Watch that Password!

Zappos began emailing its 24 million customers Sunday, advising them that its site had been hacked, and some customers’ personal details and account information likely stolen. Despite Zappos’ data breach notification to consumers, the company hasn’t yet answered several key questions, such as detailing when the data breach occurred, the length of time for which attackers may have had access to its systems, or how the breach was finally detected. Zappos also hasn’t indicated whether it will offer identity theft monitoring services to affected customers.

Source:

Hartman, C. (2012). Zappos Hacked, 24 Million Accounts Exposed, 5min LifeVideopedia, January 16 (Retrievable at http://www.5min.com/Video/Zappos-Hacked-24-Million-Accounts-Exposed-517248590)

Schwartz, M. (2012) Zappos Hack Exposes Passwords, InformationWeek, Jan. 17 (Retrievable online at http://www.informationweek.com/news/security/attacks/232400441)

Questions:

1. According to the video, what is Zappos known for?
2. What advice is being given to the compromised account holders? Does it sound like the accounting information system was breached?
3. Who owns Zappos and what industry are they in? What type of contingent liabilities could this breach expose Zappos to?

How do you lose $1.2 Billion?

Three of MF Global Holdings Ltd.’s top executives said they didn’t know what happened to as much as $1.2 billion in client funds that went missing in the days before the New York-based brokerage filed for bankruptcy. Jon S. Corzine, former chairman and chief executive officer of the broker testified in Congress that he didn’t intend to misuse as much as $1.2 billion in now-missing customer funds and that other employees of the failed brokerage oversaw the money. According to Corzine, a team of people in the cash finance and cash management divisions of the company had the authority to move customer funds from segregated accounts.

Questions:

1. Where does the bankruptcy of MF Global rank among all other U.S. bankruptcies?
2. What was the amount of the quarterly loss that MF Global reported on Sep. 30?
3. Briefly explain why regulators do not think that the auditors could find the problems in MF Global and what transactions were affected.
4. From what you can find out from research about MF Global, what were the weaknesses with the company that led to this crisis?

Source:

Brush, S. (2011) Top MF Global Execs Say They Don’t Know How Funds Went Missing, Dec. 13 (Retrievable online at http://www.bloomberg.com/news/2011-12-13/top-mf-global-execs-say-they-don-t-know-how-funds-went-missing.html)
CNN VIDEO. (2011). No Christmas for Former MF Global Client, CNN, Dec. 8 (retrievable online at www.cnn.com/videos)

The Volcker Rule

Regulators released a proposal on Oct. 11 known as the Volcker Rule, which is aimed at overhauling how the banking industry carries out its trading activity. The proposal, spanning about 300 pages, includes provisions that scrutinize how banks collect revenue, award compensation and track their compliance with the Volcker Rule.

According to financial industry lawyers and lobbyists these will challenge the very nature of Wall Street.

Questions:

1.  What is the Volcker Rule?  Specifically, explain the revenue provision focus. Do you think this regulation is needed?  Why or why not?

2. The proposal spells out an expansive internal control regime that banks must adopt, creating layers of expensive and time-consuming compliance.   Can too much internal control be a bad thing?  Discuss in general.

3. Do you agree with Sullivan & Cromwell, who say: “The combined effect of these conditions could have a highly adverse impact not only on foreign banks, but on the position of the United States as a financial center.”   Why or why not?

Source:

Protess, B. (2011) With Volcker Rule, Wall Street Braces for Change, The New York Times, Oct. 11(Retrievable online at http://dealbook.nytimes.com/2011/10/11/with-volcker-rule-wall-street-braces-for-change/?ref=business)

Expensive Snacks?

By now you have probably heard that an audit of the Department of Justice by the Inspector General says that taxpayer money was wasted on overpriced food and drinks. At one conference, the DOJ spent $4200 on 250 muffins–that’s about $16 a muffin. But what did the report actually say?

Considering the EOIR reported that at least 534 people received refreshments at its 2009 Legal Training Conference in Washington, D.C., it spent an average of $14.74 per attendee per day on food and beverages—just above the $14.72 JMD limit for refreshments. We credit the EOIR for implementing the following controls to reduce food and beverage costs: (1) it provided just refreshments and not full meals, (2) it ordered fewer refreshments than the total number of reported attendees, and (3) it received 15 gallons of coffee, 30 gallons of iced tea, and 200 pieces of fruit for free. However, many individual food and beverage items listed on conference invoices and paid by the EOIR were very costly. The EOIR spent $4,200 on 250 muffins and $2,880 on 300 cookies and brownies. By itemizing these costs, we determined that, with service and gratuity, muffins cost over $16 each and cookies and brownies cost almost $10 each.

Questions:

1.What controls were in place that the report mentioned?

2. What is the point that Drum is trying to make?

3. Compare this article to the video.  Discuss the situation in terms of variances and budgets that you use in managerial or cost accounting.

 

Source:

Drum, K. (2011). The Great $16 Muffin Myth. Mother Jones, Sep. 21 (Retrievable online at http://motherjones.com/kevin-drum/2011/09/great-16-dollar-muffin-myth)

CBS News VIDEO (2011). Audit finds DOJ Pays Big Bucks for Snacks, Sep. 21.

