ACC 571 Final Part 2

Open Book Open Notes

1 Describe the composition of the Security and Exchange Commission

The US Securities and Exchange Commission (frequently abbreviated SEC) is a federal agency[2] which holds primary responsibility for enforcing the federal securities laws and regulating the securities industry the nations stock and options exchanges and other electronic securities markets in the United States In addition to the 1934 Act that created it the SEC enforces the Securities Act of 1933 the Trust Indenture Act of 1939 the Investment Company Act of 1940 the Investment Advisers Act of 1940 the Sarbanes-Oxley Act of 2002 and other statutes The SEC was created by section 4 of the Securities Exchange Act of 1934 (now codified as 15 USC sect 78d and commonly referred to as the 1934 Act)

The SECrsquos composition is as follows The SEC has five Commissioners who are appointed by the President of the United States with the advice and consent of the Senate No more than three can be from a single political party Each commissioner serves a five-year term which is staggered so that one commissioners term ends on June 5 of each year Currently the SEC commissioners are chairman Mary L Schapiro Kathleen L Casey Elisse B Walter Luis A Aguilar and Troy A Paredes

2 What are some of the enhanced financial disclosures under Section IV of SOX

ccording to Wiki leaks the following are the enhanced financial disclosures under Section IV of SOX

SEC 401 DISCLOSURES IN PERIODIC REPORTS(a) DISCLOSURES REQUIREDmdash Section 13 of the Securities Exchange Act of 1934 (15 USC 78m) is amended by adding at the end the following``(i) ACCURACY OF FINANCIAL REPORTSmdash Each financial report that contains financial statements and that is required to be prepared in accordance with (or reconciled to) generally accepted accounting principles under this title and filed with the Commission shall reflect all material correcting adjustments that have been identified by a registered public accounting firm in accordance with generally accepted accounting principles and the rules and regulations of the Commission``(j) OFF-BALANCE SHEET TRANSACTIONSmdash Not later than 180 days after the date of enactment of the Sarbanes-Oxley Act of 2002 the Commission shall issue final rules providing that each annual and quarterly financial report required to be filed with the Commission shall disclose all material off-balance sheet transactions arrangements obligations (including contingent obligations) and other relationships of the issuer with unconsolidated entities or other persons that

may have a material current or future effect on financial condition changes in financial condition results of operations liquidity capital expenditures capital resources or significant components of revenues or expensesacuteacute

SEC 403 DISCLOSURES OF TRANSACTIONS INVOLVING MANAGEMENT AND PRINCIPAL STOCKHOLDERS

(a) AMENDMENTmdash Section 16 of the Securities Exchange Act of 1934 (15 USC 78p) is amended by striking the heading of such section and subsection (a) and inserting the following``SEC 16 DIRECTORS OFFICERS AND PRINCIPAL STOCKHOLDERS ``(a) DISCLOSURES REQUIREDmdash ``(1) DIRECTORS OFFICERS AND PRINCIPAL STOCKHOLDERS REQUIRED TO FILEmdash Every person who is directly or indirectly the beneficial owner of more than 10 percent of any class of any equity security (other than an exempted security) which is registered pursuant to section 12 or who is a director or an officer of the issuer of such security shall file the statements required by this subsection with the Commission (and if such security is registered on a national securities exchange also with the exchange)``(2) TIME OF FILINGmdash The statements required by this subsection shall be filedmdash ``(A) at the time of the registration of such security on a national securities exchange or by the effective date of a registration statement filed pursuant to section 12(g)``(B) within 10 days after he or she becomes such beneficial owner director or officer``(C) if there has been a change in such ownership or if such person shall have purchased or sold a security-based swap agreement (as defined in section 206(b) of the Gramm-Leach-Bliley Act (15 USC 78c note)) involving such equity security before the end of the second business day following the day on which the subject transaction has been executed or at such other time as the Commission shall establish by rule in any case in which the Commission determines that such 2-day period is not feasible``(3) CONTENTS OF STATEMENTSmdash A statement filedmdash ``(A) under subparagraph (A) or (B) of paragraph (2) shall contain a statement of the amount of all equity securities of such issuer of which the filing person is the beneficial owner and``(B) under subparagraph (C) of such paragraph shall indicate ownership by the filing person at the date of filing any such changes in such ownership and such purchases and sales of the security-based swap agreements as have occurred since the most recent such filing under such subparagraph``(4) ELECTRONIC FILING AND AVAILABILITYmdash Beginning not later than 1 year after the date of enactment of the Sarbanes-Oxley Act of 2002mdash ``(A) a statement filed under subparagraph (C) of paragraph (2) shall be filed electronically

