Friday, April 25, 2008

Crunching the Words

When auditors seek evidence of fraud, they take a careful look at a company's financial statements. Maybe they should examine other statements, such as those uttered by company executives.

That's the theory behind new fraud-detection software developed by two professors at Virginia Tech, who say that the story a company crafts around its numbers often says much about whether those number are solid.

"We want to add another tool to the auditor's toolbox," says Greg Jenkins, associate professor at Virginia Tech and the program's co-developer. The idea is "to look at all the communications a company makes public [including MD&A disclosures, public statements, and a range of SEC filings] and see if there are patterns that are inconsistent with the company's performance, or with the performance of other companies in the industry," he says.

Crunching the Words

Labels: audit, fraud, MD and A disclosure

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Thursday, April 17, 2008

SOX Life Blog: Reader Question - Understanding & Evaluating Segregation of Duties

I appreciate when readers share their challenges in applying issues and concepts, as invariably there are an additional dozen people also struggling with this same topic.

One professional writes:

I am new at this and need to understand about SOX and SOD, do you have any other resources? I am looking for Purchases Orders to Negotiations for credit terms, to who enters the new vendor and who signs and who does Accounts Payable all the way through to Fixed Assets? Can you help or recommend a book on SOD or an inexpensive software solution?

This reader had already come across a few past entries (Explaining Segregation of Duties, SOD Part II), and was still struggling with putting the concept into application. An additional entry that is less apparent was on the access management challenges that organizations face when cleaning up business practices - a highly correlated discussion.

My best recommendation for a quick overview and orientation to control practices...

SOX Life Blog: Reader Question - Understanding & Evaluating Segregation of Duties

Labels: access management, coso, fraud, segregation of duties, seperation of duties

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Wednesday, April 16, 2008

Changing Ethics Compliance Rules And Their Potential Impact On Government Contractors And Investors

Recently, the US Government implemented a new rule and proposed yet more rules regarding ethics and corporate compliance programs for government contractors. This marks a continuing shift towards adopting a more aggressive approach in addressing government contractor fraud, which is similar to the protocols applied to other sectors of US industry.

The enacted rule addresses requirements for contractor codes of business ethics and conduct ("CBE"), awareness programs and internal control systems. The newly proposed rules go much further, heightening the need for contractors to strengthen their ethics and compliance programs and for investors to focus on these issues during due diligence.

Changing Ethics Compliance Rules And Their Potential Impact On Government Contractors And Investors

Labels: CBE, ethics, fraud

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Friday, April 11, 2008

The Changing Atmospherics of Corporate Crime Sentencing in the Post Sarbanes-Oxley Act Era

The Sarbanes-Oxley Act of 2002 has been viewed as a watershed event in dealing with corporate fraud. In addition to its extensive provisions dealing with internal controls and corporate accounting procedures, the law adopted new crimes and pushed the United States Sentencing Commission to enhance the Federal Sentencing Guidelines provisions for fraud and related offenses. Even before the adoption of the Act, the Commission had increased the potential punishment for white collar crimes by amending the loss table for fraud offenses. These two steps played a key role in the increased sentences imposed on defendants convicted for their role in corporate crimes, such as Bernie Ebbers (twenty-five years) and John Rigas (fifteen years). The Sarbanes-Oxley Act maked a change in the sentencing atmospherics for corporate crime that propelled judges to give out sentences that were unthinkable even five years earlier.

This article considers how the Sarbanes-Oxley Act changed the approach to sentencing of white collar defendants involved in corporate crimes.

The Changing Atmospherics of Corporate Crime Sentencing in the Post Sarbanes-Oxley Act Era

Labels: corporate scandal, fraud, penalties, white-collar crime

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Wednesday, April 09, 2008

US company restatements soared 1997 to 2006--study

The frequency of financial restatements by U.S. public companies began to increase before the Sarbanes-Oxley corporate reform law was passed in 2002, according to a study commissioned by the U.S. Treasury Department and released on Wednesday.

But restatements associated with fraud and revenue declined after 2001, said the report authored by Susan Scholz, a University of Kansas professor of accounting.

Restatements jumped to 1,577 in 2006 from 90 in 1997, although much of the increase came from small companies that are not traded on major stock exchanges, the report said.
Scholz found fraud was a factor in 29 percent of all 1997 restatements, but only in 2 percent of 2006 restatements.

US company restatements soared 1997 to 2006--study

Labels: fraud, restatement studies, sox, Susan Scholz, US Treasury

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In Justice Shift, Corporate Deals Replace Trials

In 2005, federal authorities concluded that a Monsanto consultant had visited the home of an Indonesian official and, with the approval of a senior company executive, handed over an envelope stuffed with hundred-dollar bills. The money was meant as a bribe to win looser environmental regulations for Monsanto’s cotton crops, according to a court document. Monsanto was also caught concealing the bribe with fake invoices.

A few years earlier, in the age of Enron, these kinds of charges would probably have resulted in a criminal indictment. Instead, Monsanto was allowed to pay $1 million and avoid criminal prosecution by entering into a monitoring agreement with the Justice Department.

In a major shift of policy, the Justice Department, once known for taking down giant corporations, including the accounting firm Arthur Andersen, has put off prosecuting more than 50 companies suspected of wrongdoing over the last three years.

Instead, many companies, from boutique outfits to immense corporations like American Express, have avoided the cost and stigma of defending themselves against criminal charges with a so-called deferred prosecution agreement, which allows the government to collect fines and appoint an outside monitor to impose internal reforms without going through a trial. In many cases, the name of the monitor and the details of the agreement are kept secret.

