University of Mississippi eGrove American Institute of Certified Public Accountants Guides, Handbooks and Manuals (AICPA) Historical Collection 2009 Guide to investigating business fraud Ernst & Young Ruby Sharma Michael H. Sherrod Richard Corgel Steven J. Kuzma Follow this and additional works at: https://egrove.olemiss.edu/aicpa_guides Part of the Accounting Commons, and the Taxation Commons T H E G U I D A New Framework for Investigating and Managing Business Fraud E AMERIC The Guide to Investigating Business Fraud provides a clearly defined framework for approaching a T O fraud investigation. This comprehensive resource was developed by the fraud investigation team INVEST at Ernst & Young. The chapters are written by subject-matter experts and may be read individually A N as reference guides for specific topics or together as an overview of a fraud investigation. I NSTITUTE OF NSTITUTE This book will enable you to examine the principles and techniques that guide the experts through a fraud investigation and answer these questions: • How do experts examine and work a fraud case? C I • How do they reason and make decisions at critical times during an investigation? ERTIFIED PUBLIC ACCOUNT PUBLIC ERTIFIED • How do they evaluate a case and interact with colleagues? GAT • How do they handle preventative antifraud programs? Features of this book include: I • Fraud experts share their veteran, practical knowledge NG BUS • Tools and techniques address new fraud schemes and challenges • A threaded case study shows how fraud investigation principles can be applied in practice • Two-color interior highlights concepts key to understanding how business fraud works A Ernst & Young’s Fraud Investigation & Dispute Services NTS Dealing with complex issues of fraud, regulatory compliance, and business disputes can I detract from efforts to achieve your company’s potential. Better management of fraud risk and NESS FRAUD compliance exposure is a critical business priority, no matter the industry sector. Our more than 1,000 fraud investigation and dispute professionals around the world bring the analytical and technical skills needed to quickly and effectively conduct financial investigations, quantify economic damages, and gather and analyze electronic evidence. Working closely with you and your legal advisors, we assemble the right multidisciplinary and culturally aligned T H E G U I D E T O team and bring an objective approach and fresh perspective to these sensitive and conten- tious situations, wherever you are in the world. Because we understand that you need a tailored service as much as consistent methodologies to achieve your potential, we work to give you the benefit of our broad sector experience, our deep subject matter knowledge, and INVESTIGATING the latest insights from our work worldwide. It’s how Ernst & Young makes a difference. BUSINESS FRAUD ISBN 978-0-87051-836-2 AICPA Member and Public Information: AICPA www.aicpa.org BY THE PROFESSIONALS AT ERNST & YOUNG AICPA Online Store: 9 780870 518362 www.cpa2biz.com ® 056558 2810-356_InvestigatingBizFraud_1c.indd 1 8/11/09 1:10:38 PM AMERIC A N I NSTITUTE OF NSTITUTE C ERTIFIED PUBLIC ACCOUNT PUBLIC ERTIFIED A NTS T H E G U I D E T O INVESTIGATING BUSINESS FRAUD BY THE PROFESSIONALS AT ERNST & YOUNG 2810-326 2810-356_InvestigatingBizFraud_TTL.indd 1 7/30/09 5:00:14 PM Notice to Readers The Guide to Investigating Business Fraud does not represent an official position of the American Institute of Certified Public Accountants, and it is distributed with the understanding that the authors and publisher are not rendering legal, accounting, or other professional services in the publication. This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization, nor the authors or publisher can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. Copyright. © 2009 by American Institute of Certified Public Accountants, Inc. New York, NY 10036-8775 All rights reserved. For information about the procedure for requesting permissions to make copies of any part of this work, please email [email protected] with your request. Otherwise, requests should be written and mailed to the Permissions Department, AICPA, 220 Leigh Farm Road, Durham, NC 27707-8110. 