Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Posts Tagged ‘fraud

The story on Silk Road, an on-line drug bazaar, shows the power of rationalization and self-deception

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Cover of “American Kingpin” from Amazon. Used under fair use.

The sad tale of Ross Ulbricht and his on-line drug bazaar called Silk Road is a good study of the outer limits of how far rationalization can carry a person.

It is also a frightening illustration of Jeremiah 17:9. From the New International Version, ponder:

The heart is deceitful above all thing and beyond cure. Who can understand it?

Considering the tale of Silk Road is useful for accountants wanting to learn about the outer fringe of the internet and he investigative power of the federal government, believers who would like an illustration of the frightening level of deceit that lives in the human heart, and anyone else wanting to learn more about the dark worlds that normal people will never see.

My posts are gathered into two collections on my other blog, Outrun Change:

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Written by Jim Ulvog

September 26, 2017, 16:22 pm at 4:22 pm

Posted in Other stuff, Pondering

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Alleged arson illustrates the fraud triangle

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Analyze fraud in terms of opportunity, motivation, and rationalization. Image courtesy of Adobe Stock.

A current trial alleging arson and insurance fraud provides CPAs an educational read on the fraud triangle.

Consider these articles if you want more background or to see my sources:

A fellow woke to fire in his home, packed a few belongings, called 911, tossed a couple suitcases out the window he broke with his cane, then climbed out the window to save his life.

That’s what he told fire officials and his insurance company.

The fully involved fire, which from a photo looks to have destroyed the home, caused around $400,000 of damages.

Technology can rat you out

His pacemaker told a different story.

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Written by Jim Ulvog

March 21, 2017, 8:57 am at 8:57 am

Posted in Audits, Fraud

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In case you hadn’t hear, those telephone calls claiming to be from the IRS demanding you immediately pay back taxes are a scam.

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Wouldn't it be nice if the phone id actually was that accurate for every call? Image courtesy of Adobe Stock.

Wouldn’t it be nice if the caller ID was actually that accurate for every call? Image courtesy of Adobe Stock.

(Cross-posted from my other blog, Nonprofit Update, so you may refer your clients to an article that provides depth on how to avoid becoming victim of recent scams.)

The most frequent scam in 2016 was the phone calls saying “This is the IRS and if you don’t pay your past due taxes this instant we will send someone to your house to arrest you right now.”

There are many things wrong with those calls.

As a starter, your first contact with the IRS will never be by phone. You will instead get a letter explaining what the IRS thinks you messed up.

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Written by Jim Ulvog

January 9, 2017, 10:38 am at 10:38 am

Posted in Fraud, Other stuff

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Guess we might want to reallocate blame for that $5 billion trading loss at Societe Generale

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Sometimes it's complicated. Photo courtesy of Adobe Stock.

Sometimes it’s complicated. Photo courtesy of Adobe Stock.

One thing I’ve learned while being in leadership at my church is that a conflict that appears simple to outsiders is usually far more complicated and messy and ugly than it appears, with blame for a conflict sometimes belonging to the party that appears innocent.

I’m slowly catching on that maybe that idea sometimes applies to massive financial fiascos. (Yeah, yeah, I know. I usually catch on really slow.)

Who is at fault?

Back in January 2008 a trader, Jérôme Kerviel, engaged in €50B of unauthorized trades for Société Générale and hid his trades. That’s fifty billion euros. He admits to making fake entries to hide his admittedly unauthorized trades.

Unwinding the trades cost the bank €4.9B.

I recall at the time that the story line was he was a rogue, a scoundrel, etc., doing all this by himself, etc., single handedly pulling off a huge scam, etc, cleverly wending his way between those tight internal controls, etc.

Criminal sentence

Previously, Mr. Kerviel was tried and convicted on criminal charges. His initial sentence was five years, which was reduced to two years (I think it was 2 but maybe was 3).

He served five months in prison, according to the following article.

Wrongful termination

Well, multiple parts of the French judicial system are saying that allocating the blame is a bit more complicated.

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Written by Jim Ulvog

October 4, 2016, 8:00 am at 8:00 am

Posted in Fraud, Other stuff

Tagged with ,

Yet another banking fiasco – Opening two million fake accounts to meet sales targets

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Wells Fargo Concord stagecoach. April 2012 photo by James Ulvog.

Wells Fargo Concord stagecoach. Notice the only suspension for running over rough roads is those leather straps under the passenger compartment. Those didn’t smooth out the rocks and bumps very much. April 2012 photo by James Ulvog.

