Fraud in Mexico

To ABC Company:

I have conducted fraud research for the expansion of your new plant in Mexico. I have identified several fraud risks that might have a severe impact on your business operations. I have also provided some of the most common types of fraud schemes to give your company an insight into the region. I would suggest that these risks be taken seriously. Having stated that, I included recommendations on how to reduce the types of fraud examined. I hope this report helps your business to detect and deter fraud and have a successful expansion of your new plant in Mexico.

There are specific fraud risks that your company will be exposed to when the new plant opens in Mexico. Mexico, itself, been plagued with crimes and economic hardships, including the peso devaluation of 1995. It is important to recognize the culture and financial position of the country. I identified three fraud risks: asset misappropriation, corruption, fraudulent financial statements. Asset misappropriation is the most common type of fraud in Mexico. According to the Association of Certified Fraud Examiners, more than 91% of all internal fraud schemes involved an asset misappropriation element, and the median loss from an asset misappropriation was $150,000. Corruption has an increased median loss of $538,000, but occurs far less frequently. Financial Statement fraud is committed the least, but has a median cost of 2 million dollars. Also, about 60 % of fraud is committed is by upper management, according to the 2010 Global Fraud Report. These fraud risks are committed using common types of fraud schemes.

Asset Misappropriation schemes occurs under three different circumstances: 1) Before they are recorded in the books or recording (skimming) 2) while they are currently held as inventory (larceny) 3) during the process of purchasing goods or services (payroll, employee expense reimbursement). Asset misappropriations are commonly detected through employee monitoring, either via direct supervision by managers, or through indirect methods such as internal controls like segregation of duties, account reconciliation, and independent verification of data.

Many instances of errors and fraud can be detected through normal control activities (like account reconciliation) in conjunction with analytical review of accounts (such as ratio analysis). Additional things as analysis of computerized data with specialized software can aid in detecting asset misappropriation. I recommend using these techniques to prevent asset misappropriation. 1) Employee monitoring 2) Segregation of duties 3) Examination of documentation 4) Examination of canceled checks 5) Independent verification 6) Surprise audits 7) Job rotation 8) Vendor rotation 9) Physical security.

There are many different corruption schemes. The most common include 1)Bribery 2) Illegal Gratuity 3) Extortion 4) Conflict of Interest 5) Kickback ( A vendor gives part of an overbilling to a person who helped facilitate or allow the transaction) 6) corporate espionage.

There are many techniques that can be used to detect and deter corruption fraud. One of the best ways to detect a potential kickback scheme is through data analysis. Software can hunt down irregularities in pricing or quantities, and can analyze the frequency of purchasing from vendors. A higher than normal cost of raw materials from one or more vendors or an unusually high volume of purchases from one vendor can signal a problem. The quality of raw materials or merchandise should be monitored closely. It is not uncommon for a supplier to substitute inferior