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Multimedia Edition A PUBLICATION OF THE INSTITUTE OF EXPERT FRAUD EXAMINERS January-March 2010 Vol.1 No 1

FINANCE, FRAUD & AUDIT THE SYSTEM OF INTERNAL CONTROL - ADEQUATE AND EFFECTIVE? MONEY LAUNDERING PREVENTION

SOME SAY IT IS A BUSINESS, OTHERS CALL IT FRAUD

INTERNAL CONTROL AND FRAUD RISK ASSESSMENT


FROM THE PUBLISHER Dr. Dimiter Dinev, CFE The core ideas within the magazine will be: “MANAGE OTHER’S PEOPLE MONEY AS YOURS, BUT NOT AS …YOUR OWN” ANOTHER “BRICK” IN THE WALL Yes, yes, yes, before you is another but yet multimedia brick in the wall of counteraction to frauds! Everything began in 2003 with the initiative of the Association of Certified Fraud Examiners (ACFE) and forming of the Bulgarian Council against Occupational Fraud. After creating of our Association for Counteraction to Economic Fraud in 2004, the events follow with the antifraud education and training in the country, then in Macedonia, the adoption of the subject “Financial Fraud – Detection and Prevention” at University of National and World Economy, my book “Economic Fraud: The Schemes…”, followed by manuals of fraud detection and investigation, The Institute of Expert Fraud Examiners was established in 2009, the Internet Radio Broadcast “NO CENSURE” could be heard too. The idea of this magazine has arisen on Christmas time in 2009. FINANCE, FRAUD AND AUDIT OR MAY BE SEX, LIES AND ROCK-ANDROLL? There is maybe an analogy, but in this case it is a joke! By the way, there is a very thin line between finance, fraud and audit, especially in recent times. It is curious why no one has been yet realized that interdisciplinary unity. And this is the exact goal of the magazine – to give an opportunity to professionals, experts and scientific researches to use the opportunity of sharing results ot their researches and suggestions.

Different researchers in the USA pointed out that everyone could accomplish fraud if he/she has the opportunity. Let’s try to test that statement on the pages of this magazine “THE SOCIETY BELIEVES AND HOPES THAT THE RESULTS OF THE AUDIT WILL FULLFIL ITS EXPECTATIONS” Not in fact?! Or not always! We will try on the pages of FIO to discuss the methodology and experience of internal, government and private auditors. FIO IN ENGLISH The short version of the magazine will be published 4 times annually in English and will cover the most important issues presented in Bulgarian. Everyone could subscribe to the magazine “Finance, Fraud and Audit” believing that it could be beneficial to them. For opinions, comments and analyses, publications and suggestions, visit the website of IEPI - www.iepinet.eu and send us an e-mail at finfraudodit@gmail.com


CONTENTS:

Finance “Manage other`s people money as yours, but not as...your own!” THE SYSTEM OF INTERNAL CONTROL - ADEQUATE AND EFFECTIVE? p. 4

Fraud “Others make the frauds,but we want them to be attached to us” MONEY LAUNDERING PREVENTION p. 6 SOME SAY IT IS A BUSINESS, OTHERS CALL IT FRAUD p. 8 ABOUT HEAT-AND-POWER SUPPLY, PETER SLY AND MORE p. 10 Audit “The society believes and hopes, that the resuls of the audit will fullfil its expectations”

INTERNAL CONTROL AND FRAUD RISK ASSESSMENT p. 12 www.iepinet.eu

FINANCE, FRAUD AND AUDIT | p.1


Bookstore OUR PUBLICATIONS p. 11

EDITORIAL BOARD

SUBSCRIPTION

President Dr. Dimiter Dinev, CFE.EFE

All rights of the magazine “Finance, Fraud and Audit” are reserved to IEPI

Editor Veneta Hristova

Members

The magazine is published 4 times annually and is distributed by CD disc or downloaded in pdf (portable data format) format.

Prof. Kaliu Donev Varna University of economics Prof. Stephen Dimov Cardif University, Great Britain

Detailed information about the subscription could be find on page “Magazine” on Internet site of IEPI www.iepinet.eu

ass.Prof.Dr. Jordan Tomov Trade Academy “D.A.Tzenov, Svishtov Sultana Bulgarenska Registered Auditor Slavcho Zlatkov Certificated Internal Auditor in Public Sector Stefcho Georgiev Jurist

Click here to download to it!

