Embezzlement of NT$1 billion in company’s assets

Jan 31, 2011

Just a few days before the Lunar Holiday period begins, the chairman Lin Wei-shan of Tatung Company, one of Taiwan’s leading home appliance makers,  was questioned by prosecutors and investigators for the alleged embezzlement of NT$1 billion (USD 35 M) in company’s assets. According to Banqiao District Prosecutors Office, Lin allegedly embezzled more than NT$1 billion from Tatung in order to pay for a loan owed by another company he founded that was running in debt. After paying the debt owed by the company with the money, Lin promptly disbanded the company in question, a move that had violated the Securities and Exchange Act.

The news will definitely hurt the company stock once the trading begins after the holiday period ends.

Civil complaint against Ernst & Young

Jan 6, 2011

A civil complaint was filed recently by Andrew Cuomo, the outgoing New York attorney general, accusing Ernst & Young of helping Lehman Brothers mislead investors. The state claims Lehman’s auditors aided in a fraud, using Repo 105 transactions to make the books look healthier than they actually were.

Ernst & Young obviously maintained that they did nothing wrong. Well technically they are right, they did comply with Generally Accepted Accounting Principles, or GAAP.

The crux of the case should be the intent. Recently there has been news about various organizations being caught in accounting fraud, and in most cases the auditors had signed off on the financial statements. Should the auditors be responsible for just ensuring compliance with accounting rules or should they be held accountable to ensure that their clients’ intent is not to hide material facts.

This definitely is a case  accountants all over the world will keep a close eye on. This might define how accounting world would function in the future.

New rules for insider trading violations and audits of internal control

Dec 20, 2010

The SEC issued two rules in September 2010, in order to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The rules affect the payment of bounties for revealing insider trading violations and requirements relating to audits of internal control over financial reporting.    

First, the SEC rescinded rules which authorized the payment of bounties for providing information leading to the recovery of civil penalties for insider trading violations, which were previously authorized by the Insider Trading and Securities Fraud Enforcement Act of 1988. In its place, the Dodd-Frank Act established a broader program for monetarily awarding whistleblowers. The new program authorizes the SEC to award persons who provide “original information” that leads to the successful enforcement of certain judicial or administrative actions. Potential awards range from 10% to 30% of collected monetary sanctions. Unlike the former insider trading bounty program which authorized awards only for violations of insider trading laws, the new program authorizes awards for the violation of any federal securities law.

The SEC additionally amended certain rules to conform to the new Section 404(c) of the Sarbanes Oxley Act of 2002 (Sarbanes-Oxley), added by the Dodd-Frank Act, which exempts non-accelerated filers from having to include in their annual reports an independent auditor’s attestation report on internal control over financial reporting. Accordingly, the SEC amended Item 308 of Regulation S-K to require filers to include in their annual reports the disclosure regarding this attestation report only if such an attestation report is actually included in the annual report. Rule 2-02(f) of Regulation S-X similarly clarifies that audit reports need not include an assessment of a non-accelerated filer’s internal control over financial reporting.

How to live lavishly on company funds!

Aug 31, 2010

What would you do with $30 million? Well Sujata Sachdeva, the VP of Finance and Principal Accounting Officer at Koss Corporation bought  designer clothes, furs, purses, shoes, jewelry, household furnishings, cars, did home improvement and renovations. The only difference is it wasnt her money, it was funds that belonged to the company, Koss Corpration. She had support from the senior accountant, Julie Mulvanev, together they concealed the fraud by overstating assets, expenses, and cost of sales, and by understating liabilities and sales. Based on the fraudulent records prepared by Sachdeva and Mulvaney, Koss prepared materially false financial statements and filed materially false current, quarterly, and annual reports with the SEC.

On August 31, 2010, the Securities and Exchange Commission charged two former senior accounting professionals at Koss Corporation with accounting fraud, violation of book and record keeping and other related misconduct arising from the embezzlement of more than $30 million from the company. According to the complaint, the scheme began in 2004 and lasted through December 2009. After discovering the embezzlement, Koss amended and restated its financial statements for fiscal years 2008 and 2009 and the first three quarters of fiscal year 2010. Both Sachdeva and Mulvaney have been terminated by the company.

Sachdeva embezzled funds from company accounts through different means, including cashier’s checks, unauthorized wire transfers, and unauthorized payments from petty cash. Sachdeva fraudulently authorized the issuance of more than 500 cashier’s checks totaling more than $15 million. She used them to make approximately $10 million in payments to American Express for her personal credit card, and also used them to make direct payments to luxury retailers. At times, Sachdeva used acronyms in an attempt to conceal the identities of the check recipients — such as “N.M. Inc.” for Neiman Marcus and “S.F.A. Inc.” for Saks Fifth Avenue. Well thats what I call creative accounting!

KPMG Accounting Malpractice verdict

Aug 30, 2010

On August 26,2010;  a New Jersey appeals court found sufficient evidence that KPMG was negligent in its audits of the books of Papel Giftware Inc. KPMG audited the books of the ceramic company, the acquirer, Cast Art Industries LLC., and its financial backers relied on these audit reports to buy the company. Had KPMG done a better job, the audit should have uncovered vast fraud and irregularities, and definitely would have made the aquirer think twice about making the purchase.