Tag: Internal Controls

It’s Ridiculous to Think That Enterprise Financial Dismissed KPMG Because of the Restatements

KPMG has been kicked to the curb by Enterprise Financial according to an 8-K that was filed on Friday by the company. The ubiquitous claim of “no disagreements with [insert firm]” was there along with a mention of a material weakness that was related to the restatements issued for both 2008 and 2007 but that couldn’t possibly have anything to do with the dismissal of the auditors:

In connection with the identification of the loan participation accounting error described in Item 7, Management Discussion & Analysis and in Item 8, Note 2 of the consolidated financial statements and elsewhere in the Form 10K dated March 16, 2010, the Company also determined that a material weakness in its internal controls over financial reporting existed during the periods affected by the error, including as of December 31, 2008. The Company’s management concluded that the material weakness was the Company’s lack of a formal process to periodically review existing contracts and agreements with continuing accounting significance. To remediate this material weakness, during the fourth quarter of 2009 the Company implemented a formal process to review all contracts and agreements with continuing accounting significance on an annual basis. As a result of the review conducted in the fourth quarter, management did not identify any other errors in its previous accounting for such contracts or agreements. Management believes that this new process has remediated the material weakness in the Company’s internal control over financial reporting.

So in other words, “Yeah, maybe we should have been looking at these contracts but we weren’t and so some material misstatements slid through. We’ve slapped some duct tape on it and it’ll be fine from here on it. End of story.”

The esteemed pleasure of auditing Enterprise now belongs to Deloitte who has now snagged three clients from KPMG this year (by our count) – picking up Jefferies and Select Comfort back in March.

Enterprise Bank parent dismisses KPMG [St. Louis Business Journal]

Five Questions with Norman Marks

Norman Marks is an “evangelist for GRC” (that’s governance, risk management and compliance for those of you that can’t do a Google search). He is a CPA, a chartered accountant and vice president, governance, risk, and compliance for SAP’s BusinessObjects division, and has been a chief audit executive of major global corporations for more than 15 years.

He blogs at the IIA website and keeps a personal blog on governance, risk management and internal controls. He is also the contributing editor of Internal Auditor’s “Governance Perspectives.”

If you read a few Norman’s posts you’ll understand his passion for internal audit, GRC and helping companies find solutions for these issues. Simply stated, Norman is one of the good guys and is doing more than his fair share to help take on the challenges in these areas.


Why should accountants read your blog?
My blog is for anybody with an interest in monitoring events and sharing views around governance, risk management, and internal audit. Accountants are more than people who maintain the books: they are businessmen and women interested in advancing and protecting their organization. That makes them natural leaders in each of these areas.

What are your three must-read accounting blogs and one must-read non-accounting blog?
I read the occasional business blog (aren’t all the better so-called accounting blogs really business blogs) when the topics are interesting. Certainly reTheAuditors by Francine McKenna is interesting. But I really enjoy Mike Jacka (an auditor/humorist) and Richard Chambers, President and CEO of the IIA.

A good accounting blogger is…
Not somebody who writes about (yawn) accounting, but about the accountant’s role in business and advancing the success of his or her organization.

The biggest issue facing accountants today is…
Will the inevitable court cases around Lehman and the principle of ‘fair presentation’ change the nature of external auditing, so that compliance with the rules of US GAAP is no longer sufficient?

Best accounting firm we’ve never heard of (and why they’re great)…
The firm that John Cleese worked in Monty Python (accounting is not boring). Seriously, though, the best accounting firm is the one that puts the interests of its customers first and foremost, consistently performs quality work, exercises fine judgment, provides sound and valuable advice, and sets fees that are reasonable by eliminating unnecessary work and recognizing that fees should not rise faster than wage inflation. You have never heard of them, because I have yet to see them. Sorry, sad, but true.

A Wisconsin Non-Profit Learns an Important Lesson in Internal Controls

Presented by Serenic Software. Download our free whitepaper – “5 Key Reasons Why Great Financial Management is So Important for Your Nonprofit Now”

What is in the water up in America’s Dairyland? We’ve been going on and on about the internal control failures at Koss in Milwaukee but now there’s more of it at a non-profit organization just up the road. Let’s hope everyone at UW Madison is taking notes.

The latest tale of non-profit fraud stars 56 year-old Leonard V. Lauth of Beaver Dam.

Wings Over Wisconsin bills itself as a conservation organization dedicated to natural resource preservation and education through youth and community involvement. Spelling errors and obvious lack of updates since 2006 on its website aside, WOW manages nearly 1,300 acres of land and provides mostly young hunter education to the future gun-toting blue-stater babes in Wisconsin.


While it prides preservation of Wisconsin’s precious wetlands, internal controls do not appear to be high on WOW’s priority list. Hopefully this changes that.

