SAIPA hostsforensic accounting red flag session
22 June 2022
On Tuesday, June 14, 2022, the Central Region association of the South African Institute of Professional Accountants (SAIPA), hosted a presentation in Bloemfontein, Free State, on forensic accounting red flags.
The event was held in partnership with the Standard Bank Group.
Getting accountants involved
The session was led by Professor Rashied Small, Centre of Future Excellence (CoFE) Executive at SAIPA. “It is almost accepted as gospel that it is not the responsibility of accountants and auditors to detect fraud, but this is a myth,” he said. He asserted it is indeed their inherent responsibility and cannot be magically washed away.
Joining Professor Small on stage were Standard Banks’ Brendan Jacobs, Head, Client Coverage Business Clients (Free State/Northern Cape) and Mandisa Zwane, Head, Accounting Sector Business Banking.
The purpose of the presentation was to highlight the red flags that forensic accountants look out for every day, to equip professional accountants to develop their awareness of possible fraud or misrepresentation.
“The topic of today is to make sure that we work together to prevent fraudulent activity and to prevent the Code of Ethics from being breached,” said Jacobs.
Understanding the flags
Professor Small explained that fraud and corruption occur because of the behavioural characteristics of the perpetrators. The stage is set when an opportunity presents itself, the rewards are sufficiently enticing, and the fraudster has the ability to rationalise their misdeeds.
Potential red flags can be observed in a company’s financial statements, accounting practices, off-balance-sheet accounting and financial performance.
The impact of financial statement fraud has a number of dire effects. It can undermine confidence in the financial reporting process, and the faithful representation of the financial statements themselves.
This also jeopardises the integrity and objectivity of the accountancy profession, diminishes the confidence of capital markets and makes them less efficient, results in huge litigation costs, and destroys the careers of those involved. Further, it can lead to bankruptcy and economic loss.
The presentation covered the reasons behind several main types of fraud, strategies used by offenders and indicators of its occurrence. These included financial statement fraud, revenue fraud, concealed liabilities, improper disclosures and improper asset valuation.
According to Professor Small, to effectively detect fraud, accountants needed to improve their ability to perform financial statement analysis by mastering vertical, horizontal, hybrid and ratio analysis.
The presentation concluded with a Q&A session between the audience and the hosts.
Preparing accountants to take action
Zwane said that Standard Bank was proud to have partnered with SAIPA in delivering the event.
She believes that the more equipped and upskilled practitioners are, the easier they will be able to identify potential challenges and solve them.
“The accounting sector is a key focus area for us and it is a privilege for us to be involved in creating platforms where such relevant content can be discussed and workshopped in the continuous development of accounting practitioners,” she said.
SAIPA’s Chairman of the Board, Kantha Naicker, also thanked Standard Bank for sponsoring the event.
Professor Small observed that fraud required a specific ecosystem. “Accountants need to become actively involved in that ecosystem to drive South Africa’s economy forward,” he said.