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  • Robert E Jensen

    From the CFO Morning Ledger on February 20, 2013

    FCPA Resource Guide: 10 Issues to Consider

    With the release of “FCPA: A Resource Guide to the U.S. Foreign Corrupt Practices Act,” executives have more information about how the Department of Justice and the SEC view compliance with the Foreign Corrupt Practices Act and companies' anti-corruption programs and efforts. Learn 10 overarching themes in the guide to consider when reviewing FCPA compliance programs and actions that might be taken to help strengthen them.

    See http://deloitte.wsj.com/cfo/2013/02/20/fcpa-resource-guide-10-issues-to-consider/

     

    Foreign Corrupt Practices Act Compliance Guidebook: Protecting Your Organization from Bribery and Corruption
    Martin T. Biegelman and Daniel R. Biegelman
    Wiley, 2010
    ISBN: 978-0-470-52793-1

  • Robert E Jensen

    The law does not pretend to punish everything that is dishonest. That would seriously interfere with business.
    Clarence Darrow --- Click Here  

     

    Why white collar crime pays for Chief Financial Officer: 
    Andy Fastow's fine for filing false Enron financial statements:  $30,000,000
    Andy Fastow's stock sales benefiting from the false reports:     $33,675,004
    Andy Fastow's estimated looting of Enron cash:                          $60,000,000
    That averages out to winnings, after his court fines, of $10,612,500 per year for each of the six years he spent in prison.
    You can read what others got at http://www.trinity.edu/rjensen/FraudEnron.htm#StockSales 
    Nice work if you can get it:  Club Fed's not so bad if you earn $29,075 per day plus all the accrued interest over the past 15 years.

     


    "CEO in fraud case needs more than seven days prison: court," by Jonathan Stempel, Reuters, February 15, 2013 ---
    http://www.reuters.com/article/2013/02/15/us-ceo-sentencing-decision-idUSBRE91E0W320130215

    A former chief executive who pleaded guilty to wrongdoing in a scheme that ultimately helped drive his company into bankruptcy could have been sent to prison for 10 years. The trial judge thought seven days was fair.

    Not long enough, a federal appeals court said on Friday.

    The 6th U.S. Circuit Court of Appeals said Michael Peppel, the former chief executive of the audio-visual technology company MCSi Inc, must be resentenced for his 2010 guilty plea to charges of conspiracy to commit fraud, false certification of a financial report, and money laundering.

    U.S. District Judge Sandra Beckwith in Cincinnati abused her discretion in sentencing Peppel to an "unreasonably low" week behind bars based almost solely on her belief that the defendant was "a remarkably good man," the appeals court said.

    Prosecutors had charged Peppel in December 2006 over an alleged fraud they said had begun six years earlier, amid financial difficulties at his publicly traded, Dayton, Ohio-based company.

    Peppel was accused of working with his chief financial officer to inflate results through sham transactions with a firm called Mercatum Ltd, and companies such as FedEx Corp (FDX.N) that were not implicated in wrongdoing. Prosecutors said he also sold $6.8 million of MCSi stock during this time.

    By the end of 2003, MSCI was bankrupt, and a reported 1,300 people had lost their jobs.

    Citing the need to punish Peppel and deter others, the government asked Beckwith at his October 2011 sentencing to impose a 97- to 121-month prison term. This was the length recommended, but not required, under federal guidelines.

    But the judge said the five years since the indictment had been "punishing, literally and figuratively" for Peppel, who had begun working for an online pharmacy to support his five children. He also had a brother with multiple sclerosis.

    "Michael's mistakes do not define him," Beckwith said. "I see it to be wasteful for the government to spend taxpayers' money to incarcerate someone that has the ability to create so much for this country and economy."

    She also imposed a $5 million fine and the maximum three years of supervised release.

    Circuit Judge Karen Nelson Moore, however, wrote for a unanimous three-judge appeals court panel that Beckwith was wrong to rely on "unremarkable aspects" of Peppel's life in imposing a "99.9975% reduction" to the recommended prison term.

    "There is nothing to indicate that the support provided by Peppel to his family, friends, business associates, and community is in any way unique or more substantial than any other defendant who faces a custodial sentence," Moore wrote.

    Beckwith was not immediately available for comment.

