When is it Fraud, and When is it Nothing?

This month, Fraud Magazine features an article on different cases where what appears to be wrong doing can often be harmless, but can other times in fact be fraud.

“For auditors and fraud examiners, it’s often difficult to determine when seemingly “normal” conditions transition to suspicious. The fraud triangle (motive, opportunity, and rationalization) provides guidance for the elements of fraud, but no single source of evidence gives us assurance that a fraud has occurred. We must be aware of the differing red flags of fraud, waste, and abuse (FWA), and interpret these often subtle warning signs.

“Fraud occurs with an intentional act committed for personal gain. However, waste and abuse involve the mismanagement or misuse of resources. Abuse also includes using a position of authority for personal gain. Conclusions drawn as a result of interviews, document reviews and data analysis determine whether controls exist to detect, prevent, and deter FWA and the extent to which identified risks and vulnerabilities affect an entity.”

Click here to continue reading the article and several cases included as examples.


Tool Aims to Combat Identity Theft-Related Tax Fraud

From Accounting Today:

Tascet has released technology that it said tax preparers can use to prevent multiple filings of tax returns by fraudsters.

Identity theft-related tax fraud has been a growing problem for the Internal Revenue Service in recent years and has sparked several congressional hearings (see Congress Probes Tax Prep Fraud and Identity Theft and IRS and Social Security Urged to Curb Tax Fraud and Identity Theft). Treasury Inspector General for Tax Administration J. Russell George recently testified that up to $26 billion could be lost to tax identity fraud over the next five years. The filing of multiple false tax returns by the same individual presents the biggest challenge. The IRS reported that in 2011 approximately 940,000 tax returns with $6.5 billion in refunds involved identity fraud.

Click to read the full article from Accounting Today.

Why Do Corporate Fraud Cases Spare Individuals?

That’s what Senator Jack Reed, Democrat of Rhode Island and chairman of a subcommittee that oversees securities regulations recently asked in a New York Times article:

“Pharmaceutical companies, military contractors, banks and other corporations are on track to pay as much as $8 billion this year to resolve charges of defrauding the government, analysts say — a record sum and more than twice the amount assessed last year by the Justice Department.

“The surge in penalties is because of a number of factors, including the resolution of longstanding actions against drug makers and military contractors, as well as lawsuits brought against mortgage lenders after the financial crisis. But it also reflects a renewed emphasis on corporate fraud, as the Justice Department devotes more resources to the issue and demands higher penalties from companies….

…“A lot of people on the street, they’re wondering how a company can commit serious violations of securities laws and yet no individuals seem to be involved and no individual responsibility was assessed,” Senator Reed said at a recent hearing.

Click to read the full NY Times article.

Does Your Auditor Think Like a Fraudster?

Fraud Magazine article on brainstorming to find how someone could defraud a company:

When the big frauds hit, it doesn’t take long for others to ask “where were the auditors?” In this instance, the NCUSIF inspector general noted that “numerous red flags were present for many years,” including those spotted by examiners. The IG stated that examiners only performed “their required minimum procedures.” Board meeting minutes indicate that the audit reports identified no outstanding issues about the credit union operations.

The question beckons: Did the auditors properly prepare and plan to find fraud? Could effective fraud brainstorming have helped uncover these schemes much sooner?

“If you don’t know what you’re looking for, how will you know when you’ve found it?”

This sums up the advantage of thinking about fraud before conducting an audit. An audit plan that’s not designed to find fraud may occasionally by chance find it. However, the fraud detection business shouldn’t be built on luck or hope but on proactive, planned and decisive measures.

Click to continue reading this article from Fraud Magazine.

How to Select and Evaluate an Expert Witness (CLE Course)

Presented by the Clark County Bar Association on October 10, this Continuing Legal Education course will feature Mike Rosten, CPA, CFE of Piercy Bowler Taylor & Kern. He will discuss what to do in the planning stage, how to determine the right qualifications, and how to establish rapport with the expert witness. An example of things to consider before hiring an expert witness include:

  • Scope of work. Define the issues of the case for the expert as precisely as possible. This will allow the expert to better focus on the critical issues and create a realistic fee estimate.
  • Depth and breadth of analysis. Being excessively detailed or focusing on an extraordinarily long time period may result in excessive work-effort and increased cost. However, a narrow analysis may result in a report that is ineffective in court. Is there a happy medium? Based on my past experience as a witness, cases often wind up settling as a direct result of reading an expert’s report so it is better to be more detailed than general in the analysis.
  • Case Budget. With continuing economic struggles, litigation costs, including expert witness fees, will continue to be a significant issue for the foreseeable future. It is important that expectations are clearly conveyed to the expert to minimize miscommunication and foster greater control over fees.

The course will be held at the CCBA offices (725 Eighth Street, Las Vegas, NV) on October 10 from 1:00 pm to 3:15 pm. Please contact Mike at mrosten@pbtk.com if you are interested in attending.

Alaska Drug Case Reveals $19 Million Tax Fraud

By Casey Grove, Anchorage Daily News

While investigating Anchorage cocaine dealers, authorities discovered a massive identity theft and tax fraud operation that illegally claimed about $19 million in federal tax refunds,prosecutors said.

U.S. Attorney for Alaska Karen Loeffler said Thursday it’s unclear exactly how much cash the federal government paid out to the defendants: seven illegal immigrants, three living in the country legally and a corrupt Wells Fargo bank employee, the U.S. citizen, who helped the alleged fraudsters. The 10 residents of Mexico and the Dominican Republic, working with a United States citizen, sent at least some of the money they allegedly stole from the U.S. Treasury out of the country, according to an indictment handed up this week.

“It’s a very large tax fraud case,and what I would call organized crime,” Loeffler said Thursday. “This is certainly the biggest (tax) case we’ve brought down in Alaska.”