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Article
Publication date: 3 May 2016

Cenap Ilter

This paper aims to present a real case of inter-company fraud where the Group’s Bank lent money to a Group company and was never repaid. The company generates its own cash, but…

2627

Abstract

Purpose

This paper aims to present a real case of inter-company fraud where the Group’s Bank lent money to a Group company and was never repaid. The company generates its own cash, but instead of repaying its debt to the Bank, it funds other Group companies. Considering the Bank as being a public depository institution and its illiquid situation, the case presents a fraud within the Group. In this regard, the paper is considered to be an exemplary case for the accounting literature.

Design/methodology/approach

The paper analyses one of the Group Company’s audit reports for the years 2003 and 2004 and explains the type of frauds committed by the Company’s management. The study approximates the total US dollar figures that were inappropriately transferred to the other Group’s companies in 2003.

Findings

The study examines the real case and discusses the reasons that led to the Group’s bankruptcy. Lack of governmental controls may lead to bankruptcy of banks that have been abused by its owners by transferring loans to other group companies exceeding the legal limits observable by the banks.

Practical implications

Auditors, accountants and accounting lecturers, as well as professors, talk about fraudulent accounting practices. The study explains a specific accounting fraud case in a group of companies. It explores the type of inter-company money transfers without a valid base. The author is of the opinion that readers with an accounting background will benefit from reading the case.

Social implications

Economics is the study of allocation of scarce resources to the best use. Public’s savings must be directed to the companies that produce the value added to the society. On the other hand fraudulent money transfers within the group companies involving bank(s) may distort this allocation. Public money-deposits might be wasted by dishonest business owners. The study is aimed to disseminate this information to public in general.

Originality/value

The case study has been built on a real audit report from Turkey. The names and the locations of the companies have been changed, and the figures have been approximated in US dollar terms. The events and findings on the audit reports have not been changed, and each fraudulent event has been individually discussed.

Details

Journal of Financial Crime, vol. 23 no. 2
Type: Research Article
ISSN: 1359-0790

Keywords

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Article
Publication date: 8 May 2018

Cenap Ilter

The paper aims to explore the present cheque clearance system in the USA and its possible misuses in the practical sense. Cheque kiting has been a way of creating fictitious cash…

271

Abstract

Purpose

The paper aims to explore the present cheque clearance system in the USA and its possible misuses in the practical sense. Cheque kiting has been a way of creating fictitious cash balances on the balance sheet, which is a fraud. This practice can be prevented by a different accounting treatment.

Design/methodology/approach

The paper compares the cheque clearance system in the USA with the author’s own experiences from Turkey. It purports the riskiness of the present cheque clearance system on the financial statements and suggests a practical accounting application to prevent possible financial statement misrepresentations.

Findings

The paper explores that if the present accounting treatment is changed both for the banks and the businesses, the possibility of cheque kiting and misrepresentation of cash balances on the balance sheet will end. Basically, cash is the amount that can be used by the customer, the rest is not cash, it is “cheques in collection” and it should be treated as an account receivable until it is collected.

Practical implications

Financial statements are vital for the business world. Based on these statements, banks lend money, governments collect taxes and people buy and sell stocks. They need to be presented fairly. The present accounting application on cheque clearance is not transparent enough in the USA, and this might lead to misrepresentation of financial statements. The paper suggests a practical solution to this problem. By changing the accounting treatment, the companies will only show cash in their cash accounts and not the cheques in the collection process.

Social implications

Fair treatment is the motto for any situation we face in our daily lives. One may be a poor or rich person but the treatment should be fair unless he/she is a fraudster. A rich person’s cheque is deposited in his/her bank account the next business day, and a poor person’s cheque might take days to be credited. This is not a fair treatment. The paper suggests that there must be a one-way accounting treatment, regardless of the depositor’s financial situation.

Originality/value

This paper has been prepared based on the author’s past business experience in Turkey and his study of the US cheque clearance system, comparing the two. It reflects the real-world examples of cheque kiting and its negative consequences in the USA and proposes a solution.

Details

Journal of Financial Crime, vol. 25 no. 2
Type: Research Article
ISSN: 1359-0790

Keywords

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Article
Publication date: 11 May 2010

Cenap Ilter

The purpose of this paper is to discuss that in an uncontrolled business environment public companies' resources may be abused to fund other group companies by their management.

542

Abstract

Purpose

The purpose of this paper is to discuss that in an uncontrolled business environment public companies' resources may be abused to fund other group companies by their management.

Design/methodology/approach

The paper has been designed on fraud theory. The theory has been developed on interviews with key management personnel, financial analysis, audit tests and gathering the facts on each step.

Findings

The paper concludes that in an uncontrolled financial market, owners, executives and statutory company auditors acting in harmony may break the financial rules, statutory obligations and convert a healthy public company into bankruptcy by means of milking its resources to other group companies on unfeasible projects or on individual pleasures.

Practical implications

Auditors both internal and external should pay attention to intragroup transactions. Companies, partially or wholly owned by the public might be under the influence of owner/executives. Here, it is not only the government interests as tax or social insurance, but also the shareholders' interests are at stake.

Social implications

Resources are scarce, especially in developing countries. The public's savings must be sourced to feasible projects in trustworthy hands, otherwise public's trust is shaken which will deter potential shareholders to invest in capital markets, and consequently these negative repercussions will affect the whole community.

Originality/value

The case that the paper covers reflects the author's own audit experiences as an ex‐auditor. The names of the companies have been changed but not the essence of events. It is believed that the paper will shed light onto the path of the reader who might be an external or an internal or a statutory auditor or a manager of a company who might be involved in similar situations.

