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Personal Fouls: PwC and KPMG Under Fire

With PwC and KPMG being at the top of the public accounting world, the PCAOB states that they are failing to keep those titles free from black marks. In recent reports, the PCAOB has uncovered significant evidence of these two firms failing to support their audit opinions on the financial statements and on the effectiveness of good internal controls.

While observing PwC specifically, deficiencies were found in 21 of the 52 audits that were inspected. That’s just over 40% of their audits! PwC had miss calculated the valuation of two categories on the financial statements of various companies and also failed to perform thorough enough tests of controls for many companies, resulting in poor marks in these areas in following years. In other situations, accuracy was the issue when trying to determine the value of certain assets of the company, swaying the bottom line of the financial statements.

KPMG was in a similar boat, having 17 deficiencies in 48 inspected audits (just over 35% of their audits). Problems that KPMG ran into included improper evaluation of control deficiencies which were later proven to be material weaknesses in the company’s structure. Continuing on the controls theme, KPMG was also targeted for misevaluating a company’s time at which they should next be audited, meaning they missed important information during the controls inspection.

As these two companies promote themselves on being “the best” in the world, outsiders only see this as an act of laziness within the field. There is a lot to say about these stats. It could be that since they all came within the year of 2012; it is just a generation problem, meaning this could be a newly occurring trend. With that comes new “professionals” to the field, young and eager to learn, but with a lack of knowledge and a small awareness to the details of various auditing work. To others, this could be the effects of a changing day and age with technology now taking over the wheel of many projects.

It is not proven that technology was the reason for these deficiencies throughout 2012, but think of it this way. Technology has slowly been taking over the world. With accounting now switching almost completely over to this method, a countless amount of data had to have been converted from paper to pixel. Programs have been getting tested frequently, finding bugs day in and day out which need to be fixed in order to smoothly access all of the programs’ functions. The learning curve, especially for the older generation of auditors, has been steepened, creating a once almost robotic human process into a process that robots actually do perform all the work. The work that people used to do is now being answered in seconds, but who knows where accuracy lands on that scale. With that, technology has completely dominated all aspects of this field.

It is outrageous to see two of the top accounting firms in the world having such issues with their auditing process which they have proven to work for years now. The difference in what was occurring years ago to now can’t narrow the overlying issues down to just one instance. The one thing that we can point out is that technology and its presence 20 years ago was very faint, and now, it is more apparent than ever before.

http://economia.icaew.com/news/august-2013/pwc-and-kpmg-audits-fall-foul-of-pcaob

Technology to the Rescue!

With technology making such a profound appearance in the auditing world, the once paper shifting job has now almost completely turned to an electronically based process. It is evident that with technology, it is much easier to communicate and work in teams that may be positioned all across the world, but the safety and security of the paperwork could very much fall into the wrong hands with ease. After expressing my opinions a few weeks ago on this topic, and essentially being on the fence of technologies effect in the field, I come to realize that technology could actually be the best “police officer” when it comes to analyzing data and finding the flaws and frauds that auditors may miss.

After doing some investigation online, I came across a case that took place in Vass, North Caroline over the summer of 2013. A hedge fund owner and operator by the name of James A. Shepherd was able to acquire more than $6 million from investors over a seven year time span. How did he finally get caught you ask? Well, you can say the electronic bank confirmations tell no lies.

Various public firms use a program called Confirmation.com that allows for all of the bank transactions to be saved in various bank records. You can check everything from the date submitted, times transactions are submitted, where they were submitted from, and a bunch of other tracking pieces of data. Another cool thing about this program is that it breaks down specific individual aspects of the banking system and condenses them into sheets that can show a time trail of everything going on within specific accounts. This program is great since it can update from all over the world, and works really well when working with international entities.

Shepherd, trying to beat the system, had full control of these accounts. He was a well-respected investor which had his investees dump their money into an account which he later would transfer 60% of their money to his own pockets. (Side note: Later, investigators would find out that Shepherd’s clients were funding his lavish lifestyle which includes his $2 million home!) Seeing as all of this was taking place through electronic accounts, there was a track record of where all of the money went, which made it easy to point out Shepherd’s wrongdoings. Still, it took a good accountant to realize that submitting paper bank statements when everything was technology driven was a red flag for a possible fraudulent act.

