Category Archives: Enforcement

A Matter of Trust

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I fell in love with economics, in part, because it made so much sense. Just about everything could be boiled down into a supply and demand chart that even I, with my limited artistic skills, could draw, freehand. In a free market (the basis of all things good in this world) and in our economics 101 diagrams, the goal was to get everything, neatly, to equilibrium. It was glorious! In every situation, supply and demand, in a free market, would come to a price where both parties were happy and all goods and services to be sold were bought. In equilibrium, there were no shortages, there were no overages and the price was right. For instance, say guy made Twix bars and was selling them for five cents. He would likely find that a lot of people, including those who might ordinarily prefer Snickers, would be clamoring to stock up on Twix bars. Chances are that this guy would sell out of Twix bars in no time. People seeking these cheap, and now sold out, Twix bars might start placing ads on Craigslist, perhaps even offering ten cents for a Twix bar. Others might go to the Twix maker and offer him ten cents a bar to be put on a pre-sale list. Some people might see how well the Twix bar maker is doing and decide to start making Twix bars too. In the world of the perfect graphs, this cycle would go on, with the Twix makers raising their prices a little more and making more Twix bars, in response to the great demand for the chocolate bars. However, as the price goes up and gets closer to the price of a Snickers bar, some of the people who are not so crazy about the Twix will find that the higher price is not enough of a bargain for them, so they will no longer want to buy the Twix bar at this high price. The Twix makers might get too excited about the demand for the chocolate bars and decide to raise the price to two dollars. Even though a few Twix or nothing people might be willing to sacrifice all for a Twix, most people would tell the Twix makers that they are crazy and go looking for an alternative. The Twix makers would then find that the Twix bars are going old and stale in their storage facilities and they are not selling enough chocolate to even cover their costs. To resolve this, they will lower their prices and reduce production, until they get to the point where the price is such that sellers have enough unexpired Twix bars to sell to everyone who comes in looking for them, no extras, no shortages. That, according to the graphs, is how a free market works.

When a monopoly exists, it messes with the free market. In the case of a monopoly, there are no other options and people have no choice but to buy a product or service from one source. This would like living in a place where you can only buy electricity from one provider. For most people in that society, they will be forced to pay whatever the electricity provider charges for electricity. Try as they might, they will not have an alternative to electricity in order to charge their mobile phones and laptops. Twix bars won’t cut it. What economists have found is that, left to their own devices, monopolies will charge more for their products and services than people would be willing to pay in a free market where they could choose their supplier. Monopolies have pros and cons. Some pros of monopolies are:

  • Stable Prices that come about because there is no one coming in and out of the market to create bidding wars, where suppliers fight, with prices, to get customers. With only one supplier, there tends to be just one price that tends to remain the same for a while.
  • Economies of Scale. This basically means that, because the monopolist is making all the product for the entire market, he is making a lot of product at one time. As a result, the large scale will lead to lower costs per unit. If the monopolist chooses to pass the savings on to the customer the customers will be able to get goods and services at a lower price than they might have in an open market with many supplies making goods on a smaller scale.
  • Research and Development may benefit from monopolies. Since the monopolies are making all the money in the market, from sales, they can take these larger profits and have more money to put towards innovations and improvements of their goods and services.

On the flip side, the cons of monopolies are:

  • Higher Prices may be a result of monopolies. Because people have no other options, the monopolies can get away with charging whatever they feel like charging.
  • Price Discrimination can happen with monopolies as well. Because they can charge whatever they want, they can decide to charge some people one price and others another price and, because customers have no options, they are forced to accept the price quoted to them.
  • Inferior Goods and Services are a possibility with monopolies. Monopolies may look at the market and decide to cut corners and produce inferior quality goods and services because they know that customers can’t go anywhere else.

Generally, monopolies are not considered to be in the spirit of the free market. Competition, that would correct inefficiencies and unfairness in the markets, does not exist with monopolies and so there is a risk that consumers can be taken advantage of. As a result, regulators tend to take steps to review mergers of large companies in order to reduce the risk of monopolies (or something close to a monopoly). The action by the regulators is related to their enforcement of antitrust laws.

