1. FRAUDSTERS AND MONEY.

Money is absolutely everything to fraudsters, the very reason for their existence. They have as a result developed a unique way of dealing with issues of money quite different from the way law abiding people would.

Fraudsters are extremely inventive and creative when it comes to keeping, accounting for, investing and spending money. The alternative for them is the risk of jail or death.

The golden rule to most fraudsters when it comes to finance is:- Deal in cash always – No bank accounts or check books or tax man or credit cards or anything that can provide an audit trail.
Fraudsters can stack their cash in all sorts of places – changed into dollar or euro or pounds and hidden in holes underground, ceilings, mattresses, safes in disguised homes and offices. The most important thing a fraudster can do with money is to hide it.

When a fraudster maintains a bank account, it is usually a decoy to disguise the real thing. Such sham businesses are merely a front. If a fraudster absolutely needs to have a bank account you can be sure that that account will not be in the con-man’s name. It will be in the mother’s name or brother, cousin or sometimes wife’s name.

Most fraudsters will do anything to eliminate a connection between them and their money. Why? Because if there is a bust up of the racket, they do not want the EFCC or other government agencies to get at the money and even if they are convicted and hauled off to jail, they need that money to pay lawyers and keep the fabric of their lives oiled.

Besides concealment of cash, most fraudsters will carefully conceal all other assets like cars, houses, jewelry and such assets. Brothers and close relatives as usual play a major role. Fraudsters do not keep normal records and the smartest of them will not have any single item related to them in public records. The richest fraudster in Nigeria may not have put his name on a cheque in years. Nothing may indeed be traceable to him.

The economy of fraudsters is absolutely different to your normal economy. In any corporate establishment revenues are gathered by the top echelon and is distributed to payroll and corporate expenses. In fraudsters economy the money flows up from bottom to the top and never goes down. The rogues keep it at the top.

So what do fraudsters spend all that loot on – depends on the individual thief – Some like to lavish money on women. Some desperately seek political power as part of a “relevance strategy”. Some are family men who take their kids on world cruises. Some are drug addicts and gamblers who blow all that money and ruin their lives as well. Some are your ultimate “Mr. Scrooge” who save as much as they can and sometimes generations after may still be looking for where all that money is hidden.

2. “ON BOOK” ACCOUNTING AND FINANCIAL STATEMENT FRAUD.

Accounting Basics:- This involves the recording and reporting of transactions and would include:-

• Occurrence/emergence (eg.. timing, quantification – either in physical units or money terms.)
• Processing – procedures/systems design, internal controls and check.
• Recordation – maintenance of general and subsidiary records.
• Internal Reporting – position statements, trial balances, activity reports and exception   reports.
• Continuous Review and testing of transactions – internal auditing and periodic review and   testing.
• Summarization of account groups into conventional patterns – Balance sheet, Income
• Statements and Expense Statements.
• Periodic reporting to outsiders – investors, governmental agencies and the public.
• Transaction projections – capital and operating budgeting and strategic planning.
• Internal or external review of and recommendation on organizational functioning.

Whenever the chain is broken or compromised at any level, the likelihood of fraud is enhanced. Fraud is a generic term, and embraces all the multifarious means which human ingenuity can devise, which are resorted to by one individual, to get an advantage over another by false representations.

No definite and invariable rule can be laid down as a general proposition in defining fraud as it includes all surprise, trick, cunning and unfair way by which another is cheated. The only boundaries defining it are those which limit human knavery.

3. FINANCIAL SHENANIGANS.

Financial shenanigans are actions that intentionally distort a company’s reported performance and financial condition. They range from benign (changes in accounting estimates) to egregious (fraudulent recognition of bogus revenue).

Recording revenue too soon or of questionable quality.
Recording revenue when future services remain to be provided.
Recording revenue before shipment or before the customers unconditional acceptance.
Recording revenue even though the customer is not obliged to pay.
Selling to an affiliated party.
Recording bogus revenue.
Recording sales that lack economic substance
Recording cash received in lending transaction as revenue.
Recording investment income as revenue.
Recording as revenue supplier rebates tied to future purchases.
Releasing revenue that was improperly held back before a merger.
Boosting Income with one time gains.
Boosting profits by selling undervalued assets
Including investment income or gains as part of revenue
Reporting investment income or gais as a reduction in operating expenses.
Creating income by reclassification of balance sheet accounts.
Shifting current expenses to a later or earlier period.
Capitalizing normal operating costs, particularly if recently changed from expensing.
Changing accounting policies and shifting current expenses to and earlier period.
Amortizing costs too slowly.
Failing to write down or write off impaired assets.
Reducing asset reserves
Failing to record or improperly reducing liabilities.
Failing to record expenses and related liabilities when future obligations remain.
Reducing liabilities by changing accounting assumptions.
Releasing questionable reserves into income.
Creating sham rebates
Recording revenue when cash is received even though future obligations remain.
Shifting Current revenue to a later period.
Creating reserves and releasing them into income in a later period.
Improperly holding back revenue just before an acquisition closes.
Shifting future expenses to the current period as a special charge.
Improperly inflating amount included in a special charge.
Improperly writing off in-process R&D costs from an acquisition
Accelerating discretionary expenses into current period.
Most people believe that financial shenanigans exist because

It pays to do it
It is easy to do
It is unlikely that you will get caugh

Justice Is not Always swift in coming ------- and may arrive too late.
For years AOL inflated earnings by aggressively deferring the marketing expenses related to sending out millions of computer disks to potential customers. That enabled AOL to look more profitable than it really was helping it issue securities to raise cash and make the acquisitions that fed its growth. Although AOL’s Accounting transgressions failed to derail its aggressive plans, the regulators finally caught up with it. On May 15, 2000, AOL submitted to an SEC settlement, paid a $3.5 million fine and restated its former income to losses.

In 1989 a young teenager in America called Michael Saylor founded an internet company called MicroStrategy (MSTR). Saylor then compensated himself and collaborators with shares and share options at the Initial Public offer (IPO) of the company in 1998. At that time Saylor’s stock was worth over $200 million. He was a celebrity and was treated like royalty. In the last four months of 1999, the share price began to rise dramatically from $20 to $100.

Over the next ten weeks, the stock reached the stratospheric price of $333. Michael Saylor’s net worth reached an almost inconceivable $14 billion. He was one of the richest people in the world. Then in march 2000, MSTR disclosed to the investing public that its financial reports contained accounting irregularities.

The financial reports for the year 1997 to 1999 had to be restated resulting in massive losses rather than the previously reported profits. Shocked investors started dumping the stock, dropping the share price to $140 the day the news broke. The once $333 stock did not bottom out until it reached $1.75 in march 2001.

The auditors PriceWaterhouseCoopers (PWC) who had earlier blessed the financial statements had to make a swift about face and were punished with fines and litigation costs in excess of $55 million.

- Emeka Ifezulike FCA, May 22, 2005