provide expertise in matters involving arbitration support, including the making up of Statements, Reports, and Memorials on Account Books, on

Transcription

1 FORENSIC ACCOUNTING

2 provide expertise in matters involving arbitration support, including the making up of Statements, Reports, and Memorials on Account Books, on disputed Accounts and Claims for the purpose of laying before Arbiters, Courts or Counsel.

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5 $123,103 = $1,658,325; $257,287 = $3,465,924; $195,677 = $2,547,616; $218,057 = $2,871,072; $140,534 = $1,893,139; $104,000 = $1,417,374 $13,853,450 Net worth method (value of assets owned liabilities owed) Expenditure method (tracing & documenting monies spent for everything)

6 FORENSIC ACCOUNTING TODAY Overview Part 1 What does a Forensic Accountant do? Who hires Forensic Accountants? What situation calls for a Forensic Accountant? What methods are used by Forensic Accountants? How is the testimony of the Forensic Accountant used in court? FORENSIC ACCOUNTING TODAY Overview Part 2 White collar crime on the rise Current Forensic Accounting case: Worldcom What were the findings? What were the damages? What were the punishments for the offenders? What does a Forensic Accountant do? Unlike a traditional auditor who verifies compliance with GAAP the Forensic Accountant will take a much closer look at financial statements and will check for irregularities. Who hires Forensic Accountants? Public Sector: IRS FBI State and local police Private Sector: Private Investigation firms Large Corporations - (e.g. banks, insurances, other companies)

7 What situation calls for a Forensic Accountant? - Tax disputes, especially VAT and Payroll tax - Conduct of directors - Insolvency investigations - each time there is a suspicion of fraud or employee theft (expense reimbursements) - occasionally divorce cases What methods are used by Forensic Accountants? Direct Method: also known as transactional method, includes: - investigation of canceled checks, invoices, contracts, agreements, public records and notices - interviews of management and employees. What methods are used by Forensic Accountants? Indirect Methods: Cash T Method: compares cash received/cash spent Source and Application of Funds Method: compares lifestyle spendings vs. assets and investments Net Worth Method: compares assets to liabilities Bank Deposit Method: compares known sources against unknown sources How is the testimony of the Forensic Accountant used in court?

8 How is the testimony of the Forensic Accountant used in court? A Forensic Accountant can either be used as a witness of fact or as an expert witness How is the testimony of the Forensic Accountant used in court? witness of fact can only provide evidence on what they saw, did or heard expert witness as an expert must demonstrate an undisputable level of expertise in accounting and related areas they are giving evidence on, the experts opinion matters to the court How is the testimony of the Forensic Accountant used in court? How is the testimony of the Forensic Accountant used in court? Evidence given by Forensic Accountant should be very specific and must be: reasoned and supported by proper documentation Opinion must corroborate that information Techniques used, must be documented e.g: interviews should be backed up by questionnaires and methods used to discover fraud should be disclosed

9 PART 2 White collar crime on the rise? White collar crime has grown exponentially over the last decades National comparison: 1970: Cost of white collar crimes annually $ 5 billion 1990: Cost of white collar crimes annually $ 100 billion Per the Association of Certified Fraud Examiners (ACFE): current annual cost of white collar crimes are estimated to be around $994 billion annually every third household becomes the victim of white collar crime PART 2 Current Forensic Accounting Case: Worldcom What were the findings? - Wrongly classified expenses of $3.8 billion as capital expenditures without authorization or paper trail, which included $ 500 million for computer expenses - Overstatement of assets - $2.8 billion were moved from reserves into revenues - Inflated net income - Overstating there revenues - Neglect of General Accepted Accounting Principles PART 2 Current Forensic Accounting Case: Worldcom What were the damages? Damages to employees: - Decrease in retirement funds, funds dropped from $ million to $ 18.7million - At least 17,000 jobs were lost Damages to investors: - Decrease in share prices from $ 64.5 a share to < $ 1.00 Other damages: - Demise of Arthur Anderson PART 2 Current Forensic Accounting Case: Worldcom What were the punishments for the offenders? Scott Sullivan CFO, CPA and treasurer board member Sentenced to 5 years in prison as part of a plea deal

10 PART 2 Current Forensic Accounting Case: Worldcom What were the punishments for the offenders? Bernard Ebbers CEO Sentenced to 25 years in prison PART 2 Current Forensic Accounting Case: Worldcom What were the punishments for the offenders? - Other indictments included: - Buford Yates, Director of Accounting - Betty Vinson, Director of Management Reporting - Troy Norman, Director of legal entity reporting - Worldcom had to pay $ 750 million to the SEC which was distributed to investors as compensatory damages GROWTH IN FORENSIC ACCOUNTING Where are we going from here?

11 THE INDIVIDUAL TECHNOLOGY Think Outside the Book

12 What is a controller? Our presentation An individual who has responsibility for all accounting related activities within a firm. Prepares financial statements Prepares operating budgets Prepares governmental reports Taxes Compliance Prepares technical accounting processes Defense Procurement process through which authorities in the field of defense acquire the various goods, services or works they need in order to perform their duties and missions. Air Force What processes and parameters must they consider when purchasing their equipment? More to it Real world activities and responsibilities go much deeper than what a simple book or website definition can provide More to it than cost drivers and bottom line A few illustrations to clarify my point Southpark My job Mission Statement The Air Force Fly, fight and win in air, space and cyberspace. Formed in 1947 Headquartered at the Pentagon in Washington, DC One of the three lines of defense Subject to the Department of Defense Regulations

