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Ohio University Beta Alpha Psi Awards Banquet
Gary Zeune, CPAThe Pros & The Cons10356 Wellington Blvd, Suite DPowell, OH 43065Phone 614-761-8911Fax [email protected]
© Gary Zeune, CPA 2009 2
Satyam Computer Services
1. Satyam = India’s Enron2. 4th largest Indian IT outsourcing firm3. Fake cash balance of ________4. Reported employees 53,000 Actual _________5. 6,400 Satyam employees quit 9/08-3/09 6. Others arrested: CFO, 3 in finance7. Served 1/3 of Fortune 500
Ramalinga RajuFounder+CEO$1+ billion
40,000
© Gary Zeune, CPA 2009 3
Satyam Computer Services
Audit Partners S. Gopalakrishnan, left, and Srinivas Talluri, were arrested on charges of criminal conspiracy, cheating, forgery, falsification of accounts and causing the disappearance of evidence.
© Gary Zeune, CPA 2009 4
Firm Vice Chairman
1. Thomas Flanagan, 30 year partner2. Filed lawsuit October 20083. 250 puts and calls trades January 2005 – 20084. 12 clients and advisory partner on 75. "The independence policy is really the most
important thing to this business. If you're not independent then you're not going to be an auditing firm," [firm attorney Paul] Lockwood said, noting the collapse of Arthur Andersen
© Gary Zeune, CPA 2009 5
Bernie Madoff
1. $50 Billion2. 30 years3. NASDAQ4. Affinity fraud5. Feeder funds6. Exclusivity
© Gary Zeune, CPA 2009 6
Bernie Madoff’ “Auditor”
1. Securities fraud, aiding and abetting investment advisor fraud, filing false reports with SEC
2. Lied about performing audits to avoid peer review
3. Possible sentence of 105 years4. $2.5 million bond5. Prosecutors going after people who didn’t know
but didn’t do their jobs and/or lied 6. Watch his arrest at
www.TheProsAndTheCons.com1. Click Videos, Fraud, scroll to Bernie Madoff
© Gary Zeune, CPA 2009 7
RCI Uses Illegal Workers
1. RCI national janitorial services2. Grand Traverse Resort and Spa; House of
Blues; Planet Hollywood; Hard Rock Café; Dave and Busters; Yardhouse; ESPN Zone; China Grill
3. $54 million billings 2001 to 2005 4. Evaded $18.6 million in various Federal taxes
1. 63% operating expenses2. 37% lifestyle
© Gary Zeune, CPA 2009 8
RCI Uses Illegal Workers
1. Christina Flocken, comptroller2. Pleaded guilty to…
1. Conspiring to defraud the United States2. Harboring illegal aliens.
3. Financial forfeiture of $1.5 million
© Gary Zeune, CPA 2009 9
Partner False Sign-Off
1. Stephen Nardi, Philly assurance practice director2. Technical guidance, scheduling and assignment
of personnel, directly supervised most audit managers, influenced promotion decisions
3. Assigned audit manager Anne Marie Fitzpatrick to Hemispherx Biopharma’s 2004 audit
4. She completed planning then Nardi stopped her Hemispherx work and assigned her to another client
5. Field work was completed without ___________ and was never _________ as required by firm ________
supervisionreviewed policy
© Gary Zeune, CPA 2009 10
Partner False Sign-Off
1. Nardi authorized release of _________________ which was included in the company’s _________
2. QC partners announced routine inspection and Hemispherx had been selected
3. Pre-QC Review of the file disclosed ______________
4. Nardi told Fitzpatrick to ______________________5. Nardi has been barred from public accounting
but can petition after 1 year6. Fitzgerald was censured and resigned
reportForm 10K
lack of initials on workinitial, sign and backdate
© Gary Zeune, CPA 2009 11
False Sign-Off Survey Results
Signing off on work when in fact __________________
Sample slice %
% of CPAs who observed False Sign-off 25
Auditing experience last 10 years 27
Auditors with some Big 4 experience 26
Auditors with only Big 4 experience 25
Auditors with only Big 4 in last 10 years 28
it wasn’t done
© Gary Zeune, CPA 2009 12
False Sign-Off
1. WHY COMMIT ______________________________2. WHAT TO SIGN OFF _________________________3. PAY AND PROMOTION _______________________4. WHY NOT DETECTED ________________________5. WHY _____________________________________6. HOW TO MINIMIZE __________________________
Come in under budgetSomething not expected to change
Keep client and boss happy
Assume the work was done
TRUST
Audit the auditors
© Gary Zeune, CPA 2009 13
Judge Sentences 3 In Massive Tax Fraud….AP Headline
Robert Pfaff
Former tax partner
58 8+ yrs
$3MM
Jailed
John Larson
Former tax manager
57 10 yrs $6MM
Jailed
Ray Ruble
Former Attorney
63 6½ yrs
$0 Free on appeal
Firm has signed a deal admitting its role in the tax shelter scheme. The firm avoided criminal prosecution by cooperating with authorities but was fined $456 million, including $128 million in forfeited fees from sales of the shelters.
© Gary Zeune, CPA 2009 14
Judge Sentences 3 In Massive Tax Fraud….AP Headline
1. Set up own firm2. Marketed BLIPS
1. Bond Linked Issue Premium Structure3. $1+ billion phony tax shelters4. Brazen tax shelter "that didn't pass the smell
test from Day 1“5. 7% of amount their clients saved
Tip: People behave the way they’re ________________
paid to behave
© Gary Zeune, CPA 2009 15
Prof. Roger D. Blackwell
1. Ohio State multi-million $$$ marketing prof
2. Worthington Foods board member3. Sale of company4. Sentence 6 years and $1 million fine5. Defense cost $____________6. Blackwell and his law firm suing each other7. U.S. Supreme Court denies appeal8. Blackwell profited $__________Ethics tip: _____________________________
OSU picture
2007 convict
6 million
ZERO/NONE/NADA
Some people commit fraud for no $$$ gain
