Accounting, frauds and laundry of money
Computer Accounting. The money laundering crime
1. Introduction 2. Towards a new Fraud Investigation school 3. The investigator´s attitude 4. Fraud and accounting delay 5. Fraud and account registration mechanisms. Lines Evolution 5.1. Current System 5.2. Liberal Line 5.3. Conservative Line 5.4. Renovating Line 5.5 My opinion 6. IT and accounting information security 6.1. Conclusion 7. Money Laundering 7.1 Introduction 7.2 Economic Science Professionals 7.3. Financial Investigation Unit 7.3.1. Composure 7.3.2 Conditions members should meet 7.3.3. Transnacional Investigations 7.3.4. Duties 7.3.5 Financing 7.6. Conclusión 7.3.5. Epilogue
· Oficial Expert Accountant of the Argentina Supreme Court of Justice
· Fraud Examiner
· Specialist in “companies in crisis”, restructuring and salvage
1. Introduction
Fraud can be performed in a wide variety of organizations such as government institutions, companies, public associations, religious institutions, mutual associations, foundations and cooperative associations.
Personal Fraud, Political Parties Fraud, Impositive Crimes, Smuggling, Customs crime, banking crime, Usury, checks without funds, Stock Exchange Crime, Computer crime, Fraudulent Administration, Fake insurance, Financial Crime, Money laundering.
While internal and external auditors state they are not envolved un fraud investigation, businessmen do not know who to look for in order to prevent and detect fraud. It is unclear if that is a management or a professionals´obligation. In my opinion, auditors in general have left an empty space.
Control organisms members in government institutions are the most accesible to include possible fraud investigation in their work routines. Truth is much money is lost in organizations due to fraud. Even though there are no statistics in our contry, let´s review the following data:
A study of 208 fraud cases in the US resulted in $157 million loss
Large payments unregistered in accounting books are made dairy through missing inventory and cash
Organization components caught red-handed are hardly accused, mosto f the times their ressignment is negotiated, reason why they do not appear among available data.
There is no doubt then that organizations suffer important loss due to fraud. It is surprising that Argentina is still not aware of this. In most cases there is no organizational policies, but the high competitivity and the need for gaining marketshare requires resources optimization, cost redution and expenditure reduction.
In this matter, the harm produced by fraud must ne minimized, regarding which it is necessary to adopt a position. There are experts in fraud investigation in the world, but, Argentina, except some cases, has not yet taken the first step towards it. Educational institutions and professional have not yet realised it. The fraud examiner can have prevention, detection and investigation among his tasks.
2. Towards a Fraud Investigation school
I believe the time is here to create a real fraud investigation school. Maybe auditors, attourneys, experts, inspectors, civil servants, investigators, judges, prosecutors and applicants are willing and in need of taking up complementary studies.
Investigation cannot be improvised: it has a method that intends to achieve a goal.
The way to train new investigators and retrain the existing ones is though the creation of systematic mechanisms of knowledge transmission that renew themselves as time goes by.
Regarding these economical crimes, we permanently attend new and increasingly creative and complex criminal facts. The only way of preventing, detecting and fighting them is through the creation of trained professionals in fraud investigation centers.
3. The investigator´s Attitude
Besides the necessary training, the investigator´s attitude towards the specific case is very important. As long as his will and decision motivate him to do his best, make and exhaustive and deep investigation, search and analyze until he finds the truth, the results are usually very satisfactory.
It is vital to carefully analyze evidence, dismantle and test them through alternative means if possible. One of the tasks is to reverse the accounting and money circulation process.
For instance, when funds investment is investigated, this can be verified in the book, receipts and other income records-if existent- and, to get depper in investigation, bank accounts can be revised, in order to compare if funds show up or not.
What will he obtain from these records and documentation?: first, if they accomplish formal aspects, but, in the second place, he will make a revision regarding the accomplishment of substancial aspects; he will be able to find accounting records, verify the registration procedure, starting with a receipt, following with the record, going through the greatest, studying its documentation in the balance, all possible adjustments made to the accounts in study and finally he could analysed the way in which all of it was proved in inventary and accounting registration. That is how he will be able to obtain conclusions, for example, and establish significant irregularities.
In every complex, difficult task, the analisys work must be highlighted, for which it is precise to make an effort. And the investigator needs to be willing to do it.
4. Fraud and accounting falter
The accounting system implemented by the Comerse Code establishing the obligation of signing daynooks tends to control the businessman operations.
If there was not a time requirement regarding the moment when to make a record of today´s operations,and having the chance of registering them in a week, a month or two years, there is the possibility of businessmen falling behing in their daybooks´keeping. This would cause them to upgrade them only when in trial and at their own discretion, which is why the daybooks signing has been avoided.
