Skip to content

Technology to the Rescue!

November 3, 2013

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

Advertisements

From → Uncategorized

Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: