Www.WestonSmith.biz. No single red flag may be telling, but when waving together, speak volumes.

Slides:



Advertisements
Similar presentations
Fraud and Internal Control Presented by Andy Harper Pugh & Company, P.C. April 28, 2011.
Advertisements

INDEPENDENCE AICPA Code of Professional Conduct (Article IV):
Corporate Crisis Update Carolyn Hotchkiss and Eli Bortman Babson College Updated September 2005.
1 The Rise and Fall of WorldCom The World’s Largest Accounting Fraud By John P. Meyer,
Entrepreneurs discover an entrepreneurial opportunity when they find a compelling solution to an unsolved problem or unsatisfied need. The first step.
Zurich accepts no responsibility for ensuring that this presentation meets the requirements of financial services legislation covering financial promotions.
Rick Lacher Houlihan Lokey Howard & Zukin Investment Banking Services 200 Crescent Court, Suite 1900 Dallas, TX Phone: (214)
Introduction Organizations have a relatively large degree of discretion in deciding how to pay. Each employee’s pay is based upon individual performance,
FRAUD EXAMINATION ALBRECHT, ALBRECHT, & ALBRECHT Financial Statement Fraud CHAPTER 11.
Arthur Anderson case Ideas and lessons. Arthur Anderson Once exemplified the rock solid character and integrity that was synonymous with the accounting.
Fraud Examination, 3E Chapter 11: Financial Statement Fraud COPYRIGHT © 2009 South-Western, a part of Cengage Learning.
Chapter 11: Financial Statement Fraud
1 “…not until I sell my stock.” -Richard Scrushy, CEO/Chairman Healthsouth Chuck Boguslaski Martin Cullen Dean Moore.
Starting at 11:10 AM Where do we go from here! Starting Ariel, George and Ken - Information in “Get Rich Quick!” was based in part on the New York Times.
Financial Management (Ch. 1)
Are CEOs Paid Too Much? CEO Salary Year Compared to Blue-Collar Worker Avg times times times Source: Business Week.
Chapter 6 Earnings Management.
Sarbanes Oxley Act. WHY? Public Company Accounting Reform and Investor Protection Act of 2002 Public Company Accounting Reform and Investor Protection.
Emerging Issues in Management (Mgmt 440) Professor Charles H. Smith Corporate Governance (Chapter 18) Summer 2009.
Enron Corporation Analysis of the Company By: Heather Major & Amanda Walton OL-125 Management.
Business plan competition for young entrepreneurs Guide presentation Adnan Hagoog.
The Difference Between Ethics and Laws Ethics Socially accepted norms and behaviors We don’t make fun of other people We don’t swindle people out of money.
How the Stock Market Works. Stock A share in ownership of a company. A share in ownership of a company. Someone who owns stock in a company owns a part.
Dividend Policy at FPL Group
Types of Business Organization
Corporation -- A Global Business Simulation Presented by: John Doe Jane Doe Mary Jane.
FOUNDATION BUSINESS SIMULATION
LIVING WELL FOUNDATION  Living Well Foundation was established to receive, invest and administer tax- deductible contributions for the benevolent support.
Target Account Plan Find this helpful? Please tell your friends!
  Provides information on what a company does, its financial performance, as well as its plans for the future  Companies with more than $10 Million.
INVESTOR RELATIONS Chapter Fifteen Investor Relations (IR) Provides information to investors according to regulations governed by the United States.
1 of 17 Contact Information Kathy Gilman Program Director Washington Access Fund 100 S. King Street Suite 280 Seattle, WA
Chapter 14 Audit of Acquisitions, Related Equity Transactions, Long- Term Liabilities, and Equity.
