Forensic Accounting Today

To Catch a Thief: Recovering Assets After an Embezzlement

Lately, primarily due to its amazing ease of use, I've been relying heavily on Twitter to direct my audience to topics pertaining to forensic accounting. In this blog post, I want to emphasize one of my recent Tweets which points my Twitter followers to a concise and well-written article on the subject of fraud/internal investigations. The author, G. Michael Bellinger, Esq, in an article in Risk Management, offers great advice and insight that's applicable to forensic accountants and financial investigators. In summary, Bellinger offers a four-step approach to gathering evidence and recovering assets after an embezzlement:

1. Immediately launch an internal investigation

2. Retain outside experts to conduct the investigation

3. Make it a goal to obtain a confession using proper, legal interrogation techniques

4. Develop a program for restitution.

Read the entire article

Markopolos Gives Advice to Aspiring Fraud Examiners

Harry Markopolos, CFE, CFA, now famous for his recent testimony before the U.S. House of Representatives Financial Subcommittee on Central Markets about the Bernard Madoff Ponzi scheme, offered the following tips in an interview for the ACFE's May/June 2009 issue of FRAUD Magazine:

1. Join your local ACFE chapter and attend meetings regularly. Collect fellow members' business cards, and ask about their expertise. Then when you run into what seems like an unsolvable problem, use your Rolodex to reach out and ask for advice.

2. Build a world-class fraud library, one book at a time. The ACFE bookstore and Amazon.com carry a large number of anti-fraud titles that you should be reading as part of your continuing education program.

3. Develop an expertise in a fraud examination specialty to make yourself more valuable. Pick a specialty that's your passion, and master it.

4. Find a mentor who can guide you in making career decisions and teach you the finer points of fraud examination.

5. Follow the one-third rule: for every hour you spend working, spend a third of that time engaged in continuing educational activities or social networking.

Investigating Fraud Takes Courage: How Do You Get It?

Following is one small excerpt of the notes I took the last two days at the ACFE's "Conducting Internal Investigations" conference held in Atlanta. The presenter, who did a super job, was Allen F. Brown, CFE, CPA.

To investigate fraud, you must have...

1. The authority to do what you need to do;

2. The support of those above you;

3. The necessary skills;

4. COURAGE (Fraud work can get ugly/nasty).

    How do you get the courage to be an effective fraud investigator?

    ...have 1, 2, and 3, above!

Document Production in Litigation: Use an Excel-Based Control Sheet

In litigation cases, forensic accountants and the lawyers they serve depend greatly on documents and other data obtained from opposing counsel through the discovery and document production process. It can be frustrating when requested information is not timely received, or even worse if not received at all. I'm always amazed at how litigants avoid producing relevant data via a myriad of legal arguments, some sound and legit, and others quite laughable.

To help combat document production abuse, litigation specialists must utilize an effective methodology for tracking the discovery requests made and what information has been received. Via an e-newsletter article I received this morning from the National Association of Valuation Analysts (NACVA), I learned of a practical tool that you may want to consider. It was written by James R King, CPA/ABV, CFE, FCPA, CVA, CFF and includes these excerpts: 

This article describes one way to set up a document production control sheet in Excel which can serve many different purposes. While this is written from the perspective of a litigation engagement, the same principles could be used in a business valuation engagement.

It is important to maintain control over the numerous document requests. In our litigation engagements, we are continuously requesting additional documents. Having one schedule allows us to (1) easily communicate with the attorney regarding production status; (2) follow up on what has/has not been provided; (3) locate the documents in our files; and (4) provide an exhibit for use in court of production problems that have limited the scope of the work we were able to perform and report on.

We utilize a production template when the engagement begins to make a list of documents that are need (sic) for our work. As the work progresses, we add to this list new information as needed.

If an exhibit is needed for a hearing on failure to produce documents, your control sheet becomes the source for that exhibit. This is easily accomplished by hiding the column that contains the hyperlinks to where the electronic copy of the document is stored. The worksheet now becomes a good visual exhibit to communicate with the judge the numerous times you have requested documents and the lack of production that has been provided.

Read the entire article and see the example Excel-based "Production Tracking Worksheet"

Readers: Do you have other examples of tools you've used in the document production process? Have you got any war-stories you'd like to share about abuses you've seen in the discovery phase of your engagements? Do you have any practical tips or suggestions about this subject which you'd like to share? If so...please reply via the below comment feature.

Forensic Accounting Niche is Embraced by Georgia Society of CPAs

Recognizing the ongoing rapid growth in the field of forensic accounting, the Board of Directors of the Georgia Society of CPAs (GSCPA) began a strong initiative in 2008 to help meet the needs of GSCPA members who work in this exciting practice area. Steps taken to-date include:

• Approved a name change for the Section which was formed several years ago to serve members interested in valuation and litigation services. Formerly called the Valuation & Litigation Services Section, the new, re-branded name is the Forensic & Valuation Services Section.
• Increased the number of practice areas addressed by the section to include all eight niche areas identified by the AICPA's Forensic and Valuation Services Center. The targeted areas are: 1) Bankruptcy and insolvency, 2) computer forensics, 3) economic damages, 4) family law, 5) fraud investigation, 6) litigation support, 7) stakeholder disputes, and 8) valuations. Other service specialties which may be added in the future might include such areas as internal controls, corporate governance, Sarbanes-Oxley Section 404, and internal audit.
• Expanded the size and makeup of the FVS Section Leadership Team to include GSCPA members with experience in each of the eight targeted niche areas.
• Launched an effective member communications program to announce the GSCPAs' commitment and plans for the FVS Section and its benefits to members.
• Surveyed the GSCPA membership regarding their interest in and perceptions pertaining to forensic accounting-related topics and how the GSCPA can best meet their needs through the FVS Section.
• Instituted the FVS Section Listserv, designed to improve the communication among Section members, offer a forum for exchanging ideas, and provide answers to questions and challenges faced by fellow members.
• Hosted the 2008 Fraud and Forensic Accounting Conference, an 8-hr CPE session attended by over 150 participants. The 2009 Fraud and Forensic Accounting Conference will be held on 9/18/09.
• Developed a schedule of monthly learning/networking events for Section members. These sessions include roundtable discussions, lunch 'n learn lectures (See my 2/9/09 post), webinars, informal discussion groups, and social/networking events, sometimes shared with organizations such as local bar associations, the Association of Certifed Fraud Examiners, and the Institute of Internal Auditors.

I am interested in hearing from leaders and members of other State CPA Society organizations that have targeted forensic accounting as a high-interest area among their constituents. There might be considerable mutual-benefit for our groups to exchange ideas. I encourage you to add your comments to this post, or if you prefer, email me at jeff.moore@jemoore.com.

Investigative Interviewing: Tips From an Ex-FBI Special Agent

"The next best thing to a confession is a real detailed lie."

I recently had the privilege of hearing Clifford E. Cormany, Jr. speak at one of the regular Lunch 'N Learn sessions hosted by the Forensic and Valuation Services Section of the Georgia Society of CPAs. In his 26-year career with the FBI, Mr. Cormany worked assignments involving criminal investigations, federal violations investigations, and organized crime investigations including public corruption matters, kidnapping, terrorism, and major narcotics cases.

