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  • Deirdre Harris
    Michael Kraten on LIBOR, Accounting and the Public Interest11
    news item last edited November 13, 2012 by Deirdre Harris, tagged 2012, general news 
    Michael Kraten on Libor, Accounting and the Public Interest

    Since the London interbank offered rate (LIBOR) scandal was brought to light months ago, Michael Kraten’s research work has been an important source of information for high-profile media sources including: Bloomberg Businessweek, The Economist and The Wall Street Journal. Even the UK House of Commons discussed the study.

    Rosa M. Abrantes-Metz, Michael Kraten, Albert D. Metz and Gim Seow co-authored “LIBOR Manipulation?”. The authors used their combined expertise in forensic accounting, econometric tools and capital markets to analyze the Libor rates for their article written in 2008.

    “We found that there were unusual patterns in the way that individual banks were submitting quotations that were being utilized to calculate LIBOR. There should be a fair amount of randomness; we failed to see those periods of randomness for an extended amount of time,” Kraten said.

    There were periods of time when the quotations would not fluctuate at all, not even by even a tiny basis point or two. The rate should reflect the banks’ underlying financial strength, which varies day by day, he said.

    There were other periods of time when the rate would fluctuate but not in the direction that the business environment would predict that it would fluctuate, said Kraten. For instance, in the middle of the financial crisis, when global financial markets were doing poorly, the rate would show that the banks were actually strengthening financially.

    The authors made it clear that they did not have proof. There was no way they could look at the quotations and know if the banks were having secret discussions, Kraten said. At the time the academic authors found trends in the data that raised the question whether price fixing might be occurring. They were concerned that there might be illegal manipulation going on based on their quantitative analysis.

    In 2010, Kraten presented their findings at the Public Interest Section’s midyear meeting, which helped increase exposure.

    Fast forward to mid-2012, when news broke that American regulatory agencies found certain email messages from global financial company, Barclays, that did indicate illegal conversations were occurring.  

    It was an American regulator called the Commodities Futures and Trading Commission (CFTC) that went public with the scandal by declaring Barclays guilty of manipulation of the rate and enforcing a $450 million dollar fine.

    On June 28, 2012, Ben Gummer, a member of the UK House of Commons, mentioned a paper circulated around New York University that “raised the issue of manipulation of LIBOR.” You can read the transcript HERE under column 480. 

    “What I suspect happened is that our paper here was first revealed, or first disclosed, if you will, on the floor of the House of Commons during this parliamentary debate, and then people started to ask questions, curiously, about what this paper was, who wrote it and what it said,” said Kraten.

    Colleagues encouraged Kraten to go on the record with recommendations. Kraten co-writes a blog with his wife, Maureen Kraten. The blog is called AQPQ. Micheal Kraten wrote a blog entry called “LIBOR and the Public Interest” and made two recommendations. He said the numbers should be audited, and Britain may want to create a government oversight agency that is similar to the PCAOB to oversee the accounting and the auditors.

    Four days after Kraten’s blog entry posted, Brian Mairs of the British Bankers’ Association (BBA) posted a comment on the blog stating that Kraten had a factual error in his blog post. The BBA collects data and manages the calculation of the LIBOR rate. Mairs wrote that Kraten had stated that the BBA sets LIBOR. Kraten replied that he never said that the BBA sets the rate, and he agrees that the BBA obtains the information from other banks.

    The Federal Reserve Bank of New York released a series of letters between Treasury Secretary Timothy Geithner, head of the Federal Reserve Bank of New York at the time, and Bank of England Governor Mervyn King, proving that the American government knew about problems with LIBOR in 2008. Privately, Geithner gave a set of six major recommendations including that independent accountants needed to audit the Libor rate.

    “As far as I knew, I was the first person to publicly call for external auditors auditing the LIBOR rate. As it turns out, the treasury secretary was privately calling for the same thing for the last four years,” Kraten said.

    We now know that there was significant correspondence between the major American and British regulators. Geithner says that because it was a British matter under British jurisdiction all he could do was bring his concerns to the Bank of England’s attention and make recommendations. King’s response is that Geithner only gave recommendations and observations without any proof of wrongdoing.