Currently, several health insurance companies are fighting with the US Department of Justice. Humana and Aetna are seeking to merge into one company as are Athena and Cigna. Currently there are five national health insurance providers; the merger will leave us with three providers. The health insurance companies are touting the pros of monopolies, claiming that the mergers will lead to lower prices to consumers and increased research and development. The justice department, on the other hand, argues that, with fewer national insurance companies, there will be less innovation and there will be the risk that customers will be charged higher rates.

As we enter the complications of humans, trust, regulations and court battles, we can keep in mind the memory of the neat graphs of the perfect markets. It may help us better understand the news articles, full-page ads and other coverage of this and other antitrust actions related to other mergers and acquisition deals in the news. If not, we can take comfort in our still affordable Twix bars.

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The Sheriff in Town!

When I first went to university, I was unsure what I wanted to major in. I had been considering chemistry, because I fancied that I might be the person to come up with a cure for AIDS. At the idealistic age of 18, I was so sure that I could use the colorful magic of gas chromatography to come up with a solution that many experienced scientists with doctoral degrees had been unable to discover. I signed up for a chemistry class and, I decided to take an elective in economics. I was hooked after my first class and ended up majoring in economics. I was fascinated by various theories and the push and pull between fiscal and monetary policies. I did come away from my class knowing one thing – I wanted to work for the Federal Reserve System, home of US monetary policy. To me, to be part of an organization that was focused on what to do in order to best positively influence the economy of the entire nation was awesome! Federal Reserve Banks issue the money that we use; how cool is that? I remember going to a campus career fair and spending most of my time there chatting with a representative from the Fed. Following that conversation, getting a job at the Fed was my dream. One big obstacle stood in my way; at the time, I was not a US citizen. I was devastated but I still dreamt that one day I would either be a citizen or the Fed would change its policies, whichever came first. At the time, as an economist in training, my dream was to be an analyst.

As time has gone by (I am a citizen now) and I have gone on to add becoming a CPA and then getting Certified in Financial Forensics to my skill set, my interest in the Fed and what it does has grown. After graduating, with my degree in economics and mathematics, I went on to work at a bank, where I was an analyst. I was very excited about the opportunity to apply the theory I had learnt in college. I had not bargained on how people are not very good at following the rules, be they the rules of logic or the rule of law. I mean, how many times have you said, “Who would do that,” or “Why did they act that way? It doesn’t make sense”? Yep, we humans use our free will in the nuttiest ways. Just last week, I read a crazy story about a Georgia woman filing a tax return for a $94 million dollar refund. Every aspect of the story is insane, from her 100 dependents to thinking that she could pick up her refund check at a local Kroger grocery store, and yet she is neither the first or last person to attempt this kind of thing. So, after the monetary policy folks have come up with their ideas about how best to influence the economy, there need to be the people who make sure that people are not breaking the rules and people who create control systems and audit them to minimize the risk of people breaking the rules. This is where forensic accountants come into play at the Fed.

Forensic Accountants, both those Certified in Financial Forensics and those who are Certified Fraud Examiners, can be found in the audit and enforcement areas of the Federal Reserve System. The saying is that love makes the world go around, but we are all aware that money is a big motivator for who many people behave. I have written about the fraud triangle and how people in positions of trust and authority will break the law in pursuit of illicit gain. With this in mind, it is vital to assess and improve control systems to make sure that, starting at the top financial institution, there is little opportunity for those who feel the pressure to commit financial crime. If the top bank cannot keep money safe, what hope is there for the rest of them? The Fed has bank examiners whose goal is to ensure that banks comply with laws such as those governing anti-money laundering and doing business with nations and people that the US government has imposed sanctions upon. The Fed plays an important role as an independent third party that will objectively assess operations at the banks that they supervise to make sure that they are not, for example, helping criminal rings hide their ill-gotten gains.

