FINANCIAL FRAUD

DIVISION

The process of identifying and recovering from financial fraud can be time-consuming and stressful. The reputation of your organization is at stake, and your trust has been betrayed. Fraud investigators understand your concerns and work tirelessly to uncover the facts, document your case, and explain its complexities clearly and concisely. They will then serve as expert witnesses in litigation-- lending years of service and reputation to your case.

Our financial crime investigators have extensive experience in fraud and other financial abnormalities to help you uncover the truth and build the strongest case possible, be it civil or criminal. By using proven government forensic methodologies, they can detect any irregularity and address your issues, no matter how complex. They are unmatched in their ability to assess both quantitative and qualitative evidence to determine whether fraud has occurred. They will provide recommendations based on that data to prevent fraud in the future and guidance on how to deal with the current problems.

Apollo Limited NCS offers a variety of financial fraud services, including threat and vulnerability assessments and criminal/clandestine investigations. We will find the truth behind the numbers.

FRAUD comes in many forms, including bribery, kickbacks, billing fraud, payroll fraud, and more. Financial statement fraud is another common method of deception in which a company's financial data is intentionally misrepresented in an effort to mislead people and/or create the appearance of a stronger company. According to the 2016 global fraud study conducted by the Association of Certified Fraud Examiners(ACFE), financial statement fraud occurs in about 10% of occupational fraud cases, causing a median loss of $975,000.

Manipulating the numbers on a P&L, Balance Sheet, or general ledger account, no matter how insignificant it may seem, is considered financial statement fraud. It is often argued that only applies if the altered statements are presented to a person with vested interest as being "factual", "true", "audited", or "certified". While that may be true, it is a moot argument as it is unlikely a person would go to such lengths to falsify records if not to to present them with the intent to deceive. It is widely accepted as a legal argument, that the mere delivery of a financial report is in itself a form of certification to their authenticity, regardless if they are marked so or not. Any document released to investors, banks, or other interested financial parties are automatically considered to be true and accurate. Any discovery thereafter of manipulated numbers is considered therefor an act of fraud. The only exception would be if each page is clearly marked "preliminary" or "unaudited". Most lenders and all government agencies will not accept anything marked as such unless expressly requested. Furthermore, banks are required to file Suspicious Activity Reports (SAR) or Unusual Activity Reports (UAR) on anything questionable, including dodgy financial statements.

Methods of Financial Statement Fraud

Fictitious Revenue and Sales

One element of financial statement fraud is fictitious revenue and sales, such as revenues that have not been completely earned and are not ready to be recognized. This manipulation involves sending products out that were not ordered but were billed. These fictitious sales usually involve fake customers,

but a perpetrator could record phony sales to legitimate customers as well—although this is less common.

Phantom Revenue Posting

Another method is a phantom revenue posting, a scheme in which a company will post to revenue items that are under consignment. The perpetrator may post sales before they are made or prior to payment, re-invoice past due accounts, or prebill for future sales.

Asset Manipulation

A company can also manipulate its assets by stating that equipment is leased as an operating lease when it is really a capital lease. Existing assets can be overstated, or the perpetrator may record fictitious assets or otherwise improperly record them.

Altered Accounting Records

Yet another method is misappropriation of postings of transactions or

inclusion of false expenses. This is done to hide or mask theft or embezzlement, and it is usually done for purely personal reasons. There are other methods of changing the numbers, such as concealment of liabilities, in which liabilities are kept off the balance sheet, and overstatement of revenue by recording those uncertain sales.

Inflated Company Valuation

Financial fraud is also committed by managers of a company to help increase the value of the company. The motivation is to project the company in the best light possible to entice investors to review and invest. This is, of course, a concern with the SEC, which is presently expanding its efforts to prosecute more companies and managers for fraud.

Why Do People Do It?

Despite the risk of being caught and the potential for imprisonment, people commit fraud for personal benefit, such as getting a bonus for meeting revenue goals. At a high level, management might make false statements in annual reports to inflate the worth of the company. A developer may manipulate figures to match a proposed budget, or to improve the appearance of one project to garner investments in future projects. Sometimes it is not about personal gain at all. There have been many cases an employee was trying to ruin a business. Regardless of the motivation, financial statement fraud causes issues with shareholders and potential investors—and it could garner serious sanctions from the SEC.

