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Confirmation.com's Prediction Validated as Allegations Reveal that China-Biotics Inc. Created a Fake Bank Website for Fraudulent Audit Confirmations
Oct 14, 2011 (01:10 PM EDT)
BRENTWOOD, Tenn., Oct. 14, 2011 /PRNewswire/ -- Confirmation.com, the world's leading provider of secure audit confirmation services, comments on recent news about the Securities and Exchange Commission's (SEC) decision to suspend trading in China-Biotics, Inc. (CHBT) which follows earlier reports about CHBT's accounting fraud allegations involving directing their auditors to a fake bank website as the auditors attempted to confirm the company's cash balances.
Several years ago Brian Fox, CPA and Founder of Confirmation.com, began teaching CPAs at national accounting fraud conferences how to use technology to circumvent an auditor's confirmation procedures, and specifically warned CPAs that fraudsters would soon create fake bank websites to try and deceive the auditors with false audit confirmations and online verifications.
According to CHBT's 8-K filed with the SEC, BDO Limited resigned as CHBT's independent auditor in June of this year because of irregularities that likely "constitute as illegal acts" which could have a material effect on the CHBT's financial statements. As mentioned in BDO's resignation letter, one of the irregularities found during the audit revealed that when viewing the company's online bank accounts, BDO auditors were directed by CHBT staff to a suspected fake bank website. Another irregularity BDO cited was that the chop or authenticity seal of the purchaser on a sales contract belonged to another company than the one named on the sales contract.
"Manipulating sales contracts, creating bogus invoices, and forging bank statements are just a few techniques fraudsters use to inflate a company's cash balances," said Brian Fox. "While these are your typical, tried and true methods for hiding financial fraud, in the last few years I have been especially concerned about how easy it would be to create fake business credentials that look legitimate using today's technology. As auditors, we should always be vigilant of the multiple ways to circumvent the confirmation process, not only of the tactics that have been used time and time again, but also of the new ways fraudsters will creatively use today's technologies – like email and the Internet – that are readily available to just about everyone.
"It's unfortunate that a company created a fake bank website for the sole purpose of misleading an auditor during the confirmation process, but this is not surprising and is actually just the tip of the iceberg. We will continue to see more fraudsters use email, the Internet and fake websites to misdirect and circumvent their auditor's confirmation procedures."
"While numerous U.S. traded Chinese companies have recently come under SEC scrutiny for allegations of wrongdoing, financial fraud can happen anywhere," said Chris Schellhorn, CEO of Confirmation.com. "More than 10 years ago, we saw a big weakness in the confirmation process and envisioned major financial frauds happening as a result of this. That's why we created Confirmation.com, the first ever secure online confirmation service that is now widely used by auditors throughout the world."
A portion of Brian's presentation at the 2011 AICPA Forensic Accounting Conference where he predicted the use of fake bank websites can be viewed here. Additionally, a variety of free web seminars about audit confirmations and confirmation-related financial frauds can be found on the CPA2Biz Confirmation.com Web Seminars page.
Confirmation.com is the creator and world's leading provider of secure electronic audit confirmation services. In addition to its bank confirmation solution, the company provides solutions for more than 30 different types of audit confirmations including accounts receivable confirmations. Confirmation.com is the Preferred Provider of Electronic Confirmations for the AICPA Trusted Business Advisor™ Solutions Program and is endorsed by the American Bankers Association. Confirmation.com has received numerous awards including being a multi-year alumni on the Inc. 500 list (2010 and 2011), CPA Technology Advisor's 2009 Innovation Award and the Readers' Choice Award (2009 and 2010), K2 Annual Quality Award (2009 and 2010), and four-time winner of the Future 50 Award. Several hundred In-Network responding companies including all of the Top 10 banks in the U.S. and over 8,000 accounting firms in more than 100 countries trust Confirmation.com for their audit confirmation needs. For more information, visit Confirmation.com.
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SOURCE Capital Confirmation, Inc.