There are twelve banks in the Federal Reserve System and each bill of paper money that you have incorporates, in its serial number, the letter assigned to bank that issued that bill. Pull out a banknote, be it a dollar or a $100 bill, it will have the letter of the particular Federal Reserve Bank that issued it, be it Boston, San Francisco or any of the ones in between. In the case of the dollar bill, the name of the issuing bank is also noted on the bill. It goes almost without saying that the institution that issues the money that we use should have top notch controls. Each Federal Reserve Bank, therefore, has audit departments that are constantly reviewing it and making sure that the banks are complying with the rules. The auditors also work to improve systems. Every day, people are spending a lot of time and energy trying to figure out how to game the system and so those at the Fed should spend at least as much time and energy working to keep the banks safe and compliant.

Though my focus has changed, my excitement when it comes to the Fed is unabated. Not only are they working on monetary policy, they are also working to make sure that the rules are not being broken and that the opportunity to defraud, steal or abet crime is diminished. Take a look at the money in your wallet and think about what goes into making it worth what it is worth.

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Desperate Needs, Gouging Measures…

IMG_2231When I lived and worked in Zimbabwe, my parents and I lived in different cities, about an eight-hour drive apart. My father, however, was in town at least once a month for meetings and, when he came to town, we would meet for and evening of dinner and catching up. On one such evening, we were sitting in his hotel suite, eating dinner and watching the news. There was a piece on about an Ebola outbreak in the Democratic Republic of Congo. At the time, people were speculating that people living in the area where the outbreak had occurred had come across dead animals in the forests and had eaten them. Handling the dead animals (which had been killed by the Ebola virus) had infected them with the virus. I looked over at my father and said, “Why would they eat a random dead animal they came across in the woods? I mean, wouldn’t they ask themselves what had killed this animal and wouldn’t they be scared of being killed by the same thing?”

My father looked at me and said, “My dear, you can’t judge them. You don’t know what you would do if you were starving? Who knows what you would eat.”

Since, at that moment I was working my way through a three-course dinner, it didn’t seem like the appropriate moment to argue with my father, but I was pretty sure that no kind of hunger would lead me to eat dodgy food. I do know now that I was judging because I am fortunate enough to have many food options.

It turns out that investigators now think that fruit bats, not mysteriously dead animals are to blame for the spread of Ebola, but I thought about this conversation with my father when I read a piece in the New York Times about usury charges being brought against several payday loan companies, their owner and two of his associates. Usury is one of those not often heard words that is at home in the bible or a Shakespeare play, but it basically is illegally lending money at very high interest rates. I first heard analysis of payday loans on the NPR podcast, Planet Money, who, in 2010, discussed payday lenders. The concept of a payday loan is that people take out a small loan that is that is then paid back using the borrower’s next pay check. These loans, however, charge much higher interest rates than banks or credit cards do. The Planet Money episode referred to rates of over 500%. A more recent Planet Money piece spoke of a loan being offered at an annual interest rate of over1,300%. Many people debate payday loans and the people who take them out. Some argue that people who take out these loans are people who are irresponsible with their money and the payday loan rates are so high because the borrowers are risky. Others will talk about how payday lenders target people with low incomes and get them into a cycle where they end up spending years paying high fees and never being able to repay their initial balances.

In the state of New York, all this debate is moot because payday loans are illegal. When announcing the indictments, on 12 August, the Manhattan District Attorney, Cyril Vance, encouraged victims of payday lending schemes to call the Major Economic Crimes hotline. This is important to know, whether you received the loan at a storefront or online, the practice is illegal in New York, seventeen other states and District of Columbia. This is because, when people feel they have few options, people with few scruples like to take advantage of the situation. These are the types of people who offer to lend you $750 for a week, at a cost of $225. To make this point clearer, if you borrowed that $750 for a year and paid this interest on the loan every week, you would pay a total of $11,700 in interest. That is a lot of money to pay for $750 and I think that most people would agree that charging that kind of interest qualifies as usury.

Even if payday loans are legal where you live, the lenders still have to comply with rules that govern their industry. If you believe that you or someone you know is being taken advantage of, with regard to a payday loan, you can either call your local district attorney’s offices or get in touch with the Consumer Financial Protection Bureau (CFPB), which is the federal agency whose mission is to protect consumers of financial products. It is important to know that there are protections in the system and there may be more options than you think, when it comes to finding ways to pay debts or make ends meet and not every option involves interest rates that would make your calculator give you the side-eye. Knowledge is power and sometimes knowledge can also save you money and keep you from having your rights violated.