Design Tanya Tasheva

p.2 | FINANCE, FRAUD AND AUDIT

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OUR INTERVIEWS Prof. Stephen Dimov, Cardiff University, Great Britain

These three subjects are interrelated and strengthen the importantce for realization of joint projects in different areas and if not taken into account to make “go stoppers”. Therefore, it would be very good to have a forum where not only theoretical part of the three topics would be discussed, but also practitioners in the field to write, present case studies that analyze how these subjects are applied to the practice. And I know that in Bulgaria, these requirements are sometimes exaggerated or not taken into account when planning projects, particularly their funding.

Slavcho Zlatkov, Certificated Internal Auditor in Public Sector I think this kind of magazine is really necessary in view of the continuous improvement of fraud and level of development of auditing as a science and its practical application as well as their strong commitment to finance. I think the magazine would be a good forum for everybody who is actively engaged in the field of finance, fraud and audit area as to share theoretical knowledge and practical experience.

Nedyalko Valkanov Asistent at the Sultana Bulgarenska, Department of Finance Registered Auditor and Credit at the Varna University of Economics If they have the desire, interest and willingness for counteraction to economic fraud several institutions could share their experience and, The appearance of the magazine “Finance, therefore, help for detection and prevention of Audit and Fraud” is a good opportunity a economic fraud: National Revenue Agency, good forum to be to created where different Police, the authorities the court dealing with views on problems could be expressed by a economic fraud, the bodies of internal control in wide range of professionals from all areas government departments, auditors, professionwith financial matters. The magazine would als and the court. In other words, all those inbe useful for professionals from the practice stitutions who every day face fraud in different involved in the fraud prevention field, re- situations. Readers will also benefit those outsearchers and all who interested in the issue. side the institutions; they will be informed how to protect themselves from any involvement in conducting fraud or even how to avoid them.

www.iepinet.eu www.iepinet.eu

FINANCE, FRAUD AND AUDIT | p.3


THE ASSOCIATION FOR COUNTERACTION TO ECONOMIC FRAUD

JOIN THE EFFORTS OF THE PROFESSIONALISTS TO COUNTERACTION TO “WHITE COLLAR” CRIMES

www.acefraud.org Phone: +359 2 868 4184 Mobile: +359 884 357 844 E-mail: info@acefraud.org p. 4 | FINANCE, FRAUD AND AUDIT

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THE SYSTEM OF INTERNAL CONTROL ADEQUATE AND EFFECTIVE?

T

he application of The Act for Financial Management and Control in the Public Sector requires the creation and effective system of internal control in the government and municipal institutions and enterprises. This system is based on the COSO model and includes five main components: control environment, risk assessment, control activities, information and communication system and monitoring. But in the private sector and especially in the small enterprises and organizations, which are about 95% of all business organizations, such a system doesn’t function at all and usually the traditional model of internal control is presented by tree elements: control environment, accounting system and control activities. This article covers discussed precisely controlled and uncontrolled factors, affecting the elements of traditional structure for internal control in the small and average sized enterprises and organizations in our country. There are controls indicated as well, which creation and applications would significantly reduce the risk of errors and frauds in the organizations.

Dr. Dimiter Dinev, Certified Fraud Examiner e-mail: dinevddc@ hotmail.com

Key words: system, internal control, COSO, controls, control environment, accounting system, controlled factors, risk, mistakes, fraud; www.iepinet.eu

FINANCE, FRAUD AND AUDIT | p. 5


LIVE ONLINE RADIO

EVERY MONDAY, WEDNESDAY AND FRIDAY AT 17:00 h

NO CENSURE CLICK HERE www.iepinet.eu AND LISTEN MUSIC, NEWS, ANALYSIS, COMMENTS!

p. 6 | FINANCE, FRAUD AND AUDIT

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PREVENTION THE ACCESS OF ILLEGAL CAPITALS TO THE BANK SYSTEM BY USING EXTERNAL BASE DATA WITH NEGATIVE INFORMATION The main mechanism for consideration of preventing illegal capital from entering in today`s banking system is consistent comparison of clients’ files compared to multitude special “black lists”. Daily activities of the banking institutions demand complied with various databases with negative information about physical and legal entities. The article encompasses two major “black lists” prepared by some international organizations (such as OFAC and EU), which Bulgarian commercial banks should take into account. The research identifies several key problem areas, which are observed in practical application of information contained in the negative lists with databases of information. At the same time there are proposed several recommendations and alternatives for optimization of current practices for comparison and verification.