Now President of Investigative & Polygraph Group, Inc., an association of retired FBI agents, Mr. Cormany has served as an expert witness and qualified on numerous occasions in Federal District Court, state courts and in other criminal and civil matters as an expert polygraph witness. At the program I attended, he discussed the role and importance of interviews and communication during financial investigations. Following is a summary of some of the key tips he offered the group:

• Before conducting an investigative interview, prepare yourself on all the important documents and issues.
• Research thoroughly the background of each interviewee. On-line research can be very helpful.
• It's OK to have a listing of questions you want to ask, but don't feel like you have to follow it precisely. Go with the ebb and flow of the interview.
• Make small talk in the early part of the interview...to establish common ground. For ex., where are you from? Do you like to play golf?
• Don't conduct interviews in public, for ex., in a noisy restaurant.
• When you expect the interviewee to be cooperative, it's OK to schedule the session in advance.
• Uncooperative or adversarial subjects should be interviewed on a surprise basis.
• If an interviewee is hostile or uncooperative, say, "OK, I didn't expect you to cooperate with me," and try to keep things moving on an even keel.
• Listen! Let the subject talk when they want to talk.
• Observe and read body language.
• If the interviewee wants a lawyer, friend, or family member present, say, "That's fine, but it won't change what I ask and how I ask it."
• Don't put a time limit on an interview. For ex., don't plan lunch in an hour when the interview may need to go another three hours.
• Don't lose your temper and or allow the interviewee to "get under your skin."
• Don't use ploys, tricks, or lies as an interview strategy. If you're caught doing this, the interviewee will be less likely to cooperate. Say, "I won't lie to you. I may not be able to tell you all I know and may not answer your questions, but I will not lie to you."
• Remember what you already know to be factual or what you think is the truth. Listen to what the subject says that may be different from what you know or think.
• The next best thing to a confession is a real detailed lie.
• Having a witness to the interview may be wise, especially with issues that may be key points in court. Or, after you prepare your interview report, consider having the interviewee confirm its accuracy.
• Well-written interview notes can be later used to prove lies.
• Use a neutral, non-defensive and non-aggressive approach during the interview.
• Seek permission from the interviewee to call them later if needed, and be sure you obtain their contact information.
• Just mentioning the idea of a polygraph exam may cause an uncooperative person to become cooperative and maybe even make a confession.
• Tape recordings can have a chilling effect on the interview. Obtain legal counsel regarding whether or not to record any interview.
• Take notes during the interview and dictate and clean them up within a day or two.
• As a forensic accountant, if you ever feel like you may be "in over your head" as it relates to an upcoming interview...then consider bringing in an expert interviewer, and sooner rather than later.

Economic Slump is Breeding Ground for Embezzlement

Source: Recordnet.com

STOCKTON, CA - Thick binders on the shelf in prosecutor Stephen Taylor's office tell stories of betrayed trust in columns and rows of accounting ledgers followed by snippets of narratives spelling out corporate theft. On one page, there's a copy of a check written to pay a Stockton charity's bill that was doctored and fraudulently cashed at a bank. Another page is a letter from an employer asking for the maximum punishment for a bookkeeper who stole for years.

These documents are the smoking guns of embezzlement. Taylor, a San Joaquin County deputy district attorney, recently filed charges in four high-profile cases locally. Two came within one week. More are to come, he said. Taylor's boss, San Joaquin County District Attorney James Willett, on Friday announced the creation of a so-called Major Fraud and Real Estate unit to prosecute complex fraud, embezzlement, identity theft and real estate fraud. Taylor and another attorney in the prosecutor's office will staff the unit. "My concern is they are hollowing out these businesses and leaving them as empty husks," said Taylor, whose main concern is that embezzlers cost jobs. "They're just like parasites or a form of cancer."

Like Taylor, those who investigate and study financial fraud say the free-falling economy is directly tied to a recent spike in embezzlement cases. And there are some simple steps employers can take to safeguard themselves and keep employees honest, they say.

Read the entire article

Trustee Chooses Lehman Examiner

Source: ajc.com

The federal government’s bankruptcy overseer chose Anton Valukas, a former federal prosecutor and a specialist in white-collar crime, as the examiner in the Lehman Brothers bankruptcy case. Valukas’ investigation could be used to determine whether Lehman executives lied, committed fraud or mismanaged the company. He will conduct his investigation simultaneously with several pending criminal investigations. Lehman and its former executives face investigations by U.S. attorneys in the Southern District of New York, the Eastern District of New York and the District of New Jersey, as well as the Securities and Exchange Commission.

Forensic Accounting War Stories...From the U.K.

Forensic accountant Michael Grayson has caught countless fraudsters out, saving companies thousands of pounds. Now he is warning that with a recession tightening its grip, North-East businesses could become easy targets.

Source: The Northern Echo 

Michael Grayson calls them his “war stories” – and he has plenty of them. In his role as a forensic accountant, he’s seen the spectrum of human emotion; the requisite mix of betrayal, tears, regret, anger and deceit.

His investigations have led to him catching a company director who wildly embellished his expenses while working for a multi-million-pound company, and saving a client £300,000 when he proved a sub-contractor was overcharging for the work he was carrying out. He saved another client (who was buying a multi-million pound kitchen and bathroom business) a staggering $25m after investigating the company’s final accounts and suggesting an adjustment of the figures.

He has worked for national banks, major airlines, local authorities, hospitals, FTSE 100 companies and assessed the assets of divorcing couples. And his job has taken him across the world – although there have been less glamorous environments too.

“I’ve worked anywhere from a big 50-story building in Texas to a stable in a back office, so for every Texas there’s also been a Rotherham,” says Michael, who leads a team of four forensic accountants at the Durham offices of Clive Owen & Co LLP.

“Basically, if you like to get up in the morning and know what you’re going to do next, forensic accounting isn’t for you. You could end up working anywhere and you’ve got to be able to start with a blank piece of paper and fill it from nothing, and some people don’t like that.”

Read entire article

Georgia Company Charged in $25M Ponzi Scheme

Source: The Atlanta Journal-Constitution

An Alpharetta-based financial firm has been charged by the Securities and Exchange Commission with operating a Ponzi scheme worth at least $25 million. According to the SEC, CRE Capital and its president, James G. Ossie, 48, wooed investors to a currency trading program last year by guaranteeing returns of 10 percent every 30 days, or a 120 percent annual rate. Some clients were promised 20 percent monthly gains, the SEC said. The Associated Press reported that Ossie lives in Dawsonville. The SEC said Thursday that the company’s trading has lost $12 million and that returns were paid with funds taken from later investors.

The SEC has obtained an emergency federal court order freezing the program’s assets and appointing a receiver to take over control of the company. The SEC’s investigation is ongoing. “The SEC’s emergency action in this case will protect investors from further harm,” said Katherine S. Addleman, director of the SEC’s Atlanta regional office. “We also want to remind investors to be skeptical of promoters promising exorbitant returns. Such claims should be red flags to investors.”

The scope pales in comparison to the massive, $50 billion Ponzi scheme allegedly orchestrated by New York money manager Bernard Madoff. Bill Leonard, an attorney for CRE and Ossie, said that Ossie “maintains that he acted with good faith at all times and intended to act with integrity for his clients.” He said that Ossie and CRE have been “cooperating fully” with the SEC, opening all records for review. The SEC said at least 120 investors signed up for the program. The agency did not name the investors, though it did say that CRE Capital and Ossie required that investors be business entities, not individuals.

CRE and Ossie told investors the trading program carried little risk because the company had created a large “defensive” reserve fund that would be able to cover the monthly returns. The SEC also has charged CRE and Ossie with falsely claiming that the program was audited by an outside accounting firm. The agency also says that CRE and Ossie told investors that the company planned on making a $100 million stock offering this year. According to the Georgia secretary of state, CRE Capital registered with the state in March 2007 and has offices on Mansell Road in Alpharetta. A news release issued last October announced that CRE had selected a California company to provide its customer relationship management software. The news release described CRE as a “distinctive, high-end private investment company offering a progressive and low-risk, high-yield opportunities to investors.”

