accounting fraud and the new task force by sec
DESCRIPTION
A presentation we did for our Accounting class at the University of San Francisco. Made by Mackenzie O'Donnell, Winsy Wong and myself - Malvika Jain. Pretty fugly but hope you can get the necessary information from it if needed. The ppt is divided into Major Accounting Frauds around the year 2000 - Enron, Worldcom, Tyco SEC Introduction and analysis of Sarbanes Oxley Act Dodd Frank Whistleblower initiative Introduction and benefits of the Task Force Steps for management to take to steer clear of accounting fraudTRANSCRIPT
Accounting Fraud& the New SEC Task Force
Malvika JainWinsy Wong
Mackenzie O’DonnellMBA 6011: Financial & Managerial Accounting
A background look at“New Fraud Crackdown Looms”
by Emily ChasanWall Street Journal, July 9 2013
“Asking Tough Questions, Delivering the Truth”
-Emily Chasan, WSJ, on her aggressive reporting style
Always investigate the backgrounds of the folks who bring you the news!
Senior Editor at the Wall Street Journal’s CFO Report on accounting & auditing.
Former Senior Hedge Fund Correspondent for Reuters in NYC & Stock Market.
Former team leader of the Reuters bankruptcy and restructuring team, leading coverage of the bankruptcies of Lehman Brothers, General Motors and Chrysler.
Reuters Company News Reporter of the Year, 2008NewsBios 30 Under 30 Award, 2007
Newswomen's Club of NY Front Page Award, 2007Newswomen's Club of NY Front Page Award, 2006
Fat Cigars & Private Jets: Recent Financial Fraud
Who’s In Charge Here? The SEC and Sarbanes- Oxley
2010 Whistleblower Amendment
A New SEC Task Force
What Factors are in Play Now? Advice for Corporate Management
Overview
Fat Cigars & Private Jets
Jeffrey Skilling, CEOENRON – Gas & Energy
$138.7bn to bankrupt in 2001‘America’s Most Innovative Company’
• Hid debts & losses in Offshore accounts
• Mark to Market revenue recognition Counted unearned rev
• Used Merchant Model. Reported sales price as rev instead of just the middle-man’s cut.
• Snowballed. Recorded flop ventures as making profits.
Bernie Ebbers, CEO, Worldcom – Long distance phone callingFormer Sunday School Teacher & basketball coach. Worldcom lost $11bn in accounting fraud in 2002
Recognized revenue from unallocated accounts
Capitalized ‘line costs’ instead of expensing
Dennis Kozlowski, Tyco International – Security systems
Cost company $600 million with Swartz & Belnick, 2002
Sentenced 25 years in jail.
Took personal loans, not revealed to stockholders
Spring loaded. Concealed positive news for future benefits.
MAJOR &minor
So Who’s in Charge Here?
THE ENFORCEMENT AUTHORITY:UNITED STATES SECURITIES & EXCHANGE COMMISSION
Since 1934 the SEC has overseen key participants in the finance & securities sectors: securities exchanges, securities brokers & dealers, investment advisors, mutual funds.
Each year the SEC brings hundreds of civil enforcement actions against individuals & companies for violation of security laws.
Typical infractions about securities and the companies that issue them:-insider trading
-accounting fraud-providing false or misleading information
Public Company Accounting Reform and Investor Protection Act, more commonly referred to as Sarbanes-Oxley Act or SOX
2002Sarbanes-Oxley Act
Federal law setting new standards for all public
company boards, management & public
accounting firms.
Management Reporting - Management Certifications
-Management Report on Internal Controls
Auditor Independence
Board Governance
Management & Board Conduct
Enforcement & Penalties
- Audit Committee Standards
- Prohibition of loans to Directors & Officers
-Accelerated Reporting of Insider Trading
-Disclose Code of Conduct for finance officers
- Whistleblower Protection
-Public Company Oversight Board (PCAOB)
-Criminal Penalties for known untrue certifications
-Audit Committee pre-approves all auditor services- Lead audit partner limited to 5 year rotation
Janet DolanPresident and CEO
Tennant Co., Minneapolis Industrial cleaning products
"well-intentioned but it was a rush to judgment.... (Congress) just threw something at corporate America and left it to us to figure out.... The
legislation was broad on requirement and short on specificity."
FEEDBACK
FEEDBACK
Richard BreedenFormer Chairman of the SEC
Director of BBVA, a Spanish bankCourt-appointed monitor for WorldCom Inc., now MCI
“one of the most important acts passed in decades… but accounting firms see (a) license to audit controls. That means every control has to have a written set of procedures with the need
to audit now very costly.”
Dan HaleVice President and Chief Financial Officer
Allstate Corp., Northbrook, Ill.
" without precise definitions, different auditors may reach different conclusions, even in similar situations.”
Frank Dodd: The 2010
Whistleblower Protection
AmendmentSEC is authorized by Congress to provide monetary awards to eligible individuals who come
forward with high-quality original information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between
10% and 30% of the money collected.
Whistleblowers help the SEC identify possible fraud violations early.
Assistance from a whistleblower who knows of violations is among the most powerful weapons in the law enforcement arsenal of the SEC.
Allows the Commission to minimize harm to investors, better preserve the integrity of the United States' capital markets, and more swiftly hold accountable those responsible.
…despite SOX act, fraud still continues…
Companies may still easily be shifting their accounting and that a new crackdown on fraud with new rules may only be providing new loopholes to discover and exploit.
WHY Launch the Task Force NOW?
“The next fraud is going to happen, it’s just a matter of time” -James Walker, Former Chairman
Institute of Management Accountants’ Ethics Committee
BACKGROUND:Launched on 7/2/2013
Targeting 9,000 publicly traded companies
Enforced by an expert committee of attorneys and accountants
PURPOSE:Fraud Detection at earlier stage
Being Proactive NOT Reactive
To increase prosecution of violations involving false or misleading financial statements and disclosures
HOW IT WORKS: Ongoing review of financial statement restatements and revisions
Analysis of performance trends by industry
Insider help - bounties to whistleblowers
Technologically advanced software: Accounting Quality Model
Others
• Management’s Discussion and Analysis
On the Books
• Revenue Recognition
• Off-Balance Sheet Transactions
• Capitalized VS Noncapitalized Expenses
• Financial Reserves
• Acquisition Accounting
Protection from Accounting Frauds
On-going Process
• Internal Accounting Control (GAAP Standard)
• External Accounting Control
• Consult SEC for Rules
• Increase Transparency
What Factors Are In Play Now?
Watch Out! Whistleblowers can come from within your company
Watch Out! SEC will detect when you make changes to your statements
Watch Out! Auditors will not necessarily on your side doing you a favor