Hilltop’s Fraud Investigations team has identified, investigated, quantified and reported on over 250 frauds in the financial services, real estate, other commercial companies and Federal agencies. Hilltop’s investigative efforts utilize our business consultants that understand the operations and processes, our accountants to understand the financial process, financial applications and financial statements and our auditors to “dig up” the details of how the fraud was consummated and how much of a dollar impact there was.
Given our team’s extensive experience, Hilltop has developed a fraud risk assessment methodology in dealing with all types of fraud and/or fraud risks. Hilltop’s methodology addresses various aspects of a fraud or the risk thereof. Our “fraud diagnostic” methodology assesses the following (minimum):
- if/where your Company has a fraud vulnerability,
- whether your Company’s fraud efforts (policies, process, controls and technology) will help Prevent, Detect, Mitigate and/or Remediate fraud risk across the enterprise,
- if the Company’s fraud policies are documented and senior management’s commitment to such policies is evident as this is the first step to prevention,
- organizational assignments have been made to identify specific senior management responsibility for fraud risk policies and controls,
- ability to gather and continuously monitor the Company’s electronic files (hard drives, other storage media, email drives, social media, software, databases, network drives/stores, servers, etc.) and if needed, we will engage a major data investigation firm,
- whether operational and financial processes were designed with the appropriate controls designed and implemented to prevent and/or detect a fraud event,
- whether controls have been tested on a regular basis,
- if “mock fraud events” were used to test the Company’s preventive and detective efforts,
- whether the monitoring and reporting of possible fraud events were communicated to Senior Management and whether their response was appropriate (scale of effort or follow-up, timeliness, commitment to resolution),
- whether remediation/action plans for a fraud event to diminish its impact were implemented comprehensively and timely,
- whether the investigation and/or team had adequate skills and experience to perform a fraud investigation, controls assessment and/or a fraud remediation process,
- whether technology applications are utilized to help prevent, detect/monitor and mitigate a fraud event.
Hilltop’s fraud investigation efforts (in those cases where a fraud is suspected/confirmed) include:
- confirming whether a fraud has occurred,
- stopping certain activities, communications, transactions, etc. to lessen the impact of the fraud,
- identifying/implementing immediate controls processes to help identify any other aspects or unknowns about the fraud event,
- identifying the type of fraud that has occurred (embezzlement, financial statement errors, financial misrepresentations, mail fraud, inventory fraud, fraudulent loan ratings, fraudulent trading activities, sales or revenue overstatement, bonuses miscalculated, etc.),
- identifying impact of the fraud (cash missing, financial misstatement, compensation errors, etc.),
- identifying the operational, financial and/or technology processes used or likely used to commit the fraud and designing/implement changes to be implemented,
- determining the depth/amount of the fraud (corporate or department wide or type of transaction, etc.),
- gathering the evidence of the fraud (all documents supporting the what, how, when, why, and who questions),
- identifying all parties to the fraud, if possible,
- identifying “what went wrong?”, and
- implementing all remediation activities needed to avoid a similar event.
Critical to any fraud risk assessment and/or fraud investigation, is the constant communication with the Company’s leadership to update them on the status of the fraud investigation and mitigation efforts. These parties include:
- Board of Directors,
- Audit Committee, if applicable
- Selected management personnel – usually a small group,
- In House counsel,
- External counsel,
- Law enforcement (FBI, State & Local police), or
- SEC, as needed.
Why Hilltop? Most companies do not have internal resources to handle a fraud event and its consequences. The investigation of a fraud, the assessment of how the fraud was perpetrated, what prevention controls were missing or ineffective, what detection controls were effective or not, what remediation efforts need to be implemented immediately and over time to avoid another such event are all activities that require special skills, training, tools, proper level of skepticism and creativity in determining the cause and the resolution of any fraud. We approach a fraud investigation with the perspective that “anything is possible” and conduct our independent investigation accordingly.
Forensic Accounting Services
Forensic Accounting Services are often required when the financial statements have been misstated by material amounts. Often as part of the fraud, the “fraud architect” will create bogus transactions, caused reconciliations of certain accounts to go undone, use clearing accounts to hide temporary “resting places” for fraudulent amounts, etc. When the accounting has been purposely mis-recorded, the accounting records need to be reconstructed. Hence, a forensic accounting process will need to be implemented where transactions, data processed, and accounting entries may have to be recreated.
Other reasons for forensic accounting to be completed include when a company has “lost control” of its record keeping, has had a major catastrophe (fire, earthquake, flood, etc.), had major operational or financial systems crash, had purposeful destruction of data and transaction information, etc. Our experience allows us to quickly conclude on what needs to be done, who is critical to work with and how the results will be used. Our forensics process includes the following:
- identifying what data, transaction information or financial records are impacted by the event,
- assessing the resources needed to rebuild the financials – people, data, systems, documents, etc.
- identifying various alternatives, if possible, to reconstruct the financial information given the minimum level of “must have” financials,
- performing a “follow the money” trace to help assess the most effective way to restore all or substantially all the accounting information,
- determining if the event was too massive and/or too costly to reconstruct,
- executing the plan for reconstruction to meet at least the client’s minimum financial information requirements.