$60,000 Missing: Church Bookkeeper Arrested on Theft Charges

Source: The Atlanta Journal-Constitution

The bookkeeper at a Cherokee County (Georgia) church was arrested Tuesday for allegedly stealing $60,000 from the church. Cherokee sheriff’s Sgt. Jay Baker said authorities believe Susan Brooms, 40, funneled the money from Sixes Presbyterian Church to pay her personal expenses. “Investigators suspect Brooms had been taking money from the church account since 2004,” Baker said. Brooms is being held without bond, charged with felony theft by taking and two counts of forgery. While searching her home for financial records, detectives found a small amount of cocaine in her husband’s belongings, Baker said. James Brooms, 52, was charged with cocaine possession and was released after posting a $12,055 bond.

An Operational Turnaround’s First 100 Days

Source: Turnaround Management Association; By Tom Gray, CTP

ABC Telco was already a management morass when the CFO resigned and the CEO stepped down due to a terminal illness. The two executives had virtually been at war with each other, and each had his camp of loyal managers. Earnings were reeling from the impact of competition, as well as the additional obligations and cost of Sarbanes-Oxley (SOX) compliance to avoid being delisted by NASDAQ. Revenue had fallen from $30 million to $25 million, and operating profit had fallen from $2 million to a loss of $2 million.

Morale was down as the result of a (voluntary) layoff of 20 percent of the company’s 125 employees, tedious new processes for SOX, and persistent loss of business to cable TV competition, while executives and the board blocked investment for expanded video service that many felt was critical for the company to be competitive. In the previous year, the board had replaced one-third of its members, lost a dissident shareholder suit, and saw a nine-month effort to sell the company blow up at the last minute. Two weeks later, at the end of November, the CFO resigned, and the CEO gave six weeks’ notice.

Recognizing the urgent need for day-to-day leadership, the board brought in an interim CEO in mid-January while it conducted a disciplined search for a permanent chief executive, a process that was expected to take three to six months. The interim CEO was a telecom consultant who had more than 35 years’ experience at all levels of the telecom industry and in other industries as well, and who preferred project work over a more permanent assignment.

The board’s goal was to move the operating company toward profitability in the current year or the next to enable a new search for an acquirer. The interim CEO’s role was to develop a new strategy to achieve that goal, as well as to lead the company’s daily efforts.

The First 30 Days: Where Do I Start?

The Interim CEO’s practice was to gain alignment around a new strategy by conducting an offsite meeting with the top 15 or so managers as soon as the necessary information could be assembled. His target date for the meeting was three weeks after his arrival. Having run such meetings nearly a dozen times before, he knew the group had to have reliable facts about the company’s current position in terms of the market, operations, and financials to begin the process of turning around the company. Usually, such facts had never been gathered and presented to such managers all at the same time.

Experts Say Fraud Likely to Rise

Source: Business Week

"The reason there's an increased risk of fraud in a down economy is the 'fraud triangle.' You have the pressure, opportunity, and rationalization," says Donna Epps, a partner with Deloitte Financial Advisory Services' anti-fraud practice.

With the news out of India that outsourcer Satyam Computer Services' accounting statements were a work of fiction worthy of John Grisham, 2009 has its first major case of corporate accounting fraud. But if experts in white-collar crime are right, as long as the recession is under way, it won't be the last.

During a Web conference conducted by Deloitte Financial Advisory Services' Anti-Fraud Consulting Services, nearly two-thirds of 1,500 executives who chose to respond to a poll said they expected more frauds to be uncovered as the economic downturn continues. While that result could be skewed because of who was polled—they all had an interest in fraud going in—history backs them up.

Data from the National White Collar Crime Center show a spike in arrests for fraud and embezzlement during the two most recent recessions. Following the savings and loan crisis and the downturn in 1990, white-collar fraud arrests jumped 52% over the next two years; following the Internet bust in 2000, arrests jumped 25% in the following two years. "White-collar crime clearly upticks when there's a downturn in the economy," says Michael B. Himmel, a defense attorney specializing in white-collar crime at Lowenstein Sandler and a former federal prosecutor.

CSI For CPAs: Searching For Financial Fraud

Forensic accountants find drama, routine on the job

By Livia Gershon, Staff Writer for Worcester Business Journal Online

As a rule, accounting probably isn’t a profession that’s ripe for a television drama. But the specialty of forensic accounting, essentially digging up financial information that could be used in court, may be an exception.

Sure, forensic accountants may need to spend days poring over boxes of records and convoluted spreadsheets, but they also confront crooked bookkeepers who’ve robbed their employers blind, face cross-examination on the witness stand and even go undercover.  

Forensic accountants may be hired by companies that suspect employees of wrongdoing, firms in the midst of criminal or civil proceedings, even divorcing spouses who want to make sure they know exactly how much income their husband or wife was really bringing in.

Sometimes straightforward methods for gathering evidence work fine. William E. Philbrick, a senior vice president at Worcester’s Greenberg, Rosenblatt Kull & Bitsoli who specializes in forensic accounting, said a first step in examining a company’s books is to compare expenses from one year to the next.

“If all the sudden your miscellaneous expenses, or any expense, is jumping, what’s the reason for that?” he said. “There may be a valid reason, but what’s the reason?”

Should You Call a Financial Investigator?

Financial investigators, often referred to as forensic accountants, are increasingly being called upon by lawyers, corporate governance officers, government officials, and others...to ferret-out monetary and other pertinent facts and data in a wide variety of situations. You may be faced with a matter, now or in the future, in which a specially-trained financial "bloodhound" is needed.

Financial Investigations Defined - According to the IRS, "Financial investigations are usually very document-intensive. Specifically, they involve records, such as bank account information, real estate files, motor vehicle records, etc., which point to the movement of money. Any record that pertains to or shows the paper trail of events involving money is important. The major goal in a financial investigation is to identify and document the movement of money. The link between where the money comes from, who gets it, when it is received and where it is stored or deposited, can provide proof of criminal activity."

Types of Forensic Accounting Cases - Financial investigators are typically retained by lawyers, business-owners, government agencies, bankers, lenders and investors to help protect the interests and rights of individuals and organizations involved in the following types of cases:

• Mergers and acquisitions due diligence
• Shareholder and partnership disputes
• Economic crime and other criminal investigations
• Personal injury claims / motor vehicle accidents
• Business interruption and property loss claims
• Employee dishonesty (fidelity) claims
• Business/employee fraud investigations
• Corporate internal investigations
• State and city government investigations
• Ethics hotline and whistleblower allegations
• Business contract disputes and economic losses
• Professional malpractice/negligence
• Divorce litigation
• Other types of civil litigation
• Mediation and arbitration
• Specialized audits
• Tax investigations
  

When you're faced with one of these situations, you should indeed consider how a forensic accountant might serve your needs. Discussing things with your lawyer or CPA might be your best next-step, as they can help you determine if and when a financial investigator is needed. In addition, these experts can help with the identification and retention of one or more well-qualified financial professionals.

Another Victim for the Crashing Real Estate Market: The Easy Divorce

Source: The New York Times

When Marci Needle and her husband began to contemplate divorce in June, they thought they had enough money to go their separate ways. They owned a million-dollar home near Atlanta and another in Jacksonville, Fla., as well as investment properties. Now the market for both houses has crashed, and the couple are left arguing about whether the homes are worth what they owe on them, and whether there are any assets left to divide, Ms. Needle said.

“We’re really trying very hard to be amicable, but it puts a strain on us,” said Ms. Needle, the friction audible in her voice. “I want him to buy me out. It’s in everybody’s interest to settle quickly. That would be my only income. It’s been incredibly stressful.”

Chalk up another victim for the crashing real estate market: the easy divorce.