    Ralph Kohnen, a lawyer for Peppel, on Friday said: "We expect that the judge will exercise the same common sense and fairness in imposing a similar sentence on remand."

    Continued in article

    Bob Jensen's threads on how White Collar Crime Pays Even if You Know You're Going to Get Caught ---
    http://www.trinity.edu/rjensen/FraudConclusion.htm#CrimePays

     

  • Robert E Jensen

    Anti-Fraud Collaboration Launches Website with Access to Anti-Fraud Tools
    Center for Audit Quality
    January 24, 2013
    News Release --- http://www.thecaq.org/newsroom/release_01242013.htm

    Anti-Fraud Collaboration Site --- http://www.antifraudcollaboration.org/

    Bob Jensen's threads on fraud ---
    http://www.trinity.edu/rjensen/Fraud.htm

  • Robert E Jensen

    "How Do You Spot The Thief Inside Your Company?" by Marc Weber Tobias, Forbes, December 21, 2012 --- Click Here
    http://www.forbes.com/sites/marcwebertobias/2012/12/21/how-do-you-spot-the-thief-inside-your-company/?utm_campaign=techtwittersf&utm_source=twitter&utm_medium=social

    The vast majority of annual losses that result from criminal activity in business and government entities are not caused by shoplifters or burglars in the United States. It is employee-thieves cloaked in many forms who commit their crimes, which are often discovered long after their various schemes begin.

    Their many schemes are identified as occupational fraud in the Report to the Nations, produced every two years since 1996 by the Association of Certified Fraud Examiners, or ACFE. The current report is based upon an analysis of 1388 cases that were investigated and documented by Certified Fraud Examiners in more than 100 countries on six continents. It provides a detailed look at the prevalence and culture of business thieves in categories such as misappropriation and theft of assets and cash, skimming, payroll fraud, financial statements and reporting schemes, conversion of assets, and corruption and misuse of influence.

    Based upon the Gross World Productthe ACFE estimates that global losses from fraud may be $3.5 trillion. In my career in both the public and private sectors, my colleagues and I have been involved in thousands of criminal and civil investigations involving thieving employees, vendors, contractors and suppliers. We’ve caught perpetrators trying to steal, defraud, and convert assets that included anything from cash to precious metals, and trade secrets and intellectual property. No entity is exempt and, in our world, just about everyone can be engaged in some form of fraudulent activity and theft, be it office supplies, time, gasoline, telephone calls, cash, assets, food, liquor, pictures hanging on the wall, bed sheets, dishes, narcotics, credit cards, checks, information, and whatever else is available for the taking or diversion. They pad time sheets and expense reports, submit false medical claims, forge mortgage documents, submit phony bills to clients and customers, and anything else that can be imagined.

    Our rule and mantra: “If it can be stolen, it will be, and often.”

    No one is exempt. We have worked cases in businesses, retail stores, banks, factories, hospitals, clinics, nursing homes, cruise ships, copper mines, construction sites, car dealerships, restaurants, bars, casinos and literally hundreds of other venues. Any entity can and has been a target, even law enforcement agencies and jails and prisons, where inmates, correctional officers, teachers and senior staff have been caught in a variety of schemes to steal, corrupt, defraud, extort and improperly obtain or divert assets and use their influence for personal gain.

    It is a multi-faceted problem but is rooted in two simple premises: everyone wants things they may not be able to afford (although that is often not the prime motivation for stealing) or they have a financial crisis that drives them to steal.

    The message for every reader: any entity can be the subject of losses. Sometimes you may not even know it for many months, years, or ever, with the average scheme taking eighteen months to discover.Companies, governments, and other entities must understand how to mitigate or reduce losses from a multitude of criminal schemes designed to siphon assets, in many forms, which ultimately destroy many enterprises.  The best protection against fraud is to prevent it before it can occur. If your entity or enterprise is operating without the proper controls and anti-fraud programs in place then you likely have been, are, or will be a victim. There are fraudsters everywhere and they are often destroying productivity, profitability, morale, and ultimately many businesses. They are able to get away with their crimes because the operation of almost all business is based upon trusting employees with resources and responsibility.

