J2 Global Communications Trying to Hide Accounting Errors

J2 Global Communications (NasdaqGS: JCOM ), better known as eFax, is under fire. Yesterday, Sam Antar tore into the company for an accounting gimmick that the company (and its auditors) had to know was wrong. The issue involves revenue and deferred revenue.

In the 10-Q for the first quarter of 2011, J2 reported an upgrade to its accounting system. The new system gave J2 the ability to properly calculate unearned revenue from annual contracts with customers:

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Fortune Hi Tech Marketing Settlement with Texas Attorney General

I’ve written previously about Fortune Hi Tech Marketing (FHTM), a multi-level marketing company that is all about recruiting more people into your pyramid, rather than actually selling products.

Fortune Hi-Tech Marketing has previously been the target of legal action by the Attorney General of North Dakota, and has been a target of the North Carolina Attorney General, cracking down on “business opportunities”:

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Compliance Week: Koss Embezzlement and Small Company Internal Controls

Today’s Compliance Week article, “SEC Pursues Small Company Over Lax Internal Controls,” [subscription required] discusses the SEC settlement with Koss Corp over the $34 million embezzlement by former Vice President of Finance Sujata (Sue) Sachdeva.

The article explains the settlement, which is essentially a clawback of some of Michael Koss’s compensation:

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SEC Pursues Small Company Over Lax Internal Controls

Compliance Week
By Tammy Whitehouse

The Securities and Exchange Commission is sending another warning about fraud prevention by pursuing top executives at a small company for failing to stop a massive fraud, although legal experts are divided on whether it sends the right message.

Koss Corp., which produces consumer electronics, and its president and CEO, Michael Koss, recently settled an enforcement action with the SEC for an embezzlement and accounting fraud of more than $30 million. Koss, however, was not the perpetrator; former finance vice president Sujata Sachdeva and her senior accountant, Julie Mulvaney, carried out the scheme.

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Financial Statement Fraud: Olympus Makes It Look Easy

What is a company to do when it wants to hide losses? Manipulation of the financial statements is the obvious first choice. It’s not hard. Sure companies have “internal controls,” which are supposed to include policies and procedures which ensure that financial information is properly recorded. But companies of all sizes have problems with their internal controls, such that it’s not terribly difficult to issue fraudulent financial statements.

Michael Woodford was dismissed in October as CEO of Olympus, and subsequently disclosed that he was fired because he raised questions about some acquisitions by the company. He alleges that Olympus paid incredibly high prices for companies it acquired, and also paid huge “advisory fees” to agents who supposedly represented Olympus in the transactions. The purpose behind these transactions? To cover up investment losses that were decades old without drawing any attention to the issue.

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FCPA Guidance to be Released by Department of Justice

Guest Post by David Quinones, Executive Director, International Association for Asset Recovery

While it was just a brief comment during a lengthy speech, United States Assistant Attorney General Lanny Breuer’s mention of impending guidance on the resurgent Foreign Corrupt Practices Act (FCPA) from the Justice Department

Amendments made to the 1977 Act in 1988 said that consultations between regulators, department heads and legislators should be held to devise guidance and ensure “the business community would be assisted by further clarification.” But the clarification never came. Starting in 2009, FCPA enforcement increased in size and scope, and businesses snared in controversy over what had been business-as-usual chirped that the goal posts had moved.

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Michael Volkov on Internal Investigations: Best Practices

Guest Post by Michael Volkov

In-House counsel and corporate compliance officers dodge bullets everyday as they stare down the barrels of aggressive prosecutors, regulators, civil litigants, whistleblowers, disgruntled employees and shareholders prodded by trial attorneys to file derivative suits at the drop of a hat. In the face of all of these risks, internal investigations have become commonplace and a standard defensive tactic for a company to regain some leverage, learn the scope of a potential problem and then develop a plan for resolving a particular issue.

All too often, companies follow the rote formula developed in the Sarbanes-Oxley era of the early 2000s. Those same formulas are being applied in the Foreign Corrupt Practices Act, and in more discrete global anti-corruption, money laundering, export compliance and antitrust enforcement matters.

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Ways to Help Prevent Corporate Fraud

Executives have the means to commit and cover up the largest frauds.

They have access to the information and computer systems, they have power over all employees and they have access to the money. The finance function is riddled with fraud risks and the company’s executives are in the best position to take advantage of those risks.

Because of the risk of losing large sums of money to fraud by executives, companies must ensure owners and boards of directors are actively involved in creating and maintaining an environment that is not conducive to fraud. This involves active oversight of daily operations, continuous monitoring of potential red flags of fraud and swift action when fraud is discovered.

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