``(B) the Commission shall provide each such statement on a publicly accessible Internet site not later than the end of the business day following that filing and``(C) the issuer (if the issuer maintains a corporate website) shall provide that statement on that corporate website not later than the end of the business day following that filingacuteacute(b) EFFECTIVE DATEmdash The amendment made by this section shall be effective 30 days after the date of the enactment of this Act

SEC 404 MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS(a) RULES REQUIREDmdash The Commission shall prescribe rules requiring each annual report required by section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 USC 78m or 78o(d)) to contain an internal control report which shallmdash (1) state the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting and(2) contain an assessment as of the end of the most recent fiscal year of the issuer of the effectiveness of the internal control structure and procedures of the issuer for financial reporting(b) INTERNAL CONTROL EVALUATION AND REPORTINGmdash With respect to the internal control assessment required by subsection (a) each registered public accounting firm that prepares or issues the audit report for the issuer shall attest to and report on the assessment made by the management of the issuer An attestation made under this subsection shall be made in accordance with standards for attestation engagements issued or adopted by the Board Any such attestation shall not be the subject of a separate engagement

SEC 406 CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS(a) CODE OF ETHICS DISCLOSUREmdash The Commission shall issue rules to require each issuer together with periodic reports required pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 to disclose whether or not and if not the reason therefor such issuer has adopted a code of ethics for senior financial officers applicable to its principal financial officer and conroller or principal accounting officer or persons performing similar functions(b) CHANGES IN CODES OF ETHICSmdash The Commission shall revise its regulations concerning matters requiring prompt disclosure on Form 8-K (or any successor thereto) to require the immediate disclosure by means of the filing of such form dissemination by the Internet or by other electronic means by any issuer of any change in or waiver of the code of ethics for senior financial officers(c) DEFINITIONmdash In this section the term ``code of ethicsacuteacute means such standards as are reasonably necessary to promotemdash

(1) honest and ethical conduct including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships(2) full fair accurate timely and understandable disclosure in the periodic reports required to be filed by the issuer and(3) compliance with applicable governmental rules and regulations(d) DEADLINE FOR RULEMAKINGmdash The Commission shallmdash (1) propose rules to implement this section not later than 90 days after the date of enactment of this Act and(2) issue final rules to implement this section not later than 180 days after that date of enactment

SEC 407 DISCLOSURE OF AUDIT COMMITTEE FINANCIAL EXPERT(a) RULES DEFINING ``FINANCIAL EXPERTacuteacutemdash The Commission shall issue rules as necessary or appropriate in the public interest and consistent with the protection of investors to require each issuer together with periodic reports required pursuant to sections 13(a) and 15(d) of the Securities Exchange Act of 1934 to disclose whether or not and if not the reasons therefor the audit committee of that issuer is comprised of at least 1 member who is a financial expert as such term is defined by the Commission(b) CONSIDERATIONSmdash In defining the term ``financial expertacuteacute for purposes of subsection (a) the Commission shall consider whether a person has through education and experience as a public accountant or auditor or a principal financial officer comptroller or principal accounting officer of an issuer or from a position involving the performance of similar functionsmdash (1) an understanding of generally accepted accounting principles and financial statements(2) experience inmdash (A) the preparation or auditing of financial statements of generally comparable issuers and(B) the application of such principles in connection with the accounting for estimates accruals and reserves(3) experience with internal accounting controls and(4) an understanding of audit committee functions(c) DEADLINE FOR RULEMAKINGmdash The Commission shallmdash (1) propose rules to implement this section not later than 90 days after the date of enactment of this Act and(2) issue final rules to implement this section not later than 180 days after that date of enactment

