Accounting Scandal
Updates and Other Fraud Between April 1 and June 30, 2019
Bob Jensen at
Trinity University
Bob Jensen's Enron Quiz (and answers) --- http://faculty.trinity.edu/rjensen/FraudEnronQuiz.htm
Bob Jensen's Enron Updates are at --- http://faculty.trinity.edu/rjensen/FraudEnron.htm#EnronUpdates
Other Documents
Scandal Updates --- http://faculty.trinity.edu/rjensen/fraud.htm#ScandalUpdates
Bob Jensen's Enron Quiz --- http://faculty.trinity.edu/rjensen/FraudEnronQuiz.htm
What's Right and What's Wrong With SPEs, SPVs, and VIEs --- http://faculty.trinity.edu/rjensen//theory/00overview/speOverview.htm
Bob Jensen's Summary of Suggested Reforms --- http://faculty.trinity.edu/rjensen/FraudProposedReforms.htm
Revenue Accounting Controversies --- http://faculty.trinity.edu/rjensen/ecommerce/eitf01.htm
Electronic Business Controversies --- http://faculty.trinity.edu/rjensen/ecommerce/000start.htm
Bob Jensen's Bottom Line Commentary --- http://faculty.trinity.edu/rjensen/FraudConclusion.htm
The Virginia Tech Overview: What Can We Learn From Enron? --- http://faculty.trinity.edu/rjensen/fraudVirginia.htm
Fraud References --- http://faculty.trinity.edu/rjensen/fraud.htm#References
Fraudulent Dealer
Tricks: An Interactive DHTML Illustration ---
http://faculty.trinity.edu/rjensen/FraudDealerTricks.htm
This includes a summary of ten unethical tricks of the trade by automobile
dealers.
Selected Scandals in the Largest Remaining Public Accounting Firms --- http://faculty.trinity.edu/rjensen/fraud.htm#others
Accounting Education Shares Some of the Blame --- http://faculty.trinity.edu/rjensen/FraudProposedReforms.htm#AccountingEducation
Bob Jensen's
Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
My Latest Web Document
Over 400 Examples of Critical Thinking and Illustrations of How to Mislead With
Statistics ---
http://faculty.trinity.edu/rjensen/MisleadWithStatistics.htm
What's your fraud IQ? Take a quiz for fun ---
https://www.journalofaccountancy.com/issues/2019/jun/fraud-iq-quiz-small-business.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=03Jun2019
The New Yorker: While Rui Pinto sits in jail, his
revelations are bringing down European soccer's most famous teams and players
---
https://www.newyorker.com/magazine/2019/06/03/how-football-leaks-is-exposing-corruption-in-european-soccer
Cancer researcher contributed “false data” to 11 studies ---
http://retractionwatch.com/2015/12/09/cancer-researcher-contributed-false-data-to-11-studies/
A
$1 Billion Fraud: Does Theranos Mark the Peak of the Silicon Valley Bubble?This month, Carreyrou’s book about the Theranos saga, Bad Blood, was released. It reads like a page-turner in the finest tradition of Michael Crichton, complete with secondary and tertiary characters and finely detailed scene settings, with the tragic difference that everything in it is true. It has already been purchased—after a bidding war—by a Hollywood studio, which has cast Jennifer Lawrence as Holmes.
Question
What is the main temptation of white collar criminals?
Answer from http://faculty.trinity.edu/rjensen/FraudEnronQuiz.htm#01
Jane Bryant Quinn once said something to the effect that, when corporate
executives and bankers see billions of loose dollars swirling above there heads,
it's just too tempting to hold up both hands and pocket a few millions,
especially when colleagues around them have their hands in the air. I tell my
students that it's possible to buy an "A" grade in my courses but none of them
can possibly afford it. The point is that, being human, most of us are
vulnerable to some temptations in a weak moment. Fortunately, none of you
reading this have oak barrels of highly-aged whiskey in your cellars, the
world's most beautiful women/men lined up outside your bedroom door, and
billions of loose dollars swirling about like autumn leaves in a tornado.
Most corporate criminals that regret their actions later confess that the
temptations went beyond what they could resist. What amazes me in this era,
however, is how they want to steal more and more after they already have $100
million stashed. Why do they want more than they could possibly need?
