Bank accounting fraud banned from publication at JFAR

I THINK THAT THE AUDITING INDUSTRY HAS A VERY BIG BLIND-SPOT PROBLEM ABOUT BANKING, SO THE ACADEMIC FORENSIC ACCOUNTING...

MAY 1, 2020 - My first email to the Editor of the Journal of Forensic Accounting Research

Zabihollah Rezaee

Dear professor,

I write to you to know if you have some material about the fraud perpetrated by banking institutions while creating new money.

Here in Italy bank money is defined as 'legal money' by the central bank.

But when a bank create a new deposit there is not a corresponding inflow in the cash account matching the new deposit just created. The bank only record an OUTFLOW from the centralized account thus masking the money creation process by a negative cash flow as if the bank could overdraft on herself. This problem is very important because officially in Italy each year the commercial banks do create 1,000 billions euro not accounted for as cash inflow at the time of creation.

I have collected a short bibliography which I include below. Do you have some suggestion for an integration ?

Thank you for an appreciated answer,

Marco Saba

Forensic accountant

marco saba	ven 1 mag, 12:27

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The same-day answer:

Dear Marco,

Thank you for sharing information about the possible bank fraud. As the editor of the Journal of Forensic Accounting Research (JFAR), I suggest you further develop this important research idea, reach out to Professor Cindy Durtschi (copied within), the Guest Editor of the Special Fraud Issue of the JFAR to prepare your manuscript for submission to the JFAR (please see attached call for paper). The deadline for submission is extended.

Good luck and stay safe and well,

Zabi

Zabihollah “Zabi” Rezaee, PhD,

CPA, CMA, CIA, CGFM, CFE, CSOXP, CGRCP, CGOVP, CGMA, CRMA

Thompson-Hill Chair of Excellence / Professor of Accountancy

Editor of the Journal of Forensic Accounting Research

Zabihollah Rezaee	ven 1 mag, 16:05
a Cindy, me

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Below my paper proposal:

Hello Prof. Durtschi and Prof. Rezaee,

here below a short summary of my proposed paper.

TITLE: SCF: Money creation as a financing activity in banking

Proposal for a paper.

After the recent rediscovery by the public that banks do create new money when a loan is made, little literature do still exist about a puzzling problem in analyzing a bank balance by examining the official Statement of Cash Flows (SCF). While it appears obvious that all bank money in all the A/cs is created by the banks themselves, there is a lack in the accounting evidences of this money creation because the old accounting view is that money is an asset for every economic agent excluding the banks who had to cover for this money with a real asset, specifically gold on demand, and thus banks do record money created as a ‘liability’. This paper investigate how to reconcile the accounting view with empirical banking today by suggesting to record money creation as an inflow in the cash flows from financing activity and adjusting the balance to this reality to give the auditors and the public a more realistic approach to evaluate any bank business, and to adjust the profits evaluation in view of the money creation activity. As money creation happens in other bank activity outside the lending one, recommendations are made to establish a Digital Monetary Register (a Monetary Cadastre) to record all money creation by any central and commercial bank to help the stakeholders keeping track of the aggregate circulating medium. The proposal is evaluated in respect of US-GAAP and IAS-IFRS international accounting rules. 

A side-effect of the proposed accounting reconciliation is that bank crisis are avoided since treating bank activity as a minting activity don’t require any “capital ratio” and provide for a proper treatment of the banking reflux in the books. We propose that central banks adopt a similar accounting view by reintroducing the adjusted Statement of Cash Flow in their Annual Report and making evident their real seigniorage profits that can be returned to the host country Treasury.

Bibliography:

Prof. Massimo Costa, Sulla natura contabile delle "passività monetarie" nei bilanci bancari, ed. RIREA, June 2009 http://www.rirea.it/rirea/node/214
Proff. Charles W. Mulford, Eugene E. Comiskey, Cash Flow Reporting by Financial Companies: A Look at the Commercial Banks,   Georgia Tech College of Management, July 2009
https://smartech.gatech.edu/handle/1853/29098

Michael Schemmann CPA, Accounting Perversion in Bank Financial Statements: Root Cause of the Ongoing Global Financial Crisis, 2012
https://www.amazon.com/Accounting-Perversion-Bank-Financial-Statements/dp/1468171119
Prof. Asgeir B. Torfason, Cash flow accounting in banks – a study of practice, Università di Goteborg, April 2014    https://gupea.ub.gu.se/handle/2077/35272
Prof. Antonino Galloni, Il futuro della banca - Lineamenti di teoria bancaria e finanziaria, ed. Eurilink, August 2014 http://eurilink.it/prodotto/il-futuro-della-banca-lineamenti-di-teoria-bancaria-e-finanziaria-2/
Thomas Mayer, Roman Huber, Vollgeld: Das Geldsystem der Zukunft. Unser Weg aus der Finanzkrise Taschenbuch, Tectum Sachbuch, August 2014
https://www.amazon.de/Vollgeld-Geldsystem-Zukunft-Unser-Finanzkrise/dp/3828833500

