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Non-Traditional Services in Smaller CPA Firms

"My company ought to have more cash in the bank. When I asked my Controller about it, he didn't have a good response. In fact, he turned red-faced and seemed super-anxious about my query. I'm beginning to think he's stealing from me."

"Our CFO just got bad news from her doctor and she must go on medical leave for two months. Do you have anyone on your staff who can fill in for her while she's out?"

"We've recently been having discussions with an out-of-state company that we're considering acquiring. Could we get your firm to perform due-diligence procedures on our behalf...to help us know how to proceed?"

"I'm representing a client who suspects his brother, who has served for eight years as sole trustee of their deceased Dad's multi-million dollar estate, may have misappropriated over $500,000 of the funds under his control. We need to have a complete forensic accounting of the trust to help us litigate the case. Can your firm handle this for us?"

These are just a few examples of the types of calls partners in CPA firms sometimes receive from their clients or referral sources. Larger accounting firms, those with many in-house professionals having a wide-variety of specialized experience and skills, will generally be able to quickly answer "Yes" to these and other requests for non-routine accounting services. That's not the case, however, in the majority of small and mid-sized firms.

Most CPA firms across America focus on two broad practice areas: Income tax planning and return preparation, and financial statement audits, reviews, and compilations. One of two things generally occurs when their current or prospective clients need assistance with "non-traditional" assignments: 1) They will refer the work to someone else, or simply say, "No, we can't help you," or 2) the firm will attempt to take on certain of these projects, knowing that they are not best-equipped to complete the assignments in a quality fashion. Either way, the firm is faced with turning-down potentially lucrative client assignments, or struggling through inefficient and unprofitable jobs which might well lead to upset clients, and in turn, a malpractice lawsuit.

If you have experience with this dilemma, whether from the CPA firm's perspective, or from that of the client or referral source, I'd like to hear from you, and I'm sure this blog's audience would as well. Please tell us about situations you've experienced and their outcomes. Also, what creative ways have you experienced or observed, or what ideas do you have, as to how small and mid-sized CPA firms might best equip themselves to capture and profitably handle "non-traditional" engagements?"

Note: Visit my newest blog, "Niche+ for CPA Firms"

 

AICPA's 2011 Outstanding CFF Champion: Georgia's Jeff Moore

During the AICPA's National Forensic Accounting Conference held in Chicago in September, Jeff Moore, CPA/CFF, CFE, CIRA was recognized as the "2011 Outstanding CFF Champion" for his leadership within the CFF Champion community and his accomplishments that furthered the CFF credential within the Georgia Society of CPAs (GSCPA). The Certified in Financial Forensics (CFF) Champion Program is an AICPA initiative that offers CFF credential holders the support, structure and resources to collaborate with state CPA societies in informing CPAs about the importance of forensic accounting services.

Jeff was instrumental in the revamp and rebranding of the Forensic and Valuation Services Section (FVS Section) of the GSCPA where new, innovative ideas and programs were implemented. Examples include updating their mission statement and key goals, utilizing LinkedIn groups as a networking tool for their members, surveying section members, and hosting the annual GSCPA Fraud and Forensic Accounting Conference in which over 140 participants attended last year. He and three other fellow CFF Champions from Georgia were featured on a nationwide AICPA conference call held in June to discuss the role of the GSCPA's FVS Section in assisting forensics practitioners and promoting the CFF credential. He also initiated and moderated an informal knowledge-sharing meeting at the recent AICPA National Forensic Accounting Conference.

In addition, the AICPA appointed Jeff as a member of the CFF Credential Committee for the 2011-12 volunteer service year. The purpose of this committee is to develop and maintain qualification requirements for credential applicants; to serve as technical advisor regarding the education offerings necessary to support the pathway for becoming a credential holder; to serve as technical advisor regarding the education offerings credential holders need to maintain and expand their expertise; and to develop and maintain initiatives to recruit and retain credential holders.