See Bob Jensen's "Rotten to the Core" document at http://faculty.trinity.edu/rjensen/FraudRotten.htm
The exact quotation from Jane Bryant Quinn at http://faculty.trinity.edu/rjensen/FraudRotten.htm#MutualFunds
Why white collar crime pays big time even if you know you will eventually be
caught ---
http://faculty.trinity.edu/rjensen/FraudConclusion.htm#CrimePays
Bob Jensen's threads on professionalism and ethics ---
http://faculty.trinity.edu/rjensen/Fraud001c.htm
Bob Jensen's Rotten to the Core threads ---
http://faculty.trinity.edu/rjensen/FraudRotten.htm
NASA Says Metals Fraud Caused $700 Million Satellite Failure ---
Click Here
DOJ charges Chinese hacker for 'one of the worst data breaches in history'
which took 79 million people’s personal data from Anthem health insurers ---
https://www.businessinsider.com/chinese-hacker-stole-data-78-million-anthem-doj-say-2019-5
Jensen Comment
The sad thing is that internal controls are too weak to prevent such data
breaches.
After 15 Years, the Pirate Bay Still Can’t Be Killed ---
https://melmagazine.com/en-us/story/after-15-years-the-pirate-bay-still-cant-be-killed
Academic Risk: The Predatory Publisher ---
https://www.sciencemag.org/careers/2019/05/how-i-became-easy-prey-predatory-publisher
Beware of those glowing reviews
Amazon reveals it was a target of 'extensive' fraud affecting seller
accounts ---
https://www.businessinsider.com/amazon-hit-by-fraud-uk-2018-2019-5
The TurboTax Scam: Listen to TurboTax Lie to Get Out of
Refunding Overcharged Customers ---
https://www.propublica.org/article/listen-to-turbotax-lie-to-get-out-of-refunding-overcharged-customers
A former FBI agent’s view on the recent Medicare fraud ---
https://blog.aicpa.org/2019/05/a-former-fbi-agents-view-on-the-recent-medicare-fraud-.html#sthash.zgIGsQFv.dpbs
US News Strips the University of Oklahoma of Its Academic Ranking
Oklahoma Gave False Data for Years to 'U.S. News,' Loses Ranking
https://www.insidehighered.com/admissions/article/2019/05/23/university-oklahoma-stripped-us-news-ranking-supplying-false?utm_source=Inside+Higher+Ed&utm_campaign=52d50b2bd6-DNU_2019_COPY_02&utm_medium=email&utm_term=0_1fcbc04421-52d50b2bd6-197565045&mc_cid=52d50b2bd6&mc_eid=1e78f7c952
Jensen Comment
Oklahoma is consistently outstanding in athletics --- that's what matters most
Walmart to pay more than $282 million to settle bribery investigations --- https://www.businessinsider.com/walmart-to-pay-282-million-settle-sec-justice-department-charges-2019-6
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Baltimore Mayor Catherine Pugh Resigns Amid Self-Published Children's Books Scandal ---
Internet crime resulted in $2.7 billion in losses last
year, almost double the figure for 2017, according to the FBI. Complaints in
2018 were up almost 17%, the agency said ---
https://www.thinkadvisor.com/2019/04/26/fbi-sees-big-rise-in-internet-crime-complaints-losses/
Felecia Edna Taylor, 50, just threw away an astonishing 29-year career
with the IRS after getting caught trying to hustle a taxpayer out of $5,000 ---
https://goingconcern.com/irs-agent-lady-allegedly-tries-and-fails-to-scam-unwitting-taxpayer-out-of-thousands/
Cryptocurrency --- https://en.wikipedia.org/wiki/Cryptocurrency
How Cryptocurrency Scams Work ---
https://theconversation.com/how-cryptocurrency-scams-work-114706
This is a non-technical overview for students, but real world scams can be much
more complex
From the CFO Journal's Morning Ledger on May 13, 2019
Nasdaq Inc.’s lawsuit accusing a New Jersey company of stealing more than $1 billion in exchange-traded funds is set to come to trial Monday in New York, in a case that is drawing interest across the ETF industry.
