Thursday, June 24, 2010

Justices Limit Use of "Honest Services" Law Against Fraud

This Sumpreme Court decision potentially impacts the ability for the Courts to find individuals guilty of "Honest Services Fraud". More specifically, the High Court rules that "Honest Services Fraud" is tied specifically to cases of bribery and kickbacks (i.e. corruption cases).

In the case of Jeffrey Skilling, he was convicted of Honest Services Fraud as a result of his falsifying the financial statements at Enron. The government argued that he benefited from this financial statement fraud by receiving bonuses, salary increases, and the sale of stock. He was ultimately convicted.

The High Court now places this conviction in jeopardy because, "the government never argued that he "accepted side payments from a third party in exchange for making the financial statement misrepresentations." In other words, there was no evidence of specific bribes or kickbacks paid to Mr. Skilling that would ultimately fall under the "Honest Services Fraud" statute.

Stay tuned to find out if high-profile convictions are ultimately overturned.

Sunday, June 20, 2010

Another One Bites the Dust

Sandra Page.....

Yes. This was one of my cases. One of the more unfortunate ones. A non-profit. A tight-knit community. Money pegged for children.

What is it about taking other people's money? I wonder, now that she sits behind bars, was the thrill of the theft worth the trade-off of telling her child that she wouldn't be home for the next three birthdays...the next three Christmases? Was the money that she frittered away worth the wasted years of her life in prison?

Do you (or your clients) believe fraud can't happen to you?

Think again.

And consider the following:

1. Everyone loved her.
So much so, that when I attempted to interview co-workers and friends, I was vilified ("You are on a witch hunt!" "How dare you?!" "She would NEVER do what you claim she's doing").

2. There wasn't enough money to steal.
Not true! I was able to prove a $240,000 loss. So much money was being stolen, there wasn't enough money to pay the bills on time. But, blaming losses and weak operating results on a bad economy provided the perfect excuse.

3. A CPA Firm was overseeing their monthly financial reports..
Just because you (or your client) have a CPA firm providing tax or financial statement services (think Compilations, Reviews, and AUDITS); their procedures are most likely NOT going to uncover any fraud.

4. Internal Controls Work.
It is a common misconception that a small organization is unable to mitigate fraud risk because of the lack of staff available to provide accounting services. SIMPLY UNTRUE. Unfortunately, however, this misconception often allows fraudsters to perpetrate their crimes for long periods of time. In this case, when controls were placed over cash disbursements (for reasons other than the theft that was later discovered), that particular scheme stopped.

Bottom line: Every single fraud I've investigated involved the one person owners and/or management loved the most. And every single one could have been caught earlier with simple, but effective, controls or monitoring over that person's activities.

If you own, manage, or advise a business then make it your mission to arm yourself with knowledge and pass that knowledge on.

Knowledge is Power.