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FRAUD DETECTION SUPPORT

Introduction

If not detected immediately, corporate fraud becomes disastrous to companies and their stakeholders. The occurrence of accounting scandals systematically shows that there was failure to detect. After the dark years of 2000-2002, significant improvements can be seen in corporate governance. This improvement, however, has not resulted in an extinction of fraud and stock exchanges around the world are continually struck by accounting scandals, embezzlement, and corruption. To date, audit committees, regulators, auditors and credit rating agencies are powerless.

Issue

The since the nineties improved corporate governance measures have solved only a part of the problem. One of the fundamental drawbacks appears to be the poor methodologies applied in
monitoring, control, audit and credit ratings. However, software tools have now been developed that are capable of effectively detecting abnormal developments in financial statement items. Audit committees, regulators, auditors and credit rating agencies should embrace the new technology by applying such tools for what stakeholders require: early warning for business failure and fraud
.

Solution

European Rating House uses the OK-Score Model when analyzing financial statements. Though the Model was not designed as a fraud detection tool, since becoming operational in 2000 it has proven to be useful in flagging abnormal values of financial statement items that may require forensic investigation. Indeed our Model will normally detect any fraud that is material to the financial statements.

Required input

We require the same input for the purpose of detecting material fraud in financial statements as we do for the issuance of a credit rating. Refer to the document entitled “European Rating House and the OK-Score Model” for further information about the credit rating process.

Key players

For examples, references, or any further information regarding this topic, please contact us at: This email address is being protected from spambots. You need JavaScript enabled to view it.