Kreston BSG celebrates 25 years
December 21, 2021
Kreston BSG in Mexico has hit a milestone – 25 years in business. Read all about their celebrations here.
December 21, 2021
Kreston BSG in Mexico has hit a milestone – 25 years in business. Read all about their celebrations here.
According to the Association of Certified Fraud Examiners (“ACFE”), occupational frauds are those in which an employee, manager, officer, or owner of an organisation commits fraud to the detriment of that organisation. This definition includes frauds categorized as corruption, asset misappropriation and fraudulent financial statements.
Ricardo Gamerof, Partner in Kreston Chile, examines the causes of fraud and how to mitigate them.
The sudden and widespread impact of the coronavirus pandemic and the measures to suspend the activities that were adopted to contain it have caused a drastic contraction of the world economy, which, according to the June 2020 edition of the World Bank’s World Economic Outlook report, will cause the worst recession since World War II and the first time since 1870 that so many economies would experience a decline in per capita output.
Furthermore, according to the British Broadcasting Corporation (“BBC”) there have been 14 major global economic crises in the last 150 years, with the coronavirus being the fourth-worst in the series. There is no doubt that the Covid-19 pandemic has caused a global economic crisis of great proportions.
To assess what we may be facing, we can look back to another great world economic crisis – the 2007/8 9 US subprime mortgage market collapse which led to various companies and banks having to be bailed out by central governments around the world. The International Monetary Fund (“IMF”) described it as “the most serious economic and financial collapse since the Great Depression of the 1930s”.
In 2009, the ACFE published the results of a survey “Occupational fraud: A study of the impact of an economic recession.” The findings of this study were revealing and of particular importance for our analysis:
• The level of fraud increased since the beginning of the economic crisis. More than half of the respondents indicated that the number of frauds increased during the previous year. Additionally, 49 percent observed an increase in the dollar amount lost to fraud during the same period.
• The increase in fraud stemmed from the intense pressure faced by so many individuals. Nearly half of the respondents stated that it was the increased financial strain pressure that resulted in the amplified level of fraud.
• Employees posed the greatest threat to organizational resources. More than 48 percent of the participants indicated that employee embezzlement rose, making this the most cited category. However, frauds by vendors, financial statement fraud, and corruption were also indicated to have increased.
In summary, the ACFE concluded that it is logical to assume that the rate of fraud increases when the economy weakens, and that fraud and economic strength are inversely related.
According to a recent survey carried out this year by the ACFE, 51% of organizations have uncovered more fraud since the onset of the pandemic, and 71% of respondents expect the level of fraud impacting their organizations to increase over the next year.
If, as the survey suggests, there is a strong correlation between large scale economic crises, a drop in growth and a consequent rise in occupational fraud, what can companies and their management teams do to strengthen anti-fraud programmes and mitigate their losses?
In 2021, the ACFE’s new survey – “The Next Normal: Preparing for a Post-Pandemic Fraud Landscape” – looking at the current and expected effects of Covid-19 on the fraud landscape, suggests not that much has changed in the last 11 years:
• 51% of organizations have uncovered more fraud since the onset of the pandemic.
• 71% of respondents expect the level of fraud impacting their organizations to increase over the next year.
• Most of the professionals surveyed expect increases in all types of fraud risks.
• More than 80% of organizations have implemented one or more changes to their anti-fraud programs in response to the pandemic.
• 38% of organizations increased their budgets for anti-fraud technology.
• Shifts in business operations and changing consumer behaviours are the top two factors expected to impact the fraud risk landscape in the coming year.
• The most common pandemic-related challenges facing anti-fraud programs are changes to investigative processes and changes in control/operating environment.
But not everything is lost. There is much that Directors can do to prevent and detect fraud, and at the end of the report the ACFE concludes that the pandemic has changed much about the business environment and operations, and anti-fraud programs must evolve along with them.
There is no doubt the Covid-19 pandemic has increased economic opportunities and pressures on the part of employees, which inevitably resulted in an increase in the number of fraud cases and related losses. Businesses have to be doubly cautious as not only is the economic environment potentially reducing corporate income by reducing its sales and margins, but they also stand to lose more because it fuels the rise of occupational fraud and its related losses.
But the evidence shows that a robust anti-fraud program, actively sponsored by the Board of Directors and senior management, that includes a comprehensive fraud risk assessment, controls designed to mitigate identified risks and a response plan that enables fraud to be quickly investigated and the culprits isolated, can and will make a huge difference to the bottom line.
Management is ultimately responsible for detecting, preventing and responding to fraud. An anti-fraud program, aligned with a company’s compliance framework, demonstrates that management is setting the proper “tone at the top” to address its fraud and compliance risks. An anti-fraud program will not provide full assurance against fraud, but it can help mitigate the risk of fraud by allowing management to identify and prioritize fraud risks and allocate resources to address them.
To successfully mitigate the impact of fraud, and reduce fraud-related losses, an effective anti-fraud program should include the following key elements:
• Setting the proper tone: code of ethics, code of conduct, fraud prevention policies, communication and training, whistle-blower hotline.
• Proactive: risk assessment, design and implementation of controls, control monitoring and fraud data analysis.
• Reactive: incident response plan, investigation and punishment.
On a recent engagement for the Chilean National Oil Company (“ENAP”), to carry out a fraud risk assessment of the corporation and prepare a fraud risk dashboard using forensic data analysis, we analyzed numerous sources of information, conducted multiple interviews and surveys, and were able to identify the main fraud risks threatening the corporation and assess their likelihood of occurrence and potential impact. Using the latest IT tools, we created an automated dashboard that red flags patterns related to the key frauds identified.