Pension Scams: Where will illinois find a quarter of a trillion dollars?
A candidate in Kentucky vows to expose the
nation’s worst public pension system in a way that could reveal corruption
everywhere ---
https://www.statedatalab.org/news/detail/the-2019-election-that-should-have-hedge-funds-and-wall-street-worried
ILLINOIS’ PENSION CRISIS IS MORE FEARSOME THAN
UNION FLACKS WANT US BELIEVE ---
https://www.statedatalab.org/news/detail/illinois-pension-crisis-is-more-fearsome-than-union-flacks-want-us-believe
Among the union flacks is one Ralph Martire of the Center for Tax and Budget Accountability, a think tank well funded by Illinois public employee unions.
Martire was brought in by three liberal Illinois state lawmakers at a Evanston town hall to explain, clarify or propagandize (take your choice) the Democratic solution to Illinois' crushing pension problem. Which amounts to more taxes, spending, borrowing and related ruinous non-solutions.
The only problem for Martire was that an actuary was in the audience and he punched deadly holes into the Democrat's scam. I invite everyone to read the argumentation of Mitchell I. Serota, Ph.D., a Fellow of the Society of Actuaries, in which he, among other things, reveals that the real unfunded pension obligation of Illinois' five public employee pension funds is more like $250 billion, not the often stated $140 billion. (I've previously written about this here.) Where the hell will Illinois find a quarter of a trillion dollars?
Continued in article
Why Do Some People Commit Fraud? Psychologists Say It's Complicated ---
https://www.forbes.com/sites/sarahwatts/2019/03/21/the-psychology-behind-scamming/#2bbdae5c3447
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Edward J. Fox, a former faculty member at the University of Washington,
faked data in a manuscript submitted to Nature and in an NIH grant application
---
https://retractionwatch.com/2019/04/02/former-university-of-washington-researcher-faked-data-say-feds/
Bob Jensen's threads about professors who cheat ---
http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize
Putin did not write his own Ph.D. thesis, and there's some question as to
whether he even read it.
Putin’s plagiarism, fake Ukrainian degrees and other tales of world leaders
accused of academic fraud ---
https://theconversation.com/putins-plagiarism-fake-ukrainian-degrees-and-other-tales-of-world-leaders-accused-of-academic-fraud-112826
Also see
"Putin Accused of Plagiarizing Thesis," Moscow Times, March 27, 2006 ---
http://www.themoscowtimes.com/stories/2006/03/27/011.html
Bob Jensen's threads on celebrates who cheat ---
http://faculty.trinity.edu/rjensen/Plagiarism.htm#Celebrities
NYT: College Student Scheme to Swap Fake iPhones Adds Up to $900,000
Loss for Apple, Prosecutors Say ---
https://www.nytimes.com/2019/04/06/business/counterfeit-apple-iphone-scam.html
The Federal Trade Commission accused Omics International, a publisher in
India, of operating hundreds of questionable scientific journals ---
https://www.nytimes.com/2019/04/03/science/predatory-journals-ftc-omics.html
llegaIl Alien Who Stole $72K From Family Disappears, Because Judge Let Her KEEP Her Passport ---
Ring Alarm --- https://en.wikipedia.org/wiki/Ring_(company)
An Uber driver dropped a passenger at an airport before attempting to rob
their home, police say. He was caught by a Ring alarm ---
https://www.businessinsider.com/uber-driver-robbed-passenger-home-after-airport-drop-police-say-2019-4
The former president of a St. Helens-based manufacturer’s labor
union who embezzled $32,000 from the union was sentenced Wednesday to five years
of probation and ordered to complete 50 hours of community service ---
This Banking Fraud Shows How Shady China’s Economy Remains ---
How Oakland Cops Gamed the System To Earn $30 Million in Overtime Pay ---
https://reason.com/2019/06/12/how-oakland-cops-gamed-the-system-to-earn-30-million-in-overtime-pay/
Teaching Case From The Wall Street Journal Weekly Accounting Review on March 22, 2019
KPMG Ex-Partner Convicted In 'Steal the Exam' Scandal
By Michael Rapoport | Mar 12, 2019
TOPICS: Audit Inspections, PCAOB
SUMMARY: Former national managing partner for audit quality and professional practice...at KPMG LLP [David Middendorf] was convicted on four of five counts, including conspiracy and wire fraud, in federal court in Manhattan....Also convicted was a co-defendant, Jeffrey Wada, a former employee of the Public Company Accounting Oversight Board...." As explained in the related article Mr. Middendorf led the audits of KPMG clients such as Home Depot Inc. and J.C. Penney Co. before he became the firm's national managing partner for audit quality and professional practice, where he was directly responsible for dealing with the PCAOB." In that role, Mr. Middendorf has been found guilty of a high-profile "steal the exam" scandal in which he "impproperaly obtained advance information about which of KPMG's audit the PCAOB planned to review in its annual inspections of the firm."
