider trading investigation. In an interview with the AICPA's fraud task force, the perpetrator suggested several actions that might have resulted in earlier detection, including verifying cash in bank accounts; demanding accurate, timely fixed asset inventories; verifying goodwill calculations; and evaluating employee salaries in light of experience.

For the complete article, read “Criminal minds – What CPAs can learn from the way thieves think.”

From Journal of Accountancy, American Institute of Certified Public Accountants, August 2012, http://www.journalofaccountancy.com/Issues/2012/Aug.