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. Continue reading
The steps to take when an employee comes forward with a fraud tip, whether the allegations are false or not.
By Tracy Coenen, Contributor to CFO.com
You think your company has a robust compliance program to prevent financial-statement fraud, asset misappropriation, Foreign Corrupt Practices Act violations, and other financial frauds. There are checks and balances in place, with lawyers, internal auditors, executives, and the board of directors keeping an eye on things.
Still, the unthinkable happens. Reports of a major internal fraud surface, and the scheme may involve several members of middle or upper management. The information – received through an employee’s whisper, an internal hotline, or the rumor mill – has enough substance to be deemed credible, yet not enough to know exactly who is involved, how wide-reaching the fraud may be, the amount of money stolen, or the exposure to government action and penalties. Continue reading
The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010, established a whistleblower incentive program requiring the Securities and Exchange commission to provide monetary awards to whistleblowers who come forward with information about the violation of federal securities laws, including violations of the Foreign Corrupt Practices Act (FCPA). The Act also prohibits employers from retaliating against those who provide information about securities violations.
The reward for providing information that leads to a successful enforcement action by the SEC which results in monetary sanctions over $1,000,000 can be 10% to 30% of the penalty paid. Continue reading
There has been lots of chatter about the whistleblower provisions under Dodd-Frank. A whistleblower can earn 10% to 30% of any penalty the federal government imposes against a company. And companies have to be very careful, because there are anti-retaliation provisions in the legislation too.
One problem with this legislation that I hadn’t thought about is the impact it could have on employees using fraud hotlines. One of the most common ways that fraud is detected within companies is via tips from employees, vendors, or customers. An anonymous hotline helps encourage the reporting of these tips. Continue reading
Francine McKenna at re: The Auditors has an interesting post and set of comments about internal audit functions at public companies and the importance of internal auditors.
External auditors look at a company’s financial statements and a small amount of underlying transactions in order to issue a report that the financial statements are properly presented. (It’s really a check of math and application of accounting rules.) The financial statement audits aren’t designed to detect fraud, and so they almost never do.
In contrast, the internal audit function is engaged in ongoing audits of the financial reporting process and other numbers-related projects. The scope of internal audit work varies greatly from company to company. Continue reading
The New York Times published a very interesting story about Joseph Ripp, the former AOL CFO who went from being a whistleblower, to finding himself with civil charges of financial fraud.
Ripp became a whistleblower in May 2001 when he faxed a letter to auditing firm Arthur Andersen about one of AOL’s business partners. He told Andersen that their client (AOL’s business partner) had forged a signature on a contract and booked millions of dollars of phony revenue. Continue reading
Herbalife (NYSE: HLF) whistleblower says illegal acts likely responsible for region’s dramatic supervisor growth
Herbalife (NYSE:HLF) executives identified Venezuela as a Top 10 market for the company in their May 2, 2008, conference call, and indeed, triple digit new supervisor growth was reported there in the first quarter. However, according to former Herbalife Director of Venezuela and Columbia, Ricardo Hollander, all is not as it seems in Venezuela. Continue reading
Back in August 2006, I reported on Kerri Rigsby and Cori Rigsby, sisters who worked as independent adjusters for State Farm. The sisters were deemed “whistleblowers,” for their allegations of corruption at State Farm Insurance.
The sisters came forward, claiming that there was fraud in the Biloxi and Gulfport field offices related to the processing of Hurricane Katrina claims. They said that supervisors were pressuring adjusters and consultants to attribute hurricane damage to water, rather than wind, so that claims would not have to be paid. Under the State Farm policies, water damage is not covered, but wind damage is. Continue reading
Wikileaks.org, a site that allowed people to anonymously leak incriminating documents, has been shut down by its web host, Dynadot. Dynadot, shut it down and locked the domain name so it can’t be transferred to another host, pursuant to an agreement settling a lawsuit against it.
Someone posted documents on the site claimed to show that a bank in the Cayman Islands was engaged in money laundering and tax evasion. Julius Baer, the parent company of the accused bank brought a lawsuit against Dynadot after unsuccessfully trying to get the site to remove the documents.
Instead of defending itself in the lawsuit, Dynadot decided it was easier to shut down the site. But this I think is even more interesting: Dynadot is turning over information about Wikileaks, including IP addresses and information associated with the site. Continue reading