In that line of ideas, it is clear enough that when the legislador stated “day by day” meant books should be kept updated, in order to avoid speculations that would allow merchants to make up their figures at their own convenience, and although the daybook is private property, it is a public proof element. That is, accounting and books are merchants´property, but its content is community property, and to protect that, the remainder of the Code rules stop merchants from modifying or eliminating records. It establishes a series of standards that intend to avoid it: it forbids crossing out, tearing pages, alter assembling, leaving blank spaces, interlining, scratching, adding records.
Daybood Altering
The Code forbids merchants to eliminate or modify registration.
That is why it establishes a series of standards that intend to avoid it: it forbids crossing out, tearing pages, alter assembling, leaving blank spaces, interlining, scratching, adding records.
Arrange Records
If the book keeping could be done “arranging” its records at merchant´s demand, it woul not be valid for the magistrate.
Arrange Accounting
The legislador stated “day by day” meant books should be kept updated, in order to avoid speculations that would allow merchants to make up their figures at their own convenience.
Faltered Daybooks
Maybe it is severe to request the books to be updated. The admisible delay in accounting should be determined by a general pattern, but to be examined in each particular case.Every time I read and re-read the Tax Code I discover new advantages and I lean at the legislator´s wisdom. Maybe it is severe to request the books to be updated. At the time of its redaction this was not an exagerated request though.
It is duty of those who are responsable over these subjects to make decisions over the odds they represent(investigating accountants and judges), to apply the standards stated in the Code adjusting them to the current momentum: business speed and multiplicity, technology in accounting systems, new and more complex crime tendencies, etc.
That is the reason I agree with those who believe a delay in book-keeping should be a general standard but an individual matter.
5. Fraud and accounting registration mechanisms. Line Evolution
Over the last 20 years there have been different point of view about accounting registration. In the following section we will describe the current legal system and the opinions of diverse profesionals that we have gathered in lines of thought according to the change alternatives and the possible consequences that could derive from them.
5.1. Current System
Let´s revise what the cusrrent system consists of. The Tax Code in harmony with the Commercial Associations legislation establish the requirements that should be met. We will particularly mention two matters: what books should be kept and what documentation it is necessary to have.
Books that should be kept:
Fundamental mandatory books
Daybook, Inventary and Balances
Special mandatory books
Those necessary for the adequate accounting integration according to the activity and features of the company activity. Eg, Cash, Sales, Banking,
Backup Documentation: receipts must be complemented with according documentation so as to keep clear records of the company´s management and assets.
5.2. Liberal Line
This line tends to eliminate accounting books and embraces the idea of the importance in accounting being not in the book- keeping but in the “supporting documentation”. This system has ruled in the US for many years.
The drivers of this line state that when the Tax Code was written it was done thinking of minoritary trade and few daily transactions. As time went by, the substancial growth of transactions and the computer invention, it was necessary to flexible the registration methods. The Comercial Associations allow this system to be used excluding the requirement of the book-signing, except for the inventory and balance books, which must be kept in the as tradicional.
5.3. Conservative Line
This line embraces the tradicional account books. It status that this registration procedure guarrantees the inalterability of account records providing the process with the reliablility it needs to act as a proof in legal causes. It is expressed that technological updates allow the fulfilment of the Tax Code more easlily and thoroughly, that the PC usage generalization makes the book-keeping more agile and safe, that software development simplifies its achievement. In addition, they state new techniques for book copying provides more agility to the system and improves the clarity and validity of account books.
5.4. Renewing Line
This line is willing to introduce changes into the tradicional systems of accounting records, incorporating the suitable legal modifications, but keeping the information safe y fulfilling the record inalterability requirements and the operations’ verificability. This line’s followers take the argentinian businessmen idiosincracy into account, as well as the lenient characteristics of the current tax system. Moreover, the advocate the existente of accounting as one of the most important trial proof. On the other hand, they accept this accounting system is not supported by paperwork or books, seeking alternative ways. In that aspect, those who follow this line accept that the information is present in durable and unmodifiable support hardware such as diskettes, or is momentaneously manager by administration control organisms, such as the Companies Registration Office. This is how it is posible to eliminate hardcopied records.
5.5. My Opinion
Within the previously descripted alternatives, I adhere to the conservative line, for the alleged reasons, that states that the current Tax Code is a very well achieved legal body that protects books’ inalterability and adds value to them as trial proof.
However, I must recognize I am open-minded towards a renewing line that can reduce costs and increase efficiency while preserving safety and that, if possible, it even increases safety to some extent.
In this sense, I relieve accounting in general and account books in particular will continue to be a valuable asset in fraud investigation and proof obtaining.
