Forensic: fighting financial fraud, what business owners need to know

Forensic: fighting financial fraud, what business owners need to know

Artem Kovbel, auditor, co-founder, partner of Crowe Erfolg, member of ASIS, ACFE, ASCP how forensic can help with financial abuse in business

Absolutely every company: whether it is a representative of a small, medium or large business, every second is exposed to a number of risks that affect the financial stability of the business. And here we are talking about both material risks, for example, when an unscrupulous manager decides to write off and then hide accounts receivable withdrawn for cash (one of the three risks is an illegal misrepresentation of financial statements), and non-material risks, when an employee of the company for a fee, tells a competitor sensitive (insider) information that gives the other party a competitive advantage. (also one of the three risks according to the fraud tree is the risk of corruption).

How can forensic help in this situation? What is a forensic?

Forensic is a tool to combat financial fraud, the popularity of which is only now gaining momentum in countries (eng. emerging markets - developing economies), which include Ukraine.

This is evidenced by a number of checks initiated by the Government of Ukraine in the context of various state authorities. structures, starting from the high-profile case with Privat Bank, Ukreximbank initiated by the NBU, as well as a series of investigations initiated by the Deposit Guarantee Fund (SPF) against the beneficiaries of banks, in which an interim administration was introduced with a view to illegal withdrawal of liquidity outside banks, ending with investigations in the Agrarian Fund Ukraine, Ukroboronprom and Ukravtodor, which I personally conducted on the instructions of the relevant Ministries, which were also initiated to identify risks (eng. fraud - abuse) among former leaders.

Forensic, unlike a financial audit, covers not only the material aspects of possible abuses: direct withdrawal of money, illegal alienation of assets, but also, as mentioned above, non-material types of risks, such as conflicts of interest in management, risks of information loss, concentration of responsibilities within one official, for example, when the chief accountant, whose task is to maintain accounting and management accounting, is also financially responsible for warehouse stocks and fixed assets, that is, the same person keeps records and is responsible for the safety of assets.

How can forensic help with financial abuse?

Firstly, forensic is usually carried out spontaneously, when none of the managers is waiting for verification, respectively, attackers do not have time to cover their tracks, they are taken by surprise. For example, conducting a spontaneous inventory at an enterprise, where a sudden recalculation of stocks and fixed assets may show that their presence is not in full, because according to world statistics, risk # 1 in any business is the illegal alienation of assets.

Secondly, the forensic tool is aimed at minimizing the risks of dishonest actions in all departments of the company: accounting, warehousing, procurement, sales and production by introducing direct and indirect methods of protecting the company.

For example, indirect methods include:

- implementation of the system (eng. Compliance - compliance - a set of policies that regulate business processes in the company), installation of video surveillance cameras to control the safety of the company's production assets.
This tool is common in transnational companies, and in Ukrainian companies it is at the stage of targeted implementation, and unfortunately, so far the position - compliance officer is perceived by many companies as a costly part, or at best, this position combines the head of the legal department and the compliance officer.

- implementation in the company (eng. WBS - whistle blowing system - feedback systems) - this system helps to identify the risk in the company at an early stage by obtaining information about the presence of such risks directly from the company's employees.
The WBS tool in Ukrainian companies is called a hotline and is quite widely used by domestic companies, another question is how much feedback is built in them and how promptly they respond to potential squeaky incidents.

Thirdly, forensic is aimed at investigating the facts of retrospective fraudulent actions, on the other hand, the forensic tool is aimed at implementing preventive measures and minimizing the occurrence of such actions in the future.

Fourthly, the arrival of a forensist to the company gives a signal to attackers that their unscrupulous schemes can be exposed. From practice, during the forensic verification period, any kind of unscrupulous schemes are suspended in the company.

Fifthly, the forensic provides (eng. Helicopter view - top view) on any of the businesses and total non-engagement during the audit, because the inspectors have nothing to do with managers within the company.

Sixthly, forensic helps to make business more transparent and clean up all schemes that cause damage both to the company from the inside and to the state as a whole, for example: management in a company withdraws money using a popular scheme - tax pits, thereby worsening the financial situation. the result of the company by increasing the costs and cost of the company's products, on the other hand, the company underestimates the taxable base and minimizes the payment of income tax, thereby the State budget receives less fiscal revenue.

Every business owner is simply obliged to know about such a tool as forensic, because forensic:

Firstly, it will help the owner to fulfill the dream of a painless exit from operational control;

Secondly, forensic is a tool that increases the capitalization of your company by increasing the Goodwill of both the company itself and its owner.

Thirdly, forensic helps to rally the team over a single financial result, identify and eradicate unreliable subjects that destroy the company from the inside.

If you are the owner of the company and are in operational control, it is important to remember that they also steal from you, just the volumes are smaller.

Forensic helps to reduce the amount of material theft in your company.

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