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Jack Mortu	Posted - 2011.03.04 01:30:00 - [1] Edited by: Jack Mortu on 04/03/2011 01:38:05 Edited by: Jack Mortu on 04/03/2011 01:31:00 Bypassing audits seems to be a reaccurring issue, but still, I am interested in getting into the audit business. Jack is my alt, but he's the default person I am posting with on the forums. It's easier to stick with him since my main is a chick and I am not. Anyway, I am creating this thread to flesh out some of the most common ways for scammers to survive an audit. After reading cos's scam, I'll begin the list: The List - Temporarily transfer non-corp assets back into the corp to make it appear that the player/company's valuation is fine. - Creating secondary, shell corporations to make fake transactions with. - Issuing debt/shares to pay dividends (Ponzi scheme).
Breaker77 Gallente Reclamation Industries	Posted - 2011.03.04 01:43:00 - [2] Add the following: Doing legitimate transactions that cause excessive journal entries. Doing lots of transactions with the purpose of creating excessive journal entries hiding the shady stuff. Now how do you tell which is legit and which is a covering something up?
Rule18 Capsuleer Races And Violent Events Inc. Taurus Quantum Dynamics	Posted - 2011.03.04 01:45:00 - [3] so breaker's method is essentially to dilute fraud with actual business? sort of leveraging your actual activities to gain solvency... interesting "If it can be named, it can be hated." -Rule18
Breaker77 Gallente Reclamation Industries	Posted - 2011.03.04 01:50:00 - [4] Originally by: Rule18 so breaker's method is essentially to dilute fraud with actual business? sort of leveraging your actual activities to gain solvency... interesting How is anyone going to know you received XXX amount of ISK from Bad Bobby if you have so many journal entries to push it out of the API data? Back when I was doing T2 invention and production, I was easily making 400+ T2 modules a day. Now if I sold them as I built them, that alone would be 800+ journal entries EACH DAY! 400+ for the item, and 400+ for the sales tax. Multiply that by a couple of weeks, and the number of entries is staggering. Remember the API will only pull at most 1000 entries. To get more you have to walk the journal.
Liberty Eternal	Posted - 2011.03.04 01:51:00 - [5] Originally by: Jack Mortu Bypassing audits seems to be a reaccurring issue, but still, I am interested in getting into the audit business. The "issue" originated in proven scammers who, on their way out the door, sneered at the audit system in an attempt to stir up MD. It has now been picked up and turned into an issue as a desperate survival tactic primarily by BSAC, lead by Block. There have actually been no serious issues with scams being aided by audits. Actual scams have always attempted to evade audits as much as possible. However, it is likely that scams will now start factoring audits into their operation because it is part of the new operating environment. The way to resolve this problem is to increase and improve the auditing process - to take it next-level and begin continuous audits.
Jack Mortu	Posted - 2011.03.04 01:53:00 - [6] Well, my first instinct when it comes to transactions is are they doing transactions with a limited number of people or corps? To me, that suggests the possibility of higher risk. If they're embezzelling money through bad business deals that cause the total asset value to drop, then it'll be obvious the assets aren't there or are below where they should be. Generally, the standard approach is to do sampling of transactions. Pick a few at random and look closely at them for possible fraud. Higher value ones should receive more scrutiny. Real auditors determine materiality, which means a value that is significant enough to investigate should a transaction's value meet or exceed that number. Now if the fake transactions or the real transactions are netting positive, there's really nothing to look at, they're trading & making money doing it. It would then be more important to verify the legitimacy of other parties in those transactions.
