CASE STUDY 5: FORENSIC ACCOUNTING

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A multinational manufacturer reported significant losses in the company's distribution division. It was not clear whether this was simply a result of an inequitable transfer pricing policy within the group or whether the company had been defrauded. Accountants from a computer forensics firm set out to investigate how the losses had been incurred, reconstructing incomplete records and unraveling a confusing series of transactions. They discovered that other companies within the group had transferred products to the division at over market value to maintain their own profitability. More disturbingly, the division had sold on much of its product at inexplicably low prices to a number of key customers. The business manager was dismissed after the computer forensics firm discovered that he had concealed ownership interests in some of these customers and evidence came to light indicating that he had accepted kickback payments. Poor and missing records prevented legal action from being commenced. In the following period, the division is now on track to report profits following tighter controls over transfer pricing and sales invoicing.

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