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It’s In The Mail

ImageIn one of my previous lives, I worked for a company that, among its various business ventures, owned a mailboxes service. I would pop in occasionally to see how this and other nearby businesses were doing and, on one such visit, I found myself in the middle of an adventure. In the morning, shortly after the store opened, a man walked in and flashed his very impressive-looking badge. He explained that a woman was going to come in later in the day to pick up a package and that he needed to be present when this happened. Unsure what was going on, yet thoroughly impressed by the badge, the store’s staff agreed to let the man set himself up behind the counter, in wait for the woman. In no time, the man had settled himself in a chair, opened up a newspaper and blended into the scenery. A short while later, the store’s phone rang and one of the store’s employees answered a call for the woman they were waiting for. She asked if her package had arrived. Upon hearing that it had, she requested that someone bring it out to her car, as she was waiting outside the store. The employee explained that it was the store’s policy that all customers come in to pick up and sign for their own packages. After a short back and forth, he hung up the phone and a few minutes later a small woman in massive sunglasses walked in. The agent paid her no notice and appeared, instead, to be engrossed in a phone conversation with a friend. The woman signed for her package and turned to leave with it. As she did so, the agent whispered urgently into his phone and, suddenly, the mailboxes store turned into a scene straight out of the movies. Men in dark glasses, holding guns, burst in through the door, our agent behind the counter surged forward and, in no time, the woman was under arrest and her box was in their custody. Before he left, the agent explained that this woman was one of a group of people shipping some drug along the lines of PCP. Suffice to say, we were all pretty speechless and the most amazing thing of all? These guys worked for the US Postal Service. Yes, those folks who will let “Neither snow nor rain nor heat…” keep them from delivering your mail will not let crime hang out in their system either.

The United States Postal Inspection Service, founded by Benjamin Franklin, is the primary law enforcement arm of the US Postal Service and one of the oldest federal law enforcement agencies in the United States. Their goal is to protect against those who  “attack our nation’s postal system and misuse it to defraud, endanger, or otherwise threaten the American public.” You would be amazed how many criminals use the postal service as a conduit for perpetuating their crimes (using services such as UPS and FedEx for crimes that cross state lines is also covered by these laws). When Charles Ponzi was arrested for taking people’s money in a giant fraud that came to be known by his last name, the Ponzi Scheme, he was arrested by the US Postal Inspection Service because he had used the mail system to write to his investors, encouraging them to reinvest their funds.  He was charged with and went to jail for mail fraud.

If a person sends you mail in order to ensnare you in some kind of scam, to make an illegal delivery or to otherwise commit a crime, that is mail fraud. Conversely, if someone has scammed you and you end up sending that person money or some other item of value, that too is also considered mail fraud and that person can be prosecuted for it. Since a lot of mail fraud involves financial schemes, the work of financial forensics experts is quite important in the crime fighting work of the US Postal Inspection Service. If, for example, a person were running a pyramid scheme that involves people mailing in funds to invest in the scheme, a forensic accountant would be needed to track and follow the money trail and build a case against the criminal carrying out the scheme. Also, say you received a solicitation to send money to a fake charity and you sent payment in the mail. A forensic CPA’s skills would go a long way in exposing and putting a stop to the bad deeds of the fake charity.

The US Postal Service provides a very important service. It is well known that stealing mail is a federal crime but few realize just how far the US Postal Service and its law enforcement agents go to maintain the integrity of the postal service. Much trust is placed in those blue boxes and this is because of the work of these agents.

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It’s Not Worth It

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A forensic scientist made it into the news for all the reasons a forensic expert never wants to make it into the news. Annie Dookhan, a former chemist for the state of Massachusetts, who provided evidence and expert testimony, was caught forging a colleague’s initials. Once confronted, she admitted that she had forged the signatures of other co-workers and had also been falsifying lab test results for years. As her case unfolded, it turned out that she had broken all kinds of rules and left red flags of her unprofessional behavior all over the place and yet she was able to continue, unchecked, for several years.

