The Justice System and The Costs of Being Poor

According to Mr. Edsall, the new growth industry, on the backs of the poor, seems to be private probation, correctional, and detention companies. In fact, Corrections Corporation of America, is listed on the New York Stock Exchange and reported revenues of $1.69 billion in 2013.

1. This collection of private probation companies and the services they offer appeal to politicians and public officials for a number of reasons. What are they?
2. As National Public Radio reported in May, services that “were once free [in the judicial system], including those that are constitutionally required,” are now frequently billed to offenders. What are some of these costs?
3. Why does this new system of offender-funded law enforcement create a vicious circle? Discuss your opinion of this Op-Ed and the equity of these systems.
4. Perform a SWOT analysis of qualitative effects of the prison industrial complex.

Edsall, T.B. (2014). The Expanding World of Poverty Capitalism. The New York Times, Aug. 30 (Retrievable online at

Rip Off: We Work Hard for the Money!

Although Guadalupe Rangel worked nearly 70 hours per week, he never saw any overtime pay at the Schneider warehouse in Mira Loma, California. As a result he joined a lawsuit involving hundreds of warehouse workers where he will likely receive more than $20,000 in back pay as part of the recent $21 million legal settlement the national trucking company.

1. Why does David Weil, the director of the federal Labor Department’s wage and hour division, think that wage theft is increasing?
2. How much wage theft has Mr. Weil’s agency found since 2010?
3. What characteristics of wage theft did the article point to? In other words, what specific industries, states, individuals, etc. are typically affected? Discuss why.
4. Besides not paying overtime, what other wage theft practices were mentioned in the article?
5. If Mr. Rangel is not getting paid overtime, what other state and federal agencies are also being shorted as a result?


Greenhouse, S. (2014).More Workers Are Claiming ‘Wage Theft’ The New York Times, Aug. 31 (Retrievable online at

[In this Photo: Guadalupe Salazar, a McDonald’s cashier who says her paychecks were missing overtime wages.]

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


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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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

Maybe This Will Catch On?


Complaining of low profit margins that generally accompany inexpensive menu items, most fast-food restaurants try to keep wages down. However, some fast food chains are seeing the benefit in paying employees above minimum wage and even above the median hourly wage for fast-food workers nationwide of $8.83, because it allows their workers to opportunities to achieve more and treat customers better than any other restaurant chains. Who are these fast-food crusaders? Two of them are Boloco, a fresh and healthy burrito restaurant, offers a median hourly wage of $11.50 and Shake Shack, a high-quality burger restaurant, offering a median hourly wage of $10.70.


1. What are the major benefits of paying higher wages to fast-food workers, according to the article?
2. What additional benefits does Shake Shack provide to employees and how would they record these as journal entries?
3. Do you agree with Zeynep Ton, a professor at the M.I.T. Sloan School of Management? Discuss.
4. Check out the M.I.T. Living Wage Calculator for your state. Discuss your results and what you think it means in terms of the future of fast-food restaurants in your state.

Greenhouse, S. and S. Strom. (2014). Paying Employees to Stay, Not to Go. The New York Times, July 4 (Retrievable online at


The Dirty Little Secret of “Cramming!”

On July 1, 2014, the Federal Trade Commission (FTC) accused wireless carrier T-Mobile of adding bogus charges to customers’ accounts without their consent, in U.S. District Court.

1. How long did T-Mobile use the practice of “cramming” on customer mobile phone bills and what is the estimated amount of the total fraudulent charges?
2. How does the length and amount of this fraudulent practice compare to the averages presented in the Association for Certified Fraud Examiner’s 2014 Report to the Nation?
3. Which company is considering a merger with T-Mobile? What amount of money is involved in this merger?
4. What is the FTC’s goal in this case? How do you think T-Mobile should record its fees collected from customers under unauthorized practices?
5. What types of measures is T-Mobile taking in order to distance itself from competitors? What types of costs do you think that T-Mobile must consider as part of this campaign?

Molina, B. and M. Snider. (2014). FTC: T-Mobile knowingly added bogus charges to bills. USA Today, July 1 (Retrievable online at


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