Content area
Full Text
Where is an audit most vulnerable to fraud? And what can you do to eliminate that vulnerability? Confirmation.com offers a safer, and speedier, way of performing audit confirmations. Cian Malloy reports.
The €12 billion Parmalat scandal of 2003, involving a family-owned Italian dairy products company, is the most expensive fraud to hit a European private company to date. Among the methods used by executives at the company to fool auditors was a forged letter, supposedly from Bank of America, stating that it held €4 billion worth of deposits belonging to a Parmalat subsidiary in the Cayman Islands.
This is by no means the first and last confirmation fraud to have hit the audit process. It doesn't take much sophistication to pull off a major fraud using forged documents. A famous example in the US in the 1980s involved the ZZZZ Best Carpet Cleaning company and its CFO Mark Morze, who used a Tipp-Ex type product and a photocopier to create more than 10,000 false documents that helped him con more than US$100 million out of banks and investors.
The fact is that there is one line in an auditors report that few people question: the cash and other shortterm assets line. But if the information on this line is wrong, it is the auditors who are liable. Following the Parmalat collapse, US investors launched a class action suing banking and accountancy firms for more than USS10 billion. That's expensive stuff.
So how do you prevent confirmation fraud? You have to cut out the middle man - the potentially fraudulent employee who may organise bogus documents or even go so far as to set up...