Last week I spent three days in the Atlanta area providing training for the Georgia CPA Society. One of the topics I presented was an in-depth session on [tag]internal investigations[/tag], called Books, Crooks & Rooks: Internal Corporate [tag]Fraud Investigations[/tag].

Here are a few pointers for companies attempting to do internal investigations:

1. Create an investigative policy that helps determine when to do a full-blown investigation.
2. Assemble a team of competent professionals, and appoint a captain for the ship. The team should include an experienced [tag]fraud examiner[/tag], corporate security, a management representative, outside consultants for specialties such as computer forensics, and legal counsel.
3. Establish a game plan. What is the scope of the investigation? What is our budget? Who does what?
4. Follow good procedures. Maintain the [tag]chain of custody[/tag] of evidence, keep information confidential, and keep track of important dates in the investigation.
5. Remember that the results of your investigation may someday end up in a court room. Document your findings accordingly.

Richard Scrushy, founder and former CEO of HealthSouth Corp., has been convicted of paying $500,000 in [tag]bribes[/tag] to receive a spot on a state board that approves hospital construction projects. The guilty verdicts on six charges included [tag]bribery[/tag], [tag]conspiracy[/tag], and [tag]mail fraud[/tag]. The maximum sentence is 20 years in [tag]prison[/tag], but sentencing won’t happen until at least fall.

The failed defense strategy included comparing Scrushy to civil rights leaders such as Rosa Parks, who suffered injustice.

This conviction follows an acquittal for Scrushy in the trial on allegations of [tag]accounting fraud[/tag]. Scrushy still faces a HealthSouth lawsuit against him related to the accounting [tag]fraud[/tag], a lawsuit filed by Scrushy against HealthSouth for wrongful termination, and civil charges filed against Scrushy by the SEC.
Here’s a related post about Richard Scrushy.

The [tag]justice department[/tag] has been investigating Tenet Healthcare since late 2002, after questions were raised about the company’s [tag]Medicare[/tag] revenue. The case started when questions came up about Medicare payments for [tag]outliers[/tag], a hospital’s sickest patients.

Outlier payments are bonuses paid to hospitals by Medicare, and are intended to compensate the hospitals for the unusually expensive care of these very sick patients. This type of payment was created in order to encourage hospitals to treat the sickest patients.

Tenet found a way to exploit Medicare’s system of complicated formulas. Most [tag]Medicare reimbursements[/tag] are tied to [tag]diagnosis codes[/tag], but the outlier payments are calculated based upon the hospital’s [tag]chargemaster[/tag] (a price list for treatments). Tenet found that if chargemaster prices were raised sharply, the hospital would automatically begin receiving increased payments.

The case will be closed with $725 million in [tag]restitution[/tag], paid by Tenet over 4 years. This follows other large payments made by the company to the government and private plaintiffs, all related to allegations of [tag]misconduct[/tag]. Tenet will also waive its claim to $175 million of outlier and other Medicare payments not collected.

Thanks Des Walsh for pointing me to this clip on WNBC. They play the recording and then interview Vincent Ferrari to get his perspective on it. He mentions that people have heard lots of horror stories about trying to cancel AOL accounts, but that a recording of such a situation would be very interesting. He was right! The interview is concluded with an apology from AOL and a statement that the employee has been fired.

My original post is here.

The federal judge in the KMPG accounting fraud case in New York ruled that federal prosecutors cannot pressure companies to stop paying legal fees for indicted employees. In doing so, the government would get an unfair advantage and violate due process for the indicted employees.

Companies such as KPMG, Enterasys, and HealthSouth have not paid legal fees  for certain indicted executives after prosecutors told the companies that their payment of legal fees on behalf of those employees would signal non-cooperation.

A key document in this issue is a 2003 memo from former Deputy Attorney General Larry D. Thompson that advises U.S. attorneys to “scrutinize the authenticity of a corporation’s cooperation” when deciding whether or not to issue criminal charges against a corporation.

Defense lawyers have said that withholding legal fees is really pressure by the government to get defendants to plead guilty. A guilty plea would save the employee huge legal bills. Prosecutors deny trying to get employers to stop paying the legal bills, and the government is expected to appeal this ruling.

The city of Milwaukee hired the Los Angeles-based Police Assessment Resource Center to analyze police oversight in the city. The group determined that the Milwaukee Fire and Police Commission spends too much time on personnel issues, and almost no time on investigating complaints received.

