Todays Topics

E-Commerce Fraud
Cash Flow Shenanigans
Metrics Shenanigans

FORENSIC ACCOUNTING - BA124 - 2015

E-Commerce Fraud

FORENSIC ACCOUNTING - BA124 - 2015

E-Commerce
The Good, The Bad & The Ugly

The Good

The Bad

Faster, cheaper and less prone to error

Customer centric
Hardware issuesspotted owl disease
False sense of organization
Initial cost and implementation issues
Emerging economy issueshaves and have-nots

The Ugly

The bad guys and hackersour focus today

FORENSIC ACCOUNTING - BA124 - 2015

Consider This

The race to 60 million users

Radio30 years
TV15 years

The Internet3 years to 90 million

users

FORENSIC ACCOUNTING - BA124 - 2015

E-Commerce Fraud
Risks

P O Rsee text

FORENSIC ACCOUNTING - BA124 - 2015

E-Commerce Fraud
Prevention

Difficult to impact pressure and

rationalization at this time
Lack of personal contact with
fraudsters
Avoid iffy situations and sketchy
firms
Focus on reducing opportunities

FORENSIC ACCOUNTING - BA124 - 2015

Prevention in the
Opportunity Sector

The control environment

Integrity and ethics

Board and Audit Committee involvement
Tone at the Top
Human resource policies and practices (training)

Risk assessment efforts

Implementation of control activities

FORENSIC ACCOUNTING - BA124 - 2015

Risk Assessment

Data theft is the big issuenot cash

Sniffing for passwords
Unauthorized password access
False identification of users
Spoofing for headers and IP (protocol
models)
Impersonation of customers
False or misleading websites
Hijacking to copy-cat websites

FORENSIC ACCOUNTING - BA124 - 2015

Prevention Through
Control Activities

Separation of duties
Authorization techniques

Firewalls
Passwords
Digital signatures
Biometrics

Documentation and encryption

Physical control
Independent assessment (operational auditing)

On-going not spot-checking

FORENSIC ACCOUNTING - BA124 - 2015

E-Commerce Fraud
Detection

Proactive posture
On-going analysis and effort
Defending the Digital Frontier, Mark
Doll, Sajay Rai and Jose Granado.
Ernst & Young, LLP.

FORENSIC ACCOUNTING - BA124 - 2015

Final Shenanigans

Cash Flow Shenanigans

Metrics Shenanigans

FORENSIC ACCOUNTING - BA124 - 2015

Cash Flow
Shenanigans
CFS #1: Shifting Financing inflows to
Operating inflows
CFS #2: Shifting Operating outflows to
Investing outflows
CFS #3: Inflating Operating inflows
through normal but infrequent ops
CFS #4: Inflating Operating inflows
through normal operations

FORENSIC ACCOUNTING - BA124 - 2015

CFS #1
Bank borrowings as CFO
Sale of receivables as CFO
Sham sale of receivables as CFO

FORENSIC ACCOUNTING - BA124 - 2015

CFS #2
Boomerang transactions
Capitalization of operating expenses
Treating inventory purchases as investing
activities

FORENSIC ACCOUNTING - BA124 - 2015

CFS #3
Inheriting cash flows via acquisition
Acquisition of customers or products
Structuring a divestiture to benefit
operating cash flows

FORENSIC ACCOUNTING - BA124 - 2015

CFS #4
Paying vendors more slowly
Collecting from customers more quickly
Purchasing less inventory
Limited disclosure of one-time benefits

FORENSIC ACCOUNTING - BA124 - 2015

Metrics Shenanigans
MS #1: Misleading metrics that overstate
performance
MS #2: Distorting metrics that avoid bad
news

FORENSIC ACCOUNTING - BA124 - 2015

MS #1
Proforma revenue metrics
Proforma earnings metrics
Proforma cash flow metrics

FORENSIC ACCOUNTING - BA124 - 2015

MS #2
Distorting
Distorting
Distorting
Distorting

A/R metrics
inventory metrics
financial asset metrics
debt metrics

FORENSIC ACCOUNTING - BA124 - 2015