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Showing posts with label Financial crimes. Show all posts
Showing posts with label Financial crimes. Show all posts

Sunday, October 4, 2015

Cooked Books - Forensic Auditing: Information for Writers with R. E. Carr

We welcome author R. E. Carr to ThrillWriting.

Fiona - 
English: Oracle General Ledger Accounting cycle
Oracle General Ledger Accounting cycle (Photo credit: Wikipedia)
Rachel, you are writer by night and forensic accountant by day. Can you explain what a forensic accountant does and how you found yourself in this field? My graphic makes me dizzy just looking at it!

Rachel - 
A Forensic Accountant is a specialized subset of the general accounting field whose focus is on preventing and uncovering waste and fraud.

Many forensic accountants work as consultants and even assist in criminal investigations.

Others, like myself, work as internal auditors in a company.

I actually initially went to school for writing and majored in English, but I needed to pay the bills.

I was working at a small law office and the bookkeeper of many years had almost ruined the place due to fraud. Her replacement couldn't figure out how to fix anything. So, as one does, I taught myself accounting with an "Accounting for Dummies Book" and built on my few months of being a clerk and receptionist and took the job.
Rachel Carr (link to Amazon author page)

After a few years of working my way through any accounting job I could, I ended up going to school to get my Accounting Degree. I chose Forensic Accounting to protect those like my old boss who were nearly ruined by fraud.

Fiona - 
Here on ThrillWriting, we never teach the bad guy how to be successful at being bad, but we do try to point out places of vulnerability. What would make a business vulnerable to fraud?

Rachel -
It's funny, when you study Forensic Accounting, a lot of your training involves getting in the mind of bad guys and even role playing as them.

If you want to make a business vulnerable to fraud you need to do the following:

  1. All Accounting duties limited to one person. No separation of duties is practically opening the door to fraud. For example if you have one person you gets the mail, deposits the checks and enters them in your accounting system, you give one person an easy opportunity to pocket payments received. Even something as simple as having a clerk open the mail and make copies of the checks can be a powerful deterrent.
  2. Not reconciling bank statements. Every business should have an independent review of what hits the bank.
  3. Not using a computerized system. There is a reason why almost all accounting is electronic. Not only is it more efficient and reduces mistakes, it keeps much better logs than any ledger ever could.
Fiona - It seems to me that there's a lot of vulnerablitly in the accountants position - if anything goes astray it's on them. What can an accountant do to protect themselves from being the scape goat?

Rachel - 
Document, document, document. A good accountant keep meticulous records. Also, you never share access with anyone, period.

Many good accountants can be framed by being careless with their access. A shared password can let you be framed. I know someone who once tried to do a withdrawal with another supervisor's register code.
Lastly, as an accountant, never execute or approve any sensitive transaction that you generated. Always have a second set of eyes. Whether its posting a journal entry or depositing cash. Witnesses save reputations as well as ruin them.

Fiona - 
Can those electronic records be hacked/changed/what if it's the owner? You can't exactly hide the records from your boss - but your boss could be hiding funds...

Rachel - 
Electronic records can be altered, but it's not as easy as you think.

Every major accounting system keeps an audit trail of who accesses a record.

It's much easier to change or edit data before it goes into the system. For example, forging a Purchase Order or Expense Report to get bad info into the system, rather than try to change something once posted.

Superiors often commit fraud the same way, by submitting bad data and working it in. Perhaps they create an invalid vendor or employee to cash perfectly "valid checks".

Once again, even supervisors have to be defended against. Even CFOs often have to have a secondary sign off to prevent just that.

If a boss is high enough, they may be trying to manipulate the financial statements to affect stock prices (a la Enron) but while sensational, this type of fraud is actually really rare.

Fiona -
You think your boss is being fraudulent with the books - you need this job! It seems like such a moral dilemma especially if you know it means the end of the business and all of your co-workers would be without a paycheck. 

What would someone actually be required by law to do once they see that shenanigans are under way that would keep the accountant from committing a crime by not reporting. Where is that line in the sand?

Rachel - 
It's always a moral choice. A very tough moral choice.

While Sarbanes-Oxley protect whistle blowers in publicly traded companies, in private companies it's much tougher.

You think you'll be this hero, but fraudsters are often manipulators. If discovered, the boss might try to tell the employee to think about the reputation of the company, to protect those who need those jobs.