Source: Nov/Dec issue of the GSCPA "Currrent Accounts" publication

Improve Business Processes Using T.E.A.M.

On several large consulting engagements, I've worked closely with one of my alliance partners, Rob Berling, to assist clients with enterprise-wide corporate performance and profit enhancement initiatives. These projects entailed the use of the T.E.A.M. approach, a methodology developed by Rob's firm, Berling Associates. T.E.A.M. is an acronym used to describe an organization's efforts to integrate the notion of continuous process improvement into its culture by continually...

Training ourselves to best do our jobs

Enabling ourselves by acquiring the tools we need to serve our customers

Aligning all of our business processes to serve our customers at a profit

Measuring what we do and continually improve how we serve our customers at a profit

T.E.A.M. is an excellent tool for consulting professionals and other business leaders to use in helping clients build a company that:

1. Invests in people
2. Sets clear standards for performance
3. Holds ourselves accountable for our performance
4. Identifies all activities with a process
5. Measures all process inputs and outputs
6. Has every process consistent with outputs acceptable to the users
7. Does it right the first time
8. Approaches our business with a cross-functional team effort
9. Eliminates waste
10. Has a culture where everyone wants to improve how we do things
11. Puts performance excellence as the focal point of all processes
12. Prevents, not reacts
13. Celebrates good efforts
14. Clearly articulates its values and mission
15. Has clear and consistent communication
16. Has no functional barriers
17. Has management leadership consistently focused on attaining performance excellence through continuous process improvement

For a complete primer on Berling's T.E.A.M. methodology, click here and then click on the T.E.A.M link.

Tips for Managing a Financially-Troubled Business

I just came across the following article that was authored by Mike Periu. I think it has particular relevance to forensic accountants, lawyers, bankers, turnaround consultants/advisors, and others who serve financially-troubled business clients. As professionals, we should encourage our distressed-business clients to heed the suggestions outlined in this writing.

How To Manage A Crisis

As the owner of a company, you have a great responsibility to your employees, customers, suppliers and other stakeholders. This responsibility becomes urgent when something unexpected happens—something that could lead to job losses, salary reductions or even the closure of the company. Like they would to any leader, people will look to you in a time of crisis. They depend on you. And you most likely don't want to let them down.

Your followers need support, reassurance and ultimately validation that the situation is being managed as best as it can be. Even if the final outcome isn't ideal, people will remember how you handled the situation more than the final outcome. The cliché "it’s not whether you win or lose but how you play the game" could not be more appropriate.

Some people have a natural leadership ability. This sixth sense is an enviable character trait to have. But even if you are a natural-born leader, you should still learn to manage crises appropriately. Over the course of my career, I've experienced a number of crises—as both a leader and a follower. Here are the five things that have helped me and will help you in the zero hour.

There is no prep time. When the bad news spreads, people will look to you immediately. Your initial response will be critical. Acting scared, losing your composure or not seeming like you are in control from the first instant is a critical error. You'll be playing catch-up if you allow yourself the luxury of freaking out before getting down to business.

Don't keep people in the dark. The vantage point of the leader during a crisis can distort your understanding of how others see the situation. You have far more information than they do. Not knowing what’s going on is what causes panic during an emergency. It’s easy to forget this while you are busy trying to resolve the situation. So make a conscious effort to inform employees at regular intervals. By no means do you have to reveal sensitive information that could damage the resolution of the crisis, but regularly updating people, even if it is to tell them that nothing has changed, will reassure them.

Don't micromanage. Many business leaders, especially those who founded their company, have a tendency to micromanage when disaster strikes. The idea that your baby is in trouble triggers the hidden control freak that's inside of all of us. It's exactly the opposite response we should have. We need more help, not less; we need to trust, not doubt. If you've done a good job as an owner, then you will have surrounded yourself with good people. Leverage their talent to help you and your company survive the crisis.

