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January 28, 2023

Accounting News Roundup: Sticking With Clients and Amateurish Fraud | 09.07.17

pwc hna

Sticking with clients

Paul Gillis notes a story about Goldman Sachs stopping its work on an IPO for a unit of HNA, a Chinese conglomerate, remarking on PwC’s connection:

HNA’s public companies are audited by PwC. This raises the question of how PwC is able to continue as auditor. Auditing standards require auditors to annually assess whether to continue a relationship with a client.

Reuters reported Goldman stopped its work because “the deal failed to meet the bank’s internal due diligence requirements.” Gillis ponders the likely deliberations within PwC, writing that “the standards for an auditor are not lower than that for investment banks.” That may be true, but audit firms are pros at making concessions to clients despite bewildering and suspicious circumstances. I’m sure PwC can handle this one.

SEC enforcement

The Securities and Exchange Commission has charged Scott Newsholme, a New Jersey-based tax preparer and investment advisor, for misappropriating $1 million from clients, many of whom were unsophisticated investors. Newsholme allegedly used the money to “support his lifestyle and gambling habit.” He went to great lengths to conceal the fraud, telling clients that their investments were performing great and when they asked for documentation, “fabricated account statements, doctored stock certificates, and forged promissory notes.”

However, the SEC’s complaint called these statements “amateurish”:

they often lacked detail, for example, referring to College 529 accounts without specifying the underlying holdings; and they had typographical errors, such as cash holdings referred to as “money markey” instead of “money market.”

If you’re creating fake documents, wouldn’t you want to proofread them extra carefully? He could’ve hired a copyeditor, but then I suppose that would’ve added conspiracy to his list of charges.

Anyway, Newsholme even created “portfolios” on Morningstar.com for clients who wished to follow them more closely. Naturally, he lied about the part where Morningstar is merely a tracking service, not a custodian of investor funds. The clients learned this when they contacted Morningstar about their “account.” Newsholme also faces criminal charges.

Accountants behaving badly

A former controller of Town & Country Club, a private golf club in St. Paul, Minn., faces charges for embezzling a $1 million. According to a Department of Justice press release, Julie Ann Lee didn’t have a very sophisticated system and was not shy about spending lavishly:

According to the indictment, as part of her embezzlement scheme, LEE fraudulently issued herself more than 50 checks totaling more than $150,000 directly from TCC’s bank accounts. LEE also stole approximately $250,000 in cash from TCC, which she deposited into her personal bank account. As part of the scheme, LEE also made payments on her personal credit cards directly from TCC bank accounts totaling approximately $600,000. LEE spent the funds she embezzled on things unrelated to TCC, including personal travel, home improvements and her mortgage, a 2013 Dodge Charger, a 2015 GMC Sierra K3500 pickup truck, a motorcycle, a recreational vehicle, and 81 acres of land in northern Minnesota.

That’s the first time I remember an (alleged) embezzling accountant investing in land. It seems so out of character given the rest of the loot.

Previously, on Going Concern…

Part III of our video series with Tim Gearty on revenue recognition.

Greg Kyte’s Exposure Drafts cartoon shows that no one retires and wishes they had a better realization rate.

In Open Items, MBA in Accounting? MBA in Finance? MBA in Taxation? CPA?

In other news:

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