Copyright © 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 5 Corporate Governance McGraw-Hill.
Chapter 8 – Sarbanes-Oxley, Internal Control, and Cash
Three Industries. Three Opportunities. Business Opportunity Presentation.
By: 1. Kenneth A. Kim John R. Nofsinger And 2. A. C. Fernando.
Summary of the Investor Protection, Auditor Reform, and Transparency Act of 2002 (Sarbanes-Oxley Act)
Advances in Human Resource Development and Management Course code: MGT 712 Lecture 14.
1 Today’s Presentation Sarbanes Oxley and Financial Reporting An NSTAR Perspective.
By: 1. Kenneth A. Kim John R. Nofsinger And 2. A. C. Fernando.
New York Stock Exchange Enron was a publicly traded company whose shares were listed on the New York Stock Exchange and were bought, held and sold by individuals.
1 Tools of the Trade, Part III The Statement of Cash Flows: Bringing the Focus Back to Cash CHAPTER F11 © 2007 Pearson Custom Publishing.
What A written document that describes all the steps necessary for opening and operating a successful business. You plan should provide the following:
VED S.A.. VED Your trusted partner for Investment Management, Mergers & Acquisitions and Real Estate Investments VED S.A. 1.
  An ex-employee at Enron, he was been hired by Enron 9 months before it was collapsed.  Author of the book “Anatomy Of Greed : Unshredded Truth from.
Annual Report Nissan Motor Co., Ltd. Scott Nelson ACG2021 sec 080.
Ethics and the Legal Environment The Shareholder as a Stakeholder Prof. Dawn Courtright.
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 9 GROUP PROCESS Behavioral Corporate Finance by Hersh.
Chapter 11: Financial Statement Fraud © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible.
HEALTHSOUTH FRAUD LESSONS LEARNED.
Wall Street 2 (Day 3) Take Handout Take out notebook – Write down How did this start? You will Understand how events from 1980’s to 2006 led to crash and.
Chapter 4 Ethics and Financial Reporting
BUSINESS REPORTING COMM 260W - Furness. Keys to good business reporting Emphasis the human element Explain difficult concepts and trends in clear language.
VA Connecticut Research and Education Foundation
Accounting Scandals: What we have learned from Enron and World Com Debacle? Pertemuan 04 Matakuliah: F0122 – Seminar Akuntansi Tahun: 2009.
Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except.
CHAPTER 8 – TYPES OF BUSINESS ORGANIZATIONS. SECTION 1 – SOLE PROPRIETORSHIPS  Characteristics of Sole Proprietorships (single person owned business)
Discuss the ___________ enterprise system. Free Enterprise System Referred to as _________________. Encourages individuals to start and operate their.
Fiasco Report. WorldCom  Founded in 1983 in Mississippi  Bernard Ebbers appointed CEO in 1985  Company went public through merger with Advantage Companies.
London Life Young Leaders United Way of London & Middlesex Financial Reports & the Board of Directors by Angela Byrne CPA CMA October 3, 2015.
Corporate Governance Week 10 BUSN9229D Saib Dianati.
3.1 SOURCES OF FINANCE Unit 3 – Accounts & Finance.
Financial Accounting John J. Wild Seventh Edition John J. Wild Seventh Edition Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction.
Board of Directors: Good Practices for Entrepreneurs Kevin Conroy CEO, Exact Sciences November 21, 2013.
Chapter 9 Mutual Funds as Institutional Investors.
Summary of the Investor Protection, Auditor Reform, and Transparency Act of 2002 (Sarbanes-Oxley Act)
Chapter 11: Financial Statement Fraud
Types of Business Organization
INVESTOR RELATIONS.
Presentation transcript:

No single red flag may be telling, but when waving together, speak volumes.

1.Pressure to Maintain Those Numbers 2.Fear and Silence 3.Young ‘Uns and a Bigger- than-Life CEO 4.Weak Board 5.Conflicts of Interest 6.Innovation Like No Other 7.Goodness in Some Areas Atones for Evil in Others

1. Pressure to Maintain Those Numbers

Pressure to Maintain Those Numbers

Pressure to Maintain Those Numbers Healthsouth -“27 Consecutive Quarters” -Continued hype of stock -Tremendous pressure on management to meet unrealistic revenue targets -Earnings growth defied logic of reimbursement changes

Pressure to Maintain Those Numbers WorldCom: Bernie Ebers- “Our goal is to be the No. 1 stock on Wall Street.” Enron: Earnings growth targets of 15-20% annually, all business units given targets derived from working backwards from EPS forecasts Tyco: Targets of 20% annual growth. Massive earnings manipulation through acquisitions Baptist Foundation of Arizona: 11,000 members lost $590,000,000 in a faith-based Ponzi scheme

Pressure to Maintain Those Numbers Most earnings manipulations come through revenue recognition issues. Q: Are you faced with an obsession of “meeting the numbers?” Q: Has long-term vision been replaced with short-term objectives?

1. Pressure to Maintain Those Numbers 2. Fear and Silence

Fear and Silence

Healthsouth: Everyone- board members, officers, employees and auditors were treated with a stick and a carrot Monday morning beatings Backstabbing by the CEO Spying and blackmail by the CEO Enron: CEO Ken Lay had a “hair-trigger temper” WorldCom: A rather simplistic fraud. “The less clever the fraud, the more oppressive the culture must be because executives are asking employees to go above and beyond the call of duty in playing dumb.” Tyco: Use of Key Employee Loan Program and Relocation Loans to intertwine employees loyalty

Fear and Silence Q: Is disagreeing, or just asking questions, so unpleasant that it’s easier to just go along? Q: Does the culture promote submissive attitudes? Q: Employees: Do you ever feel that your job is on the line for simply doing what’s right? Q: Auditors: Do you receive pushback from clients on routine issues?

1. Pressure to Maintain Those Numbers 2. Fear and Silence 3. Young ‘Uns and a Bigger than Life CEO

Young Un’s and a Bigger than Life CEO

Healthsouth: “of all the companies, the officers in HS were the youngest with the least amount of experience” AIG: Hank Greenburg & two sons Enron: Ken Lay surrounded by young ‘uns WorldCom: Flamboyant CEO with young officers Tyco: Dennis Kozlowski’s $6000 shower curtain Adelphia: John Rigas & 12 family members Young ‘Uns and a Bigger Than Life CEO

Young ‘Uns and a Bigger Than Life CEO United Way: William Aramony, former CEO– -Ostentatious lifestyle at the expense of United Way - Convicted on 22 counts of fraud

Young ‘Uns and a Bigger Than Life CEO Q: Does the experience and wisdom of key employees match their responsibilities? Q: Is management composed of Yes-Men? Q: Who is being promoted- the Company or Executives?

1. Pressure to Maintain Those Numbers 2. Fear and Silence 3. Young ‘Uns and a Bigger than Life CEO 4. Weak Board

Weak Board

“Healthsouth takes the prize for the board with the most negative factors”  Original investors  Large ISO grants  Joint investments w/ Richard Scrushy  Self-dealing  Common directors on spin-offs  Directors were manipulated, ridiculed, and one even blackmailed

Weak Board Enron: Highly paid, significant conflicts of interest WorldCom: “Bernie’s Board”, Loans to a director, personal benefits, and significant stock holdings Tyco: Asleep at the wheel, 8 of 12 were current or former Tyco employees, 4 had served >10 years on board, loan programs Adelphia: Family members dominated the board

Weak Board Q: Is your Board qualified to deal with the responsibilities of the position? Q: Are they effectively fulfilling those responsibilities?

1. Pressure to Maintain Those Numbers 2. Fear and Silence 3. Young ‘Uns and a Bigger than Life CEO 4. Weak Board 5. Conflicts of Interest

Conflicts of Interest

Are decisions being made, or money being spent, solely for Officers’ personal gain or ego?

Conflicts of Interest Investment Firms: There are tremendous conflicts between the research side and the sales side of the house. Smith Barney’s analyst, Jack Grubman, issued glowing reports on Worldcom until the eve of its collapse. Smith Barney would have earned $21,000,000 in fees had the WorldCom-Sprint merger been approved. The housing market collapse can be heavily blamed on conflicts of interest by lenders, appraisers, and investment firms Conflicts in the Auditing Profession

Conflicts of Interest Q: Are there any related party transactions? Q: Is there any sign of self-dealing? Q: Is there an effective conflicts policy? How do you know that it’s working?

1. Pressure to Maintain Those Numbers 2. Fear and Silence 3. Young ‘Uns and a Bigger than Life CEO 4. Weak Board 5. Conflicts 6. Innovation Like No Other

Innovation Like No Other

“Innovators actually reach a point where they begin to believe and publicize the hype about themselves, as if repeating how innovative they are will somehow preserve the status quo, if not improve upon it.” Healthsouth: Financial indicators were substantially better than their competition Tenet: CEO comment months before revelation of abusive Medicare outlier payments: “We’re just better than everyone else” Enron: Jeffrey Skilling - “We are the good guys…we are on the side of angels”

Innovation Like No Other Apple- They do have innovation like no other. But they have proven themselves!

Innovation Like No Other Q: Auditors- Are your clients falling within the norm of the industry, or are they exceptionally strong or weak? Why?

1. Pressure to Maintain Those Numbers 2. Fear and Silence 3. Young ‘Uns and a Bigger than Life CEO 4. Weak Board 5. Conflicts 6. Innovation Like No Other 7. Goodness in Some Areas Atones for Evil in Others

Goodness in Some Areas Atones for Evil in Others

Goodness in Some Areas Atones for Evil in Others

Goodness in Some Areas Atones for Evil in Others Watch out for false prophets. They come to you in sheep’s clothing, but inwardly they are ferocious wolves. Matthew 7:15

Feel free to contact