Rule18 Capsuleer Races And Violent Events Inc. Taurus Quantum Dynamics	Posted - 2011.03.04 01:57:00 - [7] Originally by: Breaker77 Originally by: Rule18 so breaker's method is essentially to dilute fraud with actual business? sort of leveraging your actual activities to gain solvency... interesting How is anyone going to know you received XXX amount of ISK from Bad Bobby if you have so many journal entries to push it out of the API data? Back when I was doing T2 invention and production, I was easily making 400+ T2 modules a day. Now if I sold them as I built them, that alone would be 800+ journal entries EACH DAY! 400+ for the item, and 400+ for the sales tax. Multiply that by a couple of weeks, and the number of entries is staggering. Remember the API will only pull at most 1000 entries. To get more you have to walk the journal. Ah, so more of a buffer overflow type thing? Gothya. I liked my original interpretation better :-/ almost makes scamming sound like a legit business. "If it can be named, it can be hated." -Rule18
Breaker77 Gallente Reclamation Industries	Posted - 2011.03.04 01:57:00 - [8] Originally by: Jack Mortu Now if the fake transactions or the real transactions are netting positive, there's really nothing to look at, they're trading & making money doing it. It would then be more important to verify the legitimacy of other parties in those transactions. How do you suggest you verify the other parties, when you are say selling 1000 T2 ships, and 1000 people buy them? You can't do a check on eve-search and a show info on each and every person. That idea is about the most ******ed idea I've heard.
Jack Mortu	Posted - 2011.03.04 02:02:00 - [9] Originally by: Liberty Eternal ]The way to resolve this problem is to increase and improve the auditing process - to take it next-level and begin continuous audits. Good point, it's up to the investment community to demand this, though.
Jack Mortu	Posted - 2011.03.04 02:04:00 - [10] Edited by: Jack Mortu on 04/03/2011 02:04:16 Originally by: Breaker77 Originally by: Jack Mortu Now if the fake transactions or the real transactions are netting positive, there's really nothing to look at, they're trading & making money doing it. It would then be more important to verify the legitimacy of other parties in those transactions. How do you suggest you verify the other parties, when you are say selling 1000 T2 ships, and 1000 people buy them? You can't do a check on eve-search and a show info on each and every person. That idea is about the most ******ed idea I've heard. No, simple, you do a sampling of their transactions. Not ALL of them. You contact some of the parties to verify their existence. I'm mainly talking of doing this if most of their business is with a few clients. If there's hundreds of clients, then there would be no point in contacting them since obviously they're not all shell corps or alts. P.S. - Get over yourself.
Vaerah Vahrokha Minmatar Vahrokh Consulting	Posted - 2011.03.04 02:10:00 - [11] Edited by: Vaerah Vahrokha on 04/03/2011 02:12:11 Quote: Bypassing audits seems to be a reaccurring issue Reaccurring as in, happened once? Quote: No, simple, you do a sampling of their transactions. Not ALL of them. You contact some of the parties to verify their existence. Searching in the forum posts of ONE guy can take up to 12 hours of RL time. How much costs can be added? Not everyone can pay 2-3B per audit. - Auditing & consulting When looking for investors, please read http://tinyurl.com/n5ys4h + http://tinyurl.com/lrg4oz
Breaker77 Gallente Reclamation Industries	Posted - 2011.03.04 02:15:00 - [12] Originally by: Jack Mortu No, simple, you do a sampling of their transactions. Not ALL of them. You contact some of the parties to verify their existence. I'm mainly talking of doing this if most of their business is with a few clients. So basically it's only useful for people doing nothing. Most bonds or IPOs are for trading or manufacturing. It's a good idea, in theory. However you will get a lot of people telling you to "F*** off", if they even respond at you at all. Then when you get ahold of an alt of a big 0.0 alliance they decide to wardec you and your client because you are a spy for another large alliance. We can play this point/counterpoint all day long. In the end it still comes back to the same thing as the other 396,467 threads on how to improve audits; Everyone has all these great ideas, yet no one implements them due to the hassle.