Deep sigh. Another banking fiasco hit the papers yesterday. The Wall Street Journal reported Wells Fargo to Pay $185 Million Fine Over Account Openings.

The bank will pay a mere $185M to settle claims brought by OCC, CFPB (Consumer Finance Protection Bureau, the new creation of the Dodd-Frank legislation), and LA city attorney.

This scheme involved customer-facing employees opening fake bank accounts in the name of existing customers without the customer’s permission. Another variation is opening a fake account in the name of a nonexistent customer. Article says sometimes money would be transferred from a customer’s account into the new, fake account with occasional NSF fees because there wasn’t enough money in the legitimate account to cover legitimate checks.

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Written by Jim Ulvog

September 9, 2016, 8:30 am at 8:30 am

Posted in Accounting, Fraud

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Cheating on your Fitbit? After you stop laughing, think about this from the fraud perspective.

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One option to get superb results on your exercise tracker. Photo courtesy of Adobe Stock.

One option to create superb results on your exercise tracker. Photo courtesy of Adobe Stock.

Sometimes you just have to laugh.

On June 9, The Wall Street Journal asked Want to Cheat Your Fitbit? Try a Puppy or a Power Drill.

Those informal office challenges to get people to exercise often involve using a Fitbit device to track how far participants walk or run.

Apparently a few folks have decided to take some shortcuts.

One fellow attached his tracker to the blade of an electric saw. After leaving it run overnight he had recorded 57,000 steps the next morning.

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Written by Jim Ulvog

June 15, 2016, 8:07 am at 8:07 am

The most interesting information from the Panama Papers is what *isn’t* in the files.

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Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

The best stories to be told as a result of the massive data leak cannot yet be written.

Why?

The really smart people use multiple layers of shell companies to hide assets.  When laundering money, one should move assets through a series of companies, with each subsequent jump being anonymous.

A long time ago I attended a continuing education class helping CPAs understand fraud. Why are such classes required? So that, hopefully, maybe, CPAs will be able to recognize fraud when it stares them in the face during the course of an audit.

During the class, the instructor went off script and explained to us how to launder money.

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Written by Jim Ulvog

April 22, 2016, 8:13 am at 8:13 am

Posted in Audits, Fraud, Other stuff, Pondering

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More good stuff for auditors – 3/9

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 Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

A few articles for CPAs:

  • Do group audit standards apply when there is only 1 auditor?
  • Pondering on how senior execs “go bad”
  • Link between gambling addiction and fraud
  • Steps by Big 4 to analyze ‘big data’ in audits

2/24 – Charles Hall at CPA-Scribo – Do the Group Audit Standards Apply When Only One Firm Audits Consolidated Financial Statements? – Short answer to the question: yes, they apply. Sorry if that is a shock to you.

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Written by Jim Ulvog

March 9, 2016, 8:43 am at 8:43 am

Posted in Audits, Fraud

Tagged with ,

Journalist returns call to scammer who claimed to be from the IRS. Entertainment and laughter follows.

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Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

Most people hang up on robocalls from charities. If there is a real person, I ask them to go into their spiel and then set the phone down, letting the caller waste a minute or two of their time.

William P. Barrett, writing at New To Seattle, actually takes those calls. He then dissects the charity’s financial statements showing the minimal amount of charity taking place in some organizations.

To the repeat offenders he awards the title of “America’s Stupidest Charities.”

(Cross-posted from my other blog, Nonprofit Update, because the accountants reading this blog will find this story just as funny as I did.)

You probably know scammers have a new scheme of falsely claiming to be from the IRS. Their spiel is you’re just about to be arrested for failing to pay back taxes, the police are on the way to your home, but you can avoid going to jail today by settling up right now by sending money on a prepaid debit card or wire transfer.

Mr. Barrett called back to the number provided in a robocall. The person answering spoke poor English and sounded like he was calling from a boiler room.

He describes the call in his post, Scammers invoking the IRS inundate Seattle.

How did that conversation go? Quite entertainingly.

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Written by Jim Ulvog

December 11, 2015, 9:27 am at 9:27 am

Posted in Other stuff, Social media

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Price cut on print books

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I’ve dropped the prices for the print copies of my books available at Amazon, Barnes & Noble, and iTunes store.

Here is what you can find on-line:

tragedy-cover

 Tragedy of Fraud – Insider Trading Edition

Story of Scott London’s fall from regional audit partner at KPMG to prison inmate because of his insider trading.

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Rationalization in action is frightening to see

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It is scary to see the power of rationalization. We humans can exert great effort to persuade ourself that wrong is right. With enough effort, we can persuasively argue that wrong is a positive good, the noble alternative.