SEC 408 ENHANCED REVIEW OF PERIODIC DISCLOSURES BY ISSUERS

(a) REGULAR AND SYSTEMATIC REVIEWmdash

The Commission shall review disclosures made by issuers reporting under section 13(a) of the Securities Exchange Act of 1934 (including reports filed on Form 10-K) and which have a class of securities listed on a national securities exchange or traded on an automated quotation facility of a national securities association on a regular and systematic basis for the protection of investors Such review shall include a review of an issuers financial statement(b) REVIEW CRITERIAmdash For purposes of scheduling the reviews required by subsection (a) the Commission shall consider among other factorsmdash (1) issuers that have issued material restatements of financial results(2) issuers that experience significant volatility in their stock price as compared to other issuers(3) issuers with the largest market capitalization(4) emerging companies with disparities in price to earning ratios(5) issuers whose operations significantly affect any material sector of the economy and(6) any other factors that the Commission may consider relevant(c) MINIMUM REVIEW PERIODmdash In no event shall an issuer required to file reports under section 13(a) or 15(d) of the Securities Exchange Act of 1934 be reviewed under this section less frequently than once every 3 years

SEC 409 REAL TIME ISSUER DISCLOSURESSection 13 of the Securities Exchange Act of 1934 (15 USC 78m) as amended by this Act is amended by adding at the end the following``(l) REAL TIME ISSUER DISCLOSURESmdash Each issuer reporting under section 13(a) or 15(d) shall disclose to the public on a rapid and current basis such additional information concerning material changes in the financial condition or operations of the issuer in plain English which may include trend and qualitative information and graphic presentations as the Commission determines by rule is necessary or useful for the protection of investors and in the public interestacuteacute

3 How does a forensic scientist establish forensic identification

Forensic scientists analyze the physical evidence they receive from police and then prepare reports describing the results of their analysis Those documents along with forensic scientistsrsquo expert testimony can be important prosecutorial tools for convicting the accused

Analyzing evidence Whenever a crime is committed police try to preserve the scene until an investigator collects every piece of evidencemdashlike hair and fiber samples pieces of clothing or other personal belongingsmdashthat might provide clues to solving the case The evidence is then turned over to forensic scientists for analysis Their analyses involve a variety of sciences mathematical principles and problem-solving methods including use of complex instruments chemical physical and microscopic examining techniques

and reference literature Forensic scientists can thus use physical evidence to determine the make model year and ultimately identity of the car involved in a crimemdashand through further analysis can also tell which way the car was facing how it pulled away from the crime scene and in which direction

Some forensic scientists are generalists others specialize in a particular area of laboratory analyses Persons employed in large laboratories tend to specialize Most crime lab professionals work in one or more of the following areas

Controlled substances and toxicology Crime lab professionals specializing in this area examine blood and other body fluids and tissues for the presence of alcohol drugs and poisons

Biology Crime lab professionals compare body fluids and hair for typing factors including DNA analysis DNA analysis determines how frequently parts of a personrsquos genetic code are found in the population forensic scientists isolate DNA strands from an individualrsquos body fluids to compare that personrsquos unique DNA to the DNA of a sample of others

Chemistry Forensic scientists analyze trace physical evidence such as blood spatters paint soil and glass For example blood spatters help reconstruct a crime scene The patterns of spatters and the shapes of blood droplets tell how the crime was committed

Document examination Document examination includes many areas of expertise including forgery document dating and analysis of handwriting typewriting and computer printing and photocopying