cosmoray Cosmoray Holdings Corp	Posted - 2011.03.04 02:17:00 - [13] Audits are a cursury check at best. If you become an auditor who fails peoples audits. Guess what you won't get anymore work. An auditor without any work, doesn't build rep. It's just like S&P, keep on rating those sub prime bonds AAA and the banks keep paying us commision. Famous Auditor > Remember that I am on your side, just playing devil's advocate before ill intentioned flamers do to you and ruin your bond
Caldariftw123	Posted - 2011.03.04 02:24:00 - [14] Edited by: Caldariftw123 on 04/03/2011 02:25:07 Originally by: cosmoray Audits are a cursury check at best. If you become an auditor who fails peoples audits. Guess what you won't get anymore work. An auditor without any work, doesn't build rep. It's just like S&P, keep on rating those sub prime bonds AAA and the banks keep paying us commision. Famous Auditor > Remember that I am on your side, just playing devil's advocate before ill intentioned flamers do to you and ruin your bond Funny you say this, it's totally deluded though, because you didn't "fail" an audit .. an audit is just a fact check. You claimed X, and X was proven, so how does that in any way speak against audits? It's only "anti-audit!" if you think audits should somehow mean "this wont turn out to be a scam later" .. there's no "pass/fail" in that sense in reality though because that is not, nor has it ever been claimed, what audits do. You 'passed' the fact check, that is all, it says NOTHING about audits in general though because everybody already knew that is all the audit was meant for.
Rule18 Capsuleer Races And Violent Events Inc. Taurus Quantum Dynamics	Posted - 2011.03.04 02:39:00 - [15] first and foremost this thread is making my head hurt! second, as far as x for x verification... thats a really good way to simplify the current issue. x can be matched to x but there is no method for verification of the function which produced x (trading, bought a plex, industry, alt/ponzi etc) and its in the concealing of the method that people "avoid audits." verifying transactions is one solution proposed that handles this for ongoing business but, as also mentioned, it becomes WAY too tedious when scaling for larger operations. frankly given eve's current mechanics, i cant see any other way and even then, if a player funnels funds through relatively established characters/businesses using faux transactions... this falls apart too. I propose shifting emphasis from a financial audit to an "RL" audit. Look at time invested, expected returns, plausibility of proposed mechanics (supplement with fact checking), reputation/history (just to weed out obvious) and assess likelihood of burnout/ quantify RL time required to A) carryout business as projected or B) scam. Theoretically, even if someone who passes these tests scams, they still leave a viable business model which can, should and will eventually be used for legitimate business. "If it can be named, it can be hated." -Rule18
Vaerah Vahrokha Minmatar Vahrokh Consulting	Posted - 2011.03.04 02:43:00 - [16] Originally by: Rule18 first and foremost this thread is making my head hurt! second, as far as x for x verification... thats a really good way to simplify the current issue. x can be matched to x but there is no method for verification of the function which produced x (trading, bought a plex, industry, alt/ponzi etc) and its in the concealing of the method that people "avoid audits." verifying transactions is one solution proposed that handles this for ongoing business but, as also mentioned, it becomes WAY too tedious when scaling for larger operations. frankly given eve's current mechanics, i cant see any other way and even then, if a player funnels funds through relatively established characters/businesses using faux transactions... this falls apart too. I propose shifting emphasis from a financial audit to an "RL" audit. Look at time invested, expected returns, plausibility of proposed mechanics (supplement with fact checking), reputation/history (just to weed out obvious) and assess likelihood of burnout/ quantify RL time required to A) carryout business as projected or B) scam. Theoretically, even if someone who passes these tests scams, they still leave a viable business model which can, should and will eventually be used for legitimate business. I can't talk for others but I already do this. The bottleneck - as usual - is the very foundations of the game being completely biased pro scammers and thieves. It's why some alliances used to force people send RL screenshots of their log in screen even if it's forbidden by CCP, CCP is in the way, not helping those who happen to be honest. - Auditing & consulting When looking for investors, please read http://tinyurl.com/n5ys4h + http://tinyurl.com/lrg4oz