This scenario is a close indication to what occurred during the Peregrine fraud where the founder, Russell Wassendorf, was sentenced to fifty years in prison for stealing over $215 million from his clients. In both cases, the wrongdoers used software tools to create fake bank statements which they would send to a fake mail box that they rented, would sign the statement with a fake employee signature, then sent the fraudulent document back to the auditor. Both of these companies used Confirmation.com, which allowed for easy tracking once suspicion occurred and the wrongdoers would not let anyone look at the electronic balances created but insisted on using the paper copies they forged.

What is even more impressive is that now, the software is telling the companies that things are wrong before the accountants can catch it. When there are huge differences in accounts, large shifts in money, irregular transactions made, or other suspicious acts, the program will notify individuals from the company to investigate the issue and can even tell you details why all of this is occurring. It is crazy to think that before, auditors would need to go through hundreds of papers, and now, computers can pull all of the data we want into a condensed sheet to analyze.

 After reading about this case, it is hard to knock at the effects of technology in the accounting field. The amount of time saved and ease that it brings to a data intense process is tremendous. Now knowing that the systems are catching the issues before people do also brings an added factor which should prevent individuals from performing fraudulent acts in fear of destroying their reputation and, most likely, ending up behind bars.

 -Mike Thomas

http://www.accountingtoday.com/news/Audit-Confirmation-Technology-Uncovers-Financial-Fraud-67142-1.html

Auditing Fraud: Technology at the Forefront of the Issues…

Auditing is a delicate process, one which has not been changed in years. From the way you prep the material, to giving the final statements on various findings within a company, auditors seem to stick to the same process that have been used for years. It is not that people thought the auditing profession was immune to change, but it was a change that would need to affect the world and one that would not be the easiest to accomplish.

Of recently, technology has fully taken over the world, and has slowly started to dominate the auditing world. With this dominance comes speculation to many in the field with the big question being: Is this going to help or hurt the profession even more? Here are some of the topics that have been buzzing around technology entering the auditing field.

Auditing involves a great deal of researching data and ensuring that everything is accounted for. With that comes a vast amount of paper documents to sort through, which could take weeks. To make this process efficient, it involves a team that communicates extremely well. If this wasn’t hard enough as it is, companies are now starting to gain a large international presence, creating even more communication needs not only on the audit team, but to the entities that are overseas. For this, information is now beginning to be stored on the internet which allows access to the information for each audit to be accessible anywhere within the company’s network.

The catch you ask? With this information being placed in online folders, everyone on the audit can now access it at their own leisure. Information that is vital to making personal financial decisions and give that upper hand on various upcoming business decisions could be sitting on anybody’s screen, at their desk, at any time of the day. The temptation to view these files with the intent to use them in a personal manner increases with such easy access to the documents in their own privacy.

What also comes into play is learning these new systems. Cindy Fornelli, an executive director for the Center for Audit Quality, states that with these improvements comes an “increased risk and complexity” which starts to change an auditor’s “independence, objectivity and skepticism”. These three components are essential for auditors so that they view each entity similarly with no biases or attachments to the decisions made in any way. By having all of the information stored in a folder, auditors could feel like the company is trying to hide something and not place that information in the folder causing distrust.

With technology now playing a big part during the process, there are now even more ways that fraud can occur. Being able to continuously be on the internet no matter where you are allows for constant communication, but it also can lead to shortcuts in and around multi-million dollar frauds. It only takes one very tech-savvy individual to break into the system and change one number to benefit their earnings by thousands overnight. Now, with the younger generations of people moving up into the field and being more technology dominant than almost any other generation, it will be interesting to see what types of new frauds could occur if these individuals were given enough information.

Another outcome of moving the audit process to a more technology based process is the data extraction and analysis software. This software allows for auditors to test entire populations at a very high rate to search out possible frauds in the company that may be occurring. At first, this seems like an awesome idea. When I look at this, auditors may begin to rely too much on what this automated system does, and only take the information it discovers to the table instead of personally digging into the data. It only takes one tech-savvy individual to override the system to cover up the fraud and make it so it does not appear during the analysis. It is as simple as that, which I believe could prove very fatal to the auditing profession as a whole.

Think what you may about technology and all of the great perks that come with it, but really look at the effects it may have on the accounting profession. With the younger individuals now rising up into higher positions, the pressures to do well only increase, thus opening their eyes to how easy it could be to commit a fraud. I can only hope that technology only makes the audit process easier, but there will be many stops and goes along the way to prove as to which process is the better method.