Firearms and Toolmark identification Firearms examination involves matching identifying characteristics between a firearm and projectile and between a projectile and target Typically this includes matching bullets to the gun that fired them Toolmark identification involves matching some identifying characteristics of a tool such as a pry bar to the object on which it was used such as a door frame It also includes explosives and imprint evidence

Psychophysical detection of deception exam The psychophysical detection of deception exam (formerly known as the polygraph) is based on the scientific theory that when telling a lie a personrsquos body responds in a certain way despite any attempts to avoid detection Forensic scientists use special equipment to measure changes to internal body functionsmdash including breathing blood pressure and pulse ratemdashin response to their questions and then analyze the results

4 Describe some types of physical evidence

A successful crime investigation depends upon the collection and analysis of various kinds of evidence Forensic scientists classify evidence in different ways and have specific ways of dealing with it One major distinction is between physical and biological evidence Physical evidence refers to any item that comes from a nonliving origin while

biological evidence always originates from a living being The most important kinds of physical evidence are fingerprints tire marks footprints fibers paint and building materials Biological evidence includes bloodstains and DNA

Impression marks are another important kind of physical evidence When an item like a shoe or a tire comes into contact with a soft surface it leaves behind a pattern showing some or all of its surface characteristics known as an impression The collection and analysis of impression evidence found at the scene of a crime can often be very important to an investigation Fingerprints are perhaps the most significant type of physical evidence in most crimes The technology of collecting and analyzing fingerprints has been well known for over a century and has been refined over the years

A fingerprint is important as individualizing evidence It can tie a specific person to a crime because no two individuals have ever been found to have the same fingerprint If a fingerprint from the scene of a crime can be linked to one in a database or from a suspect then an identification can be made

Other kinds of physical evidence such as tire tracks and shoeprints are class evidence rather than individualizing evidence This means that on its own such evidence may not be enough to convict A shoe print taken from a relatively new shoe merely suggests the make style and maybe the size of a shoe

5 What are some of the financial statement fraud differences between large and small businesses

Financial statement fraud involves the intentional publishing of false information in any portion of a financial statement It usually occurs when a company overstates assets or revenue or when it understates liabilities and expenses Oftentimes stockholders employees and investors are kept completely in the dark about the value of corporate assets and the existence of liabilities when such a fraud is taking place However there differences in financial statement fraud between small and large businesses

Financial statement frauds in large businesses are more complex and sophisticated to an extent that they are obscured by relying on various interpretations of accounting standards used in preparing the financial statements

Financial statement frauds in small businesses are not sophisticated but very glaring forms of frauds and not to increase their net assets or incomes

6 List and describe at least five document indicators for fraud

Fraud is not an openly visible crime It can be detected only through ldquored flagsrdquo that indicate that ethics and honesty have been compromised within the company A ldquored flagrdquo is a set of circumstances that are unusual in nature or vary from the normal activity It is a signal that something is out of the ordinary and may need to be investigated further

Remember that red flags do not indicate guilt or innocence but merely provide possible warning signs of fraud Such red flags can be from the accounting system lack of segregation of duties and other crucial internal control features lack of integrity in top management behavior unusual or extravagant behavior on part of employees and numerous complaints or hotline tips All these are indicators that fraud may exist ndash not necessarily proof of fraud

Employee Red Flags1048644 Employee lifestyle changes expensive cars jewelry homes clothes1048644 Significant personal debt and credit problems1048644 Behavioral changes these may be an indication of drugs alcohol gambling or just fear of losing the job1048644 High employee turnover especially in those areas which are more vulnerable to fraud1048644 Refusal to take vacation or sick leave1048644 Lack of segregation of duties in the vulnerable area

