When Debits Don’t Equal Credits: Dealing with Potential Fraud

Challenge

Wolf & Company was contacted by a large publicly-traded holding company that consisted of multiple subsidiaries and further acquisition planned by its Board. As the CFO was reviewing the books, some accounting discrepancies were noted. Due to Wolf’s reputation in the industry, the CFO contacted us after receiving a suggestion from another of the company’s professional advisors.

Solution

After the discrepancies were noted, the company used a consultant to uncover a problem. The question they had for Wolf was how big the problem was and how far it would go. Wolf utilized data mining and deep knowledge of industry accounting practices to follow the transactions through the system and to determine what was going on. Wolf focused on the areas of highest risk and adjusted the plan so that resources were being used in the areas with the highest likelihood of fraud. In our work, we verified that account balances were properly supported and confirmed that there was no illegal activity taking place.

Result

As a result of this work, Wolf was able to assure the management group that no actual fraud had been committed. Instead, it was determined that human error based on time constraints and resources had been the culprit of the accounting discrepancies. Wolf was able to assist in adjusting its procedures to provide greater confidence to the Board of Directors and external auditors.