Ohio University Beta Alpha Psi Awards Banquet Gary

Ohio University Beta Alpha Psi Awards Banquet Gary Zeune, CPA The Pros & The Cons 10356 Wellington Blvd, Suite D Powell, OH 43065 Phone 614 -761 -8911 Fax 206 -202 -0880 gzfraud@bigfoot. com www. The. Pros. And. The. Cons. com © Gary Zeune, CPA 2009

Satyam Computer Services 1. 2. 3. 4. 5. 6. 7. Satyam = India’s Enron Ramalinga Raju 4 th largest Indian IT outsourcing firm Founder+CEO $1+ billion Fake cash balance of ____ 40, 000 Reported employees 53, 000 Actual _____ 6, 400 Satyam employees quit 9/08 -3/09 Others arrested: CFO, 3 in finance Served 1/3 of Fortune 500 © Gary Zeune, CPA 2009 2

Satyam Computer Services Audit Partners S. Gopalakrishnan, left, and Srinivas Talluri, were arrested on charges of criminal conspiracy, cheating, forgery, falsification of accounts and causing the disappearance of evidence. © Gary Zeune, CPA 2009 3

Firm Vice Chairman 1. 2. 3. 4. 5. Thomas Flanagan, 30 year partner Filed lawsuit October 2008 250 puts and calls trades January 2005 – 2008 12 clients and advisory partner on 7 "The independence policy is really the most important thing to this business. If you're not independent then you're not going to be an auditing firm, " [firm attorney Paul] Lockwood said, noting the collapse of Arthur Andersen © Gary Zeune, CPA 2009 4

Bernie Madoff 1. 2. 3. 4. 5. 6. $50 Billion 30 years NASDAQ Affinity fraud Feeder funds Exclusivity © Gary Zeune, CPA 2009 5

Bernie Madoff’ “Auditor” 1. Securities fraud, aiding and abetting investment advisor fraud, filing false reports with SEC 2. Lied about performing audits to avoid peer review 3. Possible sentence of 105 years 4. $2. 5 million bond 5. Prosecutors going after people who didn’t know but didn’t do their jobs and/or lied 6. Watch his arrest at www. The. Pros. And. The. Cons. com 1. Click Videos, Fraud, scroll to Bernie Madoff © Gary Zeune, CPA 2009 6

RCI Uses Illegal Workers 1. RCI national janitorial services 2. Grand Traverse Resort and Spa; House of Blues; Planet Hollywood; Hard Rock Café; Dave and Busters; Yardhouse; ESPN Zone; China Grill 3. $54 million billings 2001 to 2005 4. Evaded $18. 6 million in various Federal taxes 1. 63% operating expenses 2. 37% lifestyle © Gary Zeune, CPA 2009 7

RCI Uses Illegal Workers 1. Christina Flocken, comptroller 2. Pleaded guilty to… 1. Conspiring to defraud the United States 2. Harboring illegal aliens. 3. Financial forfeiture of $1. 5 million © Gary Zeune, CPA 2009 8

Partner False Sign-Off 1. Stephen Nardi, Philly assurance practice director 2. Technical guidance, scheduling and assignment of personnel, directly supervised most audit managers, influenced promotion decisions 3. Assigned audit manager Anne Marie Fitzpatrick to Hemispherx Biopharma’s 2004 audit 4. She completed planning then Nardi stopped her Hemispherx work and assigned her to another client 5. Field work was completed without ______ supervision and was never _____ as required by firm reviewed policy ____ © Gary Zeune, CPA 2009 9

Partner False Sign-Off 1. Nardi authorized release of _________ report Form 10 K which was included in the company’s _____ 2. QC partners announced routine inspection and Hemispherx had been selected 3. Pre-QC Review of the file disclosed lack of initials on work _______ initial, sign and backdate 4. Nardi told Fitzpatrick to ___________ 5. Nardi has been barred from public accounting but can petition after 1 year 6. Fitzgerald was censured and resigned © Gary Zeune, CPA 2009 10

False Sign-Off Survey Results Signing off on work when in fact _________ it wasn’t done Sample slice % of CPAs who observed False Sign-off Auditing experience last 10 years % 25 27 Auditors with some Big 4 experience Auditors with only Big 4 in last 10 years 26 25 28 © Gary Zeune, CPA 2009 11

False Sign-Off 1. WHY COMMIT Come in under budget _______________ Something not expected to change 2. WHAT TO SIGN OFF Keep client and boss happy _____________ Assume the work was done 3. PAY AND PROMOTION TRUST ____________ Audit the auditors 4. WHY NOT DETECTED ____________ 5. WHY ___________________ 6. HOW TO MINIMIZE _____________ © Gary Zeune, CPA 2009 12

Judge Sentences 3 In Massive Tax Fraud…. AP Headline Robert Pfaff Former tax partner 58 8+ yrs $3 MM Jailed John Larson Former tax manager 57 10 yrs $6 MM Jailed 63 6½ yrs $0 Ray Ruble Former Attorney Free on appeal Firm has signed a deal admitting its role in the tax shelter scheme. The firm avoided criminal prosecution by cooperating with authorities but was fined $456 million, including $128 million in forfeited fees from sales of the shelters. © Gary Zeune, CPA 2009 13

Judge Sentences 3 In Massive Tax Fraud…. AP Headline 1. Set up own firm 2. Marketed BLIPS 1. Bond Linked Issue Premium Structure 3. $1+ billion phony tax shelters 4. Brazen tax shelter "that didn't pass the smell test from Day 1“ 5. 7% of amount their clients saved paid to behave Tip: People behave the way they’re ________ © Gary Zeune, CPA 2009 14

Prof. Roger D. Blackwell 1. Ohio State multi-million $$$ marketing prof 2. Worthington Foods board member 3. Sale of company 4. Sentence 6 years 6 and $1 million fine million 5. Defense cost $______ 6. Blackwell and his law firm suing each other 7. U. S. Supreme Court ZERO/NONE/NADA denies appeal 8. Blackwell profited $_____ Ethics tip: people _______________ Some commit fraud for no $$$ gain © Gary Zeune, CPA 2009 OSU picture 2007 convict 15