Conflict of Interest Leading to a Fraud Investigation

Joel Bondy, executive director of the Office of Payroll Administration in New York City since April 2004, is at the heart of an alleged $80 million information technology fraud scheme. He has been suspended without pay since December 16, 2010, by Mayor Michael R. Bloomberg and Comptroller John C. Liu, pending investigation. Federal prosecutors have alleged a connection between Mr. Bondy and IT several consultants in a scheme that manipulated the city into steering expensive contracts to businesses that they controlled, and of redirecting some of that money for their own enrichment.

Questions:
1. What controls would have helped prevent the alleged allegations?
2. Why is this type of fraud among the most difficult to prevent?
3.  Look at the ACFE 2010 Report to the Nations on Occupational Fraud and Abuse (See http://www.acfe.com/rttn/rttn-2010.pdf).  If fraud is proven, did this fraud span a period less than average, about average, or longer than average?
 
Source:
Chen, D.W. and J. Eligon. (2010). Director of City Agency at Center of Fraud Case Is Suspended. The New York Times, December 16 (Retrievable online at http://www.nytimes.com/2010/12/17/nyregion/17citytime.html?_r=1&nl=nyregion&adxnnl=1&emc=ura1&adxnnlx=1292770876-WsWnBf5l9P1Q04+cdf0vHg)

Google’s Questionable Algorithm

Any publicity, even negative publicity, means a win with Google’s ranking algorithms. This New York Times story details a retailer known as DecorMyEyes.com who first hired a search optimization company to burnish the site’s reputation by writing positive things about the company, but then stumbled on a better “free” success strategy of providing poor customer service and racking up negative complaints to  push the company higher in Google search results, leading to even greater sales.

Questions:

1. The New York Times article focused on Google, but what does Sullivan say about other search engines?

2. According to the articles, is DecorMyEyes.com right? Could all those bad reviews be helping sales?  Discuss costs and benefits, both long-term and short-term.

3. The original insight behind page rank used in search engines came from academia, where the importance of a paper can be measured by the citation index, i.e. how many other papers refer to it. Brainstorm and discuss ways which make more sense for displaying higher ranking or hits from a performance evaluation standpoint.

Source:

Segal, D. (2010).  A Bully Finds A Pulpit on the Web. The New York Times, November 28. (Retrievable online at http://www.nytimes.com/2010/11/28/business/28borker.html?_r=1)

Sullivan, D. (2010). Google’s “Gold Standard” Search Results Take Big Hit In New York Times Story, Search Engine Land, November 28. (Retrievable online at http://searchengineland.com/googles-gold-standard-results-take-hit-new-york-times-57081)

New rules for Debt-Relief Services

Starting this week, for-profit companies marketing debt-relief services over the telephone are prohibited from charging a fee before they settle or reduce a customer’s debt to the Internal Revenue Service, credit card company, or other unsecured debt. The new rule by the Federal Trade Commission covers telemarketers of for-profit debt-relief services, including credit counseling, debt settlement, and debt negotiation services. Nonprofit firms are not affected by the rule.

Questions:
1.  What is this ruling meant to prevent?  Explain this in terms of GAAP recognition of revenue.
2. Under the new ruling, providers’ fees for a single debt must be in proportion to the total fee that would be charged if all of the debts had been settled.  Assume that John Smith has 3 debts enrolled ($150,000, $450,000, and $300,000) and the company agrees to settle the debts for a charge of $1,200 for settling the debt.  When they settle the $450,000 debt according to the new ruling, how much of this fee can they collect?
3. Under the ruling, if a consumer enrolls multiple debts into one debt relief program and the provider bases its fee on the percentage of what the consumer saves as result of using its services, the percentage charged must be the same for each of the consumer’s debts, according to the FTC. Can you think of a possible situation where manipulation of this part of the ruling may be used by debt-relief services to gain greater fees?  If so, how do you think this can be investigated?

Source:
Staff. (2010). FTC rule prohibits debt-relief companies from collecting up-front fees. AccountingWEB, October 27. (Retrievable online at http://www.accountingweb.com/topic/tax/ftc-rule-prohibits-debt-relief-companies-collecting-front-fees)

Mickey D’s in the News: Which story is right?

According to the Wall Street Journal, McDonald’s Corp. has warned federal regulators that it could drop its health insurance plan for nearly 30,000 hourly restaurant workers unless regulators waive a new requirement of the U.S. health overhaul.  However, less than an hour after that release, ABC News  and Reuters reported that McDonald’s and the Obama administration said the claims of the  Wall Street Journal are false, regarding the dropping of its “mini-med” health insurance for hourly workers because of the new health care reform law.