In Justice Shift, Corporate Deals Replace Trials

Labels: criminal charges, deferred prosecution agreement, fraud, outside monitor, prosecution

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Wednesday, March 05, 2008

The Current State Of Corporate Fraud Risk Management (FRM)

Now that the initial wave of Sarbanes-Oxley Act compliance is becoming a distant memory and companies are well versed in the regulations, many would assume that organizations would be far along with implementing their comprehensive fraud risk management (FRM) strategies.

However, research by Protiviti reveals that a surprisingly high number of companies still have much room for improvement when it comes to evaluating, mitigating and monitoring fraud risk.
Executives at Fortune 1000 companies and large, not-for-profit organizations were asked a range of questions designed to gauge how they're addressing FRM and the maturity of related efforts. Following are some of the highlights from the research findings and what they mean for organizations.

The Current State Of Corporate Fraud Risk Management (FRM)

Labels: fraud, fraud risk management, FRM, protivit, risk management

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Friday, January 18, 2008

Enron-driven reforms are unraveling

Enron was the beginning, and now it's the end. The company's collapse in late 2001 alerted the investing public to the magnitude of corporate fraud. We realized no haven was safe.
It meant that even the biggest of companies, the bluest of blue chip stocks could be vulnerable to the greed and hubris that lurked within its corporate offices.

After Enron, attitudes began to change. Congress enacted sweeping changes aimed at strengthening internal controls and making top executives more accountable. Enron's victims sued its bankers, recovering some $7 billion in settlements. Now, even as the process begins for distributing that money, the reforms designed to protect investors from another Enronlike scandal are unraveling.

After six years as the avatar of reform, the lessons of Enron are being rolled back, the consequences overlooked, history rewritten to offer an air of legitimacy to the vacuous deals born in Smith Street hubris.

Enron-driven reforms are unraveling

Labels: enron, fraud, supreme court decision

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Wednesday, January 16, 2008

Enron shareholders learn outcome of suit

Enron Corp. investors who sued the company more than six years ago are learning this week they'll receive an average of $6.79 per share for the common stock they owned.

A court-approved mailing also notifies those who owned preferred stock they'll get $168.50 a share.

The lawsuit, known as the Newby case after shareholder Mark Newby, covers those who invested in Enron stock from Sept. 9, 1997, until Dec. 2, 2001, when the company declared bankruptcy.

The class comprises about 1.5 million buyers of stocks and bonds. They could have purchased common shares as high as $90 when Enron was soaring in August 2000 or as low as $1 right before the bankruptcy.

Enron shareholders learn outcome of suit

Labels: enron, fraud, shareholder lawsuit

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Saturday, November 24, 2007

New guidance paper “Managing the Business Risk of Fraud: A Practical Guide” released for comments

The ACFE, AICPA, and IIA have released an exposure draft of a joint project regarding guidance to organizations on establishing an approach to managing the risk of fraud. The paper will be open for comment through December 21, 2007 with a final version of the paper due out in January 2008. Comments on the draft paper can be sent to fraudguidance@theiia.org. Click here to read the exposure draft.

New guidance paper “Managing the Business Risk of Fraud: A Practical Guide” released for comments

Labels: acfe, AICPA, fraud, fraud assessment, iia

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Saturday, May 19, 2007

Fraud too pervasive to roll back SarbOx

Teamwork counts, especially when it comes to committing crimes at a corporation.

In a new examination of 374 companies accused of securities fraud between 1997 and 2002, an average of seven people were implicated in each case, including CEOs, chief financial officers, chief operating officers, general counsels, board directors and auditors.

"Far from being a solitary act, securities fraud necessarily requires complicity," said William Black of the Kansas City, Mo.-based Institute for Fraud Prevention, which sponsored the study.

The institute is a coalition of universities funded by the Association of Certified Fraud Examiners, the American Institute of Certified Public Accountants, accounting firm Grant Thornton LLP and D-Quest Inc., a risk-management firm.

Fraud too pervasive to roll back SarbOx

Labels: fraud, sarbox, sox

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Tuesday, February 27, 2007

Phoning It In

What's the best way for an employee to blow the whistle on fraud or related infractions? The most popular way seems to be via hotlines or similar reporting tools. According to a joint report from the CSO Executive Council, an organization of corporate and government security executives, and The Network (a hotline provider), almost two-thirds of the nearly 200,000 reports it studied were made via hotlines without first alerting anyone in management.

Few of those alerts prove to be false alarms. The study, which tracked incidents at 500 organizations over the past four years, found that 65 percent of the reports were serious enough to warrant investigation, while 46 percent led to some type of action being taken. Corruption and fraud accounted for 10 percent of the incidents, well behind personnel-management situations (51 percent). Company and professional-code violations accounted for 16 percent and employment-law violations 11 percent.

Phoning It In

Labels: fraud, whistleblower

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Thursday, January 25, 2007

Former NBC Universal Treasurer Jung Indicted in Theft

The former treasurer of NBC Universal Inc. was charged with stealing $813,000 from the company to finance private jet trips to the Caribbean, a summer home in the Hamptons and catered meals featuring Veuve Clicquot champagne.

Victor Jung, 34, pleaded innocent to two counts of wire fraud today in federal court in Manhattan and was released on a $250,000 bond. His lawyer, Christopher Brennan, said Jung will ``vigorously'' fight the charges. Jung, who was indicted by a federal grand jury, faces as long as 20 years in prison.

Jung, of Manhattan, spent most of the stolen money on flights to ``places such as Miami, Antigua and Turks and Caicos Islands,'' U.S. Attorney Michael Garcia said in a statement. Jung and ``his travel companions consumed catered Veuve Clicquot champagne, Grey Goose vodka, Mondavi wine, and shrimp cocktails.''

Former NBC Universal Treasurer Jung Indicted in Theft

Labels: fraud, segregation of duties, theft

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