Watchdog

Tax

WorldCom Convictions Handed Down

Bernard Ebbers received 25 years for his part in the largest bankruptcy in U.S. history. He was sentenced in July after a jury of his peers ruled in April that he had engaged in fraud and conspiracy in connection with WorldCom’s $11 billion accounting scandal. It was the largest in U.S. history. WorldCom has since come out of bankruptcy as MCI. Verizon is expected to acquire the company later this year.Other men who helped convict Ebbers have had their sentences passed down recently. Scott Sullivan was WorldCom’s chief financial officer and the big fish after Ebbers.
Tax

Banker Pleads Guilty in Tax Shelter Case

Federal prosecutors investigating abusive tax shelters struck a plea agreement with a banker on Thursday in the first criminal charges brought in the case, according to the Washington Post. Domenick DeGiorgio, the former managing director of HVB Group, pleaded guilty to four counts of conspiracy, wire fraud and tax evasion relating to his participation in selling a tax shelter known as BLIPS or Bond Lined Issue Premium Structure, created and marketed by KPMG. DeGiorgio said he knew the tax structure lacked economic justification.
Tax

Civil Complaint Against MBIA May Be Close

Federal and state authorities are reviewing a draft civil complaint against bond insurer MBIA Inc., the Wall Street Journal reported Thursday.The newspaper, citing people familiar with the matter, said authorities may file civil fraud charges connected with MBIA's accounting for reinsurance, with a settlement possible in coming weeks.Attorneys in New York Attorney General Eliot Spitzer's office and the Securities and Exchange Commission are reviewing the complaint, the Journal reported.Separately, the U.S.
Tax

SEC Settles With College Savings Plan

The Securities and Exchange Commission (SEC) has settled a cease-and-desist lawsuit against the Utah Educational Savings Plan Trust (UESP). The UESP administers Utah’s educational savings plan. The settlement resolves the first ever charges against a Section 529 savings plan. The charges stem from an investigation of the plan’s former director, Dale C. Hatch. Flaws were found in the savings plan’s operations and internal accounting controls. Investigators found that the savings plan failed to fully allocate investor gains and losses to investor accounts.
Tax

First WorldCom Accountants Sentenced

Two of the lowest ranking officials participating in the conspiracy responsible for the $11 billion fraud that brought down WorldCom were sentenced on Friday, August 5. Three more former WorldCom executives, accounting director Buford Yates, controller David Myers and chief financial officer Scott Sullivan, will be sentenced this week.Betty Vinson, a former mid-level accounting manager at WorldCom, was sentenced to five months in prison to be followed by five months of house arrest.
Tax

Whistleblowers Pay a Heavy Price

While whistleblowers are protected under the Sarbanes-Oxley Act, the financial and emotional toll remains alarmingly high.Just ask David Windhauser, the former controller for Trane, the heating and cooling company. He was the first person to receive a U.S. Department of Labor order requiring his former employer to rehire him under Sarbanes-Oxley. He complained in 2003 that managers were committing fraud by recording fake expenses on financial statements. He was fired one month later.
Tax

Comprehensive Market Research on SOX Supporting Technology

Technology supporting Sarbanes-Oxley compliance, fraud detection and financial statement audits has developed into a booming niche market in recent years. Although many publications and organizations offer lists of technologies, few comprehensive market research studies have been done. Cash Recovery Partners, LLC, published one of the few last week.“Anyone looking to use technology in improving the efficiency of their Sarbanes-Oxley engagements or enhancing their audit-related activities can learn something from this research.
Tax

Implications of a KPMG Indictment

The number of the Big Four may be changing as the Justice Department considers the penalties for KPMG. The firm may be indicted for allegedly selling tax shelters later deemed to be abusive. The full enforcement of the law could mean a full collapse of the firm; very similar to what happened at Arthur Anderson after it was convicted of obstruction of justice connected with its Enron audits. “Its an awkward spot,” Jack Ciesielski, publisher of the industry newsletter, the Analyst’s Accounting Observer, told TheStreet.com. There are two sides to an indictment scenario.
Tax

Ebbers Sentenced but Investors Still Waiting

Former WorldCom CEO Bernard Ebbers was sentenced Wednesday to 25 years in prison for his part in the nation’s largest accounting fraud. U.S.
Tax

Deloitte’s Navistar Audit Being Investigated

Deloitte & Touche LLP is being investigated by the Public Company Accounting Oversight Board (PCAOB) for auditing discrepancies in their 2003 audit of Navistar Financial Corporation. The two-page order, issued in May, was inadvertently disclosed by the Securities and Exchange Commission (SEC) which oversees the PCAOB. Navistar Financial is a unit of Navistar International Corporation. “The order was misdirected to the public file,” said SEC spokesman John Heine in a statement to Bloomberg News.
Tax