    This was going to be a simple article on the best way to alert companies about occupational fraud and their employees, and then describe one solution. After reviewing many investigations, discussing this with my colleagues, and examining the latest ACFE report, I decided that this article should profile the company thief and the companies that are most at risk, and then talk about one of the most effective means to stop people we work with from engaging in illegal activities in the workplace. So in this article I will look at who and what the looters are, and in the follow-up I will describe the work of a retired FBI Special Agent whom I first met forty years ago in Omaha when I was in law school.

    The businesses or entities most at risk

    The businesses most at risk to internal fraud and theft, in the order of losses from highest to lowest, are banking and financial services, government, and public administration, and the manufacturing sectors. Small employers (fewer than 100 workers) are more commonly victimized than larger companies because they usually cannot afford strong anti-fraud measures. They’re also often not in a financial position to absorb losses and less likely to recover either what was stolen or, in some cases, keep their business going as a viable entity.

    The implementation of anti-fraud control measures is highly correlative with significant decreases in the cost and duration of occupational fraud. While these controls cost money, not to implement them usually costs a lot more in terms of dollars, business reputation, litigation, and other costs. Those organizations that had implemented any of these controls had fewer losses and detection time than those entities that did not put such safeguards in place.

    Some sobering statistics about losses

    Businesses, on a global basis, experience losses of about 5% a year from schemes executed by and with employees. The median loss was about $400,000, and in one-fifth of businesses that were surveyed in the ACFE study, the loss was at least $1,000,000. In the least costly forms of fraud, the cost to business was about $120,000.

    In about 87% of the cases the appropriation of assets was the leading cause of losses. While financial statement fraud accounted for only about eight percent of all cases, it had the highest median loss of about $1,000,000 for each occurrence. Finally, corruption and various phony billing schemes made up about one third of all cases but more than fifty percent of the dollar losses, for an average of $250,000. This type of fraud was shown to pose the greatest overall risk on a global basis.

    Many cases will never be detected, and of those that are discovered, the actual amount of the losses may never be known or reported. Almost half of the victim organizations do not recover any of their losses. In cases that are referred to law enforcement, 55% of the offenders plead guilty, 19% of prosecutions are declined, and 16% are convicted at trial.

    A profile of the thieves within the workforce

    The ACFE report analyzed a number of parameters to identify who he or she is: education, criminal history, employment history, job description, administrative level and responsibilities, gender, lifestyles, and other factors that tell the story. In my world I have found that long-term employees are the most suspect because of their knowledge of the inner workings of the entity and understanding of the controls that they must circumvent.

    Report to the Nations
    by the Association of Certified Fraud Examiners
    http://www.acfe.com/uploadedFiles/ACFE_Website/Content/rttn/2012-report-to-nations.pdf

    How Not to Catch a Thief
    She was mostly just horsing around
    "Somehow the City of Dixon, Illinois Just Noticed (after six years) That $30 Million Was Missing," Going Concern, April 19, 2012 ---
    http://goingconcern.com/post/somehow-city-dixon-illinois-just-noticed-30-million-was-missing

    What a surprise. I thought she could gallop faster than the posse.
    "U.S. Attorney: Ex-Dixon comptroller to plead guilty," Chicago Tribune, November 13, 2012 ---
    http://www.chicagotribune.com/news/local/breaking/chi-us-atorney-exdixon-comptroller-to-plead-guilty-20121113,0,227018.story

    Former Dixon comptroller Rita Crundwell plans to plead guilty Wednesday to a federal fraud charge that alleges she siphoned more than $53 million from the small northwestern Illinois city’s coffers, according to the U.S. Attorney's office.

    The office released a statement saying Crundwell will change her plea to guilty at a hearing Wednesday morning before U.S. District Judge Philip G. Reinhard in federal court in Rockford.

    It was unclear from the release how Crundwell’s guilty plea to the federal charge will impact separate state charges she faces for the same wrongdoing. She also faces 60 counts of theft tied to her alleged embezzlement from the city's accounts.

    Crundwell is accused of stealing the money over two decades and using it to sustain a lavish lifestyle and a nationally renowned horse-breeding operation.

    Federal authorities have auctioned off about 400 horses and a luxury motor home that Crundwell allegedly bought with the stolen city funds. If Crundwell is convicted, much of the money will be returned to Dixon – after the federal government takes its cut for caring for the horses for months.