Management Red Flags1048644 Reluctance to provide information to auditors1048644 Managers engage in frequent disputes with auditors1048644 Management decisions are dominated by an individual or small group1048644 Managers display significant disrespect for regulatory bodies1048644 There is a weak internal control environment1048644 Accounting personnel are lax or inexperienced in their duties1048644 Decentralization without adequate monitoring1048644 Excessive number of checking accounts1048644 Frequent changes in banking accounts1048644 Frequent changes in external auditors1048644 Company assets sold under market value1048644 Significant downsizing in a healthy market1048644 Continuous rollover of loans

Changes in Behavior ldquoRed FlagsrdquoThe following behavior changes can be ldquoRed Flagsrdquo for Embezzlementbull Borrowing money from co-workersbull Creditors or collectors appearing at the workplacebull Gambling beyond the ability to stand the lossbull Excessive drinking or other personal habitsbull Easily annoyed at reasonable questioningbull Providing unreasonable responses to questionsbull Refusing vacations or promotions for fear of detectionbull Bragging about significant new purchasesbull Carrying unusually large sums of moneybull Rewriting records under the guise of neatness in presentation

7 Name and describe at least four schemes for overstating revenues

Probably the most common financial statement fraud is the manipulation of sales (revenue) figures Its in the companyrsquos best interest to report higher sales as opposed to lower sales so virtually every company runs the risk of overstating sales

Channel stuffing is the business practice where a company or a sales force within a company inflates its sales figures by forcing more products through a distribution channel than the channel is capable of selling to the world at large Also known as trade loading this can be the result of a company attempting to inflate its sales figures Alternatively it can be a consequence of a poorly managed sales force attempting to meet short term objectives and quotas in a way that is detrimental to the company in the long term

Consignment sale is the act of consigning sales which is placing a person or thing in the hand of another but retaining ownership until the goods are sold or person is transferred This may be done for shipping transfer of prisoners or for sale in a store (ie a consignment shop) This is abused in the sense that shipments of goods are done at the end of the year and are considered as sales

Premature revenue recognition errors or deliberate distortions involving revenue recognition fall into two categories situations in which revenue legitimately earned is reported in the incorrect fiscal (financial reporting) period often referred to as ldquocutoffrdquo errors and situations in which revenue is recognized although never actually earned Given the emphasis on periodic reporting (eg quarterly earnings announcements in the case of publicly held entities) even simple ldquocutoffrdquo errors can have enormous impact notwithstanding the fact that these should tend to offset over several periods

8 Describe big bath accounting and what would make a company engage in it

Big Bath in accounting is an earnings management technique whereby a one-time charge is taken against income in order to reduce assets which results in lower expenses in the future The write-off removes or reduces the asset from the financial books and results in lower net income for that year The objective is to lsquotake one big bathrsquo in a single year so future years will show increased net income

This technique is often employed in a year when sales are down from other external factors and the company would report a loss in any event For example inventory valued on the books at $100 per item is written down to $50 per item resulting in a net loss of $50 per item in the current year Note there is no cash impact to this write-down When that same inventory is sold in later years for $75 per item the company reports an income of $25 per item in the future period This process takes an inventory loss and turns it into a lsquoprofitrsquo Corporations will often wait until a bad year to employ this lsquobig bathrsquo technique to lsquoclean uprsquo the balance sheet Although the process is discouraged by auditors it is still used In recent times General Motors and other US Corporations have taken huge write downs on balance sheet assets resulting in massive losses The same result can be achieved by recording in one year the future cash costs of expected plant

7 Name and describe at least four schemes for overstating revenues

Probably the most common financial statement fraud is the manipulation of sales (revenue) figures Its in the companyrsquos best interest to report higher sales as opposed to lower sales so virtually every company runs the risk of overstating sales

Channel stuffing is the business practice where a company or a sales force within a company inflates its sales figures by forcing more products through a distribution channel than the channel is capable of selling to the world at large Also known as trade loading this can be the result of a company attempting to inflate its sales figures Alternatively it can be a consequence of a poorly managed sales force attempting to meet short term objectives and quotas in a way that is detrimental to the company in the long term