Be the first to sacrifice. If the solution to your critical situation requires some type of sacrifice, make sure the sacrifice is shared among everyone. The owner should be the first to take a pay cut, the first to work extra hours and the first to expand their scope of duties. Most people will want to pitch in and help if they feel it’s a team effort. But if the CEO arrives to work in his new Maserati after making his employees take a 10 percent pay cut, then you will engender resentment and poor morale among the people that will ultimate save the company.

You may make mistakes while leading your organization during a crisis. That’s to be expected. But if you follow these pieces of advice, employees will remember your valiant effort and not your errors.

Early-Warning Signs of a Troubled Business

Over my long career as a forensic and managerial CPA, I’ve had the opportunity to work with over 600 business clients. Some of these companies were hugely successful. Most, however, operated at various stages of distress, from early-stage struggles…to the ulcer-causing and crisis-level troubles that sometimes contributed to complete failure of the enterprises. Experience has taught me that serious organizational problems, and perhaps the ultimate closing of a business, can be averted if the management team and its advisors proactively look for and respond to signals that point towards current or imminent factors that might lead to a thoroughly-troubled situation. Listed below are ten early-warning signs to be alert for:

1. Management slippage - When owners/managers begin to consistently step away from the daily, close monitoring and managing of the business…look out! It can be the beginning of the end when it’s assumed that the business can run on auto-pilot or by casual, off-site management.
2. Planning/budgeting deficiencies - Show me a business that doesn’t have an effective methodology for anticipating and charting its course over at least the next 12-18 months, and I’ll show you one that may well be headed for choppy waters.
3. Weak accounting and reporting - Timely, accurate, and meaningful financial information and operating metrics are critical ingredients to an early-warning system. Think about it, if a football team didn’t know it was behind by two touchdowns with two minutes to go, how in the world could the coach expect to respond sufficiently to avoid losing the game?
4. Responsibility and accountability issues - I’ve seen way too many companies that lack clearly-defined roles and responsibilities and/or an effective process of overseeing actual performance of departments and individual executives, managers, and staff.
5. All eggs in one basket - If one customer, client, product-line, project, vendor, or technology represents more than 20-40% of the company’s total, the untimely loss of that key contributor can be a precursor to a severe problems ahead.
6. Increasing customer complaints - Deteriorating customer service, evidenced by more-and-more unhappy customers…even with relatively minor issues, is not something to be ignored.
7. Financial ratio declines - A well-thought out battery of ratios that track targeted and actual results for such things as working capital, inventory and A/R turns, debt-to-equity, gross margins, operating income, and other measures is critical for monitoring the health of any company. If this system highlights negative trends, or if such a system is not in-place, chances are good that worsening problems lie ahead.
8. Cash shortfalls - Most businesses will experience cash shortages from time-to-time. While not necessarily an indicator of trouble on the horizon, it definitely could be, especially if the fund deficits become increasingly routine and severe.
9. Decreasing employee morale - Company personnel at the executive, manager, and staff levels, in healthy businesses typically exhibit enthusiasm, cooperation, and good attitudes. When negativism, complaining, finger-pointing and other problem behaviors are observed among the company troops, be alert for current and growing troubles that can spell doom for the organization.
10. Lender unrest - Is the company receiving more frequent queries and visits from its secured and unsecured lenders? This could very well be a sign that these stakeholders are observing negative trends in financial ratios, management capability, and other facets of the business.

The message here is that business crises, and sometimes bankruptcy or complete business collapse, can oftentimes be averted if troubles are detected far enough in advance. As symptoms are timely identified, management can then be in a position to research potential problem areas to determine the depth and breadth of the issues. Then, and only then, can proper remedies be planned and implemented to help resolve the problems.

Note: See the Restructuring and Turnaround Management LinkedIn group for comments re: this post. If you're not already a member, I suggest you join this group. If you are a member, click here to go directly to the comments.