6. IT and Accounting Information Security
As we have pointed out befote, there are 2 basic premises in account registrations:
· Inalterability: records and their content cannot be modified
· Verification: the investigador needs to be able to check and analyze the operations independently.
As technological upgrades happen, law evolutes adjusting to the changes. Legal sciences cannot be an obstacle towards progress.
On the other hand, it is not appropriate that new techniques and tools utilization in communication and IT harm business safety.
If transactions are not registered in accounting and are subject to changes, then there is no operation safety as they could be real or false. That is why the record inalterability and verification ability is so important. We have already referred to this matter previously in this work.
A legal alternative to the existente of the accounting e-records is to present it periodically at a control organism that witnesses the operations. In case it is necessary, with the suitable legal authorization, to gather copies of the records.
A part of this doctrine suggests this is an expensive procedure and that it could affect the accounting contect confidentiality.
There is another possibility that is even simpler would be to keep records in CDs, which serial number identifies the account, inventory or balance book of the organism. These CDs should also contain an executable file so that its visualization does not need any extra software.
Under the current legislation, the General Justice Office of Capital Federal has recently extended authorizations for information electronic storage without the need of books or forms. At least 5 banks and three large companies already count on this authorization.
The General Justice Office indicates:
It is certified by this note that society will keep the accounting record storage system in a CD ROM.
Society will proceed to transcribe the approved system description in the Inventary and Balance books. In addition, it will transcribe, in the previously mentioned book, the authorized CD ROMs, identifying them with an internal and external serial number, record it contains and first and last date of record.
Storage System: accounting records are kept in CD ROM, that is, there are no longer any books or printed forms and hard copies have completely disappeared. This means that when an analist requests the entity books, one or more CDs will be handed.
Inventory and Balance Books: due to the fact that is mandatory to keep records in hard copy, the books will contain:
Approved system description
Control Organism Authorization
Regarding CDs in use, the following will be identified:
o Internal serial number: label identification number
o External serial number: the same one that appears on the cover of the CD
o Identification of registry, eg, bank, daybook, sales, etc.
o Date of first record: this note is made at the beginning of the CD usage
o Date of last record: this note is made at the end of the CD usage
A CD has to be completely filled with information. When it is completed or is no longer in use, the date will be stated in the Inventory and Balance book.
As CDs cannot be replaced or modified, and on the other hand, there are appropriate records left in the Inventory and Balance book, the inalterability of records is logically guarranteed.
All of these principles can be applied to records of all kinas, which authorization will be in charge of the pertinent organism.
The information recovering used to be a strong limitation in the past. In some cases search processes were tedious and in other cases it required special support for its reading.
La información original no necesita dar un paso previo de la memoria del computador al papel y otro del papel al almacenamiento digital. Esa información es importada directamente del computador22 al CD, previo ser convenientemente tratada, comprimida e indexada.
The original information has no need of being transferred into paper and then into the CD. The information is transferred from the PC into the CD alter being conveniently treated, compressed and indexed.
Accounting records container in CD provide the following:
· Endurable: its life can reach 20 years
· Identifiable: each CD is labeled correlatively
· Unmodifiable: the information is saved in an unmodifiable format
The 600 Mb capacity CD equals 600.000 printed pages, which is close to 600 big account books.
In case the user counts on the COLD technology, the management is automatic. It capture, stores, doublechecks, and distributes information. The CD can contain, in addition, the form design, the search index and the visualization software, as well as the data management and association with images for their printing.
The CDs are independent for the information visualization and can be rea don any PC, as they respond to ISO 9660 standards.
As each CD counts on a reading and printing software, it can be read and documents can be printed regardless any technological update.
6.1. Conclusion
The descripted systems introduce the advantages of digital technology, provide warranties and safety according to the current legislation.
It is believed as well, that in case of planning a legal reform in matter of accounting records, as the one released by the new Civil Code Project, currently in legal process, the safety measures descripted in this chapter should be followed, for the accounting records in companies to continue constitute a valuable proof in fraud investigation and also in decisión-making.
7. Money Laundering
7.1. Introduction
As a result of various unlawful activities and crimes there have been illegal funds generation that are input to the legal circuit. The Money laundeing crime consists of introducing funds originated in illegal activities into the legal circuit. It is then, the next stage of the illegal chain.
This is a punishable crime. Keeping in mind the characteristics of this crime, a special law has been issued for its special pre-legal investigation.
This crime not only extendí to the funds that coming from drug dealing but those comino from illegal enrichment of government officials, weapon dealing, organized crime, etc.
In Argentina, around $6000 million comino from drugs are laundered. To this figure we should add Money laundering coming from other activities, in order to have an idea of the Money volume that is laundered.