    Kraten speculates that they felt that coming out publicly during the financial meltdown with this major global scandal could have shattered public confidence in the banking system.

    Colleagues have asked Kraten if he has spoken with regulators or received offers to speak at banking trade association conferences, but he had not engaged in any conversations with regulators prior to this interview.

    “We are trying as hard as we can to keep the issue alive, to keep our recommendations alive, and to move forward from simply being able to identify that there was a problem, which is what we did in our original paper, to trying to get people to hear our prescriptive solutions that we are proposing.”

    Kraten said that as “guardians of the public trust” it is important for the members of the American Accounting Association to focus on the question: “What should we do to proactively reform the system so that it is operating in the public interest?”

    Michael Kraten is the luncheon speaker for the Public Interest Section Mid-Year Meeting in New Orleans in March 2013.

    -- Lindsay Peters, AAA

  • AAA HQ
    Dave Albrecht Named to AccountingToday's Top 100 Most...
    news item posted September 12, 2012 by Judy Cothern, tagged 2012, achievement 
    AccountingToday Special Issue 2012: The Top 100 People: Always a work in progress

    Each year the Editors of AccountingToday make a list of the people they believe play the biggest roles in the ongoing work that is the accounting profession. This year one of the AAA's members has the honor to be included in that list. Congratulations are in order for Dave Albrecht!

    Dave Albrecht
    Professor of accounting, University of South Carolina Upstate

    Through his blog, “The Summa,” Albrecht has an impact on issues like IFRS and accounting education — but he’s also influencing and promoting the profession’s adoption of social media as a whole.

  • Deirdre Harris
    Richard Brody Named ACFE Educator of the Year
    news item last edited September 5, 2012 by Deirdre Harris, tagged 2012, achievement, general news 
    University of New Mexico Professor Richard Brody Honored at ACFE

    The Association of Certified Fraud Examiners (ACFE) is hosting its annual conference in Orlando, FL this week.  One of the awards it will be handing out will go to University of New Mexico (UNM) professor Richard Brody who is to receive its Educator of the Year award.

    The award is presented to an ACFE Educator member who has made an outstanding contribution in anti-fraud education.  In a press release from UNM, Dr. Craig White, Chair of the Anderson Accounting Department at UNM said, “He [Brody] has created awareness and excitement among our students on the issue of fraud detection and prevention.”  Brody is preparing tomorrow’s accountants with the tools to not only be investigators of fraud, but also professionals that prevent fraud from occurring int he first place.

    UNM, located in Albuquerque, NM, is situated near the FBI’s Regional Computer Forensic Lab (RCFL).  The lab has proved to be a good learning opportunity for students that are part of the university’s Information Assurance program, a study in the area of computer forensics.  The curriculum, which consists of students from both accounting and management information systems, includes using computer programs to uncover fraud related to money laundering, analyzing digital forensics and developing systems to prevent fraud.

    “I’m all about prevention,” said Professor Brody in a recent interview.  ”At UNM we have a program where our students do an assessment of small non-profit organizations to evaluate their processes.  Our students are intimidated at first but they quickly realize that what they are learning here is applicable to these small operations.”  These nonprofit organizations could not otherwise afford such an in-depth assessment, nor could they afford the consequences of a fraud that could result in significant financial losses.  ”Our students analyze the processes, procedures and the information systems of the non-profit,” Brody said.  ”When they are done, the students feel more confident that they actually helped and the organization feels they received a valuable service.  When we first started the program I could hardly find a non-profit to participate, now we have to put them off for a semester or two until we can get to them.”

    Beyond non-profits, Professor Brody and others at UNM have worked to place their students with the FBI, Secret Service and other governmental agencies that battle white-collar crime.  ”For our accounting majors, it gives them a skill set that other accountants may not have with an accounting degree alone,” Brody explained.  ”Not everyone is cut out to be in law enforcement, but these students will be better equipped to perform audits and dig deeper with their questions when they get into the real world.”

    Some students do have a knack for crime fighting and UNM interns have worked with local and state law enforcement looking for and solving white-collar frauds.

    Congratulations to the University of New Mexico and Professor Brody.