Common Red Flags for Fraud

According to the ACFE report mentioned earlier, fraud perpetrators displayed at least one of the following red flags in almost 80% of all fraud cases:

Living beyond their means
Having personal financial difficulties, recent divorce, or family problems
Being unusually close with a vendor or customer
Having "control issues" or being considered a "wheeler-dealer"

At a forensic level, the following situations should raise concern as possible indicators of fraud:

Missing/altered documents
Discrepancies and unexplained items on accounting reconciliations
Increasing revenue without a corresponding growth in cash flow
A significant uptick in the company's performance during the final reporting period of the fiscal year
Significant or unusual changes in assets or liabilities
High revenue figures during a time in which competitors are in a downturn
Disclosures that appear to have no logical business purpose
Loans or bonuses with no proper explanation

FINANCIAL STATEMENT FRAUD

Financial statement fraud involves intentionally misrepresenting, misstating, or omitting financial statement data to mislead readers and create a false impression of an organization's financial health. In many cases, fraud is committed solely for personal gain or to scam investors or creditors into sinking money into a deal that only benefits the fraudster. In some cases, it is done in an attempt to keep a failing business afloat. Regardless of the reason, falsifying financial statements is a crime and one of many types of accounting fraud investigations.

MONEY LAUNDERING

The term money laundering covers a broad range of techniques used to conceal the origins of money obtained through illegal means. Typically, it involves three steps: placement, layering and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the "dirty money" appears "clean." Money laundering can facilitate crimes such as drug trafficking and terrorism, and can adversely impact the global economy. One problem of such criminal activity is trying to account for the proceeds without raising the suspicion of law enforcement agencies.

Considerable time and effort may be put into strategies which enable the safe use of those proceeds without raising unwanted suspicion. Implementing such strategies is generally called money laundering. After money has been laundered it can be used for legitimate purposes. Law enforcement agencies of many jurisdictions have set up sophisticated systems in an effort to detect suspicious transactions or activities, and many have set up international cooperative arrangements to assist each other in these endeavors. Apollo Limited is proud to be a key player in that endeavor and has been an integral part in countering the laundering of drug cartel assets for over a decade.

In its mission to "safeguard the financial system from the abuses of financial crime, including terrorist financing, money laundering and other illicit activity," the Financial Crimes Enforcement Network acts as the designated administrator of the Bank Secrecy Act (BSA). The BSA was established in 1970 and has become one of the most important tools in the fight against money laundering. Since then, numerous other laws have enhanced and amended the BSA to provide law enforcement and regulatory agencies with the most effective tools to combat money laundering. Apollo Limited works closely with FinCen using their practice and police as a model.

With the recent resurgence in regulatory enforcement actions and media focus on anti-money laundering (AML) & sanctions issues, financial institutions are under tremendous pressure to monitor and identify suspected illegal activity. As a result, many organizations are re-evaluating their AML compliance programs. Apollo's AML team include compliance officers, attorneys, bankers, former regulators, prosecutors, law enforcement officers, accountants and information technology (“IT”) professionals. Our professionals bring to bear critical expertise and resources to help clients identify, assess and manage the risks associated with money laundering and terrorist financing.

SAFEGUARDING ORGANIZATIONS

OF ALL SIZES

Law firms, internal legal counsel, and organizations of all sizes rely on our expert assistance to investigate allegations of fraud in a timely and thorough manner. Our team has assisted in complex investigations using eDisovery technology to review thousands of documents to identify the relevant information. Apollo Limited assists in the recovery of misappropriated funds including providing expert evidence in support of court orders to freeze assets.

Apollo Limited's

portfolio of fraud services includes:

Fraud investigations
Fraud risk assessment services
Receivership and trustee services
Contract disputes and breach of contract
Shareholder / partnership disputes
Royalty audits / intellectual property audits
Revenue recognition acceleration / creation
Patent, trademark, and copyright infringement
Financial distress/motive
Bankruptcy and insolvency
Trust and estate analysis
Due diligence services for M&A clients
Valuation services