Financial statement fraud new threat to businesses?
Financial statement fraud may be the next threat to businesses in The Bahamas, according to ant-fraud experts in the country, citing that it could become a common practice among scam artists.
Several members of the newly-formed Bahamas chapter of the Association of Certified Fraud Examiners(ACFE)agreed that although financial statement fraud isn’t the most prominent form of fraud in the country, it has the potential to be if the business community isn’t brought up to speed on it.
Senior Manager of Insolvency Services at PricewaterhouseCoopers Kevin Cambridge said neighboring countries have a problem with this type of fraud, and The Bahamas isn’t immune from it either.
“This is something that is big in the U.S., but in The Bahamas we tend to think that inventory theft is the bigger one,”Cambridge said.”There are cases where persons are under pressure to produce certain results and are liquidating financial statements.”
Financial statement fraud is when a public company compiles a financial statement with inaccurate figures portraying the firm in the best light, in order to attract investors and business partners. This can range from portraying false revenue and sales numbers and manipulating assets, to phantom revenue.
President of ACFE and Managing Director of KRyS Global Edmund Rahming said there are two types of financial statement fraud that are common–booting and propping. He said booting is essentially”stealing”that goes undetected in financial statements and propping is inflating the figures,”making them look better than they actually were.”He said awareness has to be raised in the business community because the lack of knowledge could make businesses a victim of it.
“I think it’s something that we need to educate people here in the business community about and take them through some of the instances, to make sure they are aware that these things could happen,”Rahming said.”This chapter will educate investors on what could be considered very unusual numbers in a financial statement.”
Another member of the ACFE William Walkine said financial institutions are most vulnerable to this type of fraud, and detecting fraud in the general sense is most effectively done when information is disclosed from a third party.
“Banks have the greatest exposure to financial statement fraud, because a lot of people who got loans they have to maintain certain ratios… I think that would be the most prevalent form of financial statement fraud in The Bahamas,”Walkine said.”The most common way of finding out fraud is by tips and not as a result of an auditor coming in. The auditor doesn’t even rank in the top three.”
The newly-formed Bahamas chapter of the ACFE will hope to provide awareness to this issue along with other potential risks businesses face. Currently, there are nearly 55,000 members of the ACFE around the world, and more than 20,000 are certified fraud examiners. These fraud fighters provide critical services to businesses and agencies in the detection and prevention of fraud.