Tag Archives: litigation

Watchoo Talkin’ ‘Bout

IMG_0382-0.JPG

Before I studied accounting, I went to college and got a degree in economics and mathematics. Armed with this degree in issues of money and numbers, I figured that accounting would be a relative walk in the park. I had learnt about debits and credits in economics, I had created intricate formulae in mathematics and I had tested theories on what had happened during the Salem witch trials in statistics, so I felt more than ready for accounting. Boy, was I wrong.
It had been a while since I had felt so overwhelmed. Nothing that I read made sense to me. When I asked my coworkers, who had been studying accounting for a while, they were confused. How could I not understand the accounting concepts. I was studying the most basic things – how could it not make sense. I spoke to my parents and warned them that I might not last in accounting. I prepared them for my failure. My mother, who had taken some coursework in accounting, stated that she had faith that I would work things out. It’s nice to have family who have faith in you, even when all around you look at you like you are the biggest dummy about. She encouraged me to look at some of the books that she had, “Maybe they will help.” I did and, fortunately for me, I found a book that explained accounting in a way that made it all clear to me. I almost couldn’t believe that it had been so difficult before. Now, I felt like I had a brain and it was more than luck that had gotten me through college the first time around.
As I have mentioned before, forensic accounting is a specialty practice of accounting where the work done is suitable for a court of law. The work done here is in anticipation of or as a result of litigation. Often a forensic CPA, usually Certified in Financial Forensics, will testify as a forensic expert before a judge and jury. Forensic CPAs are also often expected to present reports to their clients, to judges or to juries. Because most of the audiences that forensic accountants speak to are not financial experts in any way, it is imperative that they can communicate their work in a way that is understood by all the parties that they deal with. One of those parties could be you.
Many people that I talk to, who have accountants, have no idea exactly what their accountants do, or why. What they are is grateful that their taxes are filed on time and that they either had a small tax liability or a decent refund. This should never be your attitude with your forensic CPA and you should not give the time of day to a forensic accountant who does not explain everything to you. When it comes to forensic issues, you, as a client dealing either directly with a forensic CPA or through a lawyer, are the party to the potential litigation. Doesn’t it just make sense that you know exactly what is going on? Also, if they can’t explain things to you, how much faith could you have that they will be able to explain it to anyone else? My attitude is, if they are not doing a good job with me, and I’m the one hiring them, how can I expect them to do a good job anywhere else?
You should have a forensic accountant that you understand, are comfortable with and doesn’t treat you as though you are not smart enough to understand the complicated work that they do. Yes, the work they do can be very complex and involved but, part of being a good forensic accountant, is being able to take this complicated work and explain it in a way that can be understood by a jury of ones peers (generally a jury of people who did not major in accountancy). I often hear the phrase “explain it as though you are talking to a six year old”, but I would be happy if it was explained to me like someone was talking to an economics and mathematics major. Don’t let them make you feel dumb. Chances are, if they do, they may not be so clever themselves.

Advertisements
Tagged , , , , ,

It’s Not Worth It

Image

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.

Tagged , , , , , , , , , , ,

Mmmm… Mmmm… Good!

ImageA few months ago, I voiced my opinion about how it would be great to have a forensic accountant as an option to run the Securities and Exchange Commission (SEC). I can’t deny it, it’s right here, written in Internet stone. The reason I spoke about it was that a new head of the SEC had just been announced and, yet again, it was a lawyer. I believed that having a CPA, credentialed in financial forensics, might shake things up or at least lead the SEC to think of new ways and methods to protect investors. I still believe that a qualified forensic accountant would make an excellent candidate, but it seems that, in the case of Mary Jo White, the new head of the SEC, I may have been haste in my criticisms.

When he nominated Mary Jo White to head the SEC, President Obama said, “You don’t want to mess with Mary Jo”. Apparently it wasn’t just talk. Mary Jo White has said, in an interview, “I think financial statement fraud has always been important to the SEC”, and that she has committed substantial resources to the detection and investigation of fraud in accounting and financial disclosures seems to back that statement. On 2 July, the SEC announced three new Division of Enforcement initiatives; the Financial Reporting and Audit Task Force (FRATF), the Microcap Fraud Task Force (MFTF) and the Center for Risk and Quantitative Analytics (CRQA). These are fancy sounding names, for sure, but what are they and why are they encouraging with respect to the SEC’s goals?