Rule18 Capsuleer Races And Violent Events Inc. Taurus Quantum Dynamics	Posted - 2011.03.04 03:09:00 - [17] Edited by: Rule18 on 04/03/2011 03:09:22 Perhaps a template could be created which presents the following in addition to other more traditional audit results RL Hours required: 1w/1m/3m/1y RL Hours required to generate current NAV Requested Investment: Fronted Collateral: Projected ROI: 1w/1m/3m/1y Benefit of default: 1w/1m/3m/1y Calculated as Investment-Collateral+ROI Likelihood of default Calculated as if([Investment-Collateral]>0; if(NAV/RLHrs>Projected ROI/Hrs Req;SCAM; BBB); AAA) -----Signature----- CRAVE, taking you beyond the capsule. "If it can be named, it can be hated." -Rule18
Vaerah Vahrokha Minmatar Vahrokh Consulting	Posted - 2011.03.04 03:17:00 - [18] It's muuuuuuuuuch easier than that. The 99% chance of failure in an EvE investment is a scam. That's it. - Auditing & consulting When looking for investors, please read http://tinyurl.com/n5ys4h + http://tinyurl.com/lrg4oz
Misty McGinnity	Posted - 2011.03.04 03:27:00 - [19] Originally by: cosmoray Audits are a cursury check at best. If you become an auditor who fails peoples audits. Guess what you won't get anymore work. An auditor without any work, doesn't build rep. add in, if you pass an audit & they end up scamming, you get tarred with the same brush as the scammer.
Rule18 Capsuleer Races And Violent Events Inc. Taurus Quantum Dynamics	Posted - 2011.03.04 03:27:00 - [20] ... Weren't you the one that with that whole "overgrown investment barrier" thread... I smell self-contradiction ;-) Anyway yes, I agree, notice how the primary result is "SCAM" with risky as 2nd most likely and AAA as least likely. just proposing an alternate method. -----Signature----- CRAVE, taking you beyond the capsule. "If it can be named, it can be hated." -Rule18
Emperor Cheney Celebrity Sex Tape	Posted - 2011.03.04 03:29:00 - [21] To flip it around a bit, I think auditing would be a fantastic way to grind rep. Faster than making market ventures, leads to lots of posting in MD included (another way to grind rep) and harder to catch. If we haven't seen an auditor "turn" scammer yet, we will.
Rule18 Capsuleer Races And Violent Events Inc. Taurus Quantum Dynamics	Posted - 2011.03.04 03:39:00 - [22] Take it another level, build an audit character in parallel to a scam character making both appear independent... Would take months or years but I can't see ANY way to stop it. -----Signature----- CRAVE, taking you beyond the capsule. "If it can be named, it can be hated." -Rule18
Zeta Zhul Caldari Preemptive Paranoia	Posted - 2011.03.04 03:43:00 - [23] Originally by: Breaker77 Add the following: Doing legitimate transactions that cause excessive journal entries. Doing lots of transactions with the purpose of creating excessive journal entries hiding the shady stuff. Now how do you tell which is legit and which is a covering something up? You journalize the transactions. While the Wallet Journal gives descriptions it doesn't actually journalize the transactions. For eve's purposes it isn't necessary. But if you combine the Journal with the Transaction history and break it out by type and create separate categories, cr/dr the categories depending on Journal/Transaction descriptions you can isolate, organize and eliminate the most common entries. This can all easily be done by software. It's the stuff that doesn't want to journalize easily that will stand out. Then you take a look at what was journalized, the credits, the debits and see where the inflow and outflow. And if there is a huge gaping hole where isk has been flushing, well then you've got some questions. Do the software right and it doesn't matter how many transactions there are. The person could add millions of transactions and it wouldn't matter all that much. And if the situation is a manufacturing one where items are bought, manufactured with and the result sold. Well that's easy enough to handle too. shrug if the intent is to overwhelm an auditor who does everything by eyeball and by hand, then yes that's possible just like it's possible to overwhelm a real life auditor by shoving mounds of paper at him. But since we're talking electronic records and that a negative report from an auditor can kill your business and reputation. I don't see it. But hey I've been around for a little over a year so maybe I'm misinterpreting things. YMMV.