There is also an inverse correlation between anti-fraud controls and the dollar value of losses related to fraud instances. According to the ACFE, for every anti-fraud control they examined, organizations that had controls in place experienced smaller fraud losses and detected frauds more quickly than organizations lacking those controls.
As a result, the Board of Directors and management now have a warning and indicator system that periodically assesses the potential presence of a problem or threat of fraud, allowing them to identify and prevent fraud early and so reduce losses.
Talk to us about creating your own anti-fraud programme.
December 20, 2021
Blockchain has a major role to play in the future of audit.
There’s the increasing popularity of cryptocurrencies and non-fungible tokens (NFTs) – both of which are based on blockchain technology – and we’ve talked before about the evolving standards that surround this type of asset.
Accountants and auditors alike will need to keep up with the changing guidance to accurately assess their clients’ blockchain-based assets.
But as the use of the technology becomes more widespread, it also has the potential to change the audit process itself. To prepare for the changes that lie ahead, auditors need to understand how blockchain works and the benefits it could bring to their work.
In the future, blockchain could have an impact on virtually every sector of the economy, but its main use is currently within transaction-based financial services.
One of the main benefits of this type of service is its high level of security. Because information on each transaction is cryptographically stored on a distributed ledger, it’s almost impossible to tamper with any of the information.
Blockchains can also be programmable, allowing for new transactions or controls to be automated using ‘smart contracts’.
For auditors, working with transactions and ledgers is familiar territory – and the opportunity blockchain presents, if all transactions were to be recorded through it, is that of a real-time, permanent and accurate audit trail.
If every transaction can be recorded with absolute certainty, there would in theory be no need to verify those transactions – removing the task of reconciliation altogether.
If that’s true, some might wonder if blockchain technology could render auditors’ jobs obsolete.
The International Federation of Accountants argues that this is not the case:
“Reconciliation of accounting data will not be fully automated through blockchain technology as auditors’ professional expertise and experience is required to assess the accuracy of complex accounting transactions.
“However, the ability to trust that both parties are recording the same base transaction information and the real-time availability of this accounting data offers immense benefits for the efficiency with which accounting data can be reconciled and analysed.”
To gain meaningful insight from financial data, there will still be a need for human interpretation of the way transactions have been recorded, and the business context they sit within. Blockchain should simply make auditors’ jobs faster and more efficient so they can focus on the higher-level questions.
Even on a secure system, there remains the risk of error or fraud at the point of input – but by combining blockchain with other technologies like artificial intelligence, you could analyse every single transaction and pick up discrepancies that a human could easily miss.
From there, an auditor could use their expertise to dig deeper into the problem. Compared to selectively analysing and reconciling data in retrospect, this offers a much more immediate, consistent way of carrying out an audit.
To make the most of the benefits of blockchain, auditors will need to develop their own knowledge of the technology.
They’ll need to understand it well enough to build it into their processes and advise their clients on implementing it themselves.
And because it’s still developing, auditors and accountants both have a major role to play in building the standards around blockchain – making sure it lives up to the security and transparency it promises.
Talk to us about blockchain and the future of audit
December 17, 2021
Kreston firm, Brighture, share their expertise in their latest newsletter covering financial news and updates from China.
December 15, 2021
Kreston Global tax expert, Nam Nguyen from Kreston NNC in Ho Chi Minh City, recently shared his experience of working with foreign investors in Vietnam with STEP Journal and how personal tax planning and understanding tax residence can save clients money.
What is the issue?
Vietnam taxes residents on worldwide income and non-residents on Vietnam-sourced
income, regardless of where they get paid.
What does it mean for me?
Tax rates for tax residents are comparatively high, with a 35 per cent top marginal rate and few tax reliefs.
What can I take away?
Personal tax planning is essential when advising clients considering working or doing business in Vietnam.
December 7, 2021
Kreston Global member Ganesh Ramaswamy of K Rangamani and Associates LLP was invited to share his views with Law360 on BEPS 2 and the impact it would have on SMEs. Ganesh offers excellent advice, discussing options that SMEs who carry out cross-border business should consider, from evaluating their operational structures from a tax perspective to their reporting processes and any costs involved from the new tax initiative.
Read the full article here.
Kreston member Ian Miles has recently been published in industry-leading news service, eprivateclient. Ian is the global mobility lead at Kreston Global and partner at James Cowper Kreston. The article covers the tax implications of travelling the globe as a “digital nomad”, or someone who is able to work from any location with an internet connection and their laptop. The article covers tax residence, PAYE and overseas compliance.
As more of us choose to work from home, some choose to work from anywhere. Understanding the implications of this can be hard to navigate. Working with our global mobility network can support you through this, with everything from tax implications to buying a new home. Contact one of our network firms here.
Read the full article here.
December 6, 2021
The growth of the Kreston network is in the news again following the addition of two new Kreston firms. The article in International Accounting Bulletin covers the addition of Kreston Bahamas and Kreston Bahrain, who have joined the network as Kreston branded firms.
Liza Robbins, CEO of Kreston Global, said,
“I would like to welcome our new colleagues in The Bahamas and Bahrain to the Kreston Global network in an exciting period of growth as international business recovers from the pandemic. These two firms, so geographically far apart, embody the spirit of excellence and collaboration that we at Kreston Global have always championed. We look forward to working with them to build on their many successes to date, both in their respective regions and beyond.”
Click here to read the full article (subscription required).
Visit our doing business in the Bahamas and doing business in Bahrain for helpful insight on expanding your business into these countries.