Faisal Sheikh - When Numbers Don’t Add Up

When Numbers Dont Add Up

When Numbers Dont Add Up

Accounting Fraud and Financial Technology

Faisal Sheikh, BSc. (Hons), FCCA, FHEA, FFA, FIPA

When Numbers Dont Add Up: Accounting Fraud and Financial Technology

Copyright Business Expert Press, LLC, 2021.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any meanselectronic, mechanical, photocopy, recording, or any other except for brief quotations, not to exceed 250 words, without the prior permission of the publisher.

First published in 2021 by

Business Expert Press, LLC

222 East 46th Street, New York, NY 10017

www.businessexpertpress.com

ISBN-13: 978-1-94858-089-2 (paperback)

ISBN-13: 978-1-94858-090-8 (e-book)

Business Expert Press Financial Accounting, Auditing, and Taxation

Collection ISSN: 2151-2795 (print)

Collection ISSN: 2151-2817 (electronic)

Cover image licensed by Ingram Image, StockPhotoSecrets.com

Cover and interior design by S4Carlisle Publishing Services Private Ltd., Chennai, India

First edition: 2021

10 9 8 7 6 5 4 3 2 1

Printed in the United States of America.

Dedicated to

Fra Luca Pacioli,

Pir Muhammed Nur ud Din Uwaysi,

&

My friends for being there when I needed you most

Brian Leigh

Eileen Roddy

Martin Walsh

Kathy & Bernie Maguire

Ghulam Sorwar

Abdi Ali

Scott Isenberg

MUM, DAD

&

RUBY

Zahra, Maryam, Halimah, and my readers remember if you realize His face then:

I swear, since seeing Your face,

the whole world is fraud and fantasy

The garden is bewildered as to what is leaf

or blossom. The distracted birds

cant distinguish the birdseed from the snare.

A house of love with no limits,

a presence more beautiful than Venus or the moon,

a beauty whose image fills the mirror of the heart.

~ Rumi

Al Capones bookkeeper once said that he can steal more with a pencil than ten men with machine guns the situation is much worse today, with computers that have increased the speed, the possible scope of criminal acts and the difficulty to investigate such crimes.

Brinkley and Schell, cited in Abrams et al. 1995

Description

The book begins with a brief assessment of corporate crime, fraud in general, and how accounting fraud is different. There is a review of notorious cases such as Enron (2001) and recently Toshiba (2015), including the socioeconomic consequences of this nefarious crime. The author contextualized the phenomenon of accounting fraud using a framework he developed called Corporate Governance Cosmos. Thereafter, the book contains an up-to-date literature review (in order to make the book more readable, academic references have been kept to an absolute minimum, but a full reference list is provided), beginning with a thorough appraisal and critique of the seminal theory in this area, namely, the Fraud Triangle and its different variations. There is a comprehensive exploration of the motivations for accounting fraud and a growing realization that Dark Triad (psychopathy, narcissism, and Machiavellianism) tendencies may explain why executives engage in accounting fraud. There is a small contribution to the literature by the author, who expands an established framework entitled Cooks Recipes Incentives Monitoring End results (C R I M E) by Rezaee (2005). The author extended it to C R I M E L, where L is the Learning from 33 international case studies of accounting fraud. Accountants, auditors, antifraud practitioners, and graduate students will find the mini case studies of accounting fraud particularly useful as it makes the phenomenon tangible and more understandable. The penultimate chapter is a study of the likely impact of financial technology on accounting fraud. The author concludes by pulling salient previous sections and philosophical ideas together, including a brief discussion of ethics, forwarding his International Code of Ethics for Professional Accountants (IFAC) Ethical Triangle, his vision for the future accountant, which he refers to as accounting engineers, and an ancient prescription for the curse of accounting fraud.

Keywords

accounting fraud; corporate governance cosmos; fraud triangle; dark triad; C R I M E L; financial technology; IFAC ethical triangle; accounting engineer

Contents

They say that literary projects take on a life of their own, and I brashly thought this book was going to take less than a year to write. Instead it has taken nearly two years, and I have experienced many highs and lows, even thinking, at one point, I would never complete this book. Hence, I remain indebted to friends and family for their care and support.

I remain deeply grateful to Business Expert Press, especially Scott and Shyam, for their support and patience. A big thank you to my colleagues who graciously agreed to write forewords and gave me very productive suggestions on how to improve the bookRichard Williams and Nigel Iyer. As ever, thanks to my close friend and mentor Brian Leigh, who meticulously proofread the text.

I have stolen time and energy from my wife and little girls, but, collectively, they are a testament to the fact that behind every successful man there is a woman, or in my case women.

I continue with my study of accounting fraud and would sincerely appreciate any experiences or feedback from my readers.

Thanks!

Faisal Sheikh

Reducing and removing the impact of fraud and corruption is one of the big challenges we face in the world today, alongside, of course, eradicating poverty, promoting world peace, and cleaning up the environment. But unlike many of the other big global challenges, fraud and corruption is one part of human nature we should be easily able to avoid. It should be quite simple to deal with because cheating, stealing, and deception are nothing newthey have been around for centuries. But all the same, despite a tsunami of new rules and regulations in recent years, fraud is constantly on the increase. And whats more, corruption and fraud are the dirt in our machinery, which get in the way of us overcoming many of the other global challenges that we as a human race are dealing with.

As Faisal writes in this highly educational and accessible book, Fraud has perhaps existed since the beginning of trade and commerce a very long time ago. Accounting fraud is a subset of fraud. In simple terms, it is any kind of financial reporting deception. And its nothing new. For example, in Roman times, accounting fraud occurred when one of Emperor Julius Caesarss provincial governors grossly underreported to Rome the value of assets in his province. because he had, of course, stolen them. To detect this, the meticulous and rightly curious Caesar regularly sent out his Quaestors to audit his provincial assets and look for fraud. Any accounting fraud that was discovered would result in the severest penalty for the governor involved.

All over the world fraud and corruption is as common as the common cold. Accounting fraud has really spread like wildfire. Its time we asked some critical questions: Are todays accountants and auditors less meticulous and skeptical compared with their Roman Empire counterparts? Has some other factor, such as the rapid development of seamless and integrated financial technology or just too much data to be able to see the details, masked the ability of accountants and auditors to spot when the numbers dont add up? Or have we disguised the language of accounting in such complex jargon that only a few elite (or so called forensic) accountants are able to spot fraud? Whatever the case, our world is today crying out for accountants and auditors to step up to the plate and take more responsibility to defend the world from accounting fraud. There is nothing scary about accounting fraud at all, and the more people who know what it is, the easier it is to spot.