First, the FRATF’s focus is detecting and investigating fraudulent or improper financial reporting and engaging in enforcement actions related to accounting and disclosure fraud. The MFTF’s goal is to target abusive trading and fraudulent behavior in securities issues by microcap companies. Microcap means that the company’s market capitalization, which is the share price multiplied by the number of outstanding shares of that company, is between $50 and $300 million. This task force will pay particular attention to microcap companies that do not regularly issue public financial results, since the lack of regular publicly available reports means that potential investors have limited access to information about the company. This, in turn, increases the risk that the investors may be fed fraudulent information that they cannot sufficiently verify. Finally, the CRQA will, as its title suggests, specialize quantitative data and analytics. This is the high-tech innovation of the SEC. Here the SEC will work to identify risks and potential threats to investors, be a part, along with other agencies, of risk-based investigations and come up with ways to identify possible illegality. The CRQA will employ various data technologies to achieve this goal. Of course, the usefulness of quantitative data analytics is only as good as those who use it. There is a lot of data out there but you need to know how to work with it in order to get the information that you are looking for.

What is encouraging about the announcement of the initiatives is not only that the SEC has declared a focus on the proactive detection and investigation of possible fraud, it is also not just that the SEC is stepping up its use of technology and data analytics in its endeavors, it is in large part about the manpower that they say they are going to employ for these initiatives. The SEC has announced that they will include enforcement attorneys and accountants, which is a great idea. The successful pursuit of financial fraud requires the expertise of people who know the books and people who know the law. In particular, the collaboration of attorneys and forensic accountants can lead to a formidable fraud fighting force. Certified forensic CPAs not only understand financial records, they also know how to look for potential fraud in those financial records and this information must be of a standard suitable for a court of law. Working with attorneys, the forensic accountant can put together information and provide appropriate litigation services in cases that the SEC decides to pursue.

Yes, it is true; I did voice my dissenting opinion about the appointment of another in a long line of attorneys to head the SEC. I have not changed my mind that a well-credentialed forensic CPA would be a wonderful choice for this position. However, I do concede that it is apparent that Mary Jo White understands the importance of both legal and financial expertise when it comes to policing the financial markets. Vital roles are played by all parties in the investigation and prosecution of financial crime and in the protection of investors. So, as these initiatives go into action and work towards achieving their stated goals, I shall eat at least some of my words. As long as fewer parties are getting away with their financial misdeeds, I shall enjoy every mouthful.

Tagged , , , , , , , , ,

Nothing To See Here, Move Al… Wait!

Image

JPMorgan Chase has been in the news quite a bit lately. Just last week, two employees were charged in connection with the adventures of the London Whale (though the indicted former coworkers may be seeing him as more of a rat than a whale right now). On Sunday, I opened the paper to read about a bribery investigation that the SEC has launched. As I have discussed before, bribery of foreign public officials by US companies is illegal and it appears that the SEC is looking into whether this has happened with JPMorgan’s China business.

JPMorgan hired the children of officials of state-controlled companies. Hiring someone, even if their parents have very important jobs, is not wrong in and of itself. However, if it is found that these children were hired, not on the strength of their qualifications but, so that JPMorgan could get business with the companies that their parents worked at then JPMorgan may very well find itself in trouble. That JPMorgan hired these children and then received lucrative contracts from the companies where the fathers of these new employees were high-ranking officials raises red flags, so it is no surprise that the SEC is investigating the matter.

You can see here that bribery of government officials comes in various forms and is not always as straightforward as a bunch of cash in an envelope, slipped over to a congressman. Any actions taken to influence officials and gain unfair advantages in business dealings is likely to be considered a bribe. What has happened here as well is that the definition of a government official is not just a political government representative. In the case of nations, such as China, where a lot of large enterprises are state-controlled, officials at these enterprises are seen as government officials. This means that, where JPMorgan may have hired the child of a private enterprise and received lucrative deals without the SEC batting an eyelid, because the entities in question are governmental enterprises, the rules are different.

It is important to note a few things:

  • That the SEC is investigating this matter does not imply that these children were not qualified for the jobs that they held. In fact, this may not matter. If they were hired in order to get cushy deals that JPMorgan may not have received otherwise, then JPMorgan may face FCPA violation charges.
  • Right now the investigation is merely that – an investigation. The SEC has not accused JPMorgan of wrongdoing. What has happened is that they have noticed red flags – the hiring followed by the lucrative deals – and they are looking into this matter to ensure that laws were not broken.
  • That the SEC is investigating this matter is the way it should be. When red flags are raised, one should look into the matter and even if it is found that nothing of concern happened, it was not a wasted effort.  The knowledge that red flags will be investigated serves as a deterrent for some who consider breaking the law.