Management Factors Leading to Business Failure

At yesterday's sixth annual "Buying Trouble Conference" that was hosted by the Atlanta office of law firm McKenna Long & Aldridge LLP, one of the sessions was entitled, "Legal and Business Issues That Drive Restructurings and Bankruptcies." During that segment, David Miller, Managing Director of Macquarie's Restructuring and Special Situations Group, discussed the following management factors leading to business failure:

1. The CEO/President is an autocrat (Can drive away independent views on the business; can prevent constructive debate)
2. Lack of leadership (When management is weak, employees are unsure who is really in charge)
3. Lack of board experience and depth (Typical of many boards where membership is limited to people with experience in specific functional areas, such as sales or production; often discounts the value of other skills)
4. Unwilling to seek external advice (Skill deficiencies at the management level are likely to be magnified within the lower levels of the organization)
5. Failure to change the management structure/culture or to manage change (Particularly relevant to businesses that have grown significantly and retained original management)
6. Failure to plan for succession (Management needs to identify a likely successor, for example a key employee, family member, or outside party; running a business in the interest of long-term success and viability is the best way to ultimately benefit the successor)
7. Shareholder/board disputes (Owners and managers do not necessarily have similar incentives; nothing is more destructive than a civil war)
8. Failure/inability to focus on profit (Constant margin, cost and future prospect diligence are required; often ineffective information systems hinder management's ability to focus on business line cost drivers)
9. Chaos syndrome (When management actually thrives on or is only able to manage in chaos)
10. Goldfish syndrome (Failing to understand exactly where you are and where you are going)
11. Ostrich syndrome (Failing to face-up to known problems with either operations or the business solution)

Lehman Brothers Examiner’s Report: An Extraordinary Piece of Work

Without a doubt, the most riveting presentation I heard last week, at the AICPA's 3-day National Forensic Accounting Conference held in Chicago, was delivered by Anton (Tony) R. Valukas, author of the Lehman Brothers Examiner's Report, also called the Valukas report. He spoke to the 500+ attendees about the huge, coordinated effort he led in his role as court-appointed examiner for the Lehman bankruptcy proceedings which began in 2008. He emphasized the key roles played by the many forensic accountants he and his team relied upon throughout the course of the assignment.

The bankruptcy judge in the Lehman Brothers case, the largest bankruptcy in U.S. history, said the Valukas report was "...one of the most extraordinary pieces of work-product I've ever encountered."

A quick Google search led me to the entire Valukas report, which appears to be several thousand pages long. Here is the link: Lehman Brothers Holdings Inc. Chapter 11 Proceedings Examiner’s Report. Also, here's an overview of the the Lehman Brothers saga, and a very interesting 2009 Chicago Lawyer article about Tony Valukas.

Fraudulent Intention$, by Scott P. Hilsen, Esq.

The opening session of last Friday's 2011 Fraud & Forensic Accounting Conference, hosted by the Georgia Society of CPAs, featured author, Scott P. Hilsen. Mr. Hilsen, a securities and business litigation attorney with the silk-stocking law firm of Alston + Bird, LLP, gave a fascinating 75-minute presentation about his recently-published book, Fraudulent Intention$. I was captivated by Scott's talk and rushed to his table afterwards to buy a signed copy of the book. I've only read the first three chapters, but can tell it's well-written. It's a must-read for fraud investigators, auditors, and others interested in cases pertaining to financial crimes and corporate wrongdoing. Following is the author's overview of his book:

"Based on a true story of a corporate deal gone bad and the internal investigation that exposed a shocking online fraud. For SouthPoint Bank, its purchase of Internet Connections, or ICon, was a risky way to boost its stock price, and the deal was rushed so that the Chairman of SouthPoint could stay in power. For ICon, being acquired by SouthPoint was its last chance to cash in on the Internet boom, but the President of ICon was looking for more than money – he needed a way to escape a secret that ICon had been concealing through a conspiracy of fraud. After an insider’s tip, SouthPoint launched a surprise internal investigation of ICon. When the investigators found a connection between ICon and the Russian Mafia, the investigation suddenly turned into a dangerous race against the clock to expose the fraud and to save SouthPoint from financial ruin. From Andorra in the Pyrenees Mountains to Antigua in the Caribbean Sea, Fraudulent Intention$ twists and turns around the shadowy world of online adult entertainment."

