Herbalife Manipulates Distributor Earnings Numbers

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When Herbalife settled the case brought against it by the FTC, it appeared the company may change how it was doing business. It was said that the company was going to start making truthful claims about earnings. But the most recent earnings disclosure from Herbalife does anything but that.

Until 2017, Herbalife published statements of average gross compensation that covered an entire year. Like all other MLMs, they provided selected information that ended up being misleading in various ways, but ultimately it still showed a pretty dismal picture and showed that few people made much money as a distributor.

But with the 2017 statement, Herbalife made a curious change. An in-depth analysis was written up by Christine Richard at Seeking Alpha. Here is the short story. In a November 2107 conference call, Herbalife president Des Walsh said the company had about 215,000 distributors. In this earnings disclosure statement published in November 2017, Herbalife said: Continue reading

Working With Expert Witnesses

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A competent expert witness is vital to cases involving economic damages and other financial calculations. However, the expert must be much more than just a mathematician, market analyst, economic guru or forensic accountant. The job of the expert is far from over once the facts are analyzed and the calculations are completed.

Traditional accounting and finance skills are not enough when it comes to litigation. A financial expert witness must qualify as an expert in court and must convey the findings to non-accountants on paper and on the witness stand.

Probably one of the most important yet difficult parts of being a financial expert is relaying the findings without using accounting lingo. Accountants often forget that not everyone speaks their language. They are not used to explaining their findings to people outside the finance environment. Creating a meaningful understanding for readers and listeners can be an art form unto itself, and the best financial expert witnesses do it easily.

Although attorneys are educated in many facets of the law, they are not necessarily numbers experts. That is why it is so important to find the right expert who can help legal counsel fully understand the financial data and its implications. A competent forensic accountant or other financial expert is mindful of the needs of non-accountants when reporting on the findings of a financial examination. Continue reading

How to Detect Billing Schemes

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Employees may commit fraud against their employers by getting the employer to improperly disburse funds. One way this could happen is through an improper check or electronic disbursement. Another way is through a shell company scheme, whereby the employee sets up a fake vendor which issues invoices to the company for products or services that are not actually provided to the company.

These types of billing schemes could be detected with some of the following techniques:

  • Analyze disbursements, looking for many large round amounts, or amounts falling just below a threshold that requires additional approval for payment.
  • Look for unusually large expenses, unexplained variances in expenses between years, or expenses that exceed budgeted amounts. Billing schemes may inflate expenses enough to cause one or all of these comparisons to yield questionable results.
  • Examine the financial statements for variances in expenses that should track predictably with revenue. Cost of goods sold is a popular account in which to conceal theft via billing schemes because of the high level of activity in this account. If the account varies significantly from expected values when compared to revenue, however, this might indicate a billing scheme.
  • Cross-check addresses of employees and vendors, looking for exact matches or close matches.
  • Compare vendor addresses to mail drop address databases to check for businesses that may not have a legitimate location.
  • Continue reading

Protecting the Spouse’s Financial Interest in Divorce

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When a spouse knows that a divorce is imminent, there are obvious steps to secure his or her financial future. First, a competent divorce attorney must be retained. Next, the division of assets and income should be considered. Yet when it comes to the financial details, clients often do not know what to do.

An uncertain financial future may scare the client, but the fear of the unknown makes it more important than ever to focus on protecting the client’s financial interests. The divorce attorney can provide this list of simple (but sometimes overlooked) tips to the client to help aggressively fight the financial case in divorce court:

1. Secure funds for living expenses, attorneys, and other professionals. A spouse who does not control the family’s finances may find it difficult to get access to funding during the divorce. It is not uncommon for the moneyed spouse to cut off access to money to force a quick (and possibly unfair) divorce settlement. It is important for you to legally get access to and secure money that will only be available to him or her. Relying solely on family court to award funding for living expenses and divorce professionals is far too risky. Continue reading

Financial Statement Fraud in Public Companies

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How prevalent is financial statement fraud in public companies? In this video, Tracy Coenen talks about the most recent COSO report on fraudulent financial reporting at U.S. public companies. The most common financial statement fraud that companies engaged in was improper revenue recognition, followed by the overstatement of asset or the improper capitalization of expenses.

What benefits do companies and their executives receive from financial statement fraud?

  • The stock price goes up because the company is more profitable.
  • The company’s debt rating goes up.
  • The company is likely to be able to refinance its debt and therefore can reduce its interest expense. The company may also have fewer debt covenant restrictions associate with its debt.
  • Executives win because they will probably get higher bonuses that are tied to the profitability of the company, and their stock options will be more valuable.

Return on Investment for College Degrees

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Sometimes it is fun to get away from the topics of fraud and divorce. I thought these were some great resources on some of the highest paying jobs to help you figure out where you might get the greatest return on your investment if you’re thinking about higher education.

Payscale.com says some of the highest paying Bachelors degrees by salary include things like petroleum engineering, actuarial science, geophysics, and other science-y types of careers. You can search by major to see how what you’re interested in stacks up. It’s nice that they show both early career pay and mid-career pay. Public accounting comes in at #30 with early career pay of $57,500 and mid-career pay of $110,000.

They also have a list for highest paying Associate degrees, for those who might not be want to go to school for so long. The top degrees in that list are earning in the high $30s and low $40s in their early careers, and there are a lot of interesting sounding jobs in the list.

 

Fraud Investigation for Small Firms

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Minnesota Society of CPAs Footnote Magazine
February/March 2017

The growth in forensic accounting and fraud investigation specialties has led accounting firms of all sizes to expand their practices to these areas. Experts agree that this practice area will continue to grow for the foreseeable future.

Is it as easy as it sounds to add forensic accounting to your firm’s competencies? Traditional audit staff may have excellent foundational knowledge that could be applied to fraud investigations, but offering consistent and reliable services to clients in the area of forensic accounting will take some work.

Here are areas your firm — especially if it’s small — should focus.

Service focus

It is a simple decision to start providing accounting services. The next step is deciding which specific services to provide. Many types of engagements can fall under the forensic accounting umbrella, so it is important to develop a focus. Continue reading

False Claims in Multi-Level Marketing (MLM)

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One of the most upsetting parts of the recruitment into a multi-level marketing company is the false earnings claims. People are lured into these companies with the promises of riches. It is not only done by presenting the tiny fraction of people at the top of the pyramid as typical when they are not. It is also done with outright lies about the level of income that “average” person can expect to make.

The entire business model of MLM is built around lies. Lies about how much you’ll have to work, how you’ll make your money (if you even make any), what you’ll have to do, and how you’ll develop new leads. They lie about how easy the whole thing is, and how you’ll be successful if you’re just willing to put in the time. (The truth is that you’re almost guaranteed to fail.)

Here are some of the most common lies told in the recruiting process:

1. You will be your own boss. You can set your own hours and dictate how you do business. (Not really true. The MLM company tells you how you’re allowed to do business.) You can control how much you make based on how much you’re willing to work. (Not true either. Your earnings are limited by your ability to recruit and the amount of money those recruits are are willing to put in the scheme.) Continue reading