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.TheProsAndTheCons.com
Satyam Computer Services
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Satyam = India’s Enron
Ramalinga Raju
4th 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
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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
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Firm Vice Chairman
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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
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Bernie Madoff
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$50 Billion
30 years
NASDAQ
Affinity fraud
Feeder funds
Exclusivity
© Gary Zeune, CPA 2009
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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.TheProsAndTheCons.com
1. Click Videos, Fraud, scroll to Bernie Madoff
© Gary Zeune, CPA 2009
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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
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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
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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 _________
reviewed as required by firm ________
policy
© Gary Zeune, CPA 2009
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Partner False Sign-Off
1. Nardi authorized release of _________________
report
Form 10K
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
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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
%
25
Auditing experience last 10 years
Auditors with some Big 4 experience
Auditors with only Big 4 experience
27
26
25
Auditors with only Big 4 in last 10 years
28
© Gary Zeune, CPA 2009
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False Sign-Off
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WHY COMMIT ______________________________
Come in under budget
Something not expected to change
WHAT TO SIGN OFF _________________________
PAY AND PROMOTION _______________________
Keep client and boss happy
WHY NOT DETECTED ________________________
Assume the work was done
WHY _____________________________________
TRUST
HOW TO MINIMIZE __________________________
Audit the auditors
© Gary Zeune, CPA 2009
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Judge Sentences 3 In Massive
Tax Fraud….AP Headline
Robert
Pfaff
Former tax
partner
58
8+ yrs
$3MM Jailed
John
Larson
Former tax
manager
57
10 yrs
$6MM 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
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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
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Prof. Roger D. Blackwell
1. Ohio State multi-million $$$ marketing prof
2. Worthington Foods board member
3. Sale of company
4. Sentence 6 years and $1 million fine
6 million
5. Defense cost $____________
6. Blackwell and his law firm suing each other
7. U.S. Supreme Court denies appeal
ZERO/NONE/NADA
8. Blackwell profited $__________
Ethics tip: _____________________________
Some people commit fraud for no $$$ gain
© Gary Zeune, CPA 2009
OSU picture
2007 convict
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