Sherron Watkins on Enron


Fraud Magazine editor Dick Carozza did an interview with Sherron Watkins, the internal [tag]whistleblower[/tag] who started raising hell at [tag]Enron[/tag] when she started discovering problems with the numbers. He asked Sherron why the Enron [tag]fraud[/tag] happened… whether management lost its way or whether the company was destined for problems. Sherron’s answer:

Many experts summarize “what happened” at Enron using two words, greed and arrogance. An accurate summary, I agree, but it fails to help others learn from Enron’s demise. How did greed and arrogance run amok at Enron? How did a company’s culture breed not only corruption from its own employees but also disreputable behavior from the outside auditors, lawyers, consultants, and lenders?

What happened? It was a complete breakdown in moral values. But the scary part is that the breakdown was not done by outright intention but more by small steps in the wrong direction.

Enron’s leaders set the wrong tone, so did Arthur Andersen’s leaders. [Arthur Andersen was Enron’s external auditor.] In the end, both companies put revenues and earnings above all else – the means by which those earnings were generated did not matter. Were laws broken? Yes. Were lives devastated by it? Yes.

Flip This House Lawsuit Continued


As I mentioned in last week’s post about the A&E television show Flip This House, Richard Davis and Trademark Properties have sued A&E. Richard claims that A&E essentially stole his idea for the show and never paid him either for the idea or for the first season in which he participated.

A&E had the case removed from state court to the Federal District Court for South Carolina. Naturally, A&E denies nearly every allegation made by the plaintiffs. The network denies that any agreement similar to the one alleged by Richard and Trademark in the complaint was ever reached. They instead say the following occurred: Continue reading

Young Pros Investigate Fraud As a Career Option


On Balance – The Magazine for Wisconsin CPAs
January/February 2007

Ever since the big corporate scandals at Enron, WorldCom and Tyco, there has been an intense focus on fraud. This has made the field of forensic accounting the next hot career for young professionals. The prospect of investigating fraud seems exciting and cutting-edge.

Fraud examiners come in all shapes and sizes. They include private investigators, law enforcement personnel, paralegals and insurance investigators. Internal auditors and independent auditors may also focus on fraud detection. Bank examiners, government investigators and forensic accountants perform fraud investigation functions. The field is still expanding, and a wide variety of jobs exist for the professional who is fascinated by fraud and white-collar crime.

It can be difficult for young professionals to break into the field. Many new graduates request forensic accounting positions, although companies seek professionals with several years of experience in fraud examination. With intense competition for available positions, a strong resume related to fraud examination is more important than ever. Continue reading

Vanishing Profession


The shortage of accounting faculty is a hot topic in academia and professional circles. Some call it a crisis.

INSIGHT – The Magazine of the Illinois CPA Society – January/February 2007
By Sheryl Nance-Nash

Over the next three years, US and Canadian universities will need to hire 942 new PhDs, but will have only 621 graduates to choose from. Which brings to light a simple truth: The number of graduating PhDs are insufficient to replace the number of professors who are due to retire over the next decade, according to research conducted by the American Accounting Association.

“This is terribly serious,” says Paul Sharman, president and CEO of the Institute o Management Accountants, (IMA) based in Montvale, New Jersey. “There are 50 percent fewer PhDs in academia than there were 10 years ago; and given the number of PhD students now, that number will likely be halved in another decade,” he contends. “The problem is growing increasingly acute.” Continue reading

Pyramid Scheme Alert update


In late November, I announced that I had been appointed to the Board of Advisors of Pyramid Scheme Alert (PSA). PSA is an organization dedicated to educating consumers about multi-level marketing companies and pyramid schemes. While MLMs are technically legal in the United States, the vast majority of them are nothing more than product-based pyramid schemes which depend upon an endless chain of recruitment of new members.

I bring to the Board of Advisors my expertise as a fraud investigator, as well as in-depth knowledge of Mary Kay Cosmetics, a multi-level marketing company that’s been around for over 40 years. The founder of PSA, Robert FitzPatrick, is very selective in his appointments. Those who are on the board must have expertise relevant to MLMs and the mission of the organization. I’m honored to be a part of such a credentialed group.