It is unsettling to me when I see a client deeply believe that tax or accounting fraud is perfectly legitimate and I am the one who is in the wrong to suggest otherwise.  Worrisome is a watching a friend who believes that hurtful or destructive or nasty or evil behavior is Godly. Even more upsetting is when I catch my brain in full rationalization mode.

No, I’m not about to give any examples from clients, friends, or my life.

Unfortunately, we have a sad public example of rationalization racing at full power (sad pun intended).

Some background on Lance Armstrong’s massive doping schemes

Many public sources report that Lance Armstrong has been found to use performance enhancing drugs for a very long time. He won seven consecutive Tour de France races.

According to Wikipedia, in 2012 he received a life-time world ban on all competitive events in all sports. His seven wins were revoked. He was found to have engaged in sophisticated doping schemes for many years.

In 2013, he admitted massive doping in an interview with Oprah Winfrey. He admitted using a long and specific list of banned substances and did so in each of the 7 Tour de France races.

Rationalization on display

Having set the background, let’s look at an article in The Guardian:  Lance Armstrong: I would probably cheat again in similar circumstances. Thanks to Professor Mike Shaub (twitter @mikeshaub) for pointing out the article.

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Written by Jim Ulvog

January 27, 2015, 9:23 am at 9:23 am

Posted in Audits, Fraud

Tagged with ,

More good stuff for auditors – 1/9

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A few articles for your growth. Comp and Review reports under SSARS 21 and 19. Bake-your-own net income measures. Lunch money thief gets 5 years in prison and $1.8M restitution

1/7 – CPA-Scribo – SSARS 21 Reports – Preparation, Compilation, and Review – Charles Hall has a great post providing sample reports under SSARS 21. Gives the reports under SSARS 19 for contrast. You gotta’ check it out.

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Written by Jim Ulvog

January 9, 2015, 7:45 am at 7:45 am

Journalist falling for teen claiming $72M in stock market profits is object lesson for auditors

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How many failures in the smell test can you identify in this story, which was published by New York Magazine?

In a few years of trading*, a 17-year old* High School junior has cleared $72 million* in profits from a diverse strategy* of penny stocks*, oil futures, and mid-cap stocks. He owns a BMW and has already rented an apartment in Manhattan that his parents won’t let him live in*. He lives with his parents in the same place they’ve lived for a while*. To validate his story, a fact-checker looked at a* Chase bank statement* that shows a $72M balance*. The stock whiz now says he met with the fact-checker “for about 10 seconds” to view the one statement*.

Update, forgot this part:  After one of the interviews, he was going to an appointment with some guy who wanted to give him* a $150M investment* to start a hedge fund* the day he turns 18*.

The whole thing was a hoax.

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Written by Jim Ulvog

December 23, 2014, 8:01 am at 8:01 am

Frauds are a cancer destroying capitalism

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My previous post described a comment by Sam Antar during his CPE session that the fines arising from of a long list of financial fiascos are essentially a tax on illegal behavior.

He made another comment in that session that I wanted to describe in detail. He said these frauds are a cancer destroying capitalism.

I had opportunity to visit with him a few weeks ago and asked him to expand on this idea. I will summarize what we discussed.

Cancer destroying capitalism

He indicated the foundation of capitalism is reliability of financial information. If you can trust financial information you read then we can do business with each other.

He says the extent of frauds we have seen are leading people to lose faith in financial information. That leads to losing faith in their counterparties. Therefore people have less trust. In financial terms that means the risk premiums for transactions go up. The interest rate built into a transaction increases and the return drops.

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Written by Jim Ulvog

October 27, 2014, 7:50 am at 7:50 am

Posted in Economics, Other stuff

Tagged with ,

Huge fines are a tax on illegal behavior

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Several weeks ago I listened to a continuing education class presented by Sam Antar, current felon and formerly CFO of Crazy Eddie.

In the session, he made two comments that caught my ear. First, the fines we read about as a result of various financial scandals are just a tax on illegal behavior. Second, those fiascos are, he said, a cancer destroying capitalism.

After the session, I had opportunity to interview him by phone and follow-up on both of those ideas.

Fines are a tax on illegal behavior

He indicated that essentially no one has been implicated in any of the disasters we’ve read about, which I have discussed extensively on my blog.

He said corporations don’t commit crimes. People commit crimes.

And the people who committed crimes aren’t going to jail.

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Written by Jim Ulvog

October 23, 2014, 5:32 am at 5:32 am

Posted in Fraud, Pondering

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