FEMA Wants $27M Back from Floridians

The Federal Emergency Management Agency (FEMA) says it has overpaid more than 6,000 Floridians whose homes were damaged by last summer's four hurricanes, and the agency wants more than $27 million back.FEMA is trying to recoup overpayments from 6,579 people who received federal aid after Hurricanes Charley, Frances, Ivan and Jeanne hit Florida last August and September. FEMA said it paid for items like generators and appliances that were later covered by property-insurance policies.
Tax

AICPA Warns of Possible Pretexting Calls

The American Institute of Certified Public Accountants (AICPA), recently alerted members that someone posing as an AICPA employee has been contacting accounting firms requesting employee lists for various purposes. Depending on the type of information being requested, this type of call may be pretexting and it is illegal.The Federal Trade Commission (FTC) defines “pretexting” as the practice of getting personal information under false pretenses. Pretexters will use a variety of excuses in an attempt to gain personal information.
Tax

Indian Leaders Outline $27.5B Settlement Proposal

American Indian leaders have outlined a legislative plan that could settle a lawsuit over government mismanagement of Indian lands for $27.5 billion.The price tag is just one part of the complicated 50-point plan that was created at the request of U.S. lawmakers looking for proposals to settle the divisive, nine-year-old class-action lawsuit. More than 300,000 Indians accuse the Department of the Interior of losing royalties collected from leasing their land for oil and gas drilling, grazing or logging.Indian leaders announced the plan on Monday.
Tax

Kozlowski Blames Accountants For Excesses and Oversights

Although they are free on bail for the moment, former Tyco International CEO Dennis Kozlowski and former CFO Mark Swartz have been convicted of looting their corporate cow of more than $150 million. Both men are awaiting sentencing tentatively scheduled for August 2nd. To remain free until sentencing, each paid $10 million bail. Kozlowski and Swartz were convicted last week on 22 counts of conspiracy, falsifying business records, grand larceny, and securities fraud. After a trial lasting more than four months, the jury reached their decision in only eleven days.
Tax

HealthSouth’s Legal Odyssey Continues

On June 22, 2005, the federal appeals court in Atlanta, Georgia, vacated the probation sentences of former HealthSouth executives Mike Martin and Richard Botts sending the case back to a lower court for resentencing.
Tax

KPMG's Admission May Hurt Civil Tax Shelter Case

KPMG's acknowledgement of “unlawful conduct” in selling questionable tax shelters may help the firm it in its negotiations with criminal prosecutors, but it may make big civil fines more likely.Big Four accounting firm KPMG, in a statement last week, said it “deeply regrets” tax shelter abuses and “takes full responsibility.” Its admission may hurt the other defendants who also worked on selling the tax shelters and were sued by investors along with KPMG, the Wall Street Journal reported.The other firms include: Sidley Austin Brown & Wood, which provided advice to investors;
Tax

Federal Contractors Owe Billions in Back Taxes

Last week, the Government Accountability Office (GAO) released a report “Financial Management: Thousands of Civilian Agency Contractors Abuse the Federal Tax System with Little Consequence” that found 33,000 firms and individuals contracted to provide goods and services to a variety of federal agencies owed more than $3 billion in unpaid federal taxes as of September 30, 2004.The report, according to The Hill, was requested by the Senate Governmental Affairs’ Permanent Subcommittee on Investigations and made public during hearings held Thursday, June 16.
Tax

SEC Begins Probe of OfficeMax Accounting Problems

The Securities and Exchange Commission has started a formal investigation into accounting irregularities at the third-largest office supplies retailer.OfficeMax Inc., headquartered in Itasca, Ill., had conducted its own investigation after a supplier alleged that OfficeMax employees acted “inappropriately” in requesting payments. Six employees were fired earlier this year.The company revealed that employees had falsified $3.3 million worth of rebates allegedly owed to OfficeMax by suppliers, The Chicago Sun-Times reported.
Tax

HealthSouth Agrees to $100M Fine; Scrushy Jurors Remain Deadlocked

While jurors remain at an impasse in Richard Scrushy's $2.7 billion corporate fraud trial, the company he founded, HealthSouth Corp., agreed to a $100 million settlement with the Securities and Exchange Commission.Jurors adjourned Wednesday with instructions to resume deliberations Monday. Scrushy is accused of coordinating a scheme to inflate earnings from 1996 through 2003 and faces a 36-count indictment.Also Wednesday, the company settled civil charges with the SEC, which sued the company in 2003, claimed earnings were overstated by at least $1.4 billion.
Tax

AIG Restates Income with $3.9B Adjustment

American International Group (AIG), in a long-delayed regulatory filing, said Tuesday that it overstated net income by $3.9 billion for the past five years.The New York-based insurer also said that it cut its net worth by $2.26 billion through the end of 2004. The figure is less than the $2.7 billion that was previously estimated.The report, which was delayed three times, was filed with the Securities and Exchange Commission.

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