Â

Question:

1.  Why do you think the stories are so different and why do you think there was such a quick response from McDonalds and the Obama administration?

2.  What is the medical loss ratio in the new legislation?

3. What effects do you think the new legislation will have on the financial statements of companies?

4.  What do you see as the costs and the benefits of this new legislation?

Sources:

 Adamy, J. (2010). McDonald’s May Drop Health Plan, Wall Street Journal, September 30 (Retrieved online at http://online.wsj.com/article/SB10001424052748703431604575522413101063070.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsThird)

Arnall, D. and H. Khan. (2010). McDonald’s Fights Back Against Report It Will Drop Health Care Plan, ABC News, September 30 (Retrieved online at http://abcnews.go.com/Politics/HealthCare/mcdonalds-fights-back-report-drop-health-care-plan/story?id=11764596)

Reuters. (2010). McDonald’s Denies Its Cutting Health Insurance, MSNBC, September 30 (Retrievable online at http://www.cnbc.com/id/39435771)

WSJ Video. (2010). AM Report: McDonald’s May Drop Health Plan, September 30.  (Retrievable online at http://online.wsj.com/public/page/0_0_WP_3001.html?currentPlayingLocation=37&currentlyPlayingCollection=The%20News%20Hub&currentlyPlayingVideoId={088AC31E-1087-428F-AD84-62AA9E6D5EA6})

The Fabulous Fab is Back in the News

Fabrice Tourre, a controversial personality in the Goldman Sachs Group Inc transaction of 2007, asked a judge to throw out a U.S. regulator’s fraud lawsuit against him.  About two and a half months ago, the bank settled its part of the case for $550 million.

In his filing, Tourre asked that the U.S. Securities and Exchange Commission case be dismissed because the 2007 “Abacus” transaction, which involved collateralized debt obligations (CDOs) tied to subprime mortgages, took place outside the United States.

Questions:

1. What are collateralized debt obligations?

2. Where would CDOs appear in the financial statements of the bank that bought them?

3. Do you think he will prevail in his dismissal of the charges?

4.  How do you think the Goldman Sachs Group reported the $550 million settlement in its financial records?  

Source:

Stempel, J. (2010). Goldman’s Tourre says SEC suit should be dismissed, Reuters, September 30 (Retrieved online at http://www.reuters.com/article/idUSTRE68T3L120100930?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28News+%2F+US+%2F+Business+News%29)

A New Type of Insurance

WedLock is a new type of casualty insurance that gives the unhappily married policyholder a payout after he or she is divorced. It costs about $16 a month for every $1,250 of coverage. John Logan, founder of the company, figured there must be a market for those who want to hedge their marital bets. But to discourage people from signing up just prior to their divorce, policyholders must apply four years before the policy will pay out. It adds a premium of $250 per unit for every year the marriage survives beyond four.

Questions:

1.  Assume that a policyholder bought $12,500 worth of coverage and divorced after 10 years.  What would be the expense of the policy?  Show your work.

2.  Assume the same facts as in # 1.  What would be the payout of the policy? Show your work.

3.  Assume that a couple who owned a small sole proprietorship company.  After a year of successful operations, they married and bought this insurance.  Their company paid the premiums.  After buying a $20,000 policy, they divorced after 7 years.  What would be the expense to the company?  What would be the payout and how should the company record this? Give the journal entries and show your work.

Source:

Luscombe, B. (2010).Divorce Insurance: Get Unhitched, Get a Pay-Out, Time, September 19  (Retrievable at http://www.time.com/time/magazine/article/0,9171,2015772,00.html?hpt=C2)

Can Debt Ruin Your Relationship?

When Allison Brooke Eastman’s fiancé found out four months ago just how high her student loan debt was, he broke off their engagement within three days. Although she had told him early in their relationship that she had over $100,000 of debt, when she found that the amount was actually about $170,000, he accused her of lying and walked away from their impending nuptials.

 
Questions:
1. The article mentions that Ms. Eastman pays $1,100 a month for her student loan debt. Assuming that no interest is involved, how many years will it take her to pay off the $170,000?

 
2. Assume that Ms. Eastman must pay 6% interest on the declining balance of the loan. Based on this assumption, how many years will it take her to pay off the $170,000?

 
3. Do you agree with New York divorce law that advanced degrees acquired during the marriage, as well as the earnings power they bring, should be treated as assets to be divided in case of divorce? Why or why not?