To make her resume look more impressive, Dookhan padded her resume with a Master’s degree, in science, that she did not possess. An attorney, speaking about forensic science, described it as a “wild, wild west” and, looking at the case of Annie Dookhan, you could easily believe that. However, this does not need to be the case. When working with a forensic CPA, Certified in Financial Forensics (CFF), you can easily verify any qualifications claimed. CPA licenses can be verified via the relevant state boards and the CFF credential can be verified through the AICPA, who issues the credential. These certifications convey a level of knowledge, experience and expertise so you should check to make sure you have engaged someone who really is whom they claim to be.

Dookhan’s work seemed too good to be true and it turned out that it was. The average monthly testing output of her peers was 50 to 150 samples. Annie Dookhan tested 500 samples a month and she did this without claiming any overtime. A supervisor complained that he never saw her in front of a microscope and another coworker claimed that she would weigh samples without resetting the scales to zero. Despite these and other complaints, nothing was done for years. She continued to deliver several times more test results than any of her colleagues, without any reasonable explanation for her high numbers. In 2010, a coworker found seven separate instances in which Dookhan identified a drug sample as a certain narcotic when it was something else. The coworker explained this away as honest mistakes. When she was finally caught, Dookhan admitted that she routinely tested only five out of every 25 samples. She had been identifying drug samples merely by sight and not carrying out any tests, a practice known as “dry labbing”.

Granted, several coworkers found ways to rationalize the many red flags raised by Dookhan’s behavior. However, there were several fellow workers and supervisors who raised the alarm about Dookhan, voicing their concerns and observations to their superiors. Nothing was done about this for years and then when, in 2010, Dookhan’s work was audited, the audit was hardly anything that would be considered an audit. None of Dookhan’s samples were retested; the auditors merely reviewed her paperwork. This is a classic example of a poor tone at the top. The management at Hinton State Laboratory Institute, where Dookhan worked, received reports of an employee who appeared to be skirting proper procedures and who was definitely, mysteriously outperforming her colleagues by unbelievable margins, yet they seemed reluctant to do anything about this. From Dookhan’s own admissions, she, at times, intentionally changed negative sample results into positive ones. She was also accused of recording inflated weights of samples so that the accused was facing stiffer penalties. She often manipulated test results in favor of the prosecution. This may have made the lab, and Dookhan in particular, a preferred expert for the prosecution. Perhaps the lab liked the business they were getting because of their reputation and management was unwilling to jeopardize things. If management was not interested in enforcing rules and standards, it should not be a surprise that they were so shamelessly flouted for so long. The fallout has been far-reaching. Dookhan tested over 60,000 samples and every one of the results from these tests is now open to being disputed. Some people have already been released from prison, as cases may now have to be retried. The work of everyone in the lab is also under investigation as it is now clear that there was poor oversight and supervision at the lab and it is also possible that Dookhan may have contaminated the work of others. Dookhan was sentenced to three to five years in prison.

Anyone seeking the services of a forensic accountant must never seek an Annie Dookhan. On the face of things, it may appear fantastic to have someone who produces unreal results, is always on your side and invariably tells you what you want to hear. However, you should be encouraged if you work with a forensic accountant who is not afraid to give you the facts, even when the facts are not in your favor. In the long run, what will stand up in court and keep everyone out of trouble is work done without cutting any corners, manipulating the truth or violating the law in any way.

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All Over This One

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In the United States, bribery of a public official is illegal. Public officials, on a state, local or national level, tend to hold a lot of power. It would not be right to allow those among us with deep pockets to use the contents of said pockets to get unfair benefits, such as no-bid contracts, tax breaks and “get out of jail free” passes. In 1977, the Foreign Corrupt Practices Act (FCPA) made it illegal for U.S. persons, companies and their subsidiaries to bribe foreign government officials. The FCPA was further amended in 1998 to apply to foreign people and companies whose payments pass through the United States. The FCPA also applies if a foreign party authorizes a bribe via an email that is stored on a server in the United States. It is a far-reaching law with two main provisions – an anti-bribery provision that is generally enforced by the U.S. Department of Justice (DOJ) and accounting and record-keeping provision that is generally enforced by the Securities and Exchange Commission (SEC).