I’ve been working to pull together information on Mary Kay for PSA. Mary Kay Inc. has been flying under the radar for years! The company has generally enjoyed a good reputation in the business community. Mary Kay Ash was well-respected because she was a shrewd businesswoman who developed this company from the ground up. Unfortunately, that has overshadowed the abusive nature of the business opportunity. People haven’t recognized that the MLM system utilized by Mary Kay is very profitable to the corporation itself, but very detrimental to the individual business owners.

PSA never really considered Mary Kay to be a company that they should look into. It just wasn’t “out there” as a recruiting scheme or product-based pyramid scheme. That’s where I come in. I’m putting together materials on the pay plan and recruiting, as well as some of the “official” and “unofficial” materials distributed by Mary Kay and its representatives.

My website Pink Truth strives to educate consumers and potential recruits about the grim reality of this pyramid scheme. I present daily posts about realities of Mary Kay, examining the real earnings of representatives, why the plan is abusive, and how millions of women a year are conned into putting money into this losing proposition.

Additionally, I’ve been working on some other things related to MLMs, and generally enjoying playing an active role in PSA. More to come…

State Farm Loses a Hurricane Katrina Case


State Farm policyholders Norman and Genevieve Broussard of Biloxi, Mississippi have been awarded $2.5 million in punitive damages in their case against State Farm Fire and Casualty Co. The judge in the case also awarded the couple $223,292 for damage caused to their home by Hurricane Katrina.

The lawsuit was started because State Farm refused to pay for any damage to the Broussards’ home, which was completely leveled in the storm. State Farm said that the home was destroyed by an uninsured storm surge, while the Broussards claimed that is was destroyed by a tornado during the hurricane. Continue reading

Cisco Sues Apple for Use of iPhone Name


On Tuesday, Apple unveiled its plans for the iPhone, which is to be distributed starting in June. On Wednesday, Cisco filed suit in U.S. District Court in San Francisco, seeking an injunction to prevent Apple from using the name. If successful, Apple could be forced to drop the name iPhone from its product.

Cisco says the company has owned the trademark on “iPhone” since 2000 when it acquired InfoGear Technology Corp., the original owner of the trademark. The company says its Linksys unit uses the iPhone name on a family of phones which uses voice over Internet protocol (VOIP). Continue reading

Report says the IRS collection system is flawed


A report by Nina Olson, the Internal Revenue Service’s National Taxpayer Advocate, indicates that the system used by the IRS to collect back taxes is flawed.

She indicated in her annual report to Congress that the IRS makes it difficult for taxpayers to pay their late tax bills and is failing to promptly personally notify taxpayers of their delinquencies. The agency is also accused of not telling taxpayers about alternative payment mentods, such as installment agreements.

Sometimes taxpayers are not contacted by the IRS about their taxes owed until years later. By that time, the tax bill has increased significantly because of interest and penalties.

The IRS responded by saying that it has to have a balance between staff levels and the enforcement process. The agency also said that delinquent taxpayers do receive letters that notify them of taxes owed.

Between 2001 and 2004, the IRS labeled almost 934,000 delinquent taxpayers and “currently not collectible.” They owed a total of about $7.8 billion.

2006 Ends: Another Year, Another Fraud


At the end of one year and the beginning of another, people seem fixated on changing for the better. Most people think up a resolution or two to get their new year started on a right foot. It seems the perfect time to make some positive changes.

Companies are no different, and the start of a year is the time when many things change. How many executives have fraud on their minds when starting a new year? Probably not many, and that’s too bad. The beginning of the year is typically a time when employees expect changes. Insurance policies are updated, new schedules may be implemented, and policies and procedures may change.

Why not focus on fraud prevention in the new year? Employees are ready for change and executives should take advantaged of that opportunity. Continue reading

Flip This House Lawsuit


Last year I became a big fan of the A&E Channel’s show called “Flip This House”. The show followed Richard Davis, and his company Trademark Properties, as they bought, renovated, and sold houses. I loved the show and Richard’s up-and-coming employee Ginger Alexander.

I waited to see new episodes. And I waited. And waited. And waited.

And finally realized there wasn’t going to be another show. At least not with Richard and Ginger. A&E had found some bogus “replacements” for the show, and it is now terrible. Continue reading