29 Jul

MLM: It’s About Recruiting, Not Sales

pyramid-scheme-mlmI’ve been telling you for years that multi-level marketing is NOT about selling products. It’s about recruiting people into a fake opportunity. The products are the “front,” meant to make MLM look like a legitimate business. In reality, very little product is retailed to actual consumers. Instead, it’s sold to new recruits into the scheme, who have little chance of ever retailing those products for a profit.

Look no further than the case of Herbalife to prove my point. (This point is usually difficult to prove, as MLMs do their best to hide the numbers so we never see the truth behind the scam.) This month Herbalife entered into a settlement agreement with the FTC that has them paying $200 million and substantially changing how the company does business.

Herbalife falsely claimed: “Settlement Does Not Change Herbalife’s Business Model as a Direct Selling Company.”

The FTC clearly disagrees, and said in its press release about the settlement (emphasis mine): Read More

28 Jul

Using the IRS Expenditures Method to Determine Income

When the IRS believes a taxpayer has unreported income, they will use alternative methods to attempt to determine the true income. One of those methods is the Expenditures Method. Tracy Coenen explains the basic methodology in this video. Note that this method of calculating income can be used in a variety of cases that involve allegations of hidden income including divorce, money laundering, and income tax fraud.

19 Jul

Highlighting Corporate Fraud Investigations

The unthinkable has happened. We have good employees. Our people are honest. They don’t steal from us. They’re like family. We trust them. So it goes when a company discovers a fraud from within.

Then what happens?

After the initial shock wears off, it’s time to start investigating the situation. The company must know who did it, how the fraud was committed, and what controls can be put in place to stop fraud from happening again. This is all accomplished with an effective fraud investigation.

Investigative Policy

Companies should have in place a standard set of guidelines for managers to follow when fraud is suspected. Most supervisors and managers have not dealt with on-the-job fraud, so they need guidance when evaluating fraud allegations. Fraud investigation guidelines may also help guard the company against employees’ claims of selective treatment. Read More

13 Jul

Fraud and Infidelity: A Match Made in Heaven

What on earth do fraud and infidelity have in common? Quite a lot actually. While there may be no scientific studies available that analyze the correlation between financial fraud and infidelity, anecdotal evidence obtained while working in the field of fraud investigation for more than a decade suggests there is a correlation.

A discovery of a corporate fraud has often led to the discovery of a secret addiction like gambling, alcohol, or drugs. Digging into the financial records of a suspected thief finds a spending problem, a secret source of income, or theft from another party. Discovery of fraud has also led to a spouse finding out about infidelity and the existence of a love child.

The reasoning behind the theory that fraud and infidelity are often related is simple: Fraud does not happen in a vacuum. It takes a certain mindset to be able to commit adultery and to be able to commit fraud. I have rarely seen extremely deceitful acts being confined to simply one part of a person’s life. Read More

06 Jul

The Wide-Reaching Impact of Financial Statement Fraud

Of all the fraud schemes perpetrated in our world today, financial statement fraud seems to get the least air time. That makes no sense, as financial statement fraud happens to be one of the most costly types of fraud.

The problem is that involved parties, both inside and outside the company, rely on the information provided in the financial statements. They assess the financial results and make predictions and decisions about the future of the company based on those results.

Financial statements are the measuring stick that numerous parties use to assess the financial health of a company. Falsified financial statements can mean only one thing – those assessments are faulty.

Financial statement fraud causes a median loss of $2 million per fraud scheme, according to the most recent occupational fraud study done by the Association of Certified Fraud Examiners. That amount dwarfs asset misappropriation schemes, which only cause median losses of $150,000 per scheme. Read More