LessonsLearnedfromFraudCases.ppt

November 17, 2007 Lessons Learned From Fraud Cases PricewaterhouseCoopers Global Economic Crime Survey, 2007 Turkey Report Larger frauds: $3.9 million average Turkish fraudsters: 31 to 40 year old males, high school educated, less than 5 years on job Only 21% of 105 companies brought criminal charges. SmarTalk TeleServices Fraud 2003: PwC agreed to pay SEC $1 million for improper professional conduct Approved $25 million restructuring reserve to reduce expenses Revised, corrected, or discarded audit work papers KPMG Typical fraudster: long-time employee, top management, acting alone, many frauds, over many years, large amounts Whistle blowers catch far more than internal controls Theft, fraudulent financial reports, embezzlement, kickbacks KPMG: Xerox Audit Fraud 2003: SEC charged KPMG with fraud in Xerox audits (1997- 2000) KPMG approval of accounting errors inflated revenues by $3 billion and pre-tax earnings by $1.2 billion Deloitte Financial institutions External: organized crime rings, sophisticated threats Internal financial fraud increased 19% Disaster recovery: Business Continuity Management (BCM) Adelphia Sued Deloitte 2002: disclosed $2.3 billion off-balance-sheet debt, declared bankruptcy November 2002: Adelphia Communications Corporation sued Deloitte Touche for “professional negligence, breach of contract, fraud and other wrongful conduct.” Ernst Young 20% of respondents would not invest in some countries because of fraud risk, especially bribes and kickbacks. “The move towards International Financial Reporting Standards (IFRS) will drive changes to accounting practices, particularly in emerging market countries. Where these standards negatively impact financial results, the risk of financial statement fraud may increase.” Manhattan Investment Fund Phony financial statements certified by Deloitte (Bermuda, a tax haven) hiding $300 million short sale losses of $400 million hedge fund Ernst Young (Bermuda) fund administrator Settled with invest