The book is receiving excellent reviews. Here are just two examples:

“A smile will come to the face of any experienced investigator who follows the work of Jake Morgan in Fraudulent Intention$. This story shows what it takes to “make the case” in a forensic investigation involving fraud and deceit. Future fraud investigators, take note of the challenges, hard work, stresses, and human elements in this type of work. I had trouble setting this book down, and it will become a must-read for the white-collar crime students in our program.”

Don Berecz (retired FBI), Director, Fraud Examination and Forensic Accounting, Georgia Southern University

“Fraudulent Intention$ is a thriller! I couldn’t stop turning the pages….Hilsen keeps the reader on edge guessing who the bad guys are and what is going to happen next. As a forensic accountant, I related because the book accurately represents the essential steps of an investigation with an added edge of car chases, private jets, yachts, suicide, murder and the Russian mafia. Hilsen hits a homerun on the interpersonal relationships between characters and with the contrast between a conservative southern Atlanta bank and a glamorous high growth Miami payment processor. I recommend this book broadly and especially to those professionals who are considering a career fighting fraud.”

Christopher Grippa, Managing Director, Alvarez & Marsal, Dispute Analysis & Forensic Services

For more information and to read chapter one...

Unique Opportunities for Forensic CPAs

Perhaps my favorite session at yesterday's Fraud & Forensic Accounting Conference hosted by the Forensic and Valuation Services Section of the Georgia Society of CPAs, was the one presented by James F. Hart, MBA, CPA/ABV/CFF, CIRA, CFE. Entitled, "Unique Opportunities for Forensic CPAs: Receiver, Examiner, Trustee, Auditor, Special Master, Referee, Liquidation Agent...", his talk emphasized that forensic accountants are oftentimes a perfect fit for a variety of interesting, challenging projects/assignments that don't fit neatly into the more traditional (i.e. family law, economic damages, business valuation, litigation support, etc) forensics engagements. For example:

Examples of Court-Appointed Assignments:

• Auditor
• Bankruptcy Plan Administrator
• Consultant
• Examiner
• Monitor
• Receiver
• Special Master or Referee
• Trustee

GSCPA 2011 Fraud & Forensic Accounting Conference - 9/16/11

The Forensic and Valuation Services Section of the Georgia Society of CPAs will host its 4th annual Fraud & Forensic Accounting Conference on September 16, 2011. Experts in fraud identification, investigation, reporting and deterrence will provide training in forensic techniques as well as litigation support and expert witnessing. Morning general sessions will include presentations on the true story of Fraudulent Intention$, the Richard Scrushy story, and what types of fraud are targets for Federal prosecution. A variety of afternoon breakout sessions will allow attendees to design their own learning program by selecting from specialized sessions pertaining to all facets of forensic accounting and fraud investigation, including an afternoon-long trial simulation of a divorcing couple. Read the full conference brochure.

Certified Insolvency & Restructuring Advisor (CIRA) Credential Explained

Rendering financial advisory services in the business turnaround, restructuring and bankruptcy practice areas requires both special knowledge and extensive relevant experience. In 1992, the Association of Insolvency & Restructuring Advisors (AIRA) established the Certified Insolvency and Restructuring Advisor (CIRA) program to recognize by public awareness and certification those individuals who possess a high degree of knowledge and proficiency across a spectrum of functions related to serving clients in situations involving distressed and/or insolvent entities. Such expertise includes accounting, operations, strategic, taxation and finance issues related to business bankruptcy and insolvency. Read more