13 Organization Decision Makers Mike McCord Under Secretary of Defense (Comptroller) and Chief Financial Officer Debra Lee James Secretary of the Air Force Richard T. Ginman Director of Defense Procurement and Acquisition Policy Main Duties Procurement Defined Mike McCord Advisor to the Secretary of Defense on all budgetary and financial matters Preparation and execution of budgets Fiscal, cost, operating, and capital property accounting Progress and statistical reporting Debra Lee James Organizing, training, equipping and providing for the welfare of more than 690,000 active duty, Guard, Reserve and civilian Airmen and their families. Oversees the Air Force's annual budget of more than $110 billion. The construction, outfitting, and repair of military equipment. Richard T. Ginman Responsible for domestic, international, and contingency contract policies Acquisition policies Oversight of the DoD and 2 Oversight of the DFARS and FAR Oversight of the purchase program Co leader to the pricing and contracting community The act of acquiring goods and services from contractors, federal arsenals, and shipyards to support military operations Applies to the design, engineering, construction, testing, deployment, sustainment, and disposal of weapons or related items from a contractor (acquisitions and procurement used interchangeably) System is heavily regulated and upheld to various statutes by the Department of Defense

14 Title 10 Federal Regulations of the Department of Defense 1) Federal Acquisitions Regulations (FAR) Applies to entire federal government 2) Defense Federal Regulations Acquisitions (DFAR) Applies only to the Department of Defense 3) Individual DoD Component Regulations Berry Amendment Buy American Act Three Step Procurement Process for the Defense Branches The Joint Capabilities Integration and Development System The Planning, Programming, Budgeting, and Execution System The Defense Acquisition System Milestones A) Technology maturity and risk reduction B) Engineering and manufacturing development C) Production and development Procurement Three Step Process Continued 1 ) THE JOINT CAPABILITIES INTEGRATION AND DEVELOPMENT SYSTEM Process by which the Air Force identifies, assesses, and prioritizes what capabilities it requires to fulfill its mission Created in 2003 and fundamentally changed the way the Air Force developed its requirements Threat based approach prior to this This process is now a capabilities based approach which identifies the needs that are set by the National Military Strategy, National Defense Strategy, and Quadrennial Defense Review

15 2) THE PLANNING, PROGRAMING, BUDGETING AND EXECUTION SYSTEM Annual four step process that develops the Air Force s proposed budget for all acquisitions (i.e. procurement of items) 3) THE DEFENSE ACQUISITION SYSTEM Management process the Air Force develops and uses to buys items This program is tailored as much as possible to the specific products being acquired Milestone gates A, B, and C must be passed before a product is deemed ready to proceed Planning Programming Budgeting Execution 3) THE DEFENSE ACQUISITION SYSTEM CONTINUED Passing Milestone A Technology Maturity and Risk Reduction Phase Must have approval from the Milestone Decision Authority (MDA) Must submit a cost estimate The program must have full funding for the length of the Future Years Defense Program If contracted then must have a Request for Proposal 3) THE DEFENSE ACQUISITION SYSTEM CONTINUED Passing Milestone B Engineering and Manufacturing Development Phase Must have full funding for the length of the Future Years Defense Program An independent cost estimate must be submitted to the Milestone Decision Authority (MDA) Risk must be mitigated Milestone Decision Authority (MDA) must approve and update the Acquisition Strategy

16 3) THE DEFENSE ACQUISITION SYSTEM CONTINUED Passing Milestone C Production and Deployment Phase Product must be sustainable Must pass development testing and operational assessment Estimated cost must be within the cost caps Must have full funding for the length of the Future Years Defense Program Capability and Production Document must be approved Milestone Decision Authority (MDA) must approve the updated Acquisition Strategy Buy American Act The Buy American Act is a federal legislation that requires the U.S. government to prefer U.S. made domestic products over foreign goods In certain government procurements, the reliance on domestic products may be waived if the domestic product is more expensive than an identical foreign product by 50% Air Force Exemptions Problem to Controllers Foreign products can be purchased when the head of the agency makes a determination that domestic preference would be inconsistent with public interest 2.Foreign products can be purchased when there is non availability of these articles because it cannot be manufactured, mined, or produced in the U.S 3. Foreign products can be purchased when the domestic products are sold at unreasonable cost 4. Foreign products can be purchased specifically for commissary resale Controllers and managers have been protesting this act for many years A pre depression era act that is no longer viable with the rise of world production No longer about cost analysis Implications of non cooperation range from penalties to no longer being able to bid on products Severely limits ability to chose products and costing from a global market

17 Berry Amendment Problem to Controllers The Berry Amendment is a statutory requirement that restricts the DoD from using funds for procurement of food, clothing, fabrics, fibers, yarns, other made up textiles, and hand or measuring tools that are not grown, reprocessed, reused, or produced in the United States This maintains the security and safety of the products, while boosting those businesses in the United States Controllers have trouble interpreting amendment because of its nature Many subsections and each department has different rules Many government contractors do not know or understand Barry Amendment Hard to get correct procurement bids that check all the boxes How This Relates How This Relates The Buy American Act and the Berry Amendment shows how controllers must not only worry about costing, but the red tape these acts and amendments push It makes the cost drivers much different and hard to judge, because they in certain situations buy some things in America and some foreign depending on the regulation This makes costing very difficult and decisions on what products to use for these procurements cannot be based just upon what cost drivers give them the most profitable result These acts can cause The Air Force and DoD to spend more than usual and cause their expenses and cost drivers to rise Even though it provides American businesses to be more profitable, the extra money it takes to buy these items comes from the American taxpayers wallet

18 Class Vote Should the Berry Amendment and Buy American Act still be in use today? Sources pdf james.aspx