Some may be rolling their eyes about this story. The offspring of the very privileged – high ranking corporate officials or famous people – probably get hired because of who their parents are all the time. It’s like that person in the grocery story taking their very-full-of-way-more-than-10-items shopping cart into the express checkout lane. It’s not right but it doesn’t appear that it will ever stop. However, the story here is in the nuance –

  • We are dealing with state-controlled enterprises, not private companies here.
  • Because they are state-controlled, officials at these enterprises are considered public officials
  • Therefore, the FCPA makes it illegal for companies to give favors to these de facto public officials in exchange for sweet deals.

In the past, the Justice Department has not been aggressive about investigating these cases but things may be changing. So we shall just watch this case and see how JPMorgan fares and if hiring practices will become a focus of the SEC. Just because everyone is doing it, it doesn’t make it okay and, if it is illegal, you may just turn out to be the unlucky one the law decides to come after. Remember that when you have your cart with 20 items and you think about using the “10 Items or Less” lane.

Tagged , , ,

Step Away From The Dice

Image

I just spent a lovely weekend in Atlantic City, celebrating a friend’s birthday. During this time I ran past several casinos, I walked through a casino but, happily, I did not spend any time at all gambling at the casino. I say happily because I am a terrible gambler. The mere thought of gambling fills me with anxiety because I have no idea what I’m doing out there. The only thing I do know is that the odds are stacked against me, more so because I don’t know what I am doing. I never learned how to play poker, beyond yelling “big money, big money” I don’t know the rules of roulette and even when sitting in front of a one-armed bandit, I am pretty sure that I am not quite doing it correctly.  The one thing I do know, when I am in a casino, is who to NOT consult for help. The pit manager. Because the allegiance of pit managers is to the casino so I know that helping me win money is not a priority for them. In fact, in order for the pit managers to keep working, we the gamblers need to lose more than we win.

This brought to mind an article I read about Philip Ramatlhware who walked into a Philadelphia Citibank branch to open a regular bank account where he could deposit the proceeds from a settlement with Greyhound. He had been injured in a bus accident and received $225,000 and wanted to keep his money safe. All he wanted was a savings account but he was referred to a broker who assured Mr. Ramatlhware, a man with limited English skills and without a college education, that his money was going into “guaranteed” funds. Instead, in less than six months, he lost $40,000. This is not an isolated case. Digging into the archives of the Financial Industry Regulatory Authority (FINRA), which is an independent regulator of security firms doing business with the public, you can find several cases where individuals walked into commercial banks, seeking a safe, FDIC insured place to put their savings and ended up losing money through risky investments that they could not understand. That they could not understand the risky investments was not only because these investments were complex ones but also because the brokers they met with misrepresented the risks involved and was not clear about where the money was going. It is, to a certain extent, understandable that these customers were easily misled – they believed they were going to a commercial bank and not an investment bank.

Back in 1933, the Banking Act of 1933 was enacted and it included four provisions that are what is generally meant when people speak of  the Glass-Steagall Act. The provisions served to, in essence, separate commercial banking and investment banking. They kept commercial banks from dealing in securities for their customers. The funds that customers deposited into commercial banks, as I mentioned before, were insured by the FDIC and were not to be used for speculation. They were to be considered safe by the banks’ customers. Conversely, risk-taking investment banks were not to take in deposits. So, you may be wondering how, with Glass-Steagall in effect, Mr. Ramtlhware and walked into a commercial bank and ended up investing with an investment bank broker. This is because Glass-Steagall was repealed in 1999, leaving banks able to deal in both commercial and investment banking at the same time. This means that investments that are complicated and very risky and should be reserved for so-called sophisticated investors are being marketed and sold to people who think they are dealing with the relatively safe offerings of a commercial bank, do not fully comprehend what they are getting into and who generally cannot afford to lose the money they end up investing in risky offerings.

As long as the wall between commercial and investment banks continues to be virtually non-existent, potential customers walking into commercial banks are going to have to start asking more questions at the bank:

  • Is my deposit insured by the FDIC?
  • Are you a broker?
  • If I am just depositing money into a risk-free guaranteed account, why does it come with all of this complicated paperwork?