A huge incentive to not violate the FCPA is the severity of the punishment. The criminal and civil fines for violating the FCPA apply to companies and individuals alike. Companies can be fined up to a maximum of twice the benefits sought by the bribe. For individuals, fines can be up to $5 million and 20 years in jail. Fines and jail time can apply for either the corrupt payment or violation of the books and records provision. In addition to the fines, companies may also receive sanctions such as the loss of export licenses and disqualification from U.S. government contracting. For example, in 2008, Siemens was fined more than $1.3 billion by the DOJ, the SEC and German regulators and, more recently, Walmart is under investigation for bribery of officials in Mexico, China and elsewhere.

To avoid the fines and jail time, individuals and firms must comply with both provisions of the FCPA. The first, bribery, seems straightforward but I shall go over it so we are clear.

  1. Do not make payments to public officials in order to get special favors. An officer at state-owned entity is also considered a public official. It is safest, and ethical, to not pay bribes to anyone. However, be mindful of the fact that bribes of public officials will get you into the most trouble.
  2. If you invite public officials on a trip to show off your business or to a conference, do not throw in extras, such as a trip to Disneyland for their family. Keep it all above-board and about business.
  3. “Gifts” such as watches that costs thousands of dollars or a suitcase of cash are taboo.
  4. Payments related to the political campaigns of foreign governments are also not allowed.

The accounting provisions are where the forensic accountant is very active, working for both the companies and for the DOJ and SEC. Corporations covered by the FCPA are required to make and maintain books and records that accurately and fairly reflect their transactions and to devise and keep a sufficient system of internal controls. This is so that government agencies inspecting the books and records of the corporation will be able to easily see that the corporation is in compliance with the anti-bribery laws. The controls are so that the employees of the corporation do have the opportunity to commit fraud or bribery. When companies and individuals are paying bribes to public officials, it is highly likely that they will try to hide these transactions in their ledgers so they are not immediately identifiable as illegal transactions.

Companies with international operations will often have a department that review the books and internal control systems to ensure that they are complying with FCPA provisions. From time to time, the company may call in a forensic accountant to perform an internal investigation. This may happen either because the company suspects that untoward behavior has occurred or as a periodic review of their books and systems.

The DOJ and SEC will also employ the services of forensic accountants when they investigate companies and individuals that they suspect of violating the FCPA. When cases like this happen, there will be forensic accountants working for both the government agencies and the entity being investigated. In addition to discovering whether or not bribery has occurred, the company and the government agencies seek to determine the extent of the violations and determine the value of the gains realized and, therefore, the fines and other penalties to be levied by the government and avoided by the corporation. These investigations can be very extensive and span several continents, depending on the size and reach of the corporation. Financial forensic experts are instrumental and very involved in these investigations, tracing payments and working diligently to find what the corporation has tried to hide both on and off its books.

Often, an element of a FCPA settlement is the appointment of a multi-year monitor. This happens after the investigation and is an area where forensic accountants can use their expertise to examine the company’s control environment and record-keeping and assess the progress the company has made toward compliance with the law.

In recent years, the DOJ and the SEC have become very aggressive about enforcing the FCPA. In addition to this, other nations have enacted their own anti-bribery laws; the U.K. Bribery Act of 2010 has been in force since July 2011 and criminalizes bribe payments to private individuals as well as government officials. Also, there is more and more international cooperation in the investigation and enforcement of this law. Through it all, the work and expertise of financial forensic experts are extensive and vital. A lot of big firm lawyers think of the FCPA when they think of forensic accountants. It is indeed one of the many places you will find the financial forensic expert.

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Look Out Now!

