An expensive proposition

Currently, it is estimated that an average middle-income family in the United States can expect to spend about $245,000 over 18 years to raise a child. This is from the Department of Agriculture’s annual “Cost of Raising a Child” report.

1. If you adjust for inflation, how much more will an average middle-income family in the United States spend on each child?
2. What are the two largest costs and approximately how many dollars are each? Discuss whether these are fixed, mixed or variable costs and give examples.
3. How much less do larger families, those with three or more children, spend per child than families with two children, (a) in percentage, (b) in current dollars, (c) in inflated dollars?


Krasny, R. (2014). Cost of raising a child in U.S. tops $245,000, USDA says., Aug. 18 (Retrievable online at


Scamming scammers: The underbelly of debt collection

From 2006 to 2009, the nation’s top nine debt buyers purchased almost 90 million consumer accounts with more than $140 billion in “face value.” This article details the saga of debt accounts that continue to be stolen, double-sold or otherwise exchanged without accurate supporting information by “debt collectors, including statements or copies of original signed contracts. Although regulators, like the FTC, are starting to consider more policing of this area, unfortunately consumers continue to be exploited.

1. What did the debt buyer pay for this opportunity to collect?
2. Based on the information in the intro and your answer in #1, what amount of collection would they need to generate a target gross profit of $10,000?
3. Assume that fixed expenses for a debt collector are $100,000, what amount of debts would the collector need to recover to break-even?
4. What variables did the article say were important to collecting old debt?
5. From an accounting standpoint, how should collection agencies account for paper that cannot be collected?

Halpern, J. (2014). Paper boys: Inside the dark, labyrinthine, and extremely lucrative world of consumer debt collection. The New York Times, Aug. 15 (Retrievable online at


Fraudsters are always looking for a way to rip off the Government

This article details a wheelchair scam that was designed to exploit blind spots in Medicare, which often pays insurance claims without checking them first. The fraud begins with criminals disguised as medical-supply companies.

1. Based on the article, which major internal control allowed this fraud to happen?
2. What type of control slowed down the fraud? Even with this control, about how many power wheelchairs are estimated to be distributed fraudulently and what do you calculate is the approximate amount paid for each?
3. What other area is becoming a problem for fraudulent reimbursement? How would you propose to implement new controls for this area?
4. If a victim of this scam resells the powered wheelchair, who should be prosecuted for fraud?
5. What red flags and forensic accounting techniques should have been used and acted upon by Medicare sooner?

Farenthold, D. (2014). A Medicare scam that just kept rolling. The Washington Post, Aug. 16 (Retrievable online at

CBS News Video on Youtube. (2013). Medicare Fraud: Critics say powered wheelchairs a rip off. CBS, January 7 (Retrievable online at

Living without Water

Thousands of people in bankrupt Detroit haven’t paid their water bills. Even some businesses have skipped payment. How is the bankrupt city dealing with the most basic of problems — getting people to pay their bills?

1. Detroit is the poster child for shutting off water to customers delinquent on their bills. Even though this has drawn fire from all over the world, according to John Wisely, what other cities have been doing this also? What alternatives to shut-off do you think that the cities have from a business model point of view?
2. What organizations have criticized the shut-offs? What country is planning a convoy of water transportation to protest the shut-offs? Do you agree with the policy? Discuss.
3. According to Bill Johnson, spokesman for the Detroit water department, who is the shut-off program targeting? What percentage of customers whose water is shut off typically pay their bills in full within a day or two?
4. According to the policy, Bill Johnson noted that if anyone that comes to the department with a demonstrated financial hardship, their water won’t be turned off. Although they do not detail this, what do you think would constitute a demonstrated financial hardship?


NPR. (2014). Episode 559: Detroit’s Water Bill., Aug. 8 (Retrievable online at

Wisely, J. (2014). Detroit not alone in shutting off water for unpaid bills. USA Today, July 27 (Retrievable online at


Bad Blood


1. Explain why this is such an unusual labor action.
2. Based on John A. Davis’ blog, what could the board chairman do to help rebuild family unity and commitment to Market Basket?
3. At this point, Market Basket as a continuing entity is hemorrhaging financially. From a corporate governance standpoint, do you think that the families in business have an obligation to their many stakeholders to reconcile or do you think they should focus on a new ownership solution?
4. Prepare a qualitative cost/benefit analysis of the family business or family capitalism.


Seelye, K.Q. (2014). Across a Grocery Chain, a Labor Protest in Support of a Manager. The New York Times, July 18 (Retrievable online at

WCVB Channel 5, Boston. (2014). Arthur T. pushes back in Market Basket battle.YouTube, Aug. 10 (Retrievable online at

Davis, J.A. (2014). Market Basket Shows the Best and Worst of Family Business. Harvard Business Review Blog, Aug. 4(Retrievable online at

Where in the world are all the vinyl records going?

Hoarding goes beyond compulsive collecting, affecting finances and other areas of the hoarder’s life. Unable to stop buying records, Zero Freitas, a wealthy Brazilian businessman, follows a therapeutical quest to acquire precious and neglected records that haven’t been preserved or transferred to digital files. This post examines what is going on with the world’s vinyl records and the similarity of the behavioral aspects of hoarding that relate to the fraud triangle and red flags.