Another problem cited is the appeals process for fired police officers, which includes a lengthy process during which fired officers still collect pay. The ability to collect a paycheck during the appeals process actually encourages fired officers to drag out the proceedings. According to the report, the practice of paying fired officers who are appealing does not happen anywhere else in the country.
The following changes were proposed in the report:

• Expanding the commission from 5 to 7 members
• Adding investigators
• Creating an independent monitor to review citizen complaints the come into the police department (Currently, the police department reviews these complaints without any outside involvement.)

The Milwaukee Police Accountability Coalition says that even if these changes are made, that the Milwaukee Fire and Police Commission will still not be a truly independent monitor for the police department. One of the founders of the group says that there will still be inadequate accountability, and the relationship of the police with the community will not be improved.

As a former [tag]Arthur Andersen[/tag] employee, I’ve always had an interest in the company’s involvement in the downfall of [tag]Enron[/tag] (which ultimately led to AA’s demise). We’ve all heard about the fact that AA employees began to shred documents. But how did that really happen?

Kurt Eichenwald lays it out in his book about Enron:

It was the morning of October 10, and Odom was letting everyone know that they needed to be careful with their paperwork. Andersen had a policy, he said, requiring the destruction of records that weren’t needed for the finished [tag]audit files[/tag]. it worked well, he said, and auditors in Houston needed to be sure they were in compliance.

“We’ve had several cases where we’ve produced documents in litigation recently where we found a lot of stuff that we shouldn’t have retained,” he said.

Of course, once the firm was sued, Odom said, nobody could destroy documents anymore. “But if it’s destroyed in the course of the normal policy and litigation is filed the next day, that’s great,” Odom said. “We’ve followed our policy, and whatever there was that might have been of interest to somebody, uh, is gone.”

So the executives began the shredding as part of their routine policy. Yet, by this time, the actions really weren’t routine, were they?

A few days later, the shredding was in full force:

Shannon Adlong stepped off the elevator onto the thirty-seventh floor of Three Allen Center, Andersen’s offices for its Enron team…

The place bustled, the trash cans overflowed. And around the office she periodically heard the whirring sound from the firm’s shredders. Obviously, people were getting rid of paperwork. She wandered by the break room and saw two large bags of shredded papers. Walking toward her office, Adlong noticed Kimberly Scardino, one of the auditors on the Enron account. She asked what was going on.

“Dave got an e-mail on Friday from the legal department in Chicago,” Scardino said. “They want us to be in compliance with the [tag]document retention policy[/tag].”

And that may very well have been the beginning of the end of Arthur Andersen in the United States.

The Wisconsin Taxpayers Alliance has analyzed state and local taxes and U.S.Census data, and has determined that the state is sixth highest in taxes as a percentage of personal income. If measured per capita, Wisconsin ranks twelfth. And if only income, sales and property taxes are measured Wisconsin is third.

The taxes as a percentage of personal income included state and local revenue from property, income, gasoline, cigarette and retail sales taxes. State and local taxes in Wisconsin are 12.2% of personal income. The national average is 11%. And the numbers ranged from 12.7% for New York down to 8.9% for Alabama.

Efforts to put limits on taxes died in the legislature. What’s next, governor? (I’m sure he’s got some reason why we should be happy about this!)

A Fargo, North Dakota judged sentenced convicted murderer Dennis Gaede to life in [tag]prison[/tag] without [tag]parole[/tag] yesterday. Gaede was found guilty of killing Timothy Wicks, a Milwaukee-area drummer and house painter. After stealing his identity and moving to North Dakota, Gaede later killed and dismembered Wicks. Gaede was awaiting sentencing on a [tag]felony[/tag] conviction when he stole the identity and moved out of state.

The headless and handless body of Wicks was found in 2002 near the Menominee River, which separates Wisconsin and Michigan. The head was found two weeks later, but the hands were never found.

Oh my. How many of us have tried to cancel [tag]America Online[/tag] accounts? I got rid of mine a long time ago, but I remember that it was quite challenging.

This guy called [tag]AOL[/tag] to cancel his account and gladly recorded the phone call for our listening pleasure. Surprise, surprise. He got a huge runaround. This is unbelievable. You must hear it.

And they wonder why people don’t like AOL anymore.

UPDATE: Thanks Des Walsh for pointing me to this clip on WNBC. They play the recording and then interview Vincent Ferrari to get his perspective on it. He mentions that people have heard lots of horror stories about trying to cancel AOL accounts, but that a recording of such a situation would be very interesting. He was right! The interview is concluded with an apology from AOL and a statement that the employee has been fired.