13-Week Cash Forecast Offers Relief in Troubled-Business Situations

When a company is experiencing severe financial distress, meeting its day-to-day and week-to-week cash and other financial obligations is a huge problem. The more serious the situation, the more important it is for the company's decision-makers to utilize perhaps the most essential of all troubled-business planning tools...the 13-week cash forecast (TWCF) model. Helping clients design and implement a TWCF is one of my favorite service offerings, primarily because of the immense relief it can offer frazzled business owners and managers who are operating "in the dark" due to insufficient cash funds. In short, a well-designed and regularly-updated TWCF model provides management with decision-making information regarding:

• When, and from what sources, cash is expected to be received, and opportunities for accelerating cash receipts;
• When, and for what purposes, cash is expected to be spent, and opportunities for delaying and renegotiating expenditures;
• Advance recognition of expected cash shortfalls, and opportunities for obtaining new and/or renegotiated debt and equity financing.

A properly-prepared and maintained TWCF model offers relief in troubled-business situations because under the "knowledge is power" concept, the tool serves as a road-map for those responsible for navigating turbulent periods of cash shortages.

For more info: 13-Week Cash Flow Model Creates Clear Communication Channels

Overview of the AICPA's Certified in Financial Forensics (CFF) Credential

The American Institute of Certified Public Accountants (AICPA) established the Certified in Financial Forensics (CFF) in 2008 for CPAs who specialize in forensic accounting. The CFF credential is granted exclusively to CPAs who demonstrate considerable expertise in forensic accounting through their knowledge, skills, and experience. The CFF encompasses fundamental and specialized forensic accounting skills that CPA practitioners apply in a variety of service areas, including:

• Bankruptcy, insolvency and reorganization
• Computer forensic analysis
• Economic damages calculations
• Family law
• Fraud prevention, detection and response
• Financial statement misrepresentation
• Valuations

Read more...

GSCPA FVS Section: Five Divisions Hold 29 Events During Last 12 Mths

Through its five niche divisions, the Forensic & Valuation Services Section of the Georgia Society of CPAs (GSCPA) stayed extra busy during the past year. In addition to numerous other Section-building activities and initiatives, the Section hosted the following learning and networking discussions/sessions over the last 12 months:

4/23/10 (Family Law Division) Free Roundtable Discussion – “Separate Property and Asset Tracing” (Discussion Leader: Marty Varon)

5/21/10 (Family Law Division) Free Roundtable Discussion – “Notes/Tips from the AICPA National Conference on Divorce” (Discussion Leaders: Beth Key and Tom Burns, of Bennett Thrasher)

6/11/10 (Troubled Businesses and Bankruptcy Division) Free Roundtable Discussion – “Practical Tips for Serving Financially-Troubled Business Clients—Session I of II” (Discussion Leader: Jeff Moore)

Antifraud Tips for Accounting Professionals

Later this morning, I'll be delivering a variation of my "Preventing and Detecting Workplace Fraud" presentation to 40-50 accounting managers and project accountants who work for a publicly-held, global real estate services company. I'll give up-front emphasis to the following points:

1. As financial professionals, we are responsible for safeguarding employer (or client) assets.
2. Fraud prevention is much less costly than fraud detection and investigation.
3. The field of occupational fraud and abuse is extremely interesting...and rewarding.

I didn't grasp these concepts until after I'd been a professional accountant for over twenty years. After working on a few embezzlement cases, I decided to learn more about fraud prevention...so I could better advise my clients. As my knowledge progressed, I became a Certified Fraud Examiner and have now worked on 20-30 fraud and internal controls-related cases. I'm still learning about this exciting field and enjoy teaching others whenever I get the chance. In today's session, I'll address a broad array of fraud topics and will conclude with Ten Antifraud Suggestions.

