14 Jun

Why Does Bankruptcy Matter During the Hiring Process?

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It’s difficult to know who is going to commit fraud at a company. In 89% of internal fraud cases (fraud committed by employees of a company), the perpetrator was never previously charged or convicted of a fraud-related offense. So there is very little direct evidence that someone is more likely to commit fraud when they come to work for you.

That is why we look for red flags… signs that someone may be more likely to engage in fraud. We call these personal red flags of fraud, and there are literally hundreds of them that could indicate a greater propensity toward fraud. While companies have to be careful in the hiring process to not discriminate against protected classes, they most certainly can consider legal troubles (particularly of a financial nature) when hiring someone who is going to have access and/or control over budgets and money.

This topic came to my attention as the City of Milwaukee encounters an interesting turn in their quest to hire a new Health Commissioner. One of two finalists for the position, Jeanette Kowalik, has had some significant financial troubles that were reported yesterday in the local newspaper. Ms. Koawalik filed for Chapter 7 bankruptcy in both 2003 and 2014. Chapter 7 bankruptcy allows the filer to clear unsecured debts, but not debts secured with collateral (like a home) or student loans. She also lost a home to foreclosure in 2014. Read More

10 Feb

Red Flags of Fraud in Divorce

This article was originally printed in the ABA Section of Family Law eNewsletter, January 2014.

The vast majority of family law cases are settled without trials. However, a client should not enter into a voluntary settlement if there are significant concerns about the truth of the financial disclosures and indications that assets or income may be hidden. The first step in determining whether a forensic accountant is needed to evaluate the finances of the parties is the identification of “red flags” of fraud. A red flag is simply a warning sign or an unusual item or circumstance.

Attorneys often use their instinct to determine when a forensic accountant is needed in a family law case. If something does not feel right, it probably should be investigated.  A client is often suspicious of the spouse even before they are separated. The spouse may even be known to manipulate the money. Read More

03 Oct

Professional Service Providers and Criminal Charges

Lauren Stevens, former in-house counsel for GlaxoSmithKline was acquitted last year of criminal charges of obstructing a government agency. She was accused of withholding documents from the U.S. Food and Drug Administration when it was looking into allegations of off-label marketing of the antidepressant Wellbutrin.

Stevens has said, “I think the criminalization of the practice of law is here, and I don’t think it’s necessarily going away. The government will continue to be aggressive in looking at in-house counsel.” Read More

09 Apr

Tax Audit Red Flags

As tax day nears…. taxpayers around the country are in a panic. Some because they’re not ready for April 15. Others because they’re deathly afraid of being audited. Here are some common audit red flags to ponder.

The IRS purposely doesn’t definitively say what things make you more likely to be audited.
Since our tax system relies on voluntary reporting of income (i.e. you volunteer your tax information to the IRS and tell them how much you owe), the IRS uses the fear of audits to scare people into being honest. But tax preparers can see patterns in the IRS audits, so that’s how we come up with these lists of red flags. Read More

15 Nov

Herbalife’s Top 5 Misrepresentations

Herbalife’s (NYSE:HLF) CEO Michael Johnson and CFO Richard Goudis contradict one another’s figures.

Fraud Discovery Institute (FDI) issues the following statement about its review of Herbalife (NYSE:HLF) presentations by CEO Michael Johnson and CFO Richard Goudis.

First, on November 7, 2007, Herbalife CEO Michael Johnson defended allegations that over 90 percent of Herbalife distributors fail by stating: “We believe that 58 percent are discount buyers, that 22 percent are small retailers and customers, and that 20 percent are potentially future supervisors. Let me repeat that – 1.3 million distributors based on average order sizes, we believe that 58 percent are discount buyers, 22 percent are small retailers and 20 percent are potentially future supervisors.” (Quote from Seeking Alpha transcript) Read More