It’s a textbook fraud case, starting with the mounting medical bills and the poor internal controls that allowed its Treasurer to lift $16,875 since 2005. Lauth’s advanced methods of fraud include writing checks to himself labeled “office supplies” in the books and taking home banquet funds after the event insisting he’d deposit them at the bank in the morning.

While typically WOW practice to require two signatures, Lauth had been with the organization for 24 years, leaving the “trust” issue totally taken care of. Opportunity, motive, what else do we need?

Rationalization, of course! Lauth told Beaver Dam Police Lt. Joel Kiesow he thought he’d taken $788 from the organization in the four year period in which he executed his fraud. When informed it was more like $17,000, Lauth was shocked. I guess he didn’t realize how expensive “office supplies” can be these days.

“Maybe I was robbing Peter to pay Paul on different things,” said Lauth in regards to using WOW funds to pay off family medical bills. Actually, he was robbing the little Dustins and Bobbys with their baby shotguns and wildlife of Wisconsin who counted on the funds to which he so sloppily helped himself. Shame shame.

Let this be a lesson to all you non-profits: cash management and financial literacy (including fraud prevention measures) are not only best practices for public companies and private industry. If anything, non-profits need sharper internal controls – without shareholders to answer to, money can easily slip into the fraud vacuum undetected for years, as in the case of Mr Lauth and WOW.

Calls to WOW left after business hours were not returned.

Man accused of taking funds from non profit [Beaver Dam Daily Citizen]

Reason #10,308 to Not Engage in Dubioius Accounting Practices

So! Thinking about getting a little aggressive with the accounting? Forget aggressive, let’s just say you need to make your numbers next quarter come hell or high water? Maybe there are some pesky internal controls that you would really, really like to get around. For the good of the company of course.

Do whatcha gotta do but before you do, consider the sentence of Charles McCall, the former chairman of McKesson Corp. first. If, after reading his story, you decide it’s still worth the risk, then proceed with your plans.

A former chairman of San Francisco-based McKesson Corp. has been sentenced in federal court to 10 years in prison for securities fraud in an accounting scheme that cost shareholders $8.6 billion in 1999.

Charles McCall, 65, of Delray Beach, Fla., was given the prison term by U.S. District Judge William Alsup in San Francisco on Friday.

McCall was convicted by a jury in Alsup’s court in November of four counts of securities fraud and one count of circumventing the company’s internal accounting controls.
…
Prosecutors said that in the fraud, HBO & Co. and McKesson HBOC inflated revenues by backdating software sales and concealing side letters that would have allowed buyers to cancel proposed purchases that the company had counted as revenue.

This poor bastard got sentenced to 10 years (at 65, he’ll be lucky if manages to serve the full sentence) and he probably doesn’t know a internal control from his ass, other than at one time, he thought it was enough of a hindrance that he’d just ignore it altogether. If anyone has an extra copy of COSO laying around, kindly send it his way. He’ll have time to get caught up on the idea.

Ex-McKesson chairman gets 10 year sentence [SF Chronicle]

SHOCKER: GAO Says the Federal Government Has Weak Internal Controls

Talk about a blow. Everyone here at GC soiled themselves after finding out this piece of news.

The mother of all auditors, the General Accountability Office, released its FY 2009 Financial Report for the U.S. Government last week and things are, shall we say, typical. How typical? How about things are such a mess that the GAO can’t render an opinion on the consolidated financial statements?

“The U.S. Government Accountability Office (GAO) could not render an opinion on the consolidated financial statements of the federal government (other than the Statement of Social Insurance) because of widespread material internal control weaknesses and other limitations.”


That’s from the press release and while we were expecting a shitshow spread amongst all the agencies of the government, it’s due to the weaknesses in four agencies: the Defense Department, Homeland Security, State Department, and NASA.

Here’s the full rundown on the agencies from the report:

You may remember us noting the Defense Department’s audit problems back in the fall when we said:

For one of the 69 reviews the GAO performed, the audit report cited eight significant deficiencies in the contractor’s accounting system but since the contractor wasn’t really cool with that, the auditors dropped five of the [significant deficiencies] and recommended that the other three be “improved without additional work”.

So this really, really, really does come as a surprise. It is good to know that the GAO — never shy on tooting its own horn — is still out there earning it’s “taxpayer watchdog” badge.

At 256 pages, this thing is a beast. We’re plowing through it to find the more interesting tidbits where we can and if you’re on cruise control today, take a gander for yourself to see your tax dollars at work.

Fiscal Year 2009 Financial Report of the United States Government [GAO.gov]
U.S. Government’s 2009 Financial Report Shows Significant Fiscal Challenges [Press Release]
GAO Cites Weak Financial Management in Federal Government [Web CPA Debits & Credits]

At Blackwater, Strippers and Hookers are Legitimate Expenses

Allegedly of course!