CLASSROOM APPLICATION: The article may be used to discuss ethics, and ethical lapses, in the auditing profession.
QUESTIONS:
1. (Advanced) What is the Public Company Accounting Oversight Board (PCAOB)? You may access its web site at https://pcaobus.org
2. (Introductory) What inspections does the PCAOB conduct?
3. (Introductory) Of what illegal actions have former KPMG LLP partners and PCAOB employees been convicted? State the names of the crimes as described in the article as well as summarizing your understanding of what happened.
4. (Advanced) Are you surprised that these ethical lapses in business practices are considered criminal? Explain your response.
5. (Advanced) How difficult is if for KPMG LLP to repair its professional reputation after this conviction? Discuss your view.
6. (Advanced) How does the value of a KPMG LLP audit opinion rest on ethical foundations? Discuss your understanding.
RELATED ARTICLES:
KPMG Ex-Partner Goes on Trial in 'Steal the Exam' Scandal
by Michael Rapoport
Feb 11, 2019
Page: ##Reviewed By: Judy Beckman, University of Rhode Island
"KPMG Ex-Partner Convicted In 'Steal the Exam'
Scandal," by Michael Rapoport , The Wall Street Journal, March 12,
2019
https://www.wsj.com/articles/kpmg-ex-partner-convicted-in-steal-the-exam-scandal-11552340232
Ex-employee of Public Company Accounting Oversight Board also convicted
A former high-ranking partner at KPMG LLP was convicted Monday on accusations he was involved in a scheme to steal confidential information to help the Big Four accounting firm look better to its regulator, federal prosecutors said.
David Middendorf, KPMG’s former national managing partner for audit quality and professional practice, was convicted on four of five counts, including conspiracy and wire fraud, in federal court in Manhattan.
Also convicted was a co-defendant, Jeffrey Wada, a former employee of the Public Company Accounting Oversight Board, which regulates the audit industry. Mr. Wada was convicted on three of four counts, including conspiracy and wire fraud, his attorney said.
Both men were charged in a high-profile “steal the exam” scandal in which partners at KPMG improperly obtained advance information about which of KPMG’s audits the PCAOB planned to review in its annual inspections of the firm. Prosecutors said the partners hoped to use the information to better prepare for and improve KPMG’s performance on the inspections, on which it had done poorly in the past.
Nelson Boxer, an attorney for Mr. Middendorf, said he was “very disappointed with the result.” What happened was not wire fraud, he said, and “we intend to continue to vigorously press that argument on appeal.”
Justin Weddle, an attorney for Mr. Wada, declined to comment.
KPMG fired Mr. Middendorf and other partners who were allegedly involved after learning of the scheme in 2017. Three other people, including another former KPMG partner, previously pleaded guilty to participating. A spokesman for KPMG declined to comment on the verdict.
SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2833785
25 Pages Posted: 14 Mar 2019
Government of Cameroon - Ministry of Finance - Cameroon
Date Written: September 2, 2016
Forensic Investigation is trending. It is emerging and fast becoming a
veritable tool in financial crimes curtailment and/or eradication. This mini
project work proposes to examine the concept of Forensic Investigation as an
emerging phenomenon particularly as it affects developing nation.
