Defendants in criminal cases such as tax fraud, money laundering, or embezzlement often need forensic accountants to help evaluate complex financial situations. Should you provide expert witness services to criminal defendants? Tracy discusses the work and some of the issues that should be considered.
You thought only people experience identity theft. Only individuals become victims of dumpster diving or poor computer security. Someone gets a credit card in your name, and you’ve become a victim. You didn’t even consider that a company could have an “identity” that could be stolen.
Corporate identity theft is becoming all too common, and one of the most troubling aspects of it is how little owners, executives, attorneys and business advisors know about it. Without a basic knowledge of even the existence of corporate identity theft, people are powerless to prevent it.
It can be perpetrated in a number of different ways, but each type of corporate identity theft has one thing in common. It can destroy the reputation of a business quickly.
The type of corporate identity theft people think about most often is the use of a company’s credit profile, either to fraudulently obtain credit for themselves or to make purchases in the name of the company.
While investigating fraud for more than a decade, I have consistently been amazed by the disparity among criminal sentences in financial fraud cases. Of course, there are many facts that go into a sentencing decision, and so it is difficult to make an apples-to-apples comparison of sentences between cases.
However, it’s clear to me that there is a wide range of sentences that are not necessarily fair to either the victims or the fraud perpetrators. We can’t discount the fact that determining a sentence is a complex process. There are many factors that come into play, so simply assessing the number of years at the end of the process is a little simplistic.
Yet the fact remains that disparities in sentencing should be examined closer. Lawmakers, judges, and prosecutors owe it to consumer and victims to work toward a system that is fair and equitable to all parties.
Several years ago, I got called for jury duty. Unlike almost everyone else who complains when called for jury duty, I was thrilled. I wanted to be on a jury.
If I was going to have to do my civic duty, I wanted to get something out of it, rather than just sit in the jury pool room all week. After spending time testifying as an expert witness in front of juries, I would now have a chance to be the jury and get a real-life look at what happens in the jury room.
My wish was granted and I was seated on a jury for a misdemeanor criminal case that lasted about a day, then came the moment of truth. The jurors sat down in the jury room and looked at each other. It was clear that at least 10 of the 12 had no idea what was supposed to happen next.
I appointed myself foreperson and began leading the discussion. The facts of the case were pretty clear. The evidence was somewhat limited, and the case really came down to the testimony of the defendant and one witness. The defendant had almost no credibility.
One of the key parts of Sarbanes-Oxley, the legislation created to address the problem of massive financial statement fraud at public companies like Enron and WorldCom, was the increased prison sentences for executives participating in fraud.
Supporters of the legislation cheered harsher potential punishment for executives as one of the keys that would help prevent fraud.
Others weren’t so sure that longer prison sentences would really do anything to deter executives who want to commit fraud. If you’ve studied corporate fraud for any length of time, you have seen that fraud by executives is often fueled by feelings of arrogance and entitlement. These are important pieces of the fraud puzzle for executives, and they are part of the reason why executives may be unphased by penalties for committing 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.
It’s easy to assume that upper-level executives in companies with fraud scandals were always bad people. By assuming that they were inherently bad people, we don’t have to confront the issues related to trusting people who seemed trustworthy. We don’t have to explore the idea that people can turn bad or choose a bad path or give in to greed.
Yet the fact remains that many executives who committed fraud were at one time considered rising stars with good values. If it was recognized that their ethics were a little lower than preferred, some were still promoted because those in charge believed the results were more important than the methods.
Many may look at executives like Kenneth Lay and Jeffrey Skilling of Enron infamy, and believe that they were bad people long before Enron. The role of the villain is sometimes easy to fill when you have someone like Tyco’s Dennis Kozlowski, who was busy buying unusually lavish items with company funds. Certain people just make good villains in our minds.
The Federal government wields a big stick when it comes to business-related crimes. Violations of the Foreign Corrupt Practices Act (FCPA), fraud in the delivery of health care services or in the receipt of federal money for those services, and other whitecollar crimes can open up companies and their executives to harsh penalties under the United States Sentencing Guidelines.
Companies and executives can get reduced sentences if certain mitigating factors have been identified. One of those mitigating factors is having an effective compliance and ethics function within the company that attempts to prevent fraud and proactively identify criminal activities.
An additional way that companies have sought to mitigate their sentences is through confessing their violations of law to federal prosecutors.
Both civil and criminal cases often involve an element of proving or disproving income of an individual or business. It is not unusual for a divorce case to include allegations of hidden income or assets. In contract disputes alleging the loss of sales or profits, an accurate determination of income is critical.
In criminal cases, the issues surrounding the income of an individual or business have even higher stakes. These cases are quite often tax-related matters, but cases involving white collar crimes and drug trafficking usually include questions about income too.
Many of the cases I work currently focus on the tracing of funds through multiple bank, brokerage, and credit card accounts. I am typically working with tens of thousands of transactions at a time, so the sheer volume of the data could be overwhelming.
I have put together a proprietary software system that enables me to capture manage, and analyze the data. The system eliminates the need for staff assistance (and the dangers that go along with having multiple people touch the database and possibly corrupt the data). How does the system work? Read on.
Getting the Data
The process of discovery can be long and agonizing for everyone. There is often a push and pull between the parties in the discovery process, as opposing counsel rarely wants to voluntarily give up damaging financial data. It often takes several rounds of requests to get the information we seek.