With nearly one in six homes worth less than the mortgage owed on it, according to Moody’s Economy.com, divorce lawyers and financial advisers around the country say the logistics of divorce have been turned around. “We used to fight about who gets to keep the house,” said Gary Nickelson, president of the American Academy of Matrimonial Lawyers. “Now we fight about who gets stuck with the dead cow.”

Read the entire article: Breaking Up is Harder to Do After Housing Fall

Sourced by: Steve Worrall, Esq. and ForensicCPA

Jan. 6 Webcast: The 2008 Year in Review--Securities Litigation and Enforcement

Source: Securities Docket

Please join us on January 6 for a terrific webcast featuring leading securities litigation and SEC enforcement commentators Tom Gorman ("SEC Actions"), Walter Olson ("Point of Law" and "Overlawyered"), Kevin LaCroix ("The D&O Diary"), Francine McKenna ("re: the Auditors") and others. The topic of the webcast is the 2008 Year in Review--the most important stories, trends and developments, and what to watch for in 2009. As you know, there is plenty to talk about!

Please visit the link below to sign up for the webcast:
http://www.securitiesdocket.com/2008/12/30/please-attend-our-jan-6-webcast-the-2008-year-in-review/

Best,
Bruce Carton
Editor, Securities Docket

Accounting Sleuths on the Trail of Madoff Money

Teams of forensic accountants get set to trace - and maybe recover - funds lost in $50 billion Ponzi scheme.

NEW YORK- Accounting teams are sharpening their pencils and preparing to pore over spreadsheets in an effort to trace the money at Bernard L. Madoff Securities, which stands accused of perpetrating the largest investment scandal in history.

If the past is any indication, this group of bean counters - call them CSIs with eyeshades - will uncover some assets that can eventually be returned to bilked investors.

Known as forensic accountants, they will comb through books - in this case multiple sets of books - in a bid to track $50 billion that Mr. Madoff has said disappeared in one giant Ponzi scheme.

"They will be looking for records, fake invoices, cooked books, red flags, anything that doesn't make sense," says Larry Crumbley, the KPMG-endowed professor of accounting at Louisiana State University in Baton Rouge. "They will just be following the computer and paper trail, rather than the DNA."

Source: Ron Scherer, Staff Writer of the Christian Science Monitor

Read the entire article...and listen to Ron Scherer speak about the role of forensic accountants

Georgia Man Pleads Guilty to $13 Million Fraud Scheme

Source: Atlanta Journal-Constitution and Associated Press

A Georgia businessman has admitted taking part in a scheme to defraud a California construction company of nearly $13 million. Edgar J. Beaudreault of Alpharetta pleaded guilty to conspiracy to commit wire fraud. Federal prosecutors say the 60-year-old Beaudreault and two others conspired to defraud Cornell Corrections of California Inc., which operates private corrections facilities. In 2003, Cornell was hired to build a prison in Canon City, Colo., and the $13 million purchase price was to be place in escrow until completion. Cornell was induced to transfer the money to an Atlanta account, and most of it was then diverted to other accounts. Beadudreault could receive up to 20 years in prison and fined $250,000 at sentencing on March 18.

Is There a Fraudster in Your Organization? 16 Things to Watch For

An embezzler or other workplace fraud perpetrator will often display certain telltale red flags. One of the many charts included in the "2008 Report to the Nation on Occupational Fraud & Abuse," published by the Association of Certified Fraud Examiners, includes the following listing of these behavioral indicators:

1. Living beyond means (370 cases; 38.6% of 959 total cases in the study)
2. Financial difficulties (327; 34.1%)
3. Wheeler-dealer attitude (195; 20.3%)
4. Control issues, unwillingness to share duties (179; 18.7%)
5. Divorce/family problems (164; 17.1%)
6. Unusually close association with vendor/customer (146; 15.2%)
7. Irritability, suspiciousness, or defensiveness (130; 13.6%)
8. Addiction problems (128; 13.3%)
9. Past legal problems (83 cases; 8.7%)
10. Past employment-related problems (76; 7.9%)
11. Complaining about inadequate pay (70; 7.3%)
12. Refusal to take vacations (65; 6.8%)
13. Excessive pressure from within the organization (62; 6.5%)
14. Instability in life circumstances (47; 4.9%)
15. Excessive family/peer pressure for success (40; 4.2%)
16. Complaining about lack of authority (35; 3.6%)

Download the complete 2008 Report to the Nation on Occupational Fraud & Abuse

AIRA's Letter to Congress: Chapter 11 for Auto Industry

Earlier today, the board of directors of The Association of Insolvency and Restructuring Advisors released the following letter to Congress summarizing key ways in which the Chapter 11 process could offer relief and rehabilitation to the troubled U.S. automotive industry:

LETTER TO CONGRESS

The Association of Insolvency and Restructuring Advisors is a nationwide not-for-profit organization serving the needs of business turnaround, restructuring and bankruptcy practitioners.  With over 1,800 members, we are one of the leading bankruptcy and reorganization associations for accounting and financial advisors and offer members the most comprehensive bankruptcy certification program in the country. Our board of directors remains steadfastly committed to providing our members with relevant education programs and to taking a leadership role on legislative issues affecting the insolvency practice field.  As practitioners and specialists in the field of distressed business, we appreciate the opportunity to provide our perspective on the crisis facing the U.S. automobile industry.

As Congress grapples with the immense and historic difficulties faced by the U.S. automobile industry, we urge our lawmakers not to exclude a time-tested and exemplary process for restructuring troubled companies – Chapter 11 of the U.S. Bankruptcy Code (the “Code”).

A Chapter 11 filing would provide the following benefits:

Hilton Head Embezzlement, Missing Couple Case: An Update

Today's ajc.com includes the following update regarding my 4/23/08 post entitled, "$2.1M Embezzlement...Possible Murder...Then Suicide."

Hilton Head Island, S.C. — An accountant who was the last person to see a missing couple alive bought drop cloths large enough to be body bags and turned off his cell phone for 12 hours after meeting with his wealthy clients nine months ago, police said Wednesday.

Authorities also revealed the contents of accountant Dennis Gerwing’s suicide note, yet another piece of evidence that suggests he played a role in the couple’s disappearance. Read the entire story.

In Stormy Situations...Be an Anchor for Others

We can all benefit from the following comments written by my friend and business colleague, Gary Epp, President of The SURVIS Group, a top-tier, Atlanta-based staffing and consulting firm.

 

An Anchor in a Storm

 

Where do you head during a storm? Our instincts urge us to find a protected harbor, drop an anchor and ride out the storm in relative safety. Diminutive Rear Admiral Grace Hopper whose towering intellect forced the U.S. Navy to twice recall her from retirement frequently remarked that “Ships in port are safe, but that’s not what ships are built for.”

 

During the current economic storm it might seem safest for your business or career to head for port and ride it out. Stay away from deep, rough water and minimize risk. However, your owners have entrusted you with their investment and expect more. Your employees have entrusted you with their livelihood and expect more. So, heading for a safe anchorage is out of the question.

 

Having led business teams through numerous stormy situations let me make three suggestions:

Clear the Clutter…One of the first rules of survival is eliminating every possible distraction that might disrupt your focus on those few elements crucial to surviving the storm. One of the fallacies that germinate during good times is the delusion that we can successfully juggle many things (projects, roles, etc.). On calm seas the amateur captain can both party and pilot the boat. However, during a storm piloting must become a focused task. Go back to the vision for your organization. Anything which does not explicitly and obviously support the vision must go. Stop it. Drop it. Eliminate it. A laser-like focus on a critical few priorities will help you succeed in a challenging environment.