Should you find that you have been taken for a ride by your bank, know that you have resources you can turn to in order to have your case heard. FINRA offers advice to investors that probably will not turn you into a sophisticated investor but may go a long to helping you recognize some of the strategies an unscrupulous broker may employ. Also you can take your case to FINRA or, in the case of fraud, the Department of Justice. Though you may believe that you are walking into a commercial bank and dealing with a customer service representative who wants to help you, you should be careful in the banks for sometimes you may come across a pit manager who is trying to make as much money as possible for the investment bank casino.

Tagged , , , , , , ,

All Over This One

Image

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.

Tagged , , , , , , , , ,

Who You Gonna Call?

gbmusicvideo

After watching more television that I am sure is healthy, I often worried about who I might call should I need to say, “I’d like my lawyer.” My work as a CPA, in general, and specifically as a forensic accountant has helped me realize that there are many different situations in which a lawyer can make life a lot easier (and they are not always terrible situations). Just last week, I was talking about the importance of seeking out a qualified professional. It is important to have an idea what kind of help you need so you get the right professional for that need.

It is mind-blowing how many types of lawyers there are. Lawyers may specialize in criminal law, family law, mergers and acquisitions. You can call them to help you put together a lease and you can call them to help you decipher a lease. They can be the expert you hire when you are establishing a business or if you are trying to dissolve a business. In all these, and the countless other situations that are connected to the law, hiring a good lawyer who has knowledge and experience in the matter at hand could save you money and stress in the future. It would not be wise to hire a property lawyer to represent you in a criminal case and vice versa.

In addition to knowing the law, good lawyers will recognize when they need to work with an expert. For example, in the dissolution of a business, lawyers will call upon a business valuation expert. The lawyers may know the legalities involved in the dissolution but the lawyers also know that, in order to best serve their clients, they need to engage the services of a qualified financial professional. The relationships between lawyers and experts, including financial forensic experts, is a very important one. It is important for all parties involved in a legal matter to understand what everyone brings to the table.

Because a lawyer advocates for their client, the lawyer is who you need when you need a friend. Your lawyer will work very hard to best represent you. Your lawyer’s goal, in a nutshell, is to resolve the matter in your favor. In the process of giving you the best representation, your lawyer may call upon an industry expert. In financial matters, this expert is likely to be a forensic accountant and probably one who is certified in financial forensics. Because a forensic accountant advocates for the truth, the lawyer will engage the forensic expert to find and present the truth in your case. The forensic accountant deciphers complicated financial issues, seeks out the truth in those matters and presents them in a straightforward manner that is suitable for a court of law. Your lawyer, your friend, will find you a well-qualified expert who will take your complicated legal issue and present it as a set of uncomplicated, unbiased facts. In this way, your lawyer and the forensic experts that your lawyer engages will work together on your legal matter.

So when you need someone on your side, call your lawyer. Your lawyer will work hard to get the truth of your case out in a clear and uncomplicated manner. The best lawyers will know to call unbiased, qualified experts who will advocate for the truth and know how to make the truth clear, properly supported and at a standard acceptable in court.

Tagged , , , , , ,

Preemptive Strike

Image

My brother is watching the Oklahoma Thunder play against the Boston Celtics. I can hear him yelling at the television and, normally, I would be right next to him, getting working up too. However, today I have a little, yet important, project to complete before I can get to Veg-out Sunday. I am reviewing a lease for my husband, who is looking to rent office space.

I will be the first person to tell you how tedious legal documents can be, what with the whereases and herinafters sprinkled through the twenty page document. That’s the kind of language I thought I only had to deal with when reading Shakespeare. However, as long and not fun the review of a lease (or any other legal document, for that matter) may be, knowing and understanding what one is about to sign is critical. In the case of the lease in question, these twenty pages will determine my husband’s rights and obligations, with regards to the office space, for the next two years. If he signs off on something adverse, they may end up feeling like the longest two years of his life. Although he is an incredibly intelligent and organized person, he asked me to look at it because, when it comes to commercial leases, I have experience and knowledge that he does not.

I once worked for a company that owned commercial real estate and I was very involved in the financial aspects of tenant leasing. As a result, I am familiar with many of the peculiarities of commercial leases; peculiarities like escalations and common area maintenance (CAM) charges. I would go into more detail but I have seen people’s eyes glaze over whenever I start talking about leases. Suffice to say, it is neither fun nor interesting, but knowing exactly what is in the lease now, instead of being surprised by a huge bill in the future is worth it.