 
Source:

 
Lieber, R. (2010). How Debt Can Destroy A Budding Relationship. The New York Times, September 3 (Retrievable at http://www.nytimes.com/2010/09/04/your-money/04money.html?ex=1299643200&en=297c3a5871503c4b&ei=5087&WT.mc_id=BU-D-I-NYT-MOD-MOD-M166-ROS-0910-L2&WT.mc_ev=click)

Bollywood on a Budget

The world’s movie capital is not Hollywood but Bollywood. Bollywood is the nickname for the Indian film industry located in Bombay. Fourteen million Indians go to the movies on a daily basis (about 1.4% of the population of 1 billion) and pay the equivalent to the average Indian’s day’s wages (US $1-3) to see any of the over 800 films churned out by Bollywood each year. That’s more than double the number of feature films produced in the United States. However, as this video presents, more movie productions in Bollywood will undergo budget cuts due to economic risks and the push for profits.

Questions:

1. The article tells about the 10 most high budget films of Bollywood. Look at the budget for Love Story 2050. If 1 crore rupee = 10,000,000 rupees, use the Currency Converter at http://coinmill.com/INR_USD.html to find out how many U.S. dollars this is. How does this compare to the average budget for a Hollywood movie?

2. In the article, look at the movie “Singh is Kinng.” This film had the title track song sung by Snoop Dogg. Snoop Dogg was paid 7 crores for this. What percent of the movie’s total budget was this?

3. In the article, look at the movie “Ghajini.” What percentage of profits were made on this movie?

 
Source:

Staff (2009). 10 Most High Budget Films of Bollywood. Full Dhamaal, August, 19 (Retrievable online at http://www.fulldhamaal.com/bollywood-critics/10-most-high-budget-films-of-bollywood-21146.htm)
Video (2010). Budget Bollywood Success, September 7. (Retrievable at http://www.cnn.com/video/)

A Fee to Visit the U.S.

Starting Wednesday, September 8, 2010, travelers from 36 nations will be required to pay a new two-year entry or travel fee when they visit the United States — part of which will be used to promote tourism.

The travelers will pay $14 to register through the Electronic System for Travel Authorization (ESTA), required for those using the Visa Waiver Program. Four of the $14 will cover ESTA operating costs, and $10 will go toward promoting the United States as a tourist destination.

Questions:

 1. According to the video and article, the legislation will create a corporation for Travel Promotion, which is a private corporation that will be funded in part by the $10 fee collected from visitors (who are not required to apply and pay for visas). Assume that the corporation begins its existence on September 8, 2010.  How much revenue will it report as of December 31, 2010, if we assume that 500,000 visitors come to the U.S. over this period? (Hint: remember this fee covers a 2-year period.)

2.Assume that 200,000 visitors pay the fee on October1, 2010.  What journal entry should be made on October 1?

3. Based on question 3, what adjusting journal entry should be made on December 31, 2010? (Hint: remember this fee covers a 2-year period.)

4.  How should the corporation account for the $100 million of matching private sector funds?

Sources:

Hunter, M. (2010) Visitors from 36 nations to pay U.S. tourism promotion fee, CNN Travel, September 8(Retrievable at http://www.cnn.com/2010/TRAVEL/09/08/promotion.fee/index.html?iref=allsearch)

Video (2010).U.S. Charges Entry Fee, September 8 (Retrievable at http://www.cnn.com/video/)

Super Sleuthing at Apple

Court papers filed by the federal government and Apple against a former manager detail a scheme that allegedly saw confidential Apple data supplied to Asian electronics companies over more than three years in return for kickbacks of more than $1 million. 

Apple says that over the course of more than three years, two individuals colluded by passing sales forecasts for unreleased iPod and iPhone models, as well as product roadmaps, sales reports and details of problems being encountered by competitors.

Questions:

1. How did Apple find out about the kickbacks?

2. Explain how data like sales forecasts, pricing information and specifications for unreleased products could contribute to this fraud.

3. Why do you think the two fraudsters intentionally kept the wired amounts at less than $10,000?  At there any laws or regulations that are tied to this amount and if so, what are they?

Source:

Williams, M. (2010). Laptop e-mail tipped Apple to kickbacks plot, Computer World, August 17 (Retrievable online at http://www.computerworld.com/s/article/9180820/Laptop_e_mails_tipped_Apple_to_kickbacks_plot?taxonomyId=152&pageNumber=1)

« Previous Page — Next Page »