Forensic Accounting Today

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

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.

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:

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.

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!

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.

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)

Clean Up Those Messy Books!

Extremely poor accounting records are a major problem for many businesses. Inaccurate and delinquent financial statements and other information can create havoc within a business. Making good business decisions is difficult when you have little confidence in the financial data you receive. Left uncorrected, the effects of messy books will take an increasingly negative toll on any company. You should act now if your organization is suffering from this situation. Hear are two suggestions:

1. Hire a stronger accountant to correct the problem, or retain outside professional assistance on an interim or part-time basis to get things under control;
2. Don't worry right now with cleaning-up prior months. Focus first on generating an accurate balance sheet for them most recent month-end. For each subsequent month, demand timely and accurate balance sheets and income statements. Later, it may be necessary to correct the accounting for earlier periods, but at least you'll now have the financial data needed for current decision-making.

Tips for the Troubled Company

You’ve always taken pride in paying your company’s bills on time. Your employees have never worried about receiving their payroll checks on Friday. The bank has always been eager to loan you more money. Things are different now, however. Cash is tight, and everybody’s anxious: suppliers, staff, the bank…and you. How should you respond?

Take action early. Don’t waste time! Take action as soon as your “gut” tells you the business might be suffering. Identify the root causes of the cash shortages, then quickly formulate and implement corrective steps. Delays will erode critical goodwill with vendors, employees, and bankers…and postponement of sound management action can result in complete business failure.

Seek competent legal help. An experienced bankruptcy attorney should be consulted before you have extensive discussions with nervous creditors. The lawyer can help you formulate proper responses to increasing pressures from suppliers and lenders who will demand precious cash and collateral needed by your business.

Communicate with creditors and employees. Decide which creditors and staff are critical to your company’s future success, and provide them with periodic status reports about the troubled situation. By keeping these interested parties informed of the steps being taken to benefit their interests, you’re more likely to obtain cooperation during the crisis period. A word of caution: Don’t make promises you can’t keep!

Stop the cash bleeding. Insufficient cash flow can easily cause a company to fail. To save a financially-troubled business, quick steps must be taken to preserve cash. Develop and use a 13-week and 12-month cash forecast tool (using Microsoft Excel) to plan and control cash receipts and disbursements. Maximize cash by following these suggestions:

• Develop detailed weekly/monthly cash forecasts
• Reduce costs
• Defer A/P
• Accelerate A/R collections
• Liquidate excess inventories
• Sell unneeded assets
• Discontinue unprofitable operations
• Obtain new debt or equity funding