It’s bad enough when even the Iraqis are saying GTFO but that’s exactly what’s happened to about 250 ex-Blackwater employees still lingering around Iraq. “I don’t think the Iraqi government is willing to have any Blackwater member, even if they are working in other companies,” government spokesman Ali al-Dabbagh told CNN in January.”

But it isn’t just the Iraqis with a Blackwater bone to pick – former Blackwater employees allege the security firm hired strippers, prostitutes, and “incompetent personnel” to defraud authorities while working security details in Iraq and Afghanistan, as well as in post-Katrina Louisiana.


WTF is going on here? If you’re going to rip off the federal government, I guess it’s good to get your money’s worth, especially if you know their internal controls are for shit.

CNN:

Melan Davis, who was involved in record-keeping, said Blackwater billed the government for prostitution services in Afghanistan from a Filipino female, whose name was on Blackwater’s payroll roster under a category called “Morale Welfare Recreation.”

She said Blackwater billed the woman’s plane tickets and monthly salary to the United States.

The lawsuit also said a vendor being paid for “cleaning services” in Louisiana was providing strippers.

Blackwater spokespeople (the company is now known as Xe, though we won’t pontificate as to why another rebranding might be appropriate at this time) claim Davis must be trippin’. Strippers? Hookers? Fake receipts? No way!

“The allegations are without merit and the company will vigorously defend against this lawsuit. It is noteworthy that the government has declined to intervene in this action,” Xe told CNN.

This is not the first time Blackwater has been accused of defrauding the government; California’s Henry Waxman (D) accused the contractor of running a tax scheme to avoid paying what his staffers estimated as $15.5 million in Social Security and Medicare taxes, $15.8 million federal income tax withholding and $500,000 in unemployment taxes between May 2006 and March 2007.

So? What’s worse? Not paying taxes or expensing “Morale Welfare Recreation” on Uncle Sam’s dime?

Fraud Risk, Staffing Reductions, and OJ Logic at CFO.com

orangejuice_Full.jpgEditor’s Note: Robert Stewart is a former Big 4 auditor and ex-Marine who has since served in several executive management roles in both Internal Audit and Corporate Finance. He is also the founder and chief contributor to the online accounting and audit community, The Accounting Nation. Outside of work, he is a husband, father, brother, writer,uate aspiring triathlete.
You can always count on CFO.com for logic flaws and surface reporting. It’s like drinking that concentrated orange juice in a can when you add three parts too much water and then put ice cubes in it because it’s warm, which makes it even more watery which… Where was I going with this?
Oh yeah. In one of their latest articles, entitled “As Internal Audit Staffs Shrink, Will Fraud Rise?“, the author portends — based on a Deloitte survey and subsequent interview — that the decrease in internal audit personnel somehow increases the risk of organizational exposure to fraud. What? Ever hear the phrase “Correlation is not Causation”? Symptom or cause.


Here’s my $0.02: such staffing reductions may increase the risk that fraud will go undetected (though only nominally given that IA only uncovers about 12% percent of frauds according to the ACFE’s Report to the Nation), but the risk to the organization more than likely remains constant, right? Am I missing something here?
After all, Internal Audit is a downstream event unless you make the argument that the organizational perception of being “watched” has diminished with the reductions in internal audit/compliance staffing, thus emboldening would-be fraudsters (i.e. strengthening the “opportunity” leg of Cressey’s Fraud Triangle). But this article doesn’t make that argument.
The article further states that:

Despite the reduction in compliance personnel, 50% of respondents to the Deloitte survey, who included CFOs, CEOs, board members, and middle managers in finance and risk management, said their compliance and ethics programs are strong. Another 36% said they are adequate. Many public companies and some private companies invested significantly in their compliance programs after the passage of Sarbox in 2002, notes Francis, and they may now feel confident that those programs are effective even with a reduced staff. But that confidence may not always be justified.

Confidence? I would hardly call the above percentages “confidence” on the part of the respondents. If I told you that 50% of the airline pilots felt that their pre-flight checklist procedures were strong, how would you feel about flying? No F*#$ing way I’m getting on that plane.
The words wrapped around the survey results and subsequent interview quotes don’t at all support the conclusion that this article is trying to draw. Perhaps it’s because the survey was designed and administered by a firm (Deloitte) that has a vested interest in drumming up some business through fear tactics? After all, you’re never going to hear a burglar alarm company extolling the improvements in public safety.
And you’re never going to hear a company that sells risk-related services conducting and publicly releasing results that don’t support their strategic objectives. Or perhaps it’s just bad writing at CFO.com in order to satisfy a quota? The World may never know (I think the World will be fine with this). Either way, I’ve wasted double the amount of time that I should have on this topic (i.e. read it and wrote about it). And so with that…I bid you adieu.