Forensic science is the scientific method of gathering and examining information
about the past which is then used in a court of law. The word forensic comes
from the Latin forēnsis, meaning "of or before the forum." In Roman times, a
criminal charge meant presenting the case before a group of public individuals
in the forum. Both the person accused of the crime and the accuser would give
speeches based on their sides of the story. The case would be decided in favor
of the individual with the best argument and delivery. This origin is the source
of the two modern usages of the word forensic – as a form of legal evidence and
as a category of public presentation. In modern use, the term forensics in the
place of forensic science can be considered correct, as the term forensic is
effectively a synonym for legal or related to courts. However, the term is now
so closely associated with the scientific field that many dictionaries include
the meaning that equates the word forensics with forensic science.
Early methods: The ancient world lacked standardized forensic practices, which
aided criminals in escaping punishment. Criminal investigations and trials
heavily relied on forced confessions and witness testimony. However, ancient
sources do contain several accounts of techniques that foreshadow concepts in
forensic science that were developed centuries later
For instance, Archimedes (287-212 BC) invented a method for determining the
volume of an object with an irregular shape. According to Vitruvius, a votive
crown for a temple had been made for King Hiero II, who had supplied the pure
gold to be used, and Archimedes was asked to determine whether some silver had
been substituted by the dishonest goldsmith. Archimedes had to solve the problem
without damaging the crown, so he could not melt it down into a regularly shaped
body in order to calculate its density. Instead he used the law of displacement
to prove that the goldsmith had taken some of the gold and substituted silver
instead.
The first written account of using medicine and entomology to solve criminal
cases is attributed to the book of Xi Yuan Lu (translated as Washing Away of
Wrongs), written in China by Song Ci (宋慈,
1186–1249) in 1248, during the Song Dynasty. In one of the accounts, the case of
a person murdered with a sickle was solved by an investigator who instructed
everyone to bring his sickle to one location. (He realized it was a sickle by
testing various blades on an animal carcass and comparing the wound.) Flies,
attracted by the smell of blood, eventually gathered on a single sickle. In
light of this, the murderer confessed. The book also offered advice on how to
distinguish between a drowning (water in the lungs) and strangulation (broken
neck cartilage), along with other evidence from examining corpses on determining
if a death was caused by murder, suicide or an accident.
Methods from around the world involved saliva and examination of the mouth and
tongue to determine innocence or guilt. In ancient Chinese and Indian cultures,
sometimes suspects were made to fill their mouths with dried rice and spit it
back out. In ancient middle-eastern cultures the accused were made to lick hot
metal rods briefly. Both of these tests had some validity since a guilty person
would produce less saliva and thus have a drier mouth. The accused were
considered guilty if rice was sticking to their mouths in abundance or if their
tongues were severely burned due to lack of shielding from saliva.
Fingerprints: Sir William Herschel was one of the first to advocate the use of
fingerprinting in the identification of criminal suspects. While working for the
Indian Civil Service, he began to use thumbprints on documents as a security
measure to prevent the then-rampant repudiation of signatures in 1858.
In 1877 at Hooghly (near Calcutta), he instituted the use of fingerprints on
contracts and deeds, and he registered government pensioners' fingerprints to
prevent the collection of money by relatives after a pensioner's death. Herschel
also fingerprinted prisoners upon sentencing to prevent various frauds that were
attempted in order to avoid serving a prison sentence.
In 1880, Dr. Henry Faulds, a Scottish surgeon in a Tokyo hospital, published his
first paper on the subject in the scientific journal Nature, discussing the
usefulness of fingerprints for identification and proposing a method to record
them with printing ink. He established their first classification and was also
the first to identify fingerprints left on a vial. Returning to the UK in 1886,
he offered the concept to the Metropolitan Police in London, but it was
dismissed at that time.
Faulds wrote to Charles Darwin with a description of his method, but, too old
and ill to work on it, Darwin gave the information to his cousin, Francis Galton,
who was interested in anthropology. Having been thus inspired to study
fingerprints for ten years, Galton published a detailed statistical model of
fingerprint analysis and identification and encouraged its use in forensic
science in his book Finger Prints. He had calculated that the chance of a "false
positive" (two different individuals having the same fingerprints) was about 1
in 64 billion.
Keywords: Forensic Accounts, Finance Investigation, Fraud, corruption, growth, development