The importance of figuring out exactly what is in a legal document cannot be stressed enough. Be it a lease, an insurance document or release of rights to a piece of art, your signature on that document is, in essence, stating that that you have agreed to the terms and conditions in that legal document. Once you have done that, any legal recourse after something you don’t like has happened becomes a lot more complicated. If you decide to approach a lawyer for representation, you are likely to be turned down because the lawyer will, rightly, tell you that you signed off on it. You may try to state that you did not intend to sign off on the stipulations in the document but, if you were given the document to read and you signed it, the assumption made is that you knew what was in the document and agreed to it. If the terms in the lease are not illegal, you will have very little, if any, recourse.

The ideal thing to do, before signing your name to a legal document, is to find an expert who can help you navigate the document. Do the due diligence beforehand:

  • Don’t take the other party’s word for it that there is nothing untoward in the document.
  • Don’t assume that it is all “standard”. Even if it is “standard” for the industry, do you know what standard for the industry means?
  • Make sure you read and understand every part of the document, including riders and any addenda.
  • Don’t sign the document until all the issues you have with it are resolved. We return to the first part – do not take the other party’s word for it that they will fix things. If it’s not in writing, they don’t have to do it.
  • Make sure that the document that you sign is exactly the document you want to sign. Negotiate the terms before you put pen to paper – that is when you have the power.

You may think that seeking out professional help is a headache that you don’t want to deal with. However, dealing with the headache before anything untoward happens is the smart thing to do. Once disaster strikes, finding professionals to clean up the mess will be more complicated and, most likely, a lot more expensive. That headache will have escalated into a migraine and who wants that?

Tagged , , , ,

Option C for SEC?

Image

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.

Tagged , , , , ,

Say It Clear

Image

Recently I blogged, at AICPA Insights, about the importance of social media and getting ahead of it, instead of it overwhelming you. Social media is not just a way for people to share photos of their kids and pets with friends (and the internet at large) it is also a powerful business tool that is proving to be essential to the long-term survival of a business. Because of this intersection of the personal and profession on such a public platform and especially because of the sensitive nature of  a lot what the forensic accountant is involved in, it is vital to have a corporate social media policy in place.

It is nowhere near enough (and sometimes not necessarily good for business) for a company to declare that employees are not allowed to use social media while at work. In an age where most people have personal access to the internet through smartphones and tablets, a company blocking internet access on their computers is not enough to keep an employee silent on the web. And, is silence what a company wants at a time where having a social media profile is of the utmost importance to a business? Also, blanket policies are coming under fire from federal regulators. As reported in the New York Times, the National Labor Relations Board (NLRB) has stated that workers have the right to discuss work conditions freely and without fear of retribution, whether this conversation takes place in the workplace or via social media.

It makes more sense to figure out a way to manage the risks of social media and, as shown by the recent NLRB cases, the policy a business comes up with should be legal and specific. Beyond keeping in mind the wise words, “don’t say anything you wouldn’t say to your mother, here are some things to think about:

  • Forensic accountants can begin by tying their social media policy to the AICPA’s Code of Professional Conduct. In the same way that their work should be directed by this, so too should their social media interactions.
  • The social media policy should make very clear that confidential information cannot be be disclosed. This is particularly important for practitioners involved in litigation, where a good deal of information is privileged, to be clear that this information cannot be published in social media.
  • A follow up to the previous point was brought to mind by a friend who is in litigation. When working on a case where even the location of a meeting is confidential, practitioners must turn off GeoTagging in their social media. For example, someone posting a completely innocent post on Facebook may not realise that the GeoTagging that declares that he is at the Waldorf Astoria has just revealed the location of the confidential meeting he is attending.
  • The social media policies of IBM and the MACPA are a good place to start. The MACPA is of particular usefulness to those in accounting, be it in litigation support or elsewhere.
  • A social media policy is not set in stone; it should be updated as technologies and privacy issues change.

What is most important is to start out ahead with a social media policy, instead of trying to create rules once things have spiraled out of control. A straightforward, specific policy that recognizes the importance of social media, makes clear what is on and off limits, is legal and encourages those in the business to be innovative with the tools offered by these new and emerging technologies.

Tagged , , , , , ,