1 2 3 4 5 6 7 8 9 0 CS 0 9 ISBN: 978-0-87051-836-2 Publisher: Linda Prentice Cohen Senior Managing Editor: Amy M. Stainken Developmental Editor: Andrew Grow Project Manager: Amy Sykes Cover and Interior Design Direction: David McCradden Copyeditor: Dan Streckert 00-Front Matter.indd 2 8/6/09 3:52:38 PM About the Editors Ruby Sharma, Principal, Michael H. Sherrod, Senior Ernst & Young Manager, Ernst & Young Ruby Sharma has inves- Mike Sherrod is a se- tigative and forensic ac- nior manager in Ernst & counting experience in Young’s Fraud Investiga- internal corporate inves- tion & Dispute Services tigations, white-collar practice. Mike was select- fraud, damage assessment, ed to lead the firm’s efforts accounting, and financial in the US in creating and issues and contract dis- delivering its anti-fraud putes including inventory, service into the market- contract accounting and pricing, purchase-price dis- place. Mike has led numerous fraud risk assessments, putes, and financial statement accounting practices fraud awareness trainings and fraud response plan and procedures. She has provided analysis of finan- developments with numerous clients in various in- cial, economic, and accounting issues in internal in- dustries located in the US. In addition to Mike’s vestigations, discovery, and pre-trial analysis, depo- work in dealing proactively with fraud, he also fo- sition preparation, and assistance in arbitrations. cuses attention in the area of fraud investigations, Ruby has worked in industries such as entertain- specifically on revenue recognition, embezzlements, ment, manufacturing and distribution, banking, and audit malpractice and other internal investigations. insurance. She has performed due diligence in man- Prior to joining EY, Mike was an external auditor agement buyouts, IPOs, joint ventures, mergers and for a large regional CPA firm. He primarily audited acquisitions, and company restructurings through- local government organizations as well as construc- out Europe. tion and manufacturing companies. Mike is a Certi- Ruby is a fellow of the Institute of Charted Ac- fied Public Accountant and a Certified Fraud -Ex countants in England and Wales. She holds a bach- aminer. He holds a bachelors degree in accounting elor’s degree in economics from Delhi University from Virginia Tech. in India. iii 00-Front Matter.indd 3 8/6/09 3:52:39 PM The Guide to Investigating Business Fraud Richard Corgel, Executive Director, Steven J. Kuzma, America’s Ernst & Young Managing Partner, Ernst & Young Rich Corgel has more Steve Kuzma is the Amer- than 35 years’ experi- icas managing partner of ence managing complex Ernst & Young’s Fraud accounting, financial re- Investigation & Dispute porting, Securities and Services practice—a group Exchange Commission that offers accounting and (SEC) and auditing mat- financial advice to the ters. He has directed and corporate general coun- conducted financial, pur- sel and retained counsel chase and due diligence investigations, internal con- of global companies engaged in complex business trol reviews and other projects requiring financial disputes and investigative matters. The practice con- and forensic skills. ducts fraud investigations and provides economic Rich is an executive director in Ernst & Young’s and damages analysis along with expert witness ser- Fraud Investigation & Dispute Services practice. He vices to some of the world’s largest companies and has experience resolving complex financial issues by law firms. The practice is increasingly involved in working with legal counsel on regulatory and liti- helping companies investigate the integrity of finan- gation strategies. Rich’s clients have included SEC cial statements, issue restatements and identify cor- registrants and private enterprises across a broad ruption and white-collar crime. range of industries including telecommunications, Steve has more than 30 years of experience pro- energy, entertainment and professional sports, health viding Fortune 1000 companies and large law firms care and financial services. He has advised numerous with investigative services; financial, accounting and companies on the proper application of accounting economic analyses; valuation assistance; and com- principles, financial reporting and SEC compliance. plex commercial dispute resolution support. He has Rich has also assisted public company boards and testified in deposition, arbitration, and in federal and audit committee members with the increasing com- state courts throughout the US. plexity of their responsibilities by providing inde- Steve has significant experience across a range of pendent advisory services for audit committees. industries, including retail, consumer and industrial Rich has a bachelor’s degree in finance and ac- products; health care; entertainment; real estate; ag- counting and a master’s degree in tax accounting riculture; utilities; and technology.