Nedyalko Valkanov Assistent in Department of Finance and Credit at the Varna University of Economic e-mail: n_valkanov@ hotmail.com

Key words: money laundering, access databases, prevention, crime, illegal capital blacklist, OFAC, EU, countermeasures, verification;

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FINANCE, FRAUD AND AUDIT | p.7


BECOME AN ACEF MEMBER As a ACEF member you will have the opportunity to:

• Be undispensable part of the professional team of ACEF • Participate in the ACEF activities • Receive professional advise and information • Obtain discounts buying ACFE publications and software • Obtain discounts participating in ACEF seminars and courses

Association For Counteraction To Economic Fraud Studentski grad, Bl. 6A, entr. B, ap. 14 1700 Sofia, Bulgaria phone/fax: +359 2 868 4184 cell phone: +359 884 357 844 e-mail: info@acefraud.org p. 8 | FINANCE, FRAUD AND AUDIT

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SOME SAY IT IS BUSINESS, OTHERS CALL IT FRAUD!

The article refers to the increasing attention of the problems, pertained to the negative influence of the “white collar” fraud around the world, which cannot be left unnoticed in Bulgaria as well. It is not necessary to examine in detail the examples of the collapse of the empire Enron, Prarmalat, WorldCom, the Madoff’s pyramid, operations “Octopus” , “Celebrities” and others to realize the necessity to study this strange phenomenon – the fraud – this huge problem for the business and society in global aspect.

Adapted excerpt from the book of Dimiter Dinev “Economic Fraud: Schemes of corruption, embezzlement and misuse of assets, fraudulent financial statements, fraudulent concessions academic fraud”, ACEF, 2006

For example, misstatement financial reporting is usually a fraud in fact, which is very difficult to be proven. Especially recently, the manifestation of fraud has been becoming more significant and its effect – more devastating

Key words: fraud, abuse, misuse, misstatement, financial report, crime, white collar, symptoms, indicators, behavior, gambling, alcohol, pyramid, finance, error, intent, motive;

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FINANCE, FRAUD AND AUDIT | p. 9


ACEF AND IEPI WILL PROVIDE PROFESSIONAL TRAINING FOR OBTAINING PROFESSIONAL QUALIFICATIONS OF THE EXPERT FRAUD EXAMINERS THROUGH SEMINARS AND COURSES

TITLES OF MAIN TOPICS: Fraud Examination, Prevention and Detection, 2 days, May 13-14 , 2010, 16 EFE credits Academic Fraud: Detection and Prevention, 1 day, May 17 2010, 8 EFE credits The Inventory of Assets: Indicators and Risk of Fraud and Abuse, 1 day, May 18, 2010, 8 EFE credits Interviewing in Fraud Examination, 1 day, May 21, 2010, 8 EFE credits Conflict of Interests: Detection, Management and Prevention, 2 days, 27- 28 May 2010, 16 EFE credits

10pg.p.| 10 FINANCE, FRAUD AND AND AUDIT | FINANCE, FRAUD AUDIT

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ABOUT HEAT-AND-POWER SUPPLY, PETER SLY AND MORE

Kostadin Zlatkov Methodologist in Accounting The author has chosen sarcastic approach, whereby he presents the issues related to the negative manifestation for society of monopoly in heating services. The article raises a number of questions related to non-application of the requirements of European directives, and even a breach of normal life logic. The author presents simple but applicable formulas, which actually show misrepresentation or misstatement of the value of the service provided by the heat service provider and in fact the customer pays more for something that he/she gets. Key words: services, heating, monopoly power, civil society, real quantity, strategic investor, calorimeter, institutions, embezzlement, customer, supplier, fraud

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FINANCE, AND AUDIT FINANCE,FRAUD FRAUD AND AUDIT | p. 11

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O U R P U B L I C A T I O N S