Details

Journal of Money Laundering Control, vol. 13 no. 2
Type: Research Article
ISSN: 1368-5201

Keywords

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Article
Publication date: 7 October 2014

Cenap Ilter

The purpose of this paper is to explore the type of accounting scandals reported in Wikipedia which have occurred in different countries on different continents. It also explores…

704

Abstract

Purpose

The purpose of this paper is to explore the type of accounting scandals reported in Wikipedia which have occurred in different countries on different continents. It also explores the frequency and the dollar amount of the type of accounting scams that have been committed by the companies.

Design/methodology/approach

The paper analyses each company‘’s committed accounting scandal(s). It then classifies the companies on a country, type of scandal and industry basis. It further analyses the distribution of accounting scandals and explains the major ones in its category.

Findings

The paper concludes that within the confines of the information reported in Wikipedia, the majority of accounting scandals have occurred in USA both in number of scams and in USD amount. The most frequent type of accounting scam is overstatement of assets and understatement of liabilities including roundtrip sales. Another inference from the paper is that the accounting scams can occur anywhere at any amount. It is not a country-specific issue.

Practical implications

Auditors, accounting and auditing instructors and accountants talk about accounting scandals. Auditors, in particular, are required to issue audit reports that are free of material errors either deliberately or innocently made. This paper sheds light onto the issue, as it shows what major type of accounting scandals have been committed in the literature, as they had devastating repercussions on the shareholders.

Social implications

Resources are scarce. Public’s savings must be sourced to the companies that produce the value added to the society. Misrepresentation of financial statements is an issue which distorts this relationship. The paper, by showing the type and amount of scandals, is opening up the issue to public that people be aware of what type of company they are investing in and what potential risks they are undertaking that may be leading them to be more selective in their investments.

Originality/value

The paper covers the original stories that have occurred throughout the world since 1970s. The names of the companies are original and the amounts of scams have either been collected as USD from the story itself or converted to USD at time of the event. All USD figures have then been restated to the 2011 year-end purchasing power. Thus, the cases are reflecting the approximate USD value as of 2011 year-end derived from its historical original value. The paper reshuffles the data in certain ways so that the reader will have a better view of the cases than that of presented in Wikipedia.

Details

Journal of Money Laundering Control, vol. 17 no. 4
Type: Research Article
ISSN: 1368-5201

Keywords

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Article
Publication date: 8 May 2009

Cenap Ilter

The purpose of this paper is to show to the public in general and auditors in particular that the money deposited to the banks that operate in an uncontrolled medium can be…

926

Abstract

Purpose

The purpose of this paper is to show to the public in general and auditors in particular that the money deposited to the banks that operate in an uncontrolled medium can be misused by owners of the banks.

Design/methodology/approach

The paper has been designed based on a fraud theory. The theory has been developed on financial analysis and audit tests. The theory then revised and the existence of a bogus company and its intermediary role in the fraud scheme has been proven.

Findings

The paper explores that banks controlled by unreliable owners can lead to misuse of public's funds in accordance with the directives of the owner. Public's money can be transferred to other group companies in an illegal manner‐in excessive amounts and never returned to the bank by means of applying different accounting techniques.

Practical implications

Auditors, who may audit group companies that include a bank or banks with deposit receiving and lending rights should pay attention to the transactions between the group's bank and the other group companies. The lending may be excessive in amount and/or never paid back and various accounting malpractices may exist.

Originality/value

The case that the paper covers reflects the author's own audit experiences. The names of the companies have been changed but not the essence of the events. From this perspective it sheds light onto the path of an auditor who happens to be in a similar situation.

Details

Journal of Financial Crime, vol. 16 no. 2
Type: Research Article
ISSN: 1359-0790

Keywords

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Article
Publication date: 29 April 2014

Cenap Ilter

The purpose of this paper is to show the public, in general, and auditors, in particular, that in the absence of control there is always a risk of fraud. Fraud can be done in…

3570

Abstract

Purpose

The purpose of this paper is to show the public, in general, and auditors, in particular, that in the absence of control there is always a risk of fraud. Fraud can be done in various forms. Larceny may be the most obvious case of fraud, but fraud may be done in many other ways too. Balance sheet fraud or financial statements fraud is a broader issue; it is far-fetched than a few hundred dollars of a larceny case. In financial statement fraud, the deep down effect may be millions or billions of dollars.

Design/methodology/approach

The paper has been designed based on a fraud theory. The author has observed the implications of a possible fraud in a real audit case. The fraud theory has been tested through financial analysis and audit tests. The theory has then been revised and the existence of a financial statement fraud has been proven.

Findings

The paper explores that banks and group companies controlled by unreliable owners can lead to misuse of public's funds in accordance with the directives of the owner. Public's money can be transferred to other group companies in an illegal manner – in excessive amounts – and never returned to the bank by means of applying different accounting fraud techniques.

Research limitations/implications

Auditors, who may audit group companies that include a bank or banks with deposit receiving and lending rights, should pay attention to the transactions between the group's bank and the other group companies. The lending may be excessive in amount and/or never paid back and the financial statements would be misrepresented covering various fraud schemes.

Originality/value

The case that the paper deals with reflects the author's own audit experiences. The names of the companies have been changed but not the essence of the events. From this perspective, it sheds light onto the path of an auditor who happens to be in a similar situation.

Details

Journal of Financial Crime, vol. 21 no. 2
Type: Research Article
ISSN: 1359-0790

Keywords

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