Consignment sale is the act of consigning sales which is placing a person or thing in the hand of another but retaining ownership until the goods are sold or person is transferred This may be done for shipping transfer of prisoners or for sale in a store (ie a consignment shop) This is abused in the sense that shipments of goods are done at the end of the year and are considered as sales

Premature revenue recognition errors or deliberate distortions involving revenue recognition fall into two categories situations in which revenue legitimately earned is reported in the incorrect fiscal (financial reporting) period often referred to as ldquocutoffrdquo errors and situations in which revenue is recognized although never actually earned Given the emphasis on periodic reporting (eg quarterly earnings announcements in the case of publicly held entities) even simple ldquocutoffrdquo errors can have enormous impact notwithstanding the fact that these should tend to offset over several periods

8 Describe big bath accounting and what would make a company engage in it

Big Bath in accounting is an earnings management technique whereby a one-time charge is taken against income in order to reduce assets which results in lower expenses in the future The write-off removes or reduces the asset from the financial books and results in lower net income for that year The objective is to lsquotake one big bathrsquo in a single year so future years will show increased net income

This technique is often employed in a year when sales are down from other external factors and the company would report a loss in any event For example inventory valued on the books at $100 per item is written down to $50 per item resulting in a net loss of $50 per item in the current year Note there is no cash impact to this write-down When that same inventory is sold in later years for $75 per item the company reports an income of $25 per item in the future period This process takes an inventory loss and turns it into a lsquoprofitrsquo Corporations will often wait until a bad year to employ this lsquobig bathrsquo technique to lsquoclean uprsquo the balance sheet Although the process is discouraged by auditors it is still used In recent times General Motors and other US Corporations have taken huge write downs on balance sheet assets resulting in massive losses The same result can be achieved by recording in one year the future cash costs of expected plant

closing or employee layoffs The objective is to take these loses all at once so future periods can show positive net income

9 In terms of catching employee fraud what is the most important concept and how can it assists in catching employees actions

Business owners and senior management must themselves be role models of honesty and integrity or they may risk setting up a work environment that justifies illegal and criminal activity

Avoid at all costs allowing the finances of a business to be handled and controlled by a single individual Separation of duties is critical and no employee should be responsible for both recording and processing a transaction ie donrsquot allow the same person who sends out bills to collect the mail and prepare bank deposits Run irregularly scheduled surprise audits or have a third party audit your books once a year Also insist that your bookkeeper or any employee who has access to monies take a yearly vacation so you can examine their records Make sure all checks purchase orders and invoices are numbered consecutively and regularly check for missing documents

10 Describe at least three methods that vendors could use to fraud a company

Businesses often implicitly trust their vendors however various vendor fraud schemes exist in which the entity is overcharged for goods or services provided Routine vendor audits can prevent or detect vendor fraud These audits send the message that the entity is monitoring transactions with the vendor to ensure that it is complying with ethical standards and contractual agreements

Some types of vendor frauds are discussed as follows They include

Fictitious shell entities set up by employees or others that may or may not actually provide goods or services In the shell entity fraud a company employee creates a false entity a shell and becomes the middleman or broker who supplies goods and services to the company including a mark-up on the original invoice price Typically these employees are the ones who either approve the purchase andor the payment of goods and services or they supervise employees who perform these functions Usually the transactions are not large individually but in the aggregate are substantial

The substitution-of-material scheme that supply faulty or inferior goods for payment Material substitution fraud schemes typically use materials of lesser quality which are billed at the cost of higher quality materials

In an employee corruption scheme an employee could extort a vendor to receive favorable treatment or to avoid unfavorable treatment Vendors will often over-bill the company to pass on the cost of the extortion

Short shipments or goods not delivered are presented for payment by vendors In an overcharge fraud scheme the vendor may use prices other than those agreed to or bill separately for items that should be part of a contract price Services allegedly performed that were not needed such as equipment repairs or services never performed at all