-Mike Thomas

http://www.accountingtoday.com/ato_issues/27_8/The-next-wave-in-auditing-67578-1.html

Cyber-Crimes are the new Crime?

With my last few posts being about how the world and this generation are switching over to a technology driven society. This post is to exploit that exact same topic, but the complete negative aspect that it brings. Cyber Crimes could be new court case of the next decade if events continue to occur on a national level.

So what is a cyber crime? Cyber crimes are when a computer is targeted for malware, better known as malicious software, is downloaded onto your computer without your knowledge with hopes to gather statics through your computer, or better yet, slow your computer down and possibly stop it from working. People program these viruses into links that they post on sites that are embedded in the code you want to access. Once it is downloaded onto your computer, it goes into a process which could completely corrupt your computer and make it non functional. Many people now a day have Firewalls, or other anti-viruses software downloaded onto their computers to help prevent these viruses from destroying your documents.

There are various kinds of cyber crimes such as malware, identity theft, cyber stalking just to name a few. One of the new up and coming crimes that are beginning to occur are based through nationally known events such as the bombing during the Boston Marathon. People begin to send emails to various accounts which titles such as Boston Explosion Caught on Video”. Of course, people wanting to know the real story from the day may click on the link provided in the email, but once you click on it, all it does is start downloading something and doesn’t actually take you to another site. At that very instant, you have successfully allowed malware into your computer. HORRAYYY! But really, it’s that sneaky… This trick is known as emailing bombing which there are various forms that could be performed.

This type of hacking is so effective that it has even hit national headquarters such as the Federal Reserve, where “information was obtained by exploiting a temporary vulnerability in a websites vendor product”. Even though the problem was fixed shortly after, the incident does create a scare to people like us who do not have billions of dollars invested into their production or security of information.

With this in our minds, remember to ensure to get an Anti-virus software such as NORTON on your computer and run regular checks. Be careful with weird looking links or unfamiliar email addresses before clicking on them. All of this sounds simple, but it only takes one unintentional download to crash your whole computer.

-Mike

Is your ONLINE identity more valuable than your REAL identity?

Continuing on this theme of the internet taking over the world, it is now time to talk about security. People are beginning to loosely throw around all of their information on the internet. In some cases, stalkers could easily be able to take over your identity in a matter of minutes due to the amount of personal information you may have out in cyberspace. With that being said, do many people know about their possible risk? Do you think they even care?

            For starters, sharing your every pinion or life crisis on the internet is not something that many should be doing. It doesn’t show that you are being authentic in any way, and all it is doing is putting a bigger target on your back for identity thefts. By doing this, you are expressing your feelings, emotions, and more importantly, your weaknesses in some cases. When you are fragile, you are more likely to take action even on the smallest of details in life that may go wrong. Some thefts are able to play into this by cyber bullying you, extracting the information they need from you and then stealing your identity.

             Another observation made is that information may be spread out over various social media sites, but when pieced together, could end up in a terrible identity crisis. With each of your profiles for these sites having needed your name and picture, it is easy for invaders to match up information and raid your life. With that being said, who knows if the person you are talking to is a “DOG”, or not who they advertise who they are. People could easily create a fake profile and talk to individuals through the internet without ever leaking any of their actual information to you, while they are constantly gaining information on your authenticate profile and life.

            Lastly, like almost anything on the internet, all of this data is being mined by super sites such as Google and Facebook. All of this information is stored in their memory banks and will always exist. If they are able to use face recognition and link up all of this data, either of this sites could have years and years of information on YOU. Now that is really scary to think of. This is not how society should be…but with that come change in order to protect ourselves.

            There are a few steps that can be taken to avoid your name and information from being snagged right before your eyes. One method that people advertise to do is make a ‘two factor authentication’. This method is used by a lot of banks in order to gain access to your accounts. This will allow for multiple layers of security and will continually change your password via text messages so that there is never a static password needed to be used.

            Another one is trying to be anonymous. By being anonymous, people will not be able to hunt you down. People sometimes use different versions of their name, or maybe a nick name to represent their actual profile. Only people that know you in the real world will know who you are based on the nickname but creepers will not be able to identify you or trace you back to your personal information.

            All of this is really creepy to think about, but it is necessary to be aware of the dangerous that YOU could be putting yourself in.

 -Mike

Bit Coins: The New “Superior” Currency?

In class one day, bitcoins came up as a topic of discussion in class. Personally I had no idea what these were, but as the discussion continued, it became a topic of interest to me seeing as how internet savvy our generation has become.

