Sample Request of Authenticity to Bank - PowerPoint by sqz56831


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									Capital Confirmation Inc.
  The world’s leading experts in secure electronic audit

              214 Centerview Drive, Brentwood, TN 37027
                            (615) 844-6222
    Why Is Bank of America Mandating the
            CONFIRM Service?
Problems with Paper Confirmations:
•   Customer complaints on slow response time: Response times averaged 20-44 days
    last two years
•   1/3 of all paper confirmations are reconfirmations
•   $10 Billion lawsuit against Bank of America as a result of the Parmalat fraud where a
    forged Bank of America confirmation was not uncovered by the auditors

Using CONFIRM, Bank of American Guarantees:
•   100% Response Rate
•   5 Business Day Turnaround or its Free
•   Only validated employees who are authorized, knowledgeable and free from bias (as
    SAS No. 67 requires) will respond

   Order Paper
                                    Paper Confirmations
                     Order                      1.   4 - 6 week turnaround
                                                2.   30+ steps
                                                3.   40% lost/error rates
                                                4.   $120+ per confirmation
                                                5.    Responder not
Order/Stocking      Supply Room                       validated                         Bank Clerk


                 Accounting Firm
                 1st Request                                           Operations Relationship Manager
                 2nd Request
                 Fax Request
                 Phone Call

                                    US Post Office
                                                         Bank Branch         Mailroom      Assistant
Current Paper Process
                  Can be sent to anyone at any location.

                          Who provides the mailing address?
                                   Who validates the mailing address?
Open System:
Mailed requests
                                   Is it the correct department within
can be sent to
                                   the responder?
anyone at any
                                   Is the signature from the

                              Is the response timely?
                    Do you have the direct contact information for the
                    specific responder?
Solution: Secure Clearinghouse for Audit

                    Responder authenticated by
                     independent third party

                       Correct department contacted

                        Client Data Encrypted
                         (128-Bit SSL - Verisign)

                        Retraceable “Paper” Trail

                        Timely response

                       Contact information validated and
                      easily available

                      Electronic Storage & Real-
                       Time Retrieval
      Electronic Confirmations:
             The CONFIRM™ Service


                1.   4 secure steps
                2.   24-48 Hour average turnaround
                3.   Reduces costs and increases realization
                4.   Validated electronic responders
                5.   Patented Technology

             The CONFIRM Service
•   CONFIRM is the secure communication channel through which auditors and banks
    actively communicate. It is a secure clearing-house for audit confirmations with
    validated requestors (auditors) and validated responders (banks).
     –   CONFIRM is a delivery channel just like the Post Office, FedEx/UPS, and the Telephone.

•   CONFIRM does not replace either the auditor or the bank in the confirmation process
•   CONFIRM does not pull data from the bank
•   CONFIRM is not an email/secure email service
•   CONFIRM is not a data aggregator (i.e. a screen-scraper)
•   CONFIRM is not the bank’s online banking service

CONFIRM™ Launched       Summer of 2003

Confirmations Processed 100,000+

Audited Entities        30,000+ private, public, government & not-for-profit

Accounting Firm Users   Sole Practitioners to Big 4 (50% of the Top 100)

Banks (Responders)      Top 10 Banks to Local/Community Banks
                        (12 of the Top 15; 60% of the Top 50)

  The Results:
CONFIRM™ Service

Parmalat: $5 Billion Bank
  Confirmation Fraud
  • 10 year fraud by Executive Management
  • Audited every year
  • Parmalat acknowledged in a press release dated December 19, 2003,
  that the assets in its 2002 audited financial statements were overstated
  by at least €3.95 billion (approximately $4.9 billion)
  • Auditors certified the 2002 financial statements based upon a false
  confirmation that the company held these assets at Bank of America.
  The bank account and the assets did not exist and the purported
  confirmation had been forged
  • Banks lost $2.5 billion in unsecured debt
  • U.S. investors lost $1.5 billion in bonds
  • Equity investors lost 96% of their value in one day
Bank of America New York
Branch is not an authorized
confirmation response

Fax number is from New
Jersey not New York

Balances started off small
and eventually grew to $5+
billion over 10 years

 Signature is a forgery of
 someone who is an
 employee of the bank but
 not one who is authorized
 to answer confirmations
Parmalat’s Lawsuits Roll to the Auditors

               Auditors                                   $10 Billion Each
               Citigroup                                  $10 Billion
               Morgan Stanley & Banka Intesa              $1.96 Billion
               UBS                                        $355 Million
               Deutsche Bank                              $21 Million
               Bank of America                            $10 Billion
               Shareholder Class Action                   Billions

                  “Relied on audited                      Result: Will sue the
                financial statements”                      Auditors as well!

      “We’re talking about a fraud that could have happened anywhere.”
          Umberto Mosetti, Law Professor
          The Economist “Parma Splat.” January 15, 2004
      Sample of Companies with Staff who
    Responded Falsely to Audit Confirmations
Kmart Fraud:                                 Ahold Fraud:
•   Eastman Kodak - Vice President           •   Sara Lee Foods - Sales Manager
    (Sales)                                  •   Conagra Foods – Account Manager
•   Coca Cola – National Director of         •   Sara Lee Bakery Group – Sales Manager
                                             •   Sugar Foods – Vice President of Sales
•   Pepsi-Cola – National Sales Director
                                             •   Koch Poultry – Owner
•   Frito-Lay – Director of Sales
                                             •   Heritage Bag – CEO
•   Frito-Lay – National Account
    Manager                                  •   Citrus World – Corporate Accounts
Just For Feet Fraud:                         •   Hunt-Wesson Foodservice – Vice
                                                 President for Business Development
•   Adidas – Director of Apparel Sales
•   Fila – President & CEO
•   Converse – Vice President of U.S.

