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April 10, 2019
This paid piece is sponsored by Eide Bailly LLP.
By Eric Hansen, CFE, CFI, forensic accounting manager
They used to be terms reserved for television crime shows. But today, forensic audits and digital forensics are commonly talked about in the business world. And these investigations into fraudulent activities happen more often than you’d think.
According to the Association of Certified Fraud Examiners’ 2018 Report to the Nations, businesses lose 5 percent of their annual revenue to fraud. The report studied more than 2,600 cases of occupational fraud, which resulted in significant findings.
Eide Bailly’s forensic team examines cases of fraud here in Sioux Falls and across the nation. The team specializes in forensic accounting, economic damages calculations, and computer and mobile forensic examinations. These professionals help companies prevent fraud and uncover it when it occurs, for instance:
Often, there are common concerns when Eide Bailly’s forensic experts are called in to a business:
Our experienced forensic accountants and computer forensic specialists see all kinds of cases. Fraudsters and schemers come in all sizes and shapes, and are after the same thing. Here are some recent examples of cases we have investigated.
An organization had concerns that an employee was embezzling from the entity after finding discrepancies in accounting and banking records. The organization had an annual audit from an outside firm. However, these audits are financial statement audits and are designed to audit the financial position of an organization, not for specific fraud concerns.
We conducted a forensic accounting examination and used our computer forensics to investigate these discrepancies. Eide Bailly’s computer forensic experts found invoice templates and altered bank records the fraudster created to conceal the scheme of unauthorized disbursements, personal purchases on the company credit card and falsified bank deposits.
Our forensic accounting team was able to document and quantify the loss for the organization. The entity used this information to address the fraudster, make employment decisions and for further civil and/or criminal proceedings.
A member of a two-person limited liability corporation had concerns that his longtime business partner, who handled the organization’s finances, may have misused the company’s funds for personal benefit. These concerns came about after an abrupt retirement, a request to be bought out by the business partner and concerns over a lavish lifestyle.
As with other similar partnership disputes, our client received limited financial information during the partnership. During our forensic accounting examination, we identified over $200,000 of non-business-related expenses paid out of the corporate bank account and mischaracterized in the accounting by the business partner in question. The results of the examination led to a settlement between the two business partners that ultimately ended in a favorable buyout for our client.
Some employees decide to take proprietary information from their employer before they start up their own business or go to work for a competitor. Over the past several years, we have provided digital forensics for countless litigation cases in which there are allegations of noncompete violations or theft of proprietary information. As with most of these litigation cases, we are generally retained before a lawsuit is filed as our clients need to know the facts with respect to the allegations.
Often, we have been able to show nefarious patterns of activity on hard drives from work computers and smartphones used by former employees to divert information for either their own personal financial gain or to create an advantage at their next place of employment. Many times, we see USB devices being plugged in, personal email accounts being accessed and cloud storage utilized to extract this information before leaving employment. The current employer is usually unaware of this activity.
These cases are all about timing and securing the devices because electronic data tends to write over itself over a period of time. As soon as an organization has a reason to be concerned, devices should be forensically preserved because the answers to your questions may be within the devices you allowed your former employees to use.
Eide Bailly’s forensic team is ready to act if you have a tip, are concerned about transactions in your business that don’t appear to be business related or if you’re worried about fraud. We work with you to document fraudulent activity, support you through the litigation process and identify the facts so you can get back to business.
According to a 2018 report, businesses lose 5 percent of their annual revenue to fraud. Eide Bailly shares several local examples — and what you can do to prevent this from happening to your business.