Misty McGinnity	Posted - 2011.03.04 03:45:00 - [24] Originally by: Rule18 Take it another level, build an audit character in parallel to a scam character making both appear independent... Would take months or years but I can't see ANY way to stop it. Best idea i have ever seen, if you stagger the characters though, u'll need to make the auditer first, audit + new scam alt in same thread hasn't worked. Auditer--> for 3 months then launch the IPO scam alt. Will look better.
Machete Visor	Posted - 2011.03.04 04:47:00 - [25] 1 week of data available via api = unauditable
Rule18 Capsuleer Races And Violent Events Inc. Taurus Quantum Dynamics	Posted - 2011.03.04 05:00:00 - [26] Edited by: Rule18 on 04/03/2011 05:04:00 Originally by: Misty McGinnity Originally by: Rule18 Take it another level, build an audit character in parallel to a scam character making both appear independent... Would take months or years but I can't see ANY way to stop it. Best idea i have ever seen, if you stagger the characters though, u'll need to make the auditer first, audit + new scam alt in same thread hasn't worked. Auditer--> for 3 months then launch the IPO scam alt. Will look better. :-/ Not sure how to feel about this... Proud for thinking of it or sad for potential re-quoting on all my future businesses propositions :-/ ---Hey wait a minute... --- If Originally by: Rule18 Edited by: Rule18 on 04/03/2011 03:09:22 Perhaps a template could be created which presents the following in addition to other more traditional audit results RL Hours required: 1w/1m/3m/1y RL Hours required to generate current NAV Requested Investment: Fronted Collateral: Projected ROI: 1w/1m/3m/1y Benefit of default: 1w/1m/3m/1y Calculated as Investment-Collateral+ROI Likelihood of default Calculated as if([Investment-Collateral]>0; if(NAV/RLHrs>Projected ROI/Hrs Req;SCAM; BBB); AAA) Is made simple enough/ doable with public info... then theoretically it should still provide a good prediction of whether or not someone is likely to scam (perhaps better because it doesn't factor additional effort for audit account). -----Signature----- CRAVE, taking you beyond the capsule. "If it can be named, it can be hated." -Rule18
SencneS Rebellion Against Big Irreversible Dinks	Posted - 2011.03.04 05:01:00 - [27] Originally by: Liberty Eternal It has now been picked up and turned into an issue as a desperate survival tactic primarily by BSAC, lead by Block. Credit where credit is due armpit! I've been publicly declaring Audits are a waste of time and effort that have no hope of preventing a scam, by a scammer with minimal effort. And I've been doing it a WHHOOOLLELEEE lot longer then anyone else. Use you're forum detective skills and go back more then two months and you'll see evidence of this, and my opinion on audits publicly declared over the last several years! In fact I can even narrow down a good time frame for you - The first public Auditors Fund announcement is one I KNOW I was actively advocating that investors take each and every audit with a gain of salt, because they ultimately don't prevent a scam from happening. It's a shame coming from your posts and your reputation for finding the difficult to find I think it's disturbing to see how just how blinded you are over your agenda to see Block's downfall. I expected more to be honest, but I'm also not surprised. Amarr for Life
Jack Mortu	Posted - 2011.03.04 05:15:00 - [28] Originally by: Breaker77 Originally by: Jack Mortu No, simple, you do a sampling of their transactions. Not ALL of them. You contact some of the parties to verify their existence. I'm mainly talking of doing this if most of their business is with a few clients. So basically it's only useful for people doing nothing. Most bonds or IPOs are for trading or manufacturing. It's a good idea, in theory. However you will get a lot of people telling you to "F* off", if they even respond at you at all. Then when you get ahold of an alt of a big 0.0 alliance they decide to wardec you and your client because you are a spy for another large alliance. We can play this point/counterpoint all day long. In the end it still comes back to the same thing as the other 396,467 threads on how to improve audits; Everyone has all these great ideas, yet no one implements them due to the hassle. Yes, I agree the hassle may make it unpractical. But wow this thread got derailed, partially my fault I guess. I'm not really trying to improve the audit processes currently used, just trying to feel out what this job would entail if I ever wanted to get into it. The most obvious route to take is to check for known scamming techniques. Sure, it would never be fool-proof, real life audits aren't either. It may very well be that to perform a thurough audit, it would as Vaerah Vahrokha said, unpractical due to what the auditor would charge. This is actually a major issue in real-life too, for many businesses it is totally unpractical to audit them due to what CPA's charge. I like the idea of journalizing, though. Originally by:** Rule18 I propose shifting emphasis from a financial audit to an "RL" audit. Look at time invested, expected returns, plausibility of proposed mechanics (supplement with fact checking), reputation/history (just to weed out obvious) and assess likelihood of burnout/ quantify RL time required to A) carryout business as projected or B) scam. Theoretically, even if someone who passes these tests scams, they still leave a viable business model which can, should and will eventually be used for legitimate business. Yes, good point. Keep posting scammer technique's guys. I'll add the "Unpractical business model; low ISK return for time invested." While not a technique it does scream scam.