Commitments—make 'em and keep 'em…The natural reaction of some is avoiding during difficult times anything which smacks of accountability. However, this risk averse posture produces an undesirable consequence. Business leaders may now view such people as non-contributing dead weight. In a drive for self preservation these individuals inadvertently increase the odds they will be cast overboard in order to lighten the load on the boat. Faith and fear cannot co-exist. Trust your talents. Step out and make commitments. If you’ve already cleared the clutter your odds of succeeding go up dramatically.

Communicate. Communicate. Communicate…Most storms produce wind and waves of varying size and direction. Responding to them requires constant adjustments. Storms also reduce the margin for error and shrink the time to react. Since every business person shares their “boat” with others, keeping everyone aligned during those frequent course corrections becomes crucial. These realities of storms place huge premiums on effective communication. Effective leaders and organizations increase the frequency of communication and install monitoring systems that empower and enable team members to see and react quicker to “waves” of change.

Take these three steps and you will become an “anchor” to which others cling during the storm.

Atlanta-Area Pastor Charged With Stealing Again...$70,000 This Time

Source: ajc.com

A Decatur pastor arrested on forgery charges in Smyrna Friday pleaded guilty in DeKalb County last month to unrelated theft charges under the first offender statute.

Maurice Joseph Easley, 37, was given five years probation, ordered to pay $4,000 in restitution and complete 150 hours of community service for theft by taking. The case was settled on Nov. 6.

Now the pastor of Sanctuary Church of the Living God in Scottdale is accused of funneling nearly $70,000 from a Smyrna apartment complex where he worked to his church’s checking account. Police say he took money from resident rent payments, security deposits and other fees from September 2007 to March 2008 while he was employed as a property manager at Mission Galleria Apartments.

The missing money was discovered when the apartment complex conducted an audit early this year, Smyrna police spokesman Lt. Tony Leonard said. In addition to eight counts of forgery, Easley faces two theft by taking counts, which are also felonies.

He is free on $75,000 bond. He did not return a reporter’s phone call on Tuesday.

ACFE Definition of Forensic Accounting

According to the Association of Certified Fraud Examiners...

Forensic accounting is the use of professional accounting skills in matters involving potential or actual civil or criminal litigation, including, but not limited to, generally acceptable accounting and audit principles; the determination of lost profits, income, assets, or damages; evaluation of internal controls; fraud; and any other matter involving accounting expertise in the legal system.

The word “forensic” is defined by Black’s Law Dictionary as “used in or suitable to courts of law or public debate.” Therefore, “forensic accounting” is actually litigation support involving accounting.

Accordingly, most fraud examinations are forensic accounting but not all forensic accounting is fraud examination. For example, the valuation of a property in a minority shareholder derivative suit would be included under forensic accounting but may not necessarily involve fraud.

Fraud examinations will generally fall under the category of forensic accounting because the majority of examinations, investigations, and reports involving fraud are all done with “an eye toward litigation.” In other words, fraud examiners are taught to conduct their examination with the assumption that the case may end in litigation.

Over $80,000 Embezzled by County Clerk in Georgia

Source: ajc.com

Danielsville, Ga. — A former Madison County deputy clerk has been arrested and charged with stealing more than $80,000 in county funds.

The Georgia Bureau of Investigation arrested Melinda Watson Spence on Friday on one count of felony theft by taking.

Jim Fullington, special agent in charge of the GBI’s Athens office, said, “Right now, the audit indicated approximately $86,000 was missing, and we feel comfortable that we have enough evidence to show she was involved in at least $80,000 of the missing funds.”

He said the 40-year-old Spence over time was able to embezzle the money without being noticed.

Forensic Accounting Today = New Blog Name

The Solo Accountant Reporter has a new name: Forensic Accounting Today. This change reflects the direction in which my practice has been evolving over the past few years. Future posts will be centered around the specialized service niches in which I am now almost entirely focused:

   1)  Fraud investigation, dispute resolution and litigation services

   2)  Workout, turnaround and bankruptcy services

   3)  CFO/Controllership and fraud risk mitigation services. 

Since I still provide managerial-type CFO/Controllership services, albeit to a lesser extent, and since I plan to continue operating as a solo practitioner, previous posts relating to these topics will be left intact. I'll continue to post about these areas in the future, but with a strong emphasis on how internal and outsourced financial executives and managers might best address antifraud, internal investigations, and financially-distressed business situations.

I encourage you to comment to this post and others, to let me know your thoughts and the specific topics/issues you'd like for me to address in future posts. Thank-you for your readership!

The Solo Accountant Reporter: A Top-70 Favorite

The Solo Accountant Reporter is now included as one of Rick Telberg's top-70 favorite blogs/websites. The full list is included on the main page of his CPA Trendlines blog. Telberg is a highly-respected CPA industry trend-watcher and blogger/writer. Among the other respected sites making the Telberg "favorites" list are AICPA's CPA Insider, Francine McKenna's re: The Auditors, Tracy Coenen's FraudFiles, Michael Ramos' The EyeShade, Larry Bodine's Law Marketing Blog and PWC's CFOdirect Network. To have this blog included in such a strong industry listing is an honor...and it reminds me of the need to be more active in making regular posts.

Preserving Chain of Custody in E-Discovery

Source: LexisNexis Tech Tips...

As the field of electronic discovery has matured, attorneys have enjoyed the benefits of electronic document review. They realize that the actual discovery and review processes have not changed—only the tools and the storage media are different. Review teams have become accustomed to the speed and efficiency of electronic discovery and would consider even a small-sized document review unmanageable if forced to use paper review methods.

Veteran review teams have learned that most of what it takes to make an electronic discovery project successful must happen before a single byte of data is gathered. This article discusses one of the crucial components of a discovery project: how to maintain a chain of custody log for all data gathered throughout the life of the case.

Purpose

The purpose of a chain of custody log is to prove that the integrity of the evidence has been maintained from seizure through production in court. Chain of custody logs document how the data was gathered, analyzed, and preserved for production. This information is important, as electronic data can be easily altered if proper precautions are not taken. A chain of custody log for electronic data must demonstrate the following: the data has been properly copied, transported, and stored; the information has not been altered in any way; and all media has been secured throughout the process.

Procedures

Documentation must be maintained throughout the life of the evidence and must be readily available for review at any time. Every instance of contact with the data must be documented throughout the entire discovery process.

Freelance and Solo-Practitioners...Organizing in Atlanta

"Atlanta Financial Professionals Network" Launched with E-Community Intranet

Over the last few years, I've developed an informal, diverse network of very capable freelance accounting and financial professionals...primarily to help facilitate the growth of my own solo accounting and consulting practice. Earlier this month, I began formalizing this concept by launching the Atlanta Financial Professionals Network, also referred to as AFPN.

Several factors have fed my desire to establish and grow AFPN:

Atlanta is home to increasing numbers of quality financial freelancers - The trend towards freelance, work-from-home consulting practices continues to grow. This growing talent pool comes primarily from three broad groups: Baby-boomers leaving the full-time work force; young professionals desiring the flexibility and other benefits of self-employment; and traditional career-seekers who find themselves in-between full-time jobs.

Retaining others for client engagements is a "win-win-win" scenario - When clients look to me to help with specialized consulting assignments, I must assess whether my personal schedule, skill-set, or higher billing rate is the best fit for their needs. In many instances, the right thing for me to do is arrange for a JE Moore associate to fill the specific needs. If I can retain a quality freelancer to expertly meet the client's needs when I'm busy with other commitments, or at a rate significantly less than what the client would be willing to pay me...everybody wins. The freelancer earns a satisfactory fee, I earn a fair margin on the JE Moore associate's work, and most importantly, the client benefits from me identifying and coordinating the best, most cost-effective staffing solution for their situation.