    Though the mailing addresses were correct, notice that the fraudulent responses came
    from Sales and Relationship Managers – the auditors never verified that the individual
    responder was “authorized to respond” and “free from bias” as SAS 67 requires.
                           Sample of Recent Confirmation Frauds

“Fraudsters are the most
reliable returners of auditors’
confirmation letters,
completed and signed without
- Toby Bishop, CPA, CFE
President & CEO Association of Certified
Fraud Examiners
Washington D.C.
September 22, 2004

“To commit fraud, the
fraudster needs the
confirmation and the client
provided documentation to
match. Therefore, the true
risk of fraud occurs when the
confirmations tie-out.”
- Brian Fox, CPA
Founder of Electronic Confirmations

      Common Confirmation Fraud Schemes:
         Auditor's are at risk because…
                   Client provides…
              1.   Account statement and contact information
              2.   Address and/or fax number for where to send the confirmation
              3.   Contact name for who to send the confirmation to
              4.   Phone number of the supposed bank or vendor
              5.   Website address of the supposed bank or vendor

 Who is the
Responder??        And…
              6.   Impractical if not impossible for auditor to validate the
                   authenticity of the signature returned from the bank/vendor
 2007 Professional Standards
Supporting & Encouraging Electronic Audit Confirmations
   •   March of 2007: AICPA’s Audit Issues Task Force & Auditing Standards Board
       Interpretation Number 1 of AU 330 on Electronic Confirmations
         – “properly controlled electronic communications may be considered to be reliable
            audit evidence”

   •   June 2007: AICPA’s Practice Issues Task Force
       Updated Practice Alert 2003-1 Confirmations
        – “An electronic confirmation process that creates a secure confirmation environment
           may mitigate the risks of human intervention and misdirection. The key lies in the
           process or mechanism used by the auditor and the respondent to minimize the
           possibility that the results will be compromised because of interception, alteration, or
           fraud with respect to the confirmation.”

   •   September 2007 (as proposed): IAASB
       Revised ISA 505 External Confirmations
        – “(A) direct written response to the auditor, whether in paper form, or by electronic or
           other medium…”

   •   October 2007 – The PCAOB reports that Confirmations are a Top Priority for 2008

   •   October 2007 – The ASB commissions a Task Force to draft a revision to AU 333 The
       Confirmation Process based on the work from the IAASB and PCAOB

Key Benefits of using CONFIRM™ Service
 1. 100% Response Rate
 2. 2 Business Day Average Turnaround
 3. 15 Minute Online Self-Training
 4. Manage 100% of Your Bank Confirmations for ALL Banks
 5. Saves Up to 50% of Your Staff Time in Confirmation Area
 6. Improves Fraud Detection
 7. Go GREEN!

Accounting Firm Benefits
   using CONFIRM™ Service

Accounting Firm Comments
“I have absolutely no complaints!” – Manager

         “We’re very pleased with the solution. Using it, we’ve cut our
   time spent doing confirmations in half.” - Managing Partner

                  “efficient way of doing a process we have to
                  do that takes professional time.” – Managing Partner

“It saves time” – Partner

         “excellent product that is really needed in the present audit
   environment.” – Partner

                  “It has worked great” - Manager

Capital Confirmation Inc.

         Thank you.
McKesson & Robbins 1920’s
   Quotes from Fortune Magazine March 1940 Fall and Rise of
      McKesson & Robbins

   •     When an auditor looks into your books, his interest is in
         figures and documents only (not fraud). Take the verification
         of assets. For the cash item, he writes your bank to see how
         much cash you have, and reconciles that with your own
         deposit records and canceled checks.

   •     (Management) maintained real mailing addresses in Montreal
         and Liverpool for Price, Waterhouse’s sake.

   •     The offices in Montreal had a full-time secretary each.

   •     Instructions were to forward all mail to management.

   •     The mail consisted chiefly of a semiannual letter from Price,
         Waterhouse, asking for confirmation of balances and

   •     By an ironic coincidence, the office of Price, Waterhouse was
         less than a block away. But if accountants seem easy to

       Confirmation procedures haven’t changed in over 80 years! And
                    the frauds can still happen the same way!
                    CF Foods: Private Company

                           •   David Burry general partner CF Foods
     CF Foods
   Sales Reported          •   Promised returns of 18-30%
 1994 $8,699,152           •   Paid early investors with investments from later investors
 1995 $19,026,265
 1996 $40,590,990          •   $25 million in investments
 1997 $83,985,013
 1998 $142,990,010         •   Used “white out”, typed in new information, and photocopied
                               forged records to look authentic
 Total $295,291,430
                           •   Hundreds of fictitious transactions
97% of these sales never
  actually occurred!!
                           •   Told customers the confirmation requests were sent out by
                               mistake and to return them to Burry, who confirmed the false


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