Jobs are certainly threatened and whistle-blowers rarely prosper. They may even carry a stigma that they are "untrustworthy" even though they are trying to be right.

Lastly, accounting departments often grow close over time, tight knits, with an "us vs. them" mentality, so it's tough to get people to open up.

I've personally seen employees try to fix it from within and cover up the fraud rather than expose it. Better to deal with it quietly than make a scene.

However, this is against professional ethics and an accountant can be stripped of credentials if they are believed to have covered up fraud.

Fiona - 
They can't be tried and jailed?

Rachel - 
In a public company, yes. Under Sarbanes Oxley criminal charges can be held against financial professionals who falsify financial statements.

Individuals who commit fraud are of course able to be tried for larceny, fraud etc, but in the private sector an accountant who knows about a fraud and does nothing isn't criminal, but they probably would be fired if that makes sense.

Once you got into a publicly traded environment it gets much more stringent. That is why Arthur Andersen went down after Enron did.

Fiona - 
Do the police have forensic accountants on staff or do they hire them in - do you know?

Rachel - 
I believe it depends on the size of the department.

I know the FBI and the IRS send a lot of hiring material out to Forensic Accounting graduates for in house positions, but I've never seen a police force.

Fiona -
The Personality game: Does the stereotype hold? What are some personality attributes that would make someone good as a forensic accountant v. a regular everyday accountant - and conversely what personality types would have a hard time? 

Rachel - 
Forensic Accountants have to share analytical skills and being detail-oriented.
As a forensic accountant you need to know how accountant's think.

However, Forensic Accountants have to be open and communicative, even empathetic to do their jobs. They are trained in interviewing skills as well as psychology and law - over and above accounting training.

A Forensic Accountant needs to have the ability to both drill-down and step back as the situation requires. Many accountants, particularly those who do data entry all the time, tend to get blinders and only focus on one little subset of skills.

A forensic accountant has to wear many hats and see how the whole process links together. Only then can they see what is wrong with the picture.

I've also noticed that since Forensic Accounting is a relatively new discipline, the average age tends to be younger than in traditional financial accounting.

Fiona - 
You studied psychology - what kinds of psychology?

Rachel - 
I had to take entry level psychology and criminal psychology as well as interviewing skills.

It's important to not only understand numbers but people to do your job.

Fiona - 
Does your job show up in your writing? Is there a skill set you learned on the job that you apply to your writerly life?

Rachel -
Well, how many people have a werewolf who does accounting in their work?

Fiona - 
I don't know... there are a few that make me suspicious.

Rachel - 
I think that the analytical skills help me break down characters more than I did in the past. Accounting also keeps you disciplined.

You have to work on a timeline constantly and that makes you a stronger writer.

Oh and it taught me that the first accountants were in Sumeria. That's just cool. Counting goats and taking names...

Fiona - 
Our time is almost up - what did you think writers should know about forensic accounting that I didn't know enough to ask you?

Rachel -

Well my mom till her dying day thought that I did the books for dead people. How ironic that I did sort out her finances after she died.

Forensic Accountants are a rare breed, but they are steadily growing in popularity after each financial crash.

Also forensic accountant can help prevent waste just as much as fraud. Not every mistake is a grand conspiracy, and while we are a paranoid lot, it's important to prove innocence as well as guilt.

Also did I mention SEPARATION OF DUTIES a million times yet? Just do that if you want to protect your virtual companies from fraud.


Fiona - 

Here at ThrillWriting it is a tradition to share your favorite scar story.


Rachel-
Well, I seem to have a bizarre almost Wolverine-esque healing factor so I don't scar easily.

However... I have this innocuous quarter inch little dot on my side.

That was where the underwire from my bra stabbed me and I didn't feel it because I was so busy closing the books.

I got good old fashioned blood poisoning from that and am lucky to be alive.

So ladies, never curse your bra!

Fiona -

It's a love/hate relationship.

BTW, I just read Rachel's Kind Scout winning book, FOUR. It's a fun ride.

