Ed Rahming and other ACFE Bahamas Chapter Members comment on increase of fraud related work in Bahamas

The Tribune–A leading Bahamian accountant yesterday said he had seen a 10 per cent increase in fraud-related assignments and investigations he had been asked to undertake since the recession hit, with various forms of fraud purchasing, inventory and financial statements all on the rise.

Speaking at the launch of the Association of Certified Fraud Examiners (ACFE) Bahamas Chapter, just the second of its kind in the Caribbean, Kendrick Christie, partner at Grant Thornton (Bahamas), said that with fraudsters increasingly “finding new ways to steal inventory” and other assets, the organisation would play a key role in educating Bahamian consumers and businesses on what these methods were and how they could combat it.

“This organisation can find out what’s going on in the Bahamas and bring it to light to the regulators and companies,” Mr Christie explained, assisting the latter with revamping internal controls, deterrent methods and technology.

Emphasising just how critical it was to educate Bahamians on detecting and preventing fraud, Mr Christie recalled how he recently had to persuade someone not to comply with a ‘phishing’ e-mail, which alleged that the sender was ‘stuck in London’ without cash and needed to be sent

$5,000 to enable them to return home.

“I had to convince someone not to send the money,” Mr Christie said, adding that he sent the person in question to the ACFE website to read details about the scam for themselves.

“I think this organisation [the ACFE Bahamas Chapter], it’s really historic. It can make inroads in educating consumers, companies, nonprofit organisations and individuals as well,” he added. “The threat of detection is actually one of the things employees are most afraid of.”

With 7 per cent of revenue the global ‘Rule of thumb” for estimating how much of their annual turnover businesses lost to fraud per annum, translated into the Bahamian context of a $7 billion annual gross domestic product (GDP), that implied fraud cost this nation $490 million almost $500 million every year.

William Walkine, a certified public accountant and ACFE Bahamas Chapter member, described that sum as “a horrendous number”. The Royal Bahamas Police Force yesterday said that in 2010 some 330 persons were arrested for a variety of fraud offences, with 204 charged before the courts on 290 matters.

Among the alleged offences were advance feetype frauds; persons offering home and land packages that did not exist; persons collecting thousands of dollars in advance for vehicles they did not deliver; employee theft and embezzlement; stealing by reason of service; and Immigration scams.

Ed Rahming, managing director of KRyS Global (Bahamas) and president of the ACFE Bahamas Chapter, said: “One of the things I’ve seen is purchasing fraud, where a local of foreign vendor, works with someone in the organisation to double the price, then pays a kickback to the staff member involved.

“It’s becoming very popular and very hard to detect, unless you know what the price should be or have someone checking over the shoulder.”

And Mr Christie added: “Inventory theft is a big one in the Bahamas. I know a gentleman operating a fish factory who is literally under siege. He’s put in all sorts of controls and cameras, but the employees are finding creative ways to get around them, hiding inventory in their clothing.

“Inventory theft is a big one, but one often missed is financial statement fraud. I’ve already seen cases of persons under pressure to produce results manipulating the statements, manipulating the numbers.”

Part of the ACFE Bahamas Chapter’s education mission, he added, was to “educate companies and investors on unusual numbers, things that don’t make sense in financial statements” as a way to combat financial statement fraud.

Mr Rahming described financial statement fraud as “a big thing” in the US and UK. He added that the motivation to manipulate a firm’s financial performance upwards came from the need to meet stock market and analyst expectations; increase its purchase price if subject to a takeover; and, for the individual, to meet targets so they could earn a bonus or access stock options. Companies might also manipulate numbers downwards to reduce, for example, their tax burden.

“Financial statement fraud is the biggest threat in the US and UK, and something we need to educate persons here in the business community about, taking them through some of the incidents we’ve found, of people manipulating the numbers to get a higher bonus,” Mr Rahming said.

“It’s not so much connected to the stock market here, because it’s very unsophisticated, but more for financial gain.”

Mr Walkine said that meeting financial ratios and covenants stipulated by lenders, such as the bank, was another motivation for Bahamian companies to fiddle the books.

Mr Christie said that based on his experience, he had seen a 10 per cent increase in fraud assignments since the recession struck. “I’m not sure there’s been a significant pick-up in fraud, but I’ve seen organisations, even the Government, which in the past would have swept it under the rug and worked it out, bringing in professionals,” he said. The Grant Thornton (Bahamas) partner added that that Bahamian CFEs could work “hand in glove” with the police on fraud investigations, adding that banks, too, were more willing to call people in from the outside to conduct fraud and forensic accounting investigations.