I want to help other solo-professionals - I chose a freelance form of doing business for one primary reason...to help enable me to invest significantly in my daughter's upbringing. My practice allowed for this and much more, for the past 20 years. Through the AFPN, I will share what I've learned and will invest in others, with the hope that I might encourage and benefit those who wish to pursue self-employment, regardless of their own reasons for desiring this flexible, rewarding approach.

Web-based tools enable cost-effective collaboration - AFPN members have 24/7 access to a private, password-protected AFPN intranet which easily allows them to 1) showcase their credentials via personalized profiles and blogs, 2) connect with other members in niche groups and via online chat, 3) share knowledge with blogs, forums, videos, and training events, 4) refer, engage or hire one another through the AFPN job board, and 5) increase their income under a "finder/minder/grinder" fee-sharing program.

Membership in the AFPN is by invitation only. Sixty (60) professionals have already registered. To-date, twenty virtual groups have been established to organize members in loosely-aligned industry or functional niche teams. In the near future, these teams will be meeting in face-to-face sessions to share ideas on how to individually and collectively pursue and manage client assignments.

If you're an Atlanta-area freelance financial professional who wants to learn more about the AFPN, please send an email to jeff.moore@jemoore.com.

Atlanta Embezzler Gets Four Years

Bookkeeper headed to prison

According to an article in the 8/28/08 Atlanta Journal & Constitution,  "A Luthersville woman will serve four years in prison for embezzling nearly $200,000 from an Atlanta engineering company, Fulton County District Attorney Paul Howard said Wednesday.

Gwendolyn Cummings, 48, a former bookkeeper and office manager for BAA Mechanical Engineers, began stealing from the company in April 2004 after convincing her boss that she could save the company money by handling the payroll herself instead of outsourcing it, Howard said.

She set up a business checking account and began paying herself an inflated salary and sending herself duplicate payments, embezzling a total of $198,269, Howard said in a statement. The scheme unraveled in December 2005 when the company tried to pay Christmas bonuses and found the account was overdrawn.

Cummings is to serve four years of a 20-year sentence. Cummings, who is free on bond, is to be taken into custody on Sept,. 15."

The Solo Accountant Reporter: A Top 50 Accounting Blog!

Christina Laun, a writer for BIZ.edu, included The Solo Accountant Reporter in her 8/28/08 post entitled, Crunching the Numbers: Top 50 Accounting Blogs. Ms. Laun writes, "Check out this blog for some great managerial and forensic accounting tips and advice."

This ranking comes right on the heels of an earlier award (by another writer who specializes in tracking accounting blogs) in which The Solo Accountant Reporter received a Top 100 ranking.

Ten Commandments for Business Failure

In his recently-published book, Don Keough, the 81-year old retired president of Coca-Cola, writes about "The Ten Commandments for Business Failure":

1. Quit taking risks
2. Be inflexible
3. Isolate yourself
4. Assume infallibility
5. Play the game close to the foul line
6. Don't take time to think
7. Put all your faith in experts and outside consultants
8. Love your bureaucracy
9. Send mixed messages
10. Be afraid of the future
11. And the bonus commandment...Lose your passion for work -- for life

This is quite a good list of things to avoid in our businesses, relationships, and lives as a whole.

Keep Your Business "On Track" During Tough Times

We are currently faced with tough and uncertain economic conditions. I believe the business climate will deteriorate further over the next 12 months. No matter what type of business you operate, or how successful it's been, times like this call for heightened attention with respect to the management of your organization. 

It's hard enough to keep a business on the correct path during a strong economy. The challenges are much greater as things turn sour. As a business owner, you and your executives and managers must pay careful attention to all aspects of your operations and make needed changes on a timely basis. Here are several suggestions to help you prevent your company from losing its course and "running off the tracks."

Work as a team - Meet with your key executives and managers to establish fresh buy-in from each person. Make sure you're all working towards the same objectives under carefully-aligned operational and departmental strategies.
Set clear expectations - Every person in the organization should know clearly what is expected of them. These expectations ought to stem from group and one-one-one discussions and should be documented in writing. Regular employee performance reviews should be conducted to ensure expected levels of performance is maintained. Consider tying compensation to actual performance.
Update financial forecasts - Working with your team, collectively agree on detailed P&L, cash flow, and balance sheet forecasts...by month for the first year and annually for next two years. These should be supported by detailed revenue (by product/service and by customer), gross profit, personnel and operating expense budgets. Use this process to identify unprofitable customers, product lines, and business segments, along with cost-reduction opportunities.
Manage cash flow and working capital - Use an Excel-based 13-week rolling cash flow forecasting tool to track expected and actual receipts and disbursements. Pay particular attention to collections of customer receivables and inventory purchase decisions, as well as management of vendor payables...to help ensure cash and working capital positions are healthy.
Evaluate debt/equity structure - Consider how the company's overall financial strength might be improved by a restructuring of debt instruments or through obtaining new debt or equity financing.
Demand timely management information - Implement a daily/weekly "dashboard reporting system" to highlight the key performance indicators for your business, and insist on receiving a complete financial statement reporting package within 3-10 days after each month-end.
Create a positive work culture - In tandem with items 1 and 2, above, enlist the full support of all employees and team members through creative team-building and other exercises and initiatives.
Perform a SWOT analysis - Create a short-term "SWOT" team to take a hard look at your organization's strengths, weaknesses, opportunities, and threats. Develop cost-effective strategies, plans, and budgets around the results of this study.
Streamline and document processes - Over time, problematic inefficiencies and bottleneck situations can creep into your business. Carefully analyze how tasks and paperflow work their way through the organization. Develop "current state" and "desired state" flowcharts and narratives to document and streamline key process areas. This overall exercise is a perfect time to evaluate risks (i.e. what can go wrong?) in your organization and which preventive and detective controls to put in place to mitigate the risks.
Consult with outside professionals - Where cost-effective, utilize specialized contract professionals or professional service firms to assist you on an as-needed basis with any of the items listed above. 

$2.1M Embezzlement...Possible Murder...Then Suicide

Here's another example of alleged fraud in the workplace. According to a 4/23/08 article in The Atlanta Journal-Constitution online newspaper,

"An accountant who killed himself after police questioned him in the disappearance of two wealthy clients had embezzled $2.1 million from the couple and seven companies, his former employer said. An audit ordered by The Club Group found that chief financial officer Dennis Gerwing took money from its clients for four years, depositing it into a hidden checking account, the management company said Tuesday. Gerwing committed suicide March 11 after investigators questioned him about the disappearance of John and Elizabeth Calvert, who split their time between a yacht on Hilton Head Island and a home in Atlanta. The couple were last seen in early March, and searches of the resort island, its harbor and in Georgia have been fruitless. Police have said Gerwing, 54, was the last person to see the Calverts." Read the full article

While an extreme example, this situation should be a serious reminder of how vulnerable organizations can be to misappropriation of cash and other assets. For tips on how to deter/prevent workplace fraud...read the "How to Nab the Rogues: 10 Fraud Tips" article in CFO.com. 

The Solo Accountant Reporter Selected for Top 100 List

I'm ashamed to admit it, but it has taken an award (of sorts) to get me re-focused on making updates to this blog. I just learned that The Solo Accountant Reporter has been included in the"Top 100 Freelancer Blogs" post in an information-packed blog entitled Bootstrapper. The post opens with this commentary: "Freelancing is often a difficult profession: it can be lonely and nerve wracking at the same time. But you can make it easier on yourself by learning from and bonding with other freelancers out there who’ve blazed the trail ahead of you. Here are 100 blogs, in no particular order, that can help you find advice and guidance for your freelancing career."