Finding a job is never easy, and the only employment Gail usually finds is acting as Girl Friday for the mob. Lucky for Gail, Georgia Sutherland has just the job for her—that is, if she can handle working nights, managing a little blood, and a boss who's been dead for centuries.
In a single interview, Gail's world turns upside down as she discovers that all she’s seen in Hollywood isn’t quite true; vampires don't combust in sunlight, but they do fall in love.
Are Georgia's stories enough to persuade Gail to take the gig catering to an antediluvian vampire who's thirsty for a new personal assistant? If Gail wants to live out the year and retire rich, she just needs to remember the Four Rules that govern undead society. AMAZON LINK

You can stay in touch  with Rachel:
On Twitter @TotalRECarr
and on Facebook: R.E. Carr

Thank you so much for stopping by. And thank you for your support. When you buy my books, you make it possible for me to continue to bring you helpful articles and keep ThrillWriting free and accessible to all.




Saturday, July 4, 2015

Dollars and Sense: Writing Financial Crime Fiction with James Jackson

English: A bag of money, US dollars, spinning ...
. (Photo credit: Wikipedia)
In this article, we are talking about financial crimes in novel writing with author James Jackson. 

Jim, you have a new book out - can you give us the blurb and talk about how you apply your financial background to your fiction?

Jim - 
First, thanks so much for having me here today.

Here's the blurb for Ant Farm:In this thrilling prequel to Bad Policy and Cabin Fever, when thirty-eight retirees meet a gruesome end at a picnic meant to celebrate their achievements, financial crimes consultant Seamus McCree comes in to uncover the evil behind the botulism murders.

But the deadly picnic outside Chillicothe, Ohio, isn't the only treacherous investigation facing Seamus; he also worms his way into a Cincinnati murder investigation when the victim turns out to be a church friend's fiancé.

While police speculate this killing may have been the mistake of a dyslexic hit man, Seamus uncovers disturbing information of financial chicanery, and by doing so, puts his son in danger and places a target on his own back. Can Seamus bring the truth to light, or will those who have already killed to keep their secrets succeed in silencing a threat once more?
James Jackson


I worked as a financial consultant for thirty years. My particular area of expertise included pension plans and post-retirement medical plans for large corporations, not-for-profits and governments.

As an actuary, I determined the annual funding requirements for those plans. As a consultant I dealt with the organization's senior executives to design the most efficient plans for their group.

I have a character flaw (well, one of many): I look at any financial transaction and want to figure out how to game it. Fortunately, a reasonably strong moral compass and a very strong desire to stay out of jail convinced me never to act on any of the schemes I figured out.

But as an author of financial thrillers and suspense tales, I can use that character flaw, combined with my inside knowledge of the financial industries and corporate executive culture to write realistic stories.

Fiona- 

Do you worry that people with broken moral compases might be taking notes as they read your work?

Jim - 
I don't. I am not teaching anything new to insiders of the various businesses I have dealt or am dealing with in my novels (insurance companies, insurance brokers, hedge fund managers, for example). Those who are in the position to execute the kinds of fraud I describe already know what they need to know.

If anything, I hope the average reader will learn how vulnerable the systems are and be mindful of their own affairs so they are less likely to be scammed themselves.

Fiona - 
Numbers :sigh: most people I know are math-phobic. Are you writing for a particular audience or have you found a way to make this interesting for all? And as a piggy back to that question - do you have to spend time in your novel explaining financial concepts? If yes how do you do that without acting like warm milk and a Sominex?

Jim - 
One major skill I had as a consultant was the ability to explain complex financial concepts using English that people unfamiliar with the jargon can understand. There is a small segment of the population who reads my books because they too have insider information about the businesses. In fact, I had a former boss comment about Ant Farm that he had had someone who worked for him arrested because they perpetrated one of the frauds outlined in the book!

However, for everyone else, anything that needs to be explained is in very understandable language.

One technique that works well is to have another character ask Seamus McCree (the protagonist) to explain something -- or have them make a guess, which is close and then have Seamus make the correction. Done in dialogue and flows very quickly.

People only need to understand the concepts, not all the specifics.

I have had lots of mathaphobes, whom I personally know, tell me how much they enjoyed learning about these financial instruments, such as annuities, short sales [when you borrow stock, sell it and hope to buy it back later at a lower price].

Fiona - 
What mistakes in books/TV/movies do you frequently see and drives you crazy? How can these be avoided?


Jim - 
The errors I see that just drive me up the wall usually have to do with probability and statistics (major areas of actuarial study).

For example, they will have no understanding of the difference between average and median.

Fiona - 
Gasp!