Alain Kinsella Minmatar	Posted - 2011.03.04 09:31:00 - [29] Originally by: Jack Mortu It may very well be that to perform a thurough audit, it would as Vaerah Vahrokha said, unpractical due to what the auditor would charge. This is actually a major issue in real-life too, for many businesses it is totally unpractical to audit them due to what CPA's charge. In RL there are different types of audit. A financial audit (as discussed here a lot) may keep the interest of the average shareholder, but its the 'service audit' (confirming you are following a service model such as SAS-70 or ISO-9001) which tends to hold the attention of your most important clients. Doing something akin to a service audit is difficult to impossible in EvE, unless you're working with a group of RL friends who know what they're doing (or at least some measure of competence). Of course, in that case they have no major need for an 'outside' funding (i.e. reaching to MD). A similar problem arises from someone like me. I come from the SL spending mentality, so funding will come purely from my own US$ reserves (via the PLEX system), but tempered by the will to make a point. I would have no need for an audit because I have no want/need for outside funding.
Vaerah Vahrokha Minmatar Vahrokh Consulting	Posted - 2011.03.04 10:31:00 - [30] Quote: To flip it around a bit, I think auditing would be a fantastic way to grind rep. Faster than making market ventures, leads to lots of posting in MD included (another way to grind rep) and harder to catch. If we haven't seen an auditor "turn" scammer yet, we will Yeah, the amount of flames and manure tossed in the face is a FANTASTIC way and you grid an huge rep, in fact everytime something goes south, you get a cloud of alts + their scammer mains to bring you into the mud. That's clearly the smart way to grind rep indeed. But you are fairly correct about some auditor going to scam sooner or later. Even police men and judges may be corrupted and EvE is not exactly an healthy environment to preserve honesty. Quote: I've been publicly declaring Audits are a waste of time and effort that have no hope of preventing a scam, by a scammer with minimal effort. And I've been doing it a WHHOOOLLELEEE lot longer then anyone else You have always been in the top positions of the most opaque and transparency resistant corporations of all EvE. Too biased to tell something that does not smell of conflict of interests. Quote: I've been publicly declaring Audits are a waste of time and effort that have no hope of preventing a scam And it's years you missed the point. Let me see if I find something that is also as years old as your statements and I invented when I had 900k SP - when everyone starting the game had 900k SP: Originally by: Vaerah Vahrokha Basically, the Investee looks like with the ability to successfully honor the bond, with some effort. Notice how an audit *can only evaluate the ability or potential* of an Investee to succesfully honor a bond, not his possibly different real plans*. Are you going to LEARN the above sentence after years it's constantly slammed under your eyes? - Auditing & consulting When looking for investors, please read* http://tinyurl.com/n5ys4h + http://tinyurl.com/lrg4oz

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