New Book Gives Credit to JE Moore Blog

Last week, while browsing in my local Barnes & Noble bookstore, I was pleasantly surprised to see my name and blog...in print! The Solo Accountant Reporter (this blog's original name) was listed along with a number of other bloggers/blogs in the acknowledgments section of "Professional Services Marketing." Authors Mike Schultz and John Doerr wrote, "We'd like to thank leading bloggers, thinkers, and writers who, over the past several years, have influenced our thoughts about marketing, sales, and business..." This small bit of recognition is greatly appreciated and encourages me to continue my blogging efforts. By the way, I couldn't resist purchasing the book...and have found it to be loaded with practical guidance about firm branding, lead generation, and business development.

Preventing Fraud in the Workplace

Yesterday, at the conclusion of my "Preventing and Detecting Workplace Fraud and Abuse" presentation at the National Association of Real Estate Companies (NAREC) Annual Conference, I offered the following:

Ten Antifraud Suggestions

1. Emphasize "prevention" of fraud; it's much less costly than the alternative.
2. Understand...and "break" the Fraud Triangle.
3. Segregate incompatible duties.
4. Minimize the risk of hiring an embezzler.
5. Develop and maintain a fraud policy in your organization.
6. Be aware of the fraud tree and most common workplace fraud schemes.
7. Understand and be alert for the "red flags of fraud."
8. Implement an anonymous 24-hr "fraud hotline."
9. Don't place excessive trust in financial staff, managers...or executives.
10. Become a Certifed Fraud Examiner.

I also shared this brief video clip:  What to look for in an embezzler

Expert Speakers Lined Up for GSCPA Fraud & Forensic Accounting Conference

"Who's who" of Georgia professionals to speak at 9/18/09 event

 

Next Friday's 2nd Annual Fraud & Forensic Accounting Conference, presented by the Forensic and Valuation Services (FVS) Section of the Georgia Society of CPAs, will provide CPA practitioners a wide array of relevant topics to help sharpen their FVS-related skills. Sessions and speakers are as follows:

 

The New Hard Times: Business Crimes, Ponzi Schemes and Affinity Frauds, Bill Jennings, Navigant Consulting, Inc.

 

Implementing Professional Standards in Forensic Accounting Engagements, Charles Phillips and Mark Zyla, Acuitas, Inc.

 

Building and Expanding Your FVS Practice, Howard Zandman, Tauber & Balser, P.C.

 

Raising the Bar: The 7 Habits of the Highly Effective Rainmaker, Robin Hensley, Raising the Bar

 

Fraud Investigation: A Composite Case Study, David Sawyer, Sawyer & Company

 

Evidence Management & E-Discovery, Brent Tarr and Brendan Sullivan, eMagSolutions

 

Analysis Do’s and Don’ts – Valuation Approaches to Use in Turbulent Times, Rob Taylor, Taylor Consulting Group

 

How to Predict Impending Financial Crisis Before the Numbers Reveal It, Frank Chamberlain, Frank Chamberlain, Inc.

 

The Effective Use of Communication in Expert Witness Testimony, Dean Driskell, FTI Consulting

 

Business Damages vs. Business Valuation, Jim Hart, Lightfoot Group, LLC; Bill Black, William H. Black, CPA

 

Family Law Financial Forensics – A Panel Discussion, Laurie Dyke, Investigative Accounting Group, LLC (Moderator); Lyn Reagan, Bennett Thrasher PC; Linda Schaeffer, Frazier & Deeter LLC; Paul Tigner, FairShare Financial PC; Scott Thurman, Thurman Financial Consulting, Inc.

 

Understanding eDiscovery in Corporate America, David Benton, The Home Depot

 

Business Valuations in Bankruptcy, Grant Stein, Alston & Bird; Kit Weitnauer, Alston & Bird, LLP

 

The conference drew over 150 attendees last year and is designed for Georgia CPAs, however their should be several slots open for other registrants. Click here for more information.

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? Answer: 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 [email protected].

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

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 [email protected].

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."