Avoiding Employee Reference Check Mistakes

A critical step in the employee hiring process is reference checking. Paul Barada, a salary and negotiation expert with Monster.com, has identified the most common reference checking mistakes made by recruiters and employers. He lists them in his article, "Reference Checks: Five Mistakes You Want to Avoid." Here they are:

1. Not checking at all
2. Lack of consistency
3. Making the job offer contingent on a reference check
4. Not requiring references who have worked directly with the candidate
5. Asking leading questions and failing to ask follow-up questions

Barada adds, "Careful reference checking requires time, training and insight. If done properly, it can be one of the most useful hiring tools available to any employer. If done poorly, it can lead to hiring someone who not only can't do the job, but also who could do more harm than good for the company."

Read the entire article.

Small Company Controller's To Do List

Until each of these ten items are successfully resolved by a small company controller, they should remain on his or her To Do list. Here they are, in no particular order:

1. Get financial statements up-to-date...and accurate.
2. Prepare operating and capital budgets for next 12 months.
3. Generate weekly and monthly cash flow forecasts.
4. Identify, track, and analyze Key Performance Indicators (KPI) for the business.
5. Work together with company executives and outside accountant to design and implement appropriate internal controls.
6. Document and improve accounting policies and procedures.
7. Establish and maintain a well-organized system of files and records.
8. Implement a staff training and development program...then delegate more work.
9. Enroll in TMU (Teach Myself University) and adhere to a multi-faceted and ongoing self-improvement progam.
10. Get the job done...while maintaining overall balance in life.

Discourage Stealing by Your Employees

A good defense against employee fraud starts with a proactive antifraud mindset by top management. This should result in company polices and procedures...and employees...that all work together to prevent and deter wrongdoing in the organization. Tracy Coenen, a CPA and nationally recognized expert on fraud investigation, recently posted the following in her FRAUDfiles Blog:

Top Ten Ways to Prevent Employee Theft

1. Education. If employees are aware of fraud and how it happens, they will be your best on-the-job sleuths.

2. Surprise Audits. When employees are aware that there will be random checks of their areas, they are more likely to be honest. They also will not feel singled out when it is their turn for an audit.

3. Hotlines. A mechanism for anonymous reporting of fraud encourages employees to look out for the best interests of the company, without fear of reprisal.

4. Assessment of Internal Controls. Companies need to take an honest look at what fraud prevention controls they have in place. They also need to be honest about whether or not those procedures and policies are being followed and whether or not they really work.

5. Background Checks. Having the right employees is the first step toward fraud prevention. Avoid employees with criminal backgrounds or dishonest job applications.

6. Open Door Policy. Make employees feel that it is okay to discuss concerns with management. And then when they do discuss their concerns, act accordingly. Ask lots of questions, but be supportive.

7. Perception of Fairness. Pay your employees fairly and try not to show favoritism. When employees feel cheated or devalued, they are more likely to justify stealing in their minds.

8. Employee Empowerment. Give employees the authority and confidence to make decisions and take action. The more involved and empowered employees feel, the more likely they are to look out for the best interests of the business.

9. Continuous Improvement. Management should be constantly looking for ways to improve policies and procedures. Fraud prevention is an ongoing, dynamic process that requires continuous evaluation and improvement.

10. Employee Involvement. Your employees are the people who are most aware of areas vulnerable to fraud. Talk to them and ask for their help in securing the company.s assets. Fraud prevention applies to everyone, from the top down.

No Limits: Give it Your Best!

We can all take a few lessons from this powerful video. It illustrates the value of leadership and encouragement, regardless of the setting. More importantly, it shows that by disregarding artificial performance limitations we or others place on ourselves, and then simply (or not so simply!) doing our very best, we can shatter prior levels of performance. Not only will giving it our best help us achieve new personal bests, it positions us to be better leaders.

Note: I found this on The Organic Leadership Blog.

Teamwork: Project Success Depends On It

Working together. Whether on the field, or in a business turnaround, fraud investigation, or other critical matter, teamwork is a critical success factor.

As a forensic accountant and business consultant, one of the first steps I take on an engagement is to identify all the key players that will participate in the assignment. This begins the process of building a teamwork approach to seeing the engagement to its ultimate successful completion.

Early discussions with client management and their attorneys, external and internal auditors, and others such as computer forensics specialists and private investigators, allow for timely clarification of individual roles and responsibilities and engagement issues, strategies, and timetables. Project leaders emerge from this effort, and under their direction the team is hopefully brought together to form a united group...with each team member working toward common objectives and motivated to carryout his or her individual role.

Teamwork is critical not only at project kickoff, but also throughout each phase of the engagement. As new facts are surfaced and unexpected circumstances develop, strategies and timetables must be modified. If team members are not sufficiently communicating and working together, conflict and confusion will arise and this always results in negative results. The team must continually assess all that is going on and frequently regroup whenever appropriate.

Think about members of a well-coached football team. Certainly they begin the game with a common desire to work together in executing a creative game plan. Before each down, the coach calls the play he thinks will work best at that point in the game. Then, the quarterback might see the opposing team lined up in a troublesome defense so he calls an audible to change the play. As the game progresses, timeouts are called for the players to regroup, and then halftime is used for a more intense assessment and re-strategizing session. Hopefully, the team continues to work together as the game progresses and victory is the result.

On most every business project I've ever worked, the quality of the teamwork that existed during the engagement was a determining factor of the degree of success that resulted. This is true whether the team was made up of many persons or just a few. I'm determined to do my part to be a good team member, and team coach/leader whenever appropriate. To help, I turned to some fairly good weblog material on the subject. Here is one you may find useful:

Twelve Tips for Team Building: How to Build Sucessful Work Teams (by Susan M. Heathfield)

Atlanta-Area Bookkeeper Allegedly Embezzles $500,000

See this link for a classic example of how a small business with weak internal controls can be victimized by a trusted employee. If you own or manage a business, take a lesson from this article and make sure you have fundamental controls in place to help prevent or detect fraud in your organization.

Are You Billing All Your Revenue?

Don’t let hard earned income slip through the cracks!

You’ve worked hard for a long time to build your business. Strong customer relationships and smooth-running operations are now yielding revenue streams from the various business segments you’ve strategically established, along with the many provisions you’ve negotiated into the related sales contracts. Things are going very well. Or are they? Here’s the question: Are you sure your organization is in fact billing for all the product or services you’re delivering?

Think about this scenario: A service company has long-term contracts with ten different clients. These agreements vary greatly in design and each of them provides for revenues of at least $2 million per year, via monthly fees to be earned from 6-to-8 different services at 1% to 5% of estimated amounts of related cost figures, to be trued-up once the actual costs are known. In addition, at various milestone points, the contracts provides for large one-time billable amounts.

It would be easy for this hypothetical company to superbly deliver on every operational aspect of each contract, but still fail to bill for all of its hard-earned revenue. How could this happen? Your CFO or controller could be “asleep at the wheel.” Hopefully that’s not the case. To be sure, I suggest you hold a series of discussions with your key financial, sales, and operations managers to answer the following questions:

• What customers, projects, product lines, etc. make up the majority of our annual revenues?
• How much variability is there in how and when our various revenue streams are calculated?
• What are the significant processes and sub-processes that drive each facet of our revenue cycle…for each of our key income streams?
• What significant risks exist (i.e., what could go wrong?) within each identified process that might allow for inaccurate, incomplete, or untimely billings?
• What controls do we have in place to mitigate these risks? Are they designed effectively? Are they operating effectively?
• What changes do we need to make in our revenue-cycle internal controls? Who will be responsible for the remediation effort? When will these changes be made?