Bit coins are the new virtual currency. In order to acquire this currency, customers download a “wallet” in order to hold all of your currency in one place. Downloading these wallets is free. Next, one either buys (with a common currency such as USD) bit coins in which are stored in these wallets. The interesting part comes once you have the coins themselves. By using these bit coins, all of your purchases and transactions using these coins are now anonymous. No one knows who is ordering the items online seeing as these bit coins allows for complete privacy for all buyers. Cool is it not?

When looking at it from the outside, it seems like it is much more of a hassle than it is a convenience. For example, online purchases are easy enough through services like PayPal. Sure you have to enter your credit card information into the computer, but any time you swipe your card, the handler is able to bring up any information about you on the spot. It also makes people “assume” that if you use bit coins, the transactions you are making are probably illegal in some way. I’ll let you be creative when thinking of those possible “illegal” purchases. Another way that these coins are coming into use is to secure ones money. People in foreign countries who are experiencing banking issues no longer need to store massive amounts of gold in their houses. Instead, they just need to convert their money into bit coins and make sure they have access to their online wallet.

When looking at it from the real life aspect, bit coins could possibly help prevent identify thief through the computer. The fewer amounts of times you have to enter any of your personal information into the computer means a lesser chance of getting any of your information or your identity swiped right before your eyes. In that sense, being able to stay anonymous with your purchases is very applicable in real life today.

So…what can you buy with these bit coins? It looks like anything that can be shipped could be purchased with bit coins nowadays. As seen in the attached article, bit coins is one of the top up and coming currencies in the world right now, surpassing over 20 known and active currencies throughout the world. It’s only a matter of time for this form of spending to be in full swing and the new way to shop online.

The only real world situation at this brings into play is the affects it could be having on gold. Gold is the basis of our currency, and is a vital asset for investors seeing as predominating, it continually rises. With the rise of bit coins, gold is no longer an investors’ point of interest. Seeing as gold needs to be stored is a secure area, bit coins just have to be stored in your online wallet which could be password protected. Gold is more of a liability when sitting next to bit coins which is now causing a threat to the American market.

Bit coins have their pros and cons, but only time will tell if which direction this virtual currency will go.

-Mike

Are VPNs worth it?

Many people do not even know what a VPN is, and yet some techies would bet their life that these Virtual Private Networks can keep their lives out of the hands of hackers and internet thefts. The reasoning behind using VPNs is in fact to keep all of your information from being exposed to the world around you. This is extremely important for information pertaining to credit card numbers, important business analyses of the company, and will help to protect you from identity theft through your social security number.

                VPNs are a way to hide one’s IP address through a randomly assigned number which hackers cannot crack. Of course, that alone possesses a threat with the fact that when one says you “cannot” do something really means to try really hard to prove them wrong. That is exactly where the problems begin for this service. People strive off of a challenge. When faced with something that one tries to prove to them that they cannot do, the incentive to prove them wrong is all that much more. A way that hackers can break through these security walls is through Brute Force which is when people, or more than likely now, computers, go through every possible combination of codes until it finally achieves the goal of cracking the encryption. To do this takes a great deal of brain power, money, and time but who said cracking codes was cheap?

                As seen in this article about the flaws of VPNs, IP addresses can be found quite easily based on their connections broadcasting information which is attached to the random number that is to represent their IP address. In other scenarios, such as MAC users, it is very easy to figure out their IP addresses due to their personalization in which it identifies a particular device and displays the computers name on the internet. In my eyes that means there is no hiding from the world for MAC users no matter what they try to do.

                The costs of VPNs also are not insane either. They are reasonably priced for all different packages. Just look at BOXPN’s deals, where they offer $3.75 per month from your computer, and only $1.99 for mobile devices such as iPads or iPhones.  For guaranteed security, those are awesome prices, but with more and more techies and hackers attacking these accounts, it may put you at more of a risk to have your own VPN. There are also some free versions of VPNs out there specifically for mobile devices as seen here. It is plat formed for Android phones specifically and should provide the same services as a normal VPN service provides. But honestly, how safe, or how well, could it really work.

                Personally I am very skeptical about using these. I feel as time presses on, our rights to privacy greatly decrease. Even when people try to make options in order to hide your internet searches and important information, there are always people out there who are able to crack the codes and break into whatever they want if they really want to. If these VPN services are non-hack able though, I would not be opposed to using them and would love for my life to be exactly what it is: MY life.

-Mike