1. Advanced Forensic Accounting -ACC 465 UNIT 8 Dr. Doug Letsch A woman had two sons who were born on the same hour of the same day of the same year, but they were not twins. How could this be so? Let us know your answer in the chat window before class begins.

2. Schemes and Misappropriations Questions

3. CHAPTERS 12 & 13 Corruption

4. TRANSPARENCY AND CORRUPTION – PLEASE READ Countries around the globe are struggling to rebuild economies devastated by the financial crisis. Yet many of the world’s largest publicly traded companies still do not demonstrate that they have put enough transparency measures in place to help prevent another economic meltdown. These companies continue to publish too little information about their commitments to comprehensive anti-corruption systems and their sprawling operations. They also report insufficiently on their corporate structures, preventing clarity about their true impact in countries around the world. As a result, the world’s largest companies may contribute to an environment in which corruption can thrive. This study analyses the transparency of corporate reporting on a range of anticorruption measures among the 105 largest publicly listed multinational companies. Together these companies are worth more than US$11 trillion and touch the lives of people in more than 200 countries across the globe, wielding enormous and far reaching power. Their influence goes beyond investors, stock markets, suppliers and customers – it extends to those they employ and to the standards they set for working conditions and behavior around the world. This powerful economic force can be a source of innovation, competition and prosperity, but when misused the result can be economic stagnation, poverty and inequality. Source: Kowalczyk-Hoyer, B. (2012). Transparency in corporate reporting: Assessing the world's largest companies. Berlin: Transparency International. Available online at: http://www.transparency.org/whatwedo/pub/transparency_in_corporate_reporting_assessing _the_worlds_largest_companies http://www.transparency.org/whatwedo/pub/transparency_in_corporate_reporting_assessing _the_worlds_largest_companies

5. TRANSPARENCY AND CORRUPTION – BEST MATCH Transparency Index 1-10 with 10 being most Transparent Apple3.2 Coca-Cola3.7 JP Morgan Chase3.8 McDonalds5.3 Wal-Mart6.4 Select the transparency index that goes with the company to the right.

6. Source: Kowalczyk-Hoyer, B. (2012). Transparency in corporate reporting: Assessing the world's largest companies. Berlin: Transparency International. Available online at: http://www.transparency.org/whatwedo/pub/transparency_in_corporate_reporting_assessing _the_worlds_largest_companies http://www.transparency.org/whatwedo/pub/transparency_in_corporate_reporting_assessing _the_worlds_largest_companies TRANSPARENCY AND CORRUPTION – BEST MATCH Transparency Index 1-10 with 10 being most Transparent Apple3.2 Coca-Cola5.3 JP Morgan Chase3.8 McDonalds3.7 Wal-Mart6.4 Solution

7. TRANSPARENCY AND CORRUPTION – PLEASE READ Now Watch this short video (stop at 2 minutes and 28 seconds). Here is the top 10 list of most corrupt countries. Are there any surprises? http://www.youtube.com/watch?v=QQGcNBkF_qc

8. CORRUPTION SCHEMES Bribery and illegal gratuities Economic extortion Conflicts of interest

9. BRIBERYBRIBERY Bribery schemes generally fall into two broad categories: kickbacks and bid-rigging schemes Kickback Schemes - involve the submission of invoices for goods and services that are either overpriced or completely fictitious Overbilling Schemes Slush Funds Illegal Gratuities is similar

10. ECONOMIC EXTORTION Opposite of a bribe the employee extorts money from a potential purchaser or supplier Make money from approving that vendor/supplier

11. CONFLICT OF INTEREST Purchasing Schemes Turnaround Sales Sales Schemes Under-billings Writing-Off Sales

12. FRAUD IN FINANCIAL STATEMENTS ? Who commits financial statement fraud ? Why do people commit financial statement fraud ? How do people commit financial statement fraud

13. TYPES OF FRAUDULENT FINANCIAL STATEMENT SCHEMES Financial statement frauds can be broken down into five distinct categories: $ concealed liabilities and expenses $ fictitious revenues $ improper asset valuations $ improper disclosures $ timing differences $A/R Allowance for doubtful accounts $Inventory adjustments $Depreciation schedule changes $Entered in wrong period

14. DEFINING FINANCIAL STATEMENT FRAUD Financial statement fraud may involve the following schemes: 1. Falsification, alteration, or manipulation of material financial records, supporting documents, or business transactions 2. Material intentional omissions or misrepresentations of events, transactions, accounts, or other significant information from which financial statements are prepared. 3. Deliberate misapplication of accounting principles, policies, and procedures used to measure, recognize, report, and disclose economic events and business transactions 4. Intentional omissions of disclosures or presentation of inadequate disclosures regarding accounting principles and policies and related financial amounts

15. COSTS OF FINANCIAL STATEMENT FRAUD - PART 1 Undermines the reliability, quality, transparency, and integrity of the financial reporting process. Jeopardizes the integrity and objectivity of the auditing profession Diminishes the confidence of the capital markets, as well as market participants, in the reliability of financial information. Makes the capital markets less efficient Adversely affects the nation’s economic growth and prosperity Covers up the real business issues Substantially increases litigation costs

16. COSTS OF FINANCIAL STATEMENT FRAUD - PART 2 Destroys the careers of the individuals involved Leads to bankruptcy or substantial economic losses by the company Encourages regulatory intervention. It is devastating to the normal operations and performance of companies. Raises serious doubts about the efficacy of financial statement audits. Erodes public confidence and trust in the accounting and auditing profession

17. POLL QUESTION Please answer this question in your chat window. One of the reasons WHY we have financial statement fraud is that senior managers may be unwilling to admit that their strategy has failed True False Provide your answer in the chat window please

18. POLL QUESTION Please answer this question in your chat window. One of the reasons WHY we have financial statement fraud is that senior managers may be unwilling to admit that their strategy has failed ***True False What happens when the sales team does not meet its targeted goal? Why is senior management pressure one of the main problems here?

19. VIDEO BREAK As a final step in our live session, please watch this 60 Minute’s video about Bernie Madoff. Watch all 7 minutes and return. http://www.youtube.com/watch?v=4RuyRn4pUEI Part 2 for later if you like (you have to see the first 2 minutes): http://www.youtube.com/watch?v=tldkwL7oqpA

20. Are there any questions? If you attending the live session tonight, then you do NOT need to complete the alternative seminar assignment.