7.2. Economics Professionals
Due to the nature of their carreer, economics professionals work independently and might know about individuals or organizations that incurr in Money laundering. The legislation regarding Money laundering counts on these and other prefessionals to inform authorities about any suspected activity they know of.
7.3. Financial Investigation Unit (UIF)
Due to the particularities of the Money laundering crime, aiming to perform a research befote the intervention of legal organisms, the creation of this organism has been considered necessary. It would be integrated by suitable, independent, proven members with enough resources for their mission accomplishment.
It has been universally considered the information of suspicious transactions is vital. This needs to be supported by a control organism to receive, analyse and convert data into useful information for legal authorities.
7.3.1. Composition
Its integration is previewed with 11 members, 5 financial matters experts, prosecutors and criminologists selected through public processes and six members of the following government organisms:
1- BCRA: Central Bank Of Argentina
2- AFIP: Public Income Office
3- CNV: Nacional Value Comisión
4- SEDRONAR: Drug and Smuggling Prevention Office
5- Justice Ministry
6- Economy Ministry
7.3.2. Conditions to be met by its members
In the first place, the operative and decisión-making members of the UIF must count on technical knowledge regarding law-economic matters. They need to have previous experience in criminal investigation with economical orientation, which is a qualification that should be considered to define its members profile.
It is expected to establish a interdisciplinary team and to count with human, technical and information resources as all six organisms will designate their representatives. The moral education of its members is another subject that should be assessed.
Now, during the task execution it would be convenient its members maintain balance between an effective and efficient investigation, but without discouraging the legitimate investors who Intend. To make business in Argentina.
A preliminar investigation must not change or affect negatively the relationship between the informing subjects and their clients. The system must protect the legal activities that are used in Money laundering operations and preserve a good relationship of these with their clients. It is probable that the organism needs to establish internal rules and upgrade them as it performs. The IUF procedures in the World could also be taken into account for this.
7.3.3. Transnational Investigations
The globalization and easy access of IT and communication technology cause Money laundering activities to exceed country borders. Internet offer to attract funds with no need to declare its origin and the growth of tax heavens are special considerations matters.
Investigations must take place in that same scope, sharing information with other countries’ UIF, investigation and intelligence organisms through the implementation of agreements to encourage reciprocity commitment in fighting crime.
A country or one single organism are not enough to fight this crime, but a coordination and cooperation procedure is required.
7.3.4. Duties
It is in charge of information analisys, processing and transmisión, in order to doublecheck or discard crime doubts. On of the fundamental tasks will be the file and database organization and management to match them with tose in other countries’ similar organisms. Public organisms, banks and individuals can be required to provide data for the investigations.
It is also likely to request legal authorization for specific investigation actions. It is in charge of collaborating with judges and prosecutors in which it is required, being among its abilities the penalti establishment.
Finally, this organism will have to make annual declarations at the Congress and attend comissions, as well as presenting reports and providing any required type of advisory.
7.3.5. Financing
It has been established that the UIF will count on a budget consignment for its operations. In addition, a special fund which main source will be the asset and money confiscation originated in crime, as well as applied penalties, will be assigned.
This is not of little importante,as we know criminals handle important Money amounts for acquiring assets and technology in order to commit their crimes.
The only way of fighting tose crimes in equito of conditions and with a success opportunity is through having similar resources. That is why the usage of those assets in Money laundering investigations appears to be an adequate option.
In any case it is expected that the organism has an up-to-date, agile and efficient structure, with good technological resources and essential but highly qualified personnel.
Bureaucratic organizations in general do not respond appropriately according to their objectives they were created for. It is time to begin.
7.4. Conclusion
Once the legal paperwork finishes, a new stage begins for the implementation of a new legal order. As soon as the UIF members are chosen and the first budget ítems are assigned, the first steps towards the legislation accomplishment are taken. It is important that a fase and concret growth is performed so that all changes are fully implemented in the short run. This is an esencial stage: to select the best people to take tose positions and set the foundations to perform the task. If a correct implementation is achieved, a great value tool to fight crime and protect societies will be in out hands.
8. Epilogue
In this work we have tried to highlight the importance of organizing investigation and study methods in order to broaden our knowledge about fraud and other financial crimes. It is recommended to encourage the creation of fraud examining associations or centres.
There is also an essay about the possible consequences of technological upgrades and its application to accounting systems, aiming to introducing innovation without dropping reliability and credibility to accounting records.
Finally, because of the recent issuing of the law regarding Money laundering, an initial essay about has been recently issued performed with the objective of seeking interest points for the effective legal implementation of this law.
posted by AP at 4:38 AM
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