FRAUD

KEEPING FRAUD IN THE CROSSHAIRS

Five percent of annual revenue—that’s the estimate of how much money the typical organization loses to fraud, according to participants in the 2010 Report to the Nations on Occupational Fraud and Abuse.  The report, prepared by the Association of Certified Fraud Examiners, an international organization of more than 50,000 fraud examiners, CPAs, law enforcement professionals, government officials and others, examines a wide swath of business-related fraud in an effort to pinpoint problems and highlight solutions. The fraud cases at issue in the report lasted a median 18 months before being detected. While million-dollar-plus financial statement frauds made up a small percentage of the crimes, the majority were less complex asset misappropriation cases involving billing, check tampering, payroll and expense report schemes.

http://www.journalofaccountancy.com/Issues/2010/Jun/20102852.htm

DAIMLER BRIBERY SETTLEMENT APPROVED

Daimler has agreed to pay $185 million to settle charges by the Justice Department and the Securities and Exchange Commission, and it will remain subject to a two-year deferred prosecution agreement and oversight by an independent monitor. Judge Richard J. Leon of United States District Court in Washington called the settlement a “just resolution.” As part of the settlement, Daimler’s German and Russian units each agreed to plead guilty to two counts of violating American bribery laws. Its Chinese subsidiary will be subject to the two-year deferred prosecution agreement as well.

Link: http://www.nytimes.com/2010/04/02/business/02daimler.html?emc=tnt&tntemail1=y

ART DEALER PLEADS GUILTY IN $120 MILLION FRAUD CASE

A once-prominent art dealer pleaded guilty on Thursday to a $120 million fraud scheme, admitting he sold paintings he did not own and at least once sold fractional shares of a painting that added up to more than 100 percent. Mr. Salander’s gallery, the Salander-O’Reilly Galleries, had occupied a town house on the Upper East Side, where it rented for $154,000 a month. It shut down in 2007. The gallery had displayed paintings as varied as English landscapes by John Constable and modernistic scenes by Robert De Niro Sr., the actor’s father, who died in 1993.

Link: http://www.nytimes.com/2010/03/19/nyregion/19salander.html?emc=tnt&tntemail1=y

INVESTORS SUE SEC FOR NOT STOPPING FRAUD

Several shareholders in CMKM — some of whom kept buying shares after the government exposed the fraud — want 10 current and former commissioners of the Securities and Exchange Commission to pay them $3.87 trillion, an amount equal to about half the United States government debt in public hands. You might think that would be enough, but the suit claims those are merely compensatory damages. They also want punitive damages, but do not cite a figure.  That is an impressive amount for a company whose last published balance sheet showed total assets of $344. That is dollars, not millions.

http://www.nytimes.com/2010/03/12/business/12norris.html?emc=tnt&tntemail1=y

BRIBES ALLOW TOMATO VENDORS TO SELL TAINTED GOODS TO KRAFT AND OTHERS

Link: http://www.nytimes.com/2010/02/25/business/25tomatoes.html?em

Robert Watson, a top ingredient buyer for Kraft Foods, needed $20,000 to pay his taxes. So he called a broker for a California tomato processor that for years had been paying him bribes to get its products into Kraft’s plants. The check would soon be in the mail, the broker promised. “We’ll have to deduct it out of your commissions as we move forward,” he said, using a euphemism for bribes.

CUOMO CHARGES BANK OF AMERICA WITH FRAUD

http://www.washingtonpost.com/wp-dyn/content/article/2010/02/04/AR2010020402146.html?hpid=moreheadlines

New York Attorney General Andrew M. Cuomo filed fraud charges Thursday against Bank of Americaand two of its former top executives, alleging that they lied not only to investors but also to government officials who were orchestrating a massive bailout of the bank in the final months of 2008.

THE SEC ENFORCERS

http://www.nytimes.com/2010/02/09/business/09sec.html?emc=tnt&tntemail1=y

In the headquarters of the Securities and Exchange Commission, Mr. Madoff’s name is rarely spoken. More than seven months after he was sentenced to prison for orchestrating a global Ponzi scheme, shaken S.E.C. employees are still struggling to come to grips with how they failed to catch him before it was too late.

COURT RULES VIVENDI MISLED INVESTORS!!

http://www.nytimes.com/2010/01/30/business/30vivendi.html?emc=tnt&tntemail0=y

A jury ruled on Friday in favor of shareholders who said the French media group Vivendi lied to the public about its shaky finances, setting the stage for a possible distribution of billions of dollars in damages to investors.


OVERVIEW OF FRAUD

Occurrences of fraud typically include one or more of the following:

  • Management Fraud
  • Financial Reporting Fraud
  • Computer Security
  • Investment Fraud
  • Customer Fraud
  • Vendor Fraud
  • Employee Fraud
  • Internet Fraud
  • Identity theft

All organizations must protect themselves against fraud, misconduct, security breaches and other types of exploitation caused by attacks from both outside and inside the organization.  Data from the past eight years show that these threats continue unabated, and the financial toll is mounting.  As a result, financial forensics represents one of the fastest growing practice areas of accounting and criminal investigation. Further, the development of an expanded workforce in the field of information security is one of the most critical issues facing the United States today.

The challenge to prevent, detect and recover from fraud is compounded by flaws in technology, lack of awareness about fraud risks, and misperceptions about external and internal attackers.  The consequences for failing to implement adequate controls are serious, and may include loss of assets, negative publicity, and increased exposure to civil litigation.  For many organizations – particularly those that deal with telecommunications, banking and finance, oil and gas production, utilities, transportation, government services, and emergency services – the risk is serious enough to threaten national security (Critical Foundations: Protecting America’s Infrastructures, a 1997 report issued by the President’s Commission on Critical Infrastructure Protection).  More research is needed in the areas of financial forensics and information security. More professionals are needed in the areas of organizational oversight, fraud investigation and examination, business valuation, valuation of damages and lost profits, litigation support, criminal investigation, business/employee fraud investigation, professional negligence, and computer and network security.


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