FOR ORDER: ACEF phone/fax: +359 2 868 4184 cell phone: +359 884 357 844 e-mail: info@acefraud.org

p.12 | FINANCE, FRAUD AND AUDIT

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INTERNAL CONTROL AND FRAUD RISK ASSESSMENT

In the guidlines of the Ministry of Finance how to conduct internal audit in the public sector for 2010 have finally been included the requirements for identifying the indicators for risk of fraud and abuse. This article complements the guidance and helps all managers and auditors - both in the public and private sectors to identify indicators of fraud and abuse - accounting inconsistencies, internal control weaknesses, analytical inconsistencies, extravagant lifestyle, unusual behavior, tips and complaints. Indicated are schemes of fraud in the counts of inventories, tangible and intangible assets embezzlements, fraudulent claims and transfers, falsified records, fraudulent shipments of the inventory. More about the issues you could find in the next issue of “Finance, Fraud and Audit�.

A publication of the Institute of Expert Fraud Examiners

Key words: inventory, intangible assets, raud, abuse, embezzlement, schemes, accounting discrepancies, tips, complaints, conduct, weakness, internal control, extravagant, lifestyle

www.iepinet.eu

FINANCE, FRAUD AND AUDIT | p. 13


TO WHAT EXTENT DO YOU KNOW THE MEANING AND CONTENT OF THE ARTICLES, PUBLISHED IN THE MAGAZINE “FINANCE, FRAUD & AUDIT” YOU MIGHT BE THE LUCKY ONE WHO WILL GUESS THE MOST CORRECT ANSWERS AND BY BALLOT YOU WILL RECIEVE THE BOOK “THE ECONOMIC FRAUD:THE SCHEMES...” BY DIMITER DINEV. READ THE ARTICLES,ANSWER THE QUESTIONS SHOWN BELOW AND SEND US YOUR ANSWER FOR EACH QUESTION BY EMAIL: finfraudiodit@gmail.com. FOR EXAMPLE, THE CORRECT ANSWERS ARE: 1-A, 2-C, 3-B etc.

ANSWERS ARE IN ACCORDANCE WITH THE TEXT OF THE ARTICLES! 1. When was The Association for Counteraction to Economic Fraud established? A. 2003 B. 2004 C. 2005 2. The Magazine “Finance, Fraud & Audit” will be published annually in: A. 3 issues B. 4 issues C. 6 issues 3. The Structure of Internal Control includes: A. Control environment, accounting system, control activities B. Control environment, risk assessment, monitoring C. Control environment, information system, control activities 4. The control activities and procedures in the system of internal control include: A. Segregation of duties, adequate records, independent verifications B. Segregation of duties, authorization, financial audit C. Segregation of duties, physical control, investigation 5. The Blacklist the Agency for Control of Foreign Assets in the US Treasury include: A. The names of the person, address and passport data, status of the person B. The company name, SSN, status of the person C. The names of members,SSN, names of relatives

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6. The corruption is: A. Offence B. Abuse C. Social harm 7. To be a deed fraudulent, it should include: A. False statements, intent, victim, dameges B. False statements, deception, embezzlement, losses C. False statements, withholding the truth, intent, consealmant 8. In the article “About Heat-and-Power Supply, Peter Sly and More”, the author points out that: A. The energy used for heating and hot water is measured, predicted and not calculated by using a methodology B. The energy used for heating and hot water is not measured is not predicted and not calculated using the methodology C. The energy used for heating and hot water is not measured, but predicted and calculated using the methodology 9. According to the article “Internal Control and Fraud Risk Assessment” the symptoms (indicators) of fraud could be indetified as: A. Accounting discrepancies, accounting reversals, abnormal behavior B. Accounting discrepancies, analytical anoma lies, tips and complaints C. Accounting errors, weaknesses in internal controls, sanctions 10. According to the article mentioned above, embezzlement of inventory could be conducted by: A. Fraudulent requests for purchase and transfer for personal benefit; B.Expence the reimbursement C. Using Ghost Employee Schemes

FINANCE, FRAUD AND AUDIT | p.14

Finance, Fraud and Audit  

This is the first issue of Finance, Fraud and Audit Magazine published electronically by IEPI (The Institute of Expert Fraud Examiners),

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