fraud

Cynthia Cooper, still an inspiration

Jim Kim — Fri, 11 Jul 2008 08:18:29 -0400

Cynthia Cooper, still an inspiration. Remember Cynthia Cooper? The soft-spoken former chief audit executive at WorldCom was the one who blew her whistle after uncovering a lot of bad practices at her own firm. Since those days, which made her a minor celebrity, she seems to have done well as a speaker. She even has a book out. Judging from a recent event in San Francisco, covered by the San Francisco Chronicle, she's still something of a hero to internal auditors everywhere. It took courage to go over the head of her CFO boss--who later pleaded guilty to fraud--and present her findings directly to the audit committee. Sarbanes-Oxley represents, in some ways, a political solution to the problem of fraud, but Cooper and others like her make clear just how personal all this can get and how hard it is to do the right thing.

For more:
- here's the San Francisco Chronicle article

Related Article:
Sarbox-style whistleblowing not a lot of fun

CEOs question real value of Sarbox

Jim Kim — Sat, 28 Jun 2008 13:30:25 -0400

Now here's an interesting finding: According to a survey by Georgia State and Clemson researchers, 62 percent of executives agreed that Sarbanes-Oxley strengthened investor trust in Corporate America, but 74 percent said it has done nothing to improve ethical standards. The survey also found that "improper accounting practices" remains the No. 1 ethical issue facing companies. So what to make of this? Well, accounting is an iffy art, and there are a lot of minefields to be navigated. Frankly, there may still be some unethical people out there willing to commit fraud, but Sarbox has certainly raised the stakes of wrongdoing. Bottom line: Many execs seem to be wondering whether the benefits of enhanced trust justifies the costs and the lack of return on the ethical front.

For more:
- here's the survey results

Crazy Eddie now crusades against crime

Tue, 27 May 2008 06:59:59 -0400

Remember Crazy Eddie? He was the wildman electronics goods impresario who went nuts on those memorable TVs ads back in the 1980s. (You can always tell local TV ads.) He built a chain of 40-plus retail outlets in New York, went public in 1984, ultimately was convicted of fraud, and went to jail. But there are second acts. Now, he crusades against corporate crime, spouts on Sarbanes-Oxley (he's an ardent supporter) and just about any other related issue. The Detroit Free Press notes that he's in heavy demand as a corporate speaker and rarely disappoints. The list of convicted felons on the speaking circuit is getting crowded indeed.

For more:
- here's the Detroit Free Press article

Business schools hire ex-cons

Tue, 06 May 2008 06:59:59 -0400

In the Sarbanes-Oxley era, we should not be surprised that business schools are trying to scare their students straight. Top schools are hiring convicted felons to speak to students about their experiences, according to Business Week Online. Walter A. Pavlo Jr. has a thriving second career as a speaker. He talks about his time at MCI, where he devised a money laundering scheme that landed him in jail for two years, and at his parents' house after that. Will this make a difference? Well, I'm not sure if we can eradicate corporate crime, but the stakes are higher--in part because of Sarbanes-Oxley. It's harder than ever to get away with fraud. But there will always be those who try.

For more:
- here's the Business Week Online article

Related Article:
One way to profit after compliance lapses

The mortgage mess and KPMG

Tue, 15 Apr 2008 06:59:59 -0400

We've noted that a damning report by an independent Justice Department had little good to say about KPMG's roles in the meltdown of New Century, which in many ways ignited the mortgage meltdown. But it is important to note that nowhere does the report indicate that KPMG helped manipulate earnings. Nor was was it accused of fraud. So what did it do? One issue, as the New York Times notes, is whether you can really fault the firm for work based on information available at the time. KPMG did flag some issues, like the use of simple spreadsheets to calculate securities holdings and the lack of a policy to calculate reserves. But these were deemed inconsequential. Some executives and directors were growing very uncomfortable. Still, this is another demerit for KPMG, if only from a PR perspective.

For more:
- here's the New York Times article

ALSO NOTED: Banks say no to Sarbox-like set of rules;

Tue, 15 Apr 2008 06:59:58 -0400

> Bank reform and IT issues. Article
> Building a home-grown auditing system with SQL server. Article
> Justice trends away from trials. Article
> Some background on Sarbanes and how companies have dealt with it. Article
> Banks say no to Sarbox-like set of rules. Article
> How long to restate earnings? Article
> Forensic tools aid e-discovery probes. Article
> How much D&O insurance do ex-directors need? Article
> Fraud related restatement decline. Article
> Justice trends away from trials. Article

And finally ... Wall Street refugees seek new careers in finance. Article

Ignore whistleblowers at your peril

Tue, 11 Mar 2008 07:59:59 -0400

Recall that Section 302 of Sarbanes-Oxley requires companies to set up a venue where whistleblowers can report misdoings. That caused a lot of companies to scramble. But what is done with those reports really is critical. You need a vetting and escalation process. This is a pain, but the recent case of Dyadic, which wasn't subject to Sarbox until it went public in 2004, points out how a formal process really can help. With Dyadic, it seems that early reports of fraud were not well handled, according to cfo.com. In fact, they remained dormant for years. For whatever reason, the CEO seems to have kept the initial whistle blows to himself. The whistleblower clause of Sarbox, in general, has not led to a lot of uncovered crime. But a process is required.

For more on Dyadic:
- here's the article from cfo.com

Related Articles:
What to do about whistleblower protection? Article
Has Sarbox really changed attitudes? Article
Enron 'whistleblower' a fraud? Article
Will this Sarbox whistleblower fare any better? Article
Sarbox-style whistleblowing not a lot of fun. Article

Take steps to control the "new face" of fraud

Tue, 05 Feb 2008 06:59:58 -0500

There is some talk that the most likely perpetrators of crime within an organization are no longer likely to be the top executives. Thank Sarbanes Oxley. The most likely fraudsters may stem from the rank and file management pool. So you may want to think about what to do discourage this. You need a program, says Yigal Rechtman, head of the forensic accounting department for Buchbinder, Tunick, and Company. High on his list: avoid reliance on budgets to root out fraud (they're too easy to hide stuff in); install a tip line; get credit reports on employees. More tips

The costs of restatements

Tue, 22 Jan 2008 06:59:59 -0500

For large companies, financial restatements have become less of an issue. As companies have moved down the Sarbanes Oxley learning curve, they have reduced mistakes greatly. But the issue looks large for smaller companies, who are still more likely to restate earnings. Compliance with 404 may boost the number of restatements. A sobering thought, especially as the credit crunch lingers, is that restatements often translate into more expensive loans. Financial Week notes a study by professors John Graham of Duke University, Si Li of Wilfred Laurier University and Jiaping Qiu of McMaster University, that found that loan spreads for companies that issued restatements paid about 210 basis points over LIBOR compared with an average 141. When restatements were due to fraud, it was 245 points. The study also found that these loans also carry more stringent covenants, higher collateral requirements and shorter terms. There's an obvious lesson here.

For more:
- here's the Financial Week article

ALSO NOTED: Back up data providers online?; Terrible PR: Angelo Mozilo gets compared to Ken Lay;

Tue, 22 Jan 2008 06:59:58 -0500

> Hot job: head of IT finance. Article

> Back up data providers online? Article

> PCAOB board member moves to RiskMetrics. Article

> Terrible PR: Angelo Mozilo gets compared to Sarbox poster boy Ken Lay. Article

> Title and escrow fraud all too easy. Article

> A dim view of analysts. Article

And finally ... How to save a million. Article