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A friend of mine, who works at a law firm, called to tell me about several clients who had come into the law offices in a panic. While searching for information online, they had clicked on a link. Instead of bringing up the search result they expected, pornography popped up on their computer screens. Moments later, before they had time to react to the unexpected images on their computers, their computers froze and the image above appeared. According to the notice, the Department of Justice had suspended their computers “on the grounds of the violation of the law of the United States of America”. To unlock their computers and “avoid other legal consequences”, the screen read, each one of these people was to pay a “release fee” of $300. Apart from the terrible grammar in the notice, there are several red flags to look out for, in order to protect yourself from scams like this:

  • If the Department of Justice suspects you of breaking the law, either by viewing child pornography, using illicit software or anything else, for that matter, they will not send you an online notice. They will show up at your door.
  • If the Department of Justice believes that you are breaking the law, they will not ask for a payoff so they don’t investigate the alleged crime. That type of behavior is commonly recognized as bribery and that in itself is not legal.
  • Just because a website posts pictures of a camera and microphone, informing you that both are on and recording you, it does not automatically mean that you are being recorded. It is important to realize that if you do not have a camera or microphone on your machine, there is no way for anyone to record you. Generally, too, especially with the video recorders on machines, there are lights and other indicators to show that they are on and recording.
  • There is no such thing as the Department for the Fight Against Cyberactivity. The first signal that this is not a real department is that Cyberactivity is not a real word. It is also a department that has never been mentioned by any government official. If you receive a notice and it refers to a government department that you are not familiar with, a search of the usa.gov directory of U.S. government departments and agencies will help you determine if the department is real or made up.
  • If any department or agency of the United States government requires you to pay a fine, it will never ever tell you to pay it via MoneyPak at your local Walmart, pharmacy or 7-Eleven. Never. Payments to government departments and agencies are made directly to the department or agency in question. For example, when you pay your taxes, you pay them to the Internal Revenue Service and when you pay for your driver’s license, you pay that money to the Department of Motor Vehicles. Never follow instructions to pay via MoneyPak, a wire to a provided account number or anything other than a valid government website. If you are unsure whether a notice is real, do not click on the link provided. Instead, open your own website and type in the department’s web address yourself. In this way, you avoid clicking on a link that may take you to a fake website.

If you are a victim of a crime like this, you should report it to the FBI or to the Internet Crime Complaint Center (IC3). In this way, the government is made aware of the scam and can go about warning people and trying to track down the perpetrators. Also, it is important to keep your computer operating systems and software up to date. This helps prevent attacks on your machine. Finally, should your machine be attacked, even with updated systems and software, contact a reputable computer repair expert as your machine may be infected with a virus that will seek personal information on your machine. This personal information may then be used to commit credit card or other financial fraud.

It may seem like a lot but taking these small steps and remaining aware and alert can go a long way to keeping you from being attacked and keeping your money in your pocket should some nefarious party try to take it.

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I Don’t Always Drink Beer…

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On Thursday morning, as I was getting ready to go to work, a Planet Money news story came on about the United States Department of Justice Antitrust Division. The Antitrust Division filed a complaint to stop the merger of the two beer companies Anheuser-Busch InBev and Groupo Modelo. Planet Money’s Caitlin Kenney began the piece by talking about what is needed to build a murder case – ballistics experts, medical examiners and so on. She then went on to say that if you are trying to determine whether an economic crime has been committed you need economists. “You need forensic accountants,” I muttered. An economic, or should we say financial, crime is a financial affair that will most likely end up in a court of law. That is the essence of what financial forensics are all about.

Caitlin then spoke about how the economists at the DOJ’s Antitrust Division analyze whether or not the merging of two companies will result in a reduction in competition. The Antitrust division’s team of economists evaluate whether or not businesses are behaving in anticompetitive ways. In addition to an economic research of whether the actions of businesses are contrary to free competition, when building cases, the Antitrust Division requests and goes through what could be millions of company documents, including emails, memos, business plans, and evaluate whether or not the businesses’ plans aim to kill competition. The process of combing through mountains of data related to an entity’s finances and emerging with straightforward information is the specialty of the forensic accountant.

I can’t blame Caitlin for not mentioning the important work of forensic accountants in antitrust cases; the Antitrust Division’s website speaks only of the lawyers and economists that are involved in resolving antitrust issues. If the Antitrust Division is not talking about what work financial forensic experts are doing, the only way a person could suspect that forensic accountants are providing their financial detective services to the Antitrust Division is if that person had an understanding of what forensic accountants do. The study of economic data and the interpretation of that data into opinions of whether or not a company is violating the economic principles of competition is, clearly, work best suited to an economist. However, the down and dirty investigation that involves combing through volumes of data and scrupulously following audit trails is the domain of a forensic accountant.