Jim - 
For example, they will say something like (totally made up on the spot) because the average income in this town is $100,000, poverty isn't a problem. However, there is a rich neighborhood and a poor one. There are 10 rich guys who each earn $10,000,000 bucks and 90 people who earn nothing. The average for the 100 is $100,000. However, if we looked at the median (the number at which half the people would be above and half below) the number is $0.

Jim - 
Very large or very small numbers in a group can skew the average and so that misrepresents the group. Other statistics do a better job and people don't know them.

And now our audience is snoozing -- how to avoid. Check with someone who does understand the stuff.

Fiona -
LOL

What advice do you have for people who may not be as familiar as you are with the subject, but woke up in the middle of the night with a plotline running through their head, and it's a financial suspense?

Jim - 
My experience is that experts in any subject are delighted to share their knowledge with authors. Do a bit of research to figure out who you want to talk with and give them a call -- or if possible show up in person.

Fiona -
Can you give us some examples of financial suspense/mystery that you thought were particularly well done and might be used as a template for well written financial mystery - and can you tell us about your other books and what crime you developed in each (if it's not a spoiler).

Jim - 
The biggest mistake I see regular people make is to sign a financial agreement they do not understand. You can be assured that the people who drew up the agreement know exactly how to screw you if you are not aware -- and many will, if they legally can.

That was just an extraneous, not answering your question.

Fiona - 
Thanks for the warning and that sucks.

Jim -

Sue Grafton & Sara Paretsky do excellent jobs with the financial crimes. Kinsey Millhone worked for a while as an insurance fraud investigator and V.I Warshawski has dealt with many white-collar crimes.


Read It Now


Ant Farm and Bad Policy both revolve to some extent upon fraud relating to insurance companies. Cabin Fever also has financial crimes within its core, but saying much more would give away a bit of its plot.

My current WIP, the next in the series, Doubtful Relations, deals with hedge funds -- which have been in the news lately.

Fiona - 
Would you say that lay people who want to have a better conceptualization of some of the issues that we hear about in the news would be edified and entertained at the same time with your books - sort of a gentle tutorial or is that taking things too far and they are really there for great entertainment?

Jim - 
Well, they might be enlightened a bit, or they might be a bit more careful in the future, but really the books are page-turning yarns and any education someone gets is purely a side benefit.

Fiona - 
And very quickly we are out of time. My last question: What do you wish I had asked you, if I had enough knowledge to do so?

Jim - 
I love that question. It is one I always ask experts.
Q: What advice do you have for people when they are dealing with financial professionals?
A: Understand as much as you can about how they are compensated. Even the most honest and ethical individual will be swayed by how they make money.

When I worked for a company that sold insurance the consultants who sold a lot of any particular insurance company's products would earn free trips; the company would earn "production bonuses". Despite being independent more contracts flowed to those companies who sweetened the pot than didn't

That is even more true when all a person's compensation comes from commissions.

Not that everyone is dishonest, but I do believe they will be swayed -- and it isn't for your benefit.

Fiona -
Now for the most important part of interview, please tell us you scar story.

Jim - 
I have three and I’ll be brief. Scar one: As an eight year old, I fell on a cinder driveway. Deep under my skin I carry one small cinder that never came out. It reminds me that our past is always with us.

Scar two dates from grade school: On my left shinbone I have a circular scar caused by a thrown baseball bat. I was pestering a neighborhood kid, and he threw the bat at me. I tried to jump over it but didn’t quite make it. I could see my bone. My memory is not of pain but of realizing that it was stupid to pick on someone with a bigger, badder weapon. I recall that knowledge when someone cuts me off on the road—the jerk might just be carrying a gun.

Scar three: Above my left knee is a chainsaw scar—self-inflicted when I forgot Newton’s law that every action has an equal and opposite reaction. I was cutting down a small tree and just as it began to fall, my dog trotted into its path. I reached out to slow the tree down with one hand. The hand with the chainsaw swung in toward my legs. I was eight miles from the nearest human; fifteen miles from a phone; twenty-seven miles from the hospital.

Lots of blood but no spurting. Short story: I applied pressure, took myself to the hospital for the necessary stitches, and am still alive.

Fiona -
Thanks so much for stopping by and sharing, Jim!


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Thank you so much for stopping by. And thank you for your support. When you buy my books, you make it possible for me to continue to bring you helpful articles and keep ThrillWriting free and accessible to all.

Cheers,