1. Based on the New York Times article, do you think that Freitas will fulfill his dream of a nonprofit venture to shift his collection over to Emporium Musical? Why or why not?
2. According to Tracy Rose, what are some of the financial burdens related to this type of collecting obsession?
3. What is a cash hoard and why is this corporate phenomenon in the news lately? How is this concept different from Freitas’ situation?
4. What is disposophobia? What characteristics or red flags do hoarders exhibit that are similar to fraud triangle traits? Give an example.
5. Find a recent case where hoarding may have played a role in the continuance of a fraud. Discuss and describe the case.


Reel, M. (2014). The Brazilian Bus Magnate Who’s Buying Up All the World’s Vinyl Records. The New York Times, Aug. 8 (Retrievable online at

Rose, Tracy. (2012). The Economic Impact of Hoarding. Suite IO, June 27 (Retrievable online at


Is Herbalife a Ponzi Scheme?

Herbalife is a company that sells weight loss shakes, vitamins and other similar products worth billions of dollars. The company has been around for more than 30 years. It is traded on the New York Stock Exchange. So what could be more legitimate? Bill Ackman, who manages a hedge fund thinks the whole thing is a pyramid scheme and has shorted more than a billion dollars’ worth of Herbalife stock. This means that if the stock falls as Ackman thinks it will, the fund will make money.

1. Based on the article, what is the ironic thing that has happened with Herbalife stock?
2. What is the structure that Herbalife uses and when could this be indicative of a fraudulent scheme?
3. What did the CEO of Herbalife accuse Mr. Ackman of?
4. Since this story aired, what has happened to Herbalife’s stock and what is your opinion of the company as an investment?


Goldstein, J. (2013). Is Herbalife A Pyramid Scheme? Money (Retrievable online at

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Lose-Lose and Win-Win: Time for Change

Most airline tickets are nonrefundable and require a hefty change fee plus any fare differential. And many hotel rooms are totally nonrefundable and nonchangeable, so you could lose the entire value of your room. So why isn’t it the same policy when the airlines or hotel changes your arranged plans? As this article points out, one-sided adhesion contracts — agreements that apply to you but not necessarily to the company — allow these businesses to get away with changes without paying customers damages.


1. Read Christopher Elliot’s article about cancellation policies.What are some of the creative ways to tip the travel industry’s “no-fault” rules a little in your favor, according to the article?
2. Do you think that the legality of these one-sided adhesion contracts should be challenged in the courts? Discuss from the perspectives of both the consumer and the businesses.
3. Now read Christopher Elliott’s other article about travel packages. When travelers buy packages such as a cruise with airline tickets and shore excursion, or a tour with accommodations, meals and event tickets, what kind of refund problems might they experience? Why do you think the United States Tour Operators Association defends these policies and do you think that they should or could be challenged in court?


Elliott, C. (2014). The travel industry’s one-sided cancellation policies are due for cancellation. The Washington Post, July 31 (Retrievable online at

Elliott, C. (2014). What kind of return do you get on your money when you buy an all-inclusive travel package? The Washington Post, March 27 (Retrievable online at

Will McDonald’s Appeal the Decision All the Way to the Supreme Court?

In an era when companies increasingly use subcontractors and temp agencies to free themselves of employment decisions and headaches, the general counsel of the National Labor Relations Board ruled on July 29th that McDonald’s could be held jointly liable for labor and wage violations by its franchise operators.
1. What percentage of the 181 claims of illegal firing or penalties for pro-labor activities did the labor board’s general counsel find to have merit?
2. What other industries did McDonald’s claim would be affected by the ruling and what could potentially result?
3. In November 2012, five one-day strikes by fast-food workers focused on a $15 per hour wage. How are these cases linked to this event?
4. From an accounting standpoint, what are the costs and benefits of increasing the use of subcontractors and temp agencies?
Greenhouse, S. (2014).McDonald’s Ruling Could Open Door for Unions. The New York Times, July 29 (Retrievable online at

A Complex Financial Crime Story

Stephen Flatow, a grieving father, charged that Iran financed the Gaza bus bombing that killed his 20-year-old daughter in 1995. Buried in court filings, the suit alleged that money from a charity “fronted” financial transfers to terrorists from the Iranian government. In fact, the charity, known as the Alavi Foundation, actually operated and owned a gleaming office tower on Fifth Avenue in Manhattan. In 2006, prosecutors began a complex “house of cards” investigation that ultimately led to illegal dealings with BNP Paribus, a France-based bank group. Credit Suisse and Lloyds, two of the world’s most prestigious banks, acted as Iran’s portals to the United States financial system and disguised the illicit transactions by stripping out the Iranian government bank names from wire transfers that went to the Fifth Avenue charity and affiliated entities.


1. The analyst at the district attorney’s office, Eitan Arusy, took a keen interest in the grieving father’s accusations. Why?
2. Explain what the records showed from the Alavi Foundation and how the Iranian funds were disguised.
3. Two investigations into the “front” charity were actually going on at the same time. What two groups were looking at the Alavi Foundation?
4. What type of evidence was beneficial to understanding banking executive strategies in masterminding the illicit transaction schemes?
5. What amount of illicit transactions had actually been funneled to the Alavi Foundation?
6. Would you consider these investigations to be forensic accounting investigations? What types of “red flags” existed?

Silver-Greenberg, J. and B. Protess. (2014). A Grieving Father Pulls a Thread That Unravels BNP’s Illegal Deals. The New York Times, June 30 (Retrievable online at

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