    How true can you get?
    As (Commissioner) Bridgeman left office last year, he praised (Controller) Rita Crundwell for being an asset to the city and said she "looks after every tax dollar as if it were her own," according to meeting minutes.
    As quoted by Caleb Newquest on April 27, 2012 ---
    http://goingconcern.com/post/heres-ominous-statement-former-dixon-city-finance-commissioner-made-about-accused-embezzler

     

    Bob Jensen's Fraud Updates ---
    http://www.trinity.edu/rjensen/FraudUpdates.htm

     

  • Robert E Jensen

    "Fraud Reports Climb Still Higher: Employee reports of fraud are steadily increasing, both as a percentage of all compliance-reporting activity and in raw numbers," by Caroline McDonald, CFO.com, September 26, 2012 ---
    http://www3.cfo.com/article/2012/9/regulation_fraud-whistleblower-sec-jimmy-lin-jonny-frank

    Reports of fraud by corporate employees have continued their ceaseless rise so far this year, according to the Quarterly Corporate Fraud Index. The current drivers are increasing awareness of fraud, mandated whistle-blower protections, and changing company cultures.

    The index measures reported frauds as a percentage of all compliance-related reports. Most recently, for the second quarter of 2012, that ratio climbed to 22.9%, up from 21.7% for the same quarter in 2011.

    “This index essentially has been going up since the day we started tracking it [in 2005],” says Jimmy Lin, vice president of product strategy and corporate development at The Network, a provider of governance, risk, and compliance solutions that conducts the quarterly analysis in conjunction with BDO Consulting. The index looks at compliance-reporting activity at more than 1,400 clients of The Network worldwide, including nearly half of the Fortune 500.

    Corporate employees are simply becoming more aware of organizational issues and more willing to report compliance errors, especially fraud, Lin says. Fraud is more often covered in the news media these days, he notes. Also, he claims, the client companies have become more sophisticated in educating employees on what fraud looks like (which is a service The Network provides). “We see the index going up and up as a positive. Companies are getting more interested in a holistic approach than a check-box approach to compliance.”

    Employers are highly motivated to hear about alleged internal fraud before an employee instead makes an initial report to the Securities and Exchange Commission. “Even if it doesn’t turn into anything significant, they want to catch wind of it first,” notes Lin. Companies know that “even a hint of potential fraud issues in their organization, whether true or not,” puts their reputation at risk, not only with the public but also internally: “Employees may begin to wonder about the company’s ethics.”

    The whistle-blower protections under the Dodd-Frank Act, such as prohibiting retaliation against whistle-blowers, also may be having an impact. Companies are “couching it as building a better culture,” says Lin.

    Jonny Frank, a partner at forensic-accounting firm StoneTurn Group, points out that the SEC has offered incentives to encourage employees to use company-compliance hotlines. But another reason for the upward trend may be that the government expects companies to make the hotlines accessible to such third parties as customers and suppliers, as well as to employees.

    And a growing number of companies annually require employees to certify as to their knowledge of wrongdoing. “It’s one thing to put the burden on employees to come forward; it’s another to ask them to confirm they don’t know of any wrongdoing,” Frank says. That trend “suggests a culture where employees see that the company is serious and not just giving lip service to fraud.”

    Frank says compliance officers generally are doing a good job of pushing that message. Unfortunately, he adds, some companies’ finance teams are getting less involved as ethics and compliance controls mature. “It becomes easier for the CFO to just hand off that responsibility to compliance.”

    Lin observes that organizations are vulnerable if compliance enforcement is not a pervasive theme throughout the company. If functional areas, departments, and divisions aren’t working together to make sure fraud is addressed, “then everybody is going to lose,” he says.

    Continued in article

    Bob Jensen's Fraud Updates --- http://www.trinity.edu/rjensen/FraudUpdates.htm

     

  • Robert E Jensen

    "Java Is No Longer Needed. Pull The Plug-In," by Antone Gonsalves, ReadWriteWeb, September 5, 2012 ---
    http://www.readwriteweb.com/hack/2012/09/java-is-no-longer-needed-pull-the-plug-in.php

    For nearly everyone, it’s time to dump Java. Once promising, it has outlived its usefulness in the browser, and has become a nightmare that delights cyber-criminals at the expense of computer users.