Litigation Costs May Exceed Benefits

In my role as a forensic accountant, I've had a front-row seat in numerous small-business disputes in which lawsuits and countersuits were filed. As the cases progessed, sometimes over a period of years, I've noticed one thing they almost all have in common--costs that exceed the expected benefits. As a general rule, I believe it's true...the only ones who win in litigation are the lawyers (and perhaps the forensic accountants).

My advice to most anyone involved in a business dispute is to make every effort to work out an agreeable settlement to avoid getting embroiled in a legal battle. Don't be too quick to sue someone, even when you've got every right to do so. If it costs $300,000 in professional fees and countless hours of management time taken from running your business...to "hopefully" (you never can be certain how the judge or jury will rule) collect on your alleged loss of $200,000, it's simply not worth it. Similarly, if you're the one being sued, it might be prudent to go ahead and cough-up some early settlement dollars, even if the lawsuit is frivolous.

Admittedly, in some instances, the right thing to do is to pursue justice at almost any cost. For example, to help remove an embezzler from the workplace or to deter other employees from following in his or her footsteps. Defendants may elect to stand firm to protect their reputation when wrongfully sued by a vindictive opponent. Regardless the situation, it's important to weigh the costs as best as you can before getting in too deep. If you're not careful, the case will deteriorate, funds will dissipate, and your once-thriving business will suffer greatly from the legal distraction.

I'm increasingly supportive of utilizing various forms of alternative dispute resolution, such as mediation and arbitration, as a way to avoid or reduce litigation costs and time. The National Arbitration Forum Blog included a recent post entitled, "Business and Mediation, A Popular Combination," which includes the following quote:

Madison, Wisc.-based attorney, Terry Peppard, says that "mediation is now an exceptionally well-proven business process, and there should be no business executive anywhere in America who is not intimately familiar with the mediation process and its benefits.” Peppard, who recently published "Arbitration and Mediation of Business Disputes" says, “You can't be a good executive if you don't know that this is out there and what it can do for you.” According to Peppard, there are several instances when mediation is the “best way for a business to go.” These are when:

1. It is important to maintain a valuable business relationship between the parties while still resolving the dispute.
2. It is important for a client to avoid disclosure of confidential business data.
3. It is important that the case be resolved as fast as possible to avoid disrupting business operations.

Check out Peppard's website for:

Frequently Asked Questions: Arbitration

Frequently Asked Questions: Mediation

If you've got an opinion on this topic, please post a comment so we can benefit from your insights. Input from attorneys, ADR specialists, and parties to present or past business disputes are especially welcome.

Lessons From the Game of Football

I love football. What a great sport! While way too slow and small to play college ball, the ten years I competed at the Pop Warner and high school levels gave me a first-hand appreciation for this exciting game. For each of the thirty-three years since I last played the game I've benefitted from lessons learned in the weight room, on the practice field, and during the game. I'm reminded of this once again at this time of the year when I watch my favorite high school, college, and pro teams pursue post-season championships.

My experience with football, both as a player and a spectator, has taught me the following as it relates to business:

• Hard work definitely pays off. By setting pre-season goals, both at the individual and team level, then working together before and during the season and each game, definitely increases the chances for success.
• Capable, dedicated leadership from the coach and his or her staff is critical. Without it, even a team loaded with top talent will flounder.
• It's a team game. The team suffers when members loaf or don't work together towards shared goals.
• Winning is a lot more fun than losing. It makes all the hard work worthwhile.
• Competition is good. It brings out the best in us and our businesses.
• Cheating and cutting corners does not pay-off and poor sportsmanship is a sign of bad character.
• Fundamentals are important. Basic blocking and tackling, along with sharp execution of a sound game plan will carry the team far.
• There's no need to panic when you drop a pass, get behind, or lose a few games. It's how you finish that counts. Hey, even if you go "0-and-10" and you did your best, you can still hold your head high.
• Don't get too comfortable when you're ahead. Remember, it's how you finish that counts.
• Don't quit too early. But know when it's time to re-group or re-direct.
• When the season is over, get started on next year.

Lawyer Blogs: By the Hundreds!

The blogosphere is absolutely loaded with lawyer blogs. Take a look at the "Taxonomy of Legal Blogs" post in Ian Best's 3L Epiphany blog and you'll see what I mean.

Not only does this third-year Ohio State University law student include a huge listing of blawgs, but he organizes them by a number of categories, including legal specialty, jurisdiction, author, topic, etc.  It's the best such list I've seen and I'll be referencing it frequently in the future.

Note: To give credit where credit is due, I found this very useful blog index, thanks to today's post by lawyer Dan Hull in his "What About Clients?" blog.

Can You Smell Fraud in Your Organization?

Business owners, executives, board members, internal auditors/external auditors, and others having corporate governance or audit responsibilities should be well-aware of various symptoms of fraud. An understanding of fraud signals, along with an ongoing alertness for their existence, will aid greatly in the battle against misappropriation of assets, fraudulent financial reporting, conflicts-of-interest, and other workplace wrongdoing.

Perhaps the best, most-comprehensive listing of Fraud Red Flags you'll ever see can be found at protiviti's KnowledgeLeader site.

Note: Don't wait to visit KnowledgeLeader, as I can't guarantee it will always be accessible for free. Beyond a free 30-day trial, there's an annual charge to access this excellent database, which includes a huge amount of quality resources pertaining to the internal audit and risk management community.

Business Startup Mistakes

Jason Caplain recently offered some good advice for startup business ventures in his Southeast VC blog. He cautions entrepreneurs about...

1. Realizing you have the wrong people, but still holding onto them
2. Taking too much money from VCs early on
3. Building a product without the customer in mind
4. Giving away the product for free
5. Not focused on hiring great sales people; hiring sales people without a bonus plan

                   -- Read the full Top 5 Startup Mistakes article.

In another post, entitled "Smart Ways to Control Expenses in a Startup," Jason refers to a recent article in Forbes.com, Here's a summary:

• Always ask for discounts and always negotiate
• Don't own; borrow or lease instead
• Look for opportunities to barter
• Strike partnerships with non-competitors
• Analyze all major expense line items
• Don't be too cheap (Sometimes it's critical to spend premium prices)

Slightly New Blogging Direction

After several weeks of no posts, and as a result of a fresh evaluation of how to best integrate blogging into my accounting and consulting practice, I've decided to take the Solo Accountant Reporter in somewhat of a new direction.

Very simply, future postings will be more targeted to actual client recipients of forensic and managerial accounting services, as opposed to the solo accountant and consultant service providers I initially viewed as my audience.

You'll notice (on the right sidebar) revised categories which highlight certain of the broad topics I'll be addressing in the future.

Freelancer or Go-It-Alone Business?

If you're not sure whether you should operate as a free-agent practitioner or a "go-it-alone" business, Bruce Judson's free 204-page online book, Go It Alone!, does a good job of laying out the differences between the two. Here's a brief excerpt.

"Go-it-alone business is not simply a fancy term for a free agent or a freelancer. These businesses provide their founders with far more stability than freelance work and more personal rewards than franchising. These entrepreneurs are building a substantial asset. They have control of their own destiny. In difficult economic times, free agents or freelancers are typically in the extraordinarily frustrating position of waiting for the phone to ring. In contrast, go-it-alone entrepreneurs always have a focus for their energies and an asset that will provide them with an income stream.

Moreover, freelancers, free agents, and many small-business owners typically work on an hourly or daily rate, or they charge by the job. In all of these cases, they depend entirely on what they can produce as individuals, and their earnings are tied to the clock. They have not established a business system that allows them to magnify or leverage their skills. As a consequence, their earnings are inherently limited. Go-it-alone businesses don’t suffer from this income constraint."

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