High prices when the goods can be bought directly or less expensively from the same or another vendor and corruption schemes including improper payments and kickbacks conflicts of interest gifts and gratuities to company employees and commissions to brokers and others

11 Compare and contrast affirmative indications and affirmative acts

Affirmative indications serve as a sign or symptom or signify that actions may have been done for the purpose of deceit concealment or to make things seem other than what they are Indications in and of themselves do not establish that a particular process was done affirmative acts also need to be present Examples include substantial unexplained increases in net worth substantial excess of personal expenditures over available resources and bank deposits from unexplained sources substantially exceeding reported income

Affirmative acts are those actions that establish that a particular process was deliberately done for the purpose of deceit subterfuge camouflage concealment some attempt to color or obscure events or make things seem other than what they are Examples include omissions of specific items where similar items are included concealment of bank accounts failure to deposit receipts to business accounts and covering up sources of receipts

12 What kinds of innocent errors can taxpayers make and not be liable for the civil fraud penalty

There are some innocent errors that tax payers can make and would not be liable for the civil fraud penalty These errors include conducting large transactions in cash failure to file tax returns failure to pay estimated taxes filing questionable deductions that could not be fully substantiated and not filing gambling winnings when the tax payer believes that he had lost estimated amounts as the winnings

• SEC 401 DISCLOSURES IN PERIODIC REPORTS
• SEC 403 DISCLOSURES OF TRANSACTIONS INVOLVING MANAGEMENT AND PRINCIPAL STOCKHOLDERS
• SEC 404 MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS
• SEC 406 CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS
• SEC 407 DISCLOSURE OF AUDIT COMMITTEE FINANCIAL EXPERT
• SEC 408 ENHANCED REVIEW OF PERIODIC DISCLOSURES BY ISSUERS
• SEC 409 REAL TIME ISSUER DISCLOSURES

Short shipments or goods not delivered are presented for payment by vendors In an overcharge fraud scheme the vendor may use prices other than those agreed to or bill separately for items that should be part of a contract price Services allegedly performed that were not needed such as equipment repairs or services never performed at all

High prices when the goods can be bought directly or less expensively from the same or another vendor and corruption schemes including improper payments and kickbacks conflicts of interest gifts and gratuities to company employees and commissions to brokers and others

11 Compare and contrast affirmative indications and affirmative acts

Affirmative indications serve as a sign or symptom or signify that actions may have been done for the purpose of deceit concealment or to make things seem other than what they are Indications in and of themselves do not establish that a particular process was done affirmative acts also need to be present Examples include substantial unexplained increases in net worth substantial excess of personal expenditures over available resources and bank deposits from unexplained sources substantially exceeding reported income

Affirmative acts are those actions that establish that a particular process was deliberately done for the purpose of deceit subterfuge camouflage concealment some attempt to color or obscure events or make things seem other than what they are Examples include omissions of specific items where similar items are included concealment of bank accounts failure to deposit receipts to business accounts and covering up sources of receipts

12 What kinds of innocent errors can taxpayers make and not be liable for the civil fraud penalty

There are some innocent errors that tax payers can make and would not be liable for the civil fraud penalty These errors include conducting large transactions in cash failure to file tax returns failure to pay estimated taxes filing questionable deductions that could not be fully substantiated and not filing gambling winnings when the tax payer believes that he had lost estimated amounts as the winnings

• SEC 401 DISCLOSURES IN PERIODIC REPORTS
• SEC 403 DISCLOSURES OF TRANSACTIONS INVOLVING MANAGEMENT AND PRINCIPAL STOCKHOLDERS
• SEC 404 MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS
• SEC 406 CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS
• SEC 407 DISCLOSURE OF AUDIT COMMITTEE FINANCIAL EXPERT
• SEC 408 ENHANCED REVIEW OF PERIODIC DISCLOSURES BY ISSUERS
• SEC 409 REAL TIME ISSUER DISCLOSURES