It was only when I actively searched for mentions of the involvement of forensic accountants in antitrust cases that I found them. At the conclusion of cases, when the Department of Justice issues its statement and thanks those who led to its resolution, the department has acknowledged, among others, “forensic accountants… who dedicated significant time and resources to investigating this case.” Alternatively, a search through documents on the DOJ’s site will unearth declarations filed that display the involvement of forensic accountants in antitrust cases. I’m thinking it is prime time for the input and value of the forensic accountant to be recognized.

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Someone Was Listening In…

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Just a few days ago, I shared my thoughts with you about having a CPA, Certified in Financial Forensics (CFF), to head the Securities & Exchange Commission. Someone must have been listening in because the SEC recently announced that its new Inspector General is a CFF. It is not quite a commissioner, but it is a step in a great direction. The SEC’s Office of Inspector General (OIG) is an independent office set up to audit and investigate fraud, waste and abuse within the SEC. It is all rather meta – this is the office that polices the securities police. In the appointment of Mr Hoecker to head the SEC’s Office of Inspector General is the perfect opportunity to demonstrate the strengths of the CPA Forensic Accountant. The SEC’s Office of Inspector General has recently been the rocked scandal and is being sued, so it is in desperate need of a truly independent leader who is skilled and experienced in the investigation of fraud and who knows the ins and outs of objective and independent audits. Today a CFF policing the police, tomorrow… watch this space.

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Option C for SEC?

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President Obama recently announced that the new new head of the Securities and Exchange Commission, more popularly known as the SEC, will be Mary Jo White. Basically, the SEC’s job is to police the markets. This work involves enforcing regulations that are meant to help protect investors. Mary Jo White is a very well-known prosecutor who, among her many accolades, was the first female United States attorney. In articles that I read, reservations were expressed about her lack of specialized knowledge of all things Wall Street. Hmm… Lack of specialized financial knowledge, huh? With an idea sparking in a corner of my brain, I looked into other SEC commissioners to see what they were all about. Since the sources that expressed doubts about Mary Jo White also stated that regulatory heads normally were market experts or academics, I expected to find a somewhat diverse mix of financial wonks as SEC commissioners. However, every last one is a lawyer. Granted the lawyers have extensive experience in the world of securities, but they are all lawyers.

The spark warming up a bit, I dug around to see if there is a rule that SEC commissioners must be lawyers and I found nothing. Joseph Kennedy, the first chairman of the SEC was many things but not a lawyer. Despite this, as time has gone by, it seems to have become the standard that commissioners of the SEC be lawyers.

So, with my basic questions answered, I have a suggestion. How about a forensic accountant as commissioner of the SEC? In a forensic accountant, you have someone with an understanding both of finance and legal systems. The work of the SEC includes regulating financial disclosures, issuing and enforcing regulations with the goal of protecting investors. Who better than a financial professional who specializes in matters suitable for a court of law to be an instrumental part of the chief regulatory body of financial markets?

Apart from knowledge of finance and law, another concern that was voiced regarding Mary Jo White (and other SEC commissioners) is their perceived lack of independence. Most of these commissioners have worked as lawyers for the very people they are meant to be policing. As I mentioned before, there is a definite cause for concern since lawyers advocate for their clients. This means that the lawyers who are commissioned to police Wall Street have generally, in the past, defended the causes of the same people they are now expected to keep in check. In addition to this, many commissioners go on from the SEC to work for companies that have financial firms as their clients. Since the forensic accountant advocates for the truth (as I have mentioned before) this conflict does not exist with the forensic accountant. The CPA forensic accountant is also bound to abide by the AICPA’s code of professional conduct and that stresses ethics, independence and objectivity.

So, here we have a professional qualified in finance, who has a detailed knowledge of financial reporting – I mean, who else is preparing the financial reports and the information behind the financial reports, if not the accountants – and who has a knowledge of legal systems and enforcement – they don’t call them expert witnesses for nothing. In addition to all of this, the professional is independent with an obligation only to the truth (not a client, now, in the past or in the future). If this is not the perfect candidate for SEC commissioner, I don’t know what is.

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