How to Detect Business Fraud • Hacker News Board

Re: How to Detect Business Fraud

#61

Post by hippich » Wed, May 06, 2020, 3:27 AM UTC

refurb wrote: post #53

nickff wrote: post #51

Earlier quoted context omitted.

Enron being the classic example of what you're describing.

Yup we covered Enron. It's pretty interesting to study the mechanism of the fraud. Enron did a lot of things, but one of the big ones was how they booked revenue. Since they were a middleman, they should have booked their cut (i.e. fees) as revenue, but rather they booked the entire purchase as revenue, drastically inflating their growth.

If I remember correctly, at that time it was legal to book it this way. Perhaps that was "innovation" that allowed Enron to shoot to the moon?

Re: How to Detect Business Fraud

#62

Post by [deleted] » Wed, May 06, 2020, 3:33 AM UTC

codazoda wrote: post #57

The first story is about finding out a company is junk, shorting their stock, then releasing the information. Is that not a form of stock fraud, or at least manipulation, as well?

[deleted]

Re: How to Detect Business Fraud

#63

Post by ucha » Wed, May 06, 2020, 4:21 AM UTC

They exposed Luckin Coffee $LK and called it a fraud in January to no reaction in the market. The stock collapsed 80+% before being suspended in April. They had this exchange of tweets with Citron Research which might be my favorite case of "I told you so":

https://twitter.com/muddywatersre/status/1245704324342108161

Re: How to Detect Business Fraud

#64

Post by rckoepke » Wed, May 06, 2020, 4:24 AM UTC

jolmg wrote: post #22

known wrote: post #12

Earlier quoted context omitted.

https://archive.vn/yDhDb

> 403 Forbidden -- Cloudflare

For others seeing this who need a short and simple fix: this seems to happen when your DNS server is 1.1.1.1, changing to 8.8.8.8 or anything else fixes it. archive.is has a disagreement with cloudflare at the moment which makes it unusable on cloudflare's DNS.

Re: How to Detect Business Fraud

#65

Post by known » Wed, May 06, 2020, 4:55 AM UTC

jolmg wrote: post #22

known wrote: post #12

Earlier quoted context omitted.

https://archive.vn/yDhDb

> 403 Forbidden -- Cloudflare

Add 94.16.117.236 archive.vn in your /etc/hosts

Re: How to Detect Business Fraud

#66

Post by gpav » Wed, May 06, 2020, 5:40 AM UTC

realtalk_sp wrote: post #52

refurb wrote: post #34

Earlier quoted context omitted.

I took a class specifically on this - how company manipulate their financial statements to make things look better. It's really fascinating. If you're willing to dig into the financial statements (and ones from the past), you can learn a ton about how a company defines "performance" and whether or not it's reasonable. Despite GAAP accounting rules, there is enough gray area for companies to hide a lot of bad informat…

Any book you'd recommend to get a quick general grasp of accounting? Aside from the one referenced in the parent, which I'm probably going to buy.

The Accounting Game: Basic Accounting Fresh from the Lemonade Stand, by Darrell Mullis and Judith Orloff

Re: How to Detect Business Fraud

#67

Post by Digit-Al » Wed, May 06, 2020, 6:21 AM UTC

jolmg wrote: post #22

known wrote: post #12

Earlier quoted context omitted.

https://archive.vn/yDhDb

> 403 Forbidden -- Cloudflare

https://outline.com/gdqBaR

Re: How to Detect Business Fraud

#68

Post by nitwit005 » Wed, May 06, 2020, 6:37 AM UTC

clairity wrote: post #15

it would be interesting to codify the known heuristics of forensic accounting into a software package (maybe even AI all the things!), then create a company out of it in partnership with prosecutors and regulators to root out fraud like this through both technological and legal means. i'm sure there have been some efforts to that end, though not commonly known. it would help rebalance the legal system toward the serv…

Suppose you've made the AI, it's running, and it tells you some company is fraudulent. You're going to be stuck investigating to figure out if it's correct, and if so, what the fraud is exactly.

Which probably isn't that much of a gain. Finding a company that seems shady doesn't appear particularly difficult.

Re: How to Detect Business Fraud

#69

Post by craydandy » Wed, May 06, 2020, 8:11 AM UTC

jerzyt wrote: post #38

RandomWorker wrote: post #30

I think one of the most interesting methods of business fraud detection is Benford's law. It has been found that natural transactions do abide by this law. https://en.wikipedia.org/wiki/Benford%27s_law

In real financial data you'll often see departures from the Benford's law. For example, if a company has $50 expense limit for dinner, you'll find a lot of invoices for $49.99. Same goes with approval limits at different management level. Not as useful in practice as in theory.

I've found the same. It sounds great and applicable but could not find any practical application with real data.

Even when applied to large number of real companies' journal entries, the amount of false positives is overwhelming.

Re: How to Detect Business Fraud

#70

Post by blackrock » Wed, May 06, 2020, 9:14 AM UTC

mierle wrote: post #32

For those who are interested in the accounting side, I highly recommend Financial Shenanigans by Howard Schilit [1]. If you don't have an accounting background, all you need to get value out of this book is a basic understanding of the double entry accounting method, and understand the four financial statements: balance sheets, income statements, cash flow statements, and statements of shareholders equity. After read…

So, what can you actually do with this knowledge?

Short their stock?

Raise awareness of their fraud, while holding a short position?