     Java Today

    Sun Microsystems released Java in 1995 as a technology for building applications that could run on any platform, including Windows, Macintosh and Linux. In its heyday, major browsers embraced Java for running applets within pages. All anyone needed was a browser plug-in for executing programs.

    Today, that plug-in has become a top security risk, along with Adobe Flash. Partly to blame for the problem is Oracle, which acquired Sun and its invention in 2009. The database vendor has heightened the risk by failing to launch timely patches.

    The latest security meltdown is a case in point. Despite being warned in April of critical vulnerabilities, Oracle did not get around to releasing an emergency patch until last week, after reports that cyber-criminals were exploiting the flaws. Security Explorations, the Polish firm that first reported the vulnerabilities to Oracle, later said the patch contained a flaw that could be used to circumvent the fix.

    The Latest Threats

    In the meantime, criminals are having a field day. Atif Mushtaq, security researcher at FireEye, says the number of computers infected with malware exploiting the flaws is growing. As of Tuesday, up to a quarter-million computers had been infected. Hackers are at an advantage because computers users are laggards when it comes to applying Java patches. Up to 60 percent of Java installations are never updated to the latest version, according to security vendor Rapid7.

    Over the just-past Labor Day weekend, the SANS Institute’s Internet Storm Center and Websense reported finding separate phishing campaigns trying to lure people to malicious sites capable of exploiting the vulnerabilities. SANS discovered link-carrying emails that copied a recent Microsoft message about service agreement changes. Websense found emails disguised as order verification messages from Amazon.

    Security experts rate the latest flaws as critical, because hackers can use them to commandeer a computer and take whatever data they want. Risking that kind of damage for a technology with little purpose makes no sense.

    What Security Experts Advise

    Security experts are hard pressed to say what Java does for most people. While some online games and business applications need a Java plug-in to run, nearly all modern sites, including Facebook and Twitter, use JavaScript, XML and HTML 5, which run natively in the browser. Therefore, people could happily surf the Web for years without ever running Java.

    Those who are using a Java application, should run it in a dedicated browser that’s used for nothing else, Patrik Runald, director of security research at Websense, says. Another browser should be used for daily Web surfing. “I’ve run a browser with Java disabled for years,” he said.

    Supporters once believed that Java would play a significant role in running Web applications. That never happened. Instead, browsers became the operating system for the Web. “(Java) never took off the way it was anticipated,” Runald said.

    So the verdict is clear. Disable Java plug-ins in all browsers, whether Firefox, Chrome or Internet Explorer. Java’s glory days are over and it’s time to pull the plug.

    Bob Jensen's threads on computer and networking security ---
    http://www.trinity.edu/rjensen/ecommerce/000start.htm#SpecialSection

     

  • Robert E Jensen

    From The Wall Street Journal Weekly Accounting Review on August 10, 2012

    Fraud Fears Put a Chill in Fuel Program
    by: Ryan Tracy and Ben Lefevre
    Aug 03, 2012
    Click here to view the full article on WSJ.com
     

    TOPICS: Assurance Services, Auditing, Fraud

    SUMMARY: The article describes the credit trading programs used to meet mandates set by Congress in 2005 and 2007 for gallons of production of diesel-motor fuel made from sources such as waste cooking oil and soybeans. Major oil producers who have purchased credits from bio-diesel producers to meet their mandated quotas are now shying away from using the markets because increasing numbers of sellers of the credits have been shown to have committed fraud or are accused of doing so. The article also states that the EPA now requires companies purchasing bio-mass fuel credits to replace ones found to be bogus-putting the audit onus on the purchasers of these credits. An economic result also is that small producers' credit prices are slammed because of their perceived risk for fraudulent credits.

    CLASSROOM APPLICATION: Questions ask students to understand the nature of credit trading schemes to support innovation in fuel industries and the need for auditing the certificates sold in these schemes.

    QUESTIONS: 
    1. (Introductory) Summarize the government mandates described in the article that are helping to achieve growing levels of alternative fuel production. When were these programs put into place?

    2. (Introductory) Refer to the graphic entitled "Power Play." How long has it taken to see increasing production of alternative fuel relative to when U.S. Congress first initiated quotas for these fuels?

    3. (Advanced) How do the government systems over biomass fuel production require an audit verification process?

    4. (Advanced) Refer to the article description of Absolute Fuels of Lubbock, TX. What evidence indicates fraud may have occurred behind this company's sale of credits for biofuel production to large oil producers?