EFRAG, Statement of Cash Flows: issues for Financial Institutions, 2015
https://www.efrag.org/Activities/335/Statement-of-Cash-Flows-issues-for-Financial-Institutions

Michael Schemmann CPA, Putting a Stop to Fictitious Bank Accounting, 2015
https://www.amazon.com/Putting-Stop-Fictitious-Bank-Accounting/dp/1511593598/

Prof. Richard A. Werner, A lost century in economics: Three theories of banking and the conclusive evidence, International Review of Financial Analysis Volume 46, July 2016, Pagies 361-379 https://www.sciencedirect.com/science/article/pii/S1057521915001477
Prof. Dirk J. BEZEMER  - Towards an ‘accounting view’ on money, banking and the macroeconomy: history, empirics, theory, Cambridge Journal of Economics, Volume 40, Issue 5, pp. 1275-1295, September 2016 https://academic.oup.com/cje/article-abstract/40/5/1275/1987682?redirectedFrom=fulltext
Avv. Marco Della Luna, MONETA SCRITTURALE: LE ORDINANZE DEL TRIBUNALE, 28 February 2017 http://marcodellaluna.info/sito/2017/02/28/moneta-scritturale-le-ordinanze-del-tribunale/
Avv. Silvio Orlandi, Un viaggio attraverso il non mutuo bancario. Analisi critica della questione monetaria,  Sindimedia Edizioni, May 2018 https://www.amazon.it/viaggio-attraverso-bancario-questione-monetaria/dp/883199400X
Proff. Biagio Bossone, Massimo Costa, The “accounting view” of money: money as equity, The World Bank, May 2018
http://blogs.worldbank.org/allaboutfinance/accounting-view-money-money-equity-part-i

Bossone, B.; Costa, M.; Cuccia, A.; Valenza, G. Accounting Meets Economics: Towards an 'Accounting View' of Money - 2018
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3270860

Zhan Gao , Weijia Li, John O’Hanlon, The informativeness of U.S. banks’ statements of cash flows, Journal of Accounting Literature, Volume 43, Dicembre 2019, pp. 1-18
https://www.sciencedirect.com/science/article/pii/S0737460718300624

Kind regards,

Marco Saba

Forensic Accountant

Organized Crime Observatory – Geneva

https://o-c-o.net

Phone in Rome: +39 370 353 8535

marco saba <marcosabait@gmail.com>	6 mag 2020, 11:00
a Zabihollah, Cindy

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Their rejection answer, 21 days later:
May 27 2010 19:49
 

Dear Marco,

Thank you for submitting your manuscript titled “Money creation as a financing activity in banking” for consideration for the Special Issue on Fraud at the Journal of Forensic Accounting Research.

We do not believe the paper has the potential for a positive publication outcome at JFAR. This special issue of JFAR focuses on Fraud Research in Forensic Accounting. Your proposal does not provide any information on how your paper aligns with the theme of the issue. We wish you the best as you develop your research idea further.

Best Regards,

Kip Holderness and, on behalf of, Meghann Cefaratti and Cindy Durtschi

Kip Holderness
To me, Meghann, Cindy  --------------------------------------------------- A further reply from me - citing current cases in Court - went unanswered... Here the JFAR GUEST EDITOR: Cindy Durtschi is EY Professor of Accountancy (EY = Ernst & Young) cdurtsch@depaul.edu EY Professor of Accountancy School of Accountancy & MIS Phone: (312) 362-8789 1 E. Jackson Blvd. DePaul Center 6038 Chicago, IL 60604 ​Academic Degrees PhD, Accounting, University of Arizona MAcc, Accounting, University of Arizona MA, Economics, University of Nevada BS, Economics, Utah State University BS, History, Utah State University Research and Teaching Interests Forensic Accounting Financial Accounting Biography Cindy Durtschi is an award-winning teacher and researcher in the fields of financial and forensic accounting. Durtschi received the 2006 American Accounting Association Innovation in Audit Education Award for her published case in forensic accounting, "The Tallahassee Bean Counters:  A Problem-Based Learning Case in Forensic​ Auditing." She continues to publish forensic accounting cases that are used in classrooms around the world. Durtschi has published in forensic accounting as well as capital markets. Her articles appear in the Journal of Accounting Research, Journal of Accounting, Auditing and Finance, Journal of Forensic Accounting, Issues in Accounting Education as well as other accounting and finance journals. She is currently on the editorial board for both the Journal of Forensic and Investigative Accounting and Issues in Accounting Education. She has given invited lectures in forensic accounting to professional and student groups throughout the U.S. and in Europe. She currently serves as chair of the American Accounting Association (AAA) and is past president of the Forensic and Investigative Accounting section of the American Accounting Association. I THINK THAT THE AUDITING INDUSTRY HAS A VERY BIG BLIND-SPOT PROBLEM ABOUT BANKING.

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