    5. (Advanced) What audit steps could be taken to identify these fraudulent practices? Who should be responsible for undertaking these audit steps? Explain your answer.
     

    Reviewed By: Judy Beckman, University of Rhode Island

     

    "Fraud Fears Put a Chill in Fuel Program," by Ryan Tracy and Ben Lefevre, The Wall Street Journal, August 10, 2012 ---
    http://professional.wsj.com/article/SB10000872396390444840104577550944057955070.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj

    A government program designed in part to foster innovative new producers of alternative diesel fuels is now endangered by fears of burgeoning fraud.

    Congress in 2005 and 2007 set mandates requiring major oil refiners to purchase credits representing gallons of diesel-motor fuel made from alternative sources, such as cooking oil and soybeans. The idea was to jump-start a new industry by attracting start-ups that otherwise would have trouble competing on price with established biodiesel producers.

    But federal charges that two small producers passed along worthless credits—and warnings that more cases could be coming—have spooked major buyers, threatening the viability of the small companies trying to gain a foothold.

    One company fearing the fallout is New Leaf Biofuel in San Diego, which makes diesel from used cooking oil collected at area restaurants. "We are nowhere near the margins that we had," said Chief Executive Jennifer Case, citing the case of a trash hauler with hundreds of trucks that backed away from doing business with her company.

    "The current issues as well as the future fraud threatens tens of thousands of jobs in the renewable-fuel industry," said Thomas Paquin, president of biofuel marketer VicNRG LLC, in testimony before Congress last month.

    When a producer such as New Leaf produces a gallon of alternative diesel fuel from sources deemed renewable by the EPA, it simultaneously creates a tradable credit representing roughly that amount of production, which is then assigned a 38-digit number.

    Big refiners can buy the credits to fulfill their legal requirements for biodiesel output, but at the moment they are offering low prices or nothing at all for credits from little-known producers that are perceived as risks for offering fake numbers.

    Allegedly bogus numbers are at the core of the federal cases.

    In December 2010, a Lubbock, Texas-based company, Absolute Fuels, sold about $1 million worth of numbers representing an equivalent amount of biofuel output to Tesoro Corp., one of the country's largest oil refiners, according to affidavits filed by a Secret Service investigator in federal court. Tesoro said it believed the numbers were valid and has turned in additional numbers to the EPA to replace those it bought from Absolute.

    The trade capped a big quarter for Absolute, which had closed similar deals with other big refiners. On Jan. 5, 2011, the firm registered a Gulfstream G-1159A multi-engine turbojet worth $2.5 million, according to documents filed by the Secret Service in federal court in Texas. Two months later, Environmental Protection Agency inspectors visited the Absolute factory and discovered the facility didn't appear to be producing any fuel, the documents said.

    Jeffrey Gunselman, Absolute's chief executive, was arrested last month and pleaded not guilty to the fraud charges, said his lawyer, Dan Cogdell. Mr. Cogdell said Mr. Gunselman has cooperated with investigators and that he was "instrumental in turning over tens of millions of dollars to the government during this investigation."

    The case against Mr. Gunselman is still pending.

    Rodney Hailey, owner of Maryland's Clean Green Fuel LLC, was convicted June 25 of fraudulently selling about $9 million of phony credits and is awaiting sentencing. His lawyer, Joseph Evans, says Mr. Hailey isn't guilty. Mr. Evans said an appeal was possible and that the government intends "to crush him beyond reason, even assuming that he did absolutely everything that they said he did."

    Under EPA rules, refiners that purchase phony credits are on the hook to replace them. According to an estimate by VicNRG, the biofuel marketer, the $140 million of allegedly fraudulent credits identified by the EPA so far would cost more than $200 million to replace at current market prices.

    While the market turmoil could temporarily help some established producers get higher prices for their credits, it could have negative longer-term effects for the alternative-fuel business. If too many producers drop out of the market, total output may fall short of the EPA's target of about one billion gallons a year.

    Continued in article

    Bob Jensen's Fraud Updates are at
    http://www.trinity.edu/rjensen/FraudUpdates.htm

  • Dov Fischer

    Excellent approach towards teaching IFRS.

  • Valerie Williams

     Will be there