Maybe he should have taken an accounting course?

Former Director Tom Wheeler is on trial, charged with several counts of fraud, misconduct in office and conspiracy. Wheeler has pleaded not guilty to the charges.  His defense focuses on his lack of experience, being a bad student in college, and not taking an accounting or law class.

Questions:

1.  Why was Mr. Wheeler charged with fraud? 

2.  From everything you have read, how do you believe he may have committed fraud or benefitted from his position? Discuss his defense.  Is it plausible?

3. Explain some of the internal controls mentioned in the case that were violated, beginning with the hiring of Mr. Wheeler.

 

Sources:

Boshart, R. (2011). Tom Wheeler wanted to leave Iowa Film Office, brother testifies. The Gazette, August 24 (Retrievable online at http://thegazette.com/2011/08/24/tom-wheeler-wanted-to-leave-iowa-film-office-brother-testifies/)

WHO-TV Staff. (2011). WHEELER TRIAL: Minnesota filmmaker Wendy Weiner Runge Testifies During Tom Wheeler’s Fraud Trial. MSNBC.com, August 24 (Retrievable online at http://www.msnbc.msn.com/id/44258762/ns/local_news-des_moines_ia/t/wheeler-trial-minnesota-filmmaker-wendy-weiner-runge-testifies-during-tom-wheelers-fraud-trial/)

KCCI.com Staff (2011). Film Office Director Talks Experience, Budgets, More. KCCI.com, August 24 (Retrievable online http:// www.kcci.com/news/28961656/detail.html)

Staff (2011). Blouin: Former film office manager not qualified. Chron.com, August 26 (Retrievable online at http://www.chron.com/news/article/Blouin-Former-film-office-manager-not-qualified-2142472.php ).

Does Embezzlement Pay?

Bradley Whitsell, chief accountant of SDN Communications in Sioux Falls, SD, pleaded guilty to mail fraud on Monday, August 22.  According to the U.S. Attorney’s office 46-year-old Whitsell used his various oversight positions to embezzle more than $392,000 over a 10 year period beginning in 2000. Whitsell could end up in prison for up to 20 years. Whitsell has agreed to pay back the $392,111.65 and will also pay for the $84,000 cost of the audit that uncovered his theft.

Questions:

1.  According to the article, what specific problems with internal controls allowed Whitsell to commit this fraud?  Also, discuss the fraud triangle as it pertains to the case in your answer.

2. Look up the most recent 2010 Report to the Nation at the Association of Fraud Examiners website.  Was the length of Mr. Whitsell’s fraud longer, shorter or about the same of the average fraud in terms of months before getting caught?  Explain.

3.  Compared to the average fraud committed by a man this age, as reported in the 2010 Report to the nation, did Mr. Whitsell steal more, less, or about the same amount of money? How does this compare to the average amount stolen by a women of the same age?  What is typically the key difference between these amounts?

Source:

Gonzalez, A. (2011). Embezzling Accountant Will Pay Back Stolen Money and Pay for Audit That Caught Him. Going Concern, August 23 (Retrievable online at http://goingconcern.com/2011/08/embezzling-accountant-will-pay-back-stolen-money-and-pay-for-the-audit-that-caught-him/ )

Family Week for SEC Actions (sort of)

Clayton Peterson, a member of the board of directors and chairman of the audit committee of Mariner Energy, Inc., and his son Drew Peterson, who worked as an investment adviser in Denver, Colorado, pleaded guilty to criminal insider trading charges and were named as defendants in an SEC suit. Clayton Peterson learned at board meetings that his firm would be acquired by Apache Corporation in a deal that was announced on April 15, 2010. After first learning about the deal he repeatedly tipped his son, instructing him to trade through an account belonging to his sister. The son traded and tipped a hedge fund manager who also traded. Following the announcement of the deal the share price of Mariner Energy rose about 42%. The hedge fund manager liquidated his positions, yielding a profit of $5 million. Within days Drew Peterson, and the various accounts for which he traded, liquidated their positions yielding a profit of $150,000. Clayton Peterson and his son Drew each pleaded guilty to one count of conspiracy to commit securities fraud and one count of securities fraud. Sentencing is scheduled for January 12, 2012. The SEC brought a civil injunctive action against Clayton Peterson and his son.

 

Questions:

1. What is a civil injunctive action? What does the term disgorgement mean?

2. What ethical responsibilities does a board of director have regarding the company for which he/she serves?

3. Explain the tip that was acted upon in the insider trading.  Do you think Clayton and Drew would have been caught if the son had not tipped off a hedge fund manager?

 

Source:

Staff. (2011). Father and Son Plead Guilty to Insider Trading Charges, Lexis/Nexis: Corporate & Securities Law Community, August 8 (Retrievable online at http://www.lexisnexis.com/community/corpsec/blogs/corporateandsecuritieslawblog/archive/2011/08/08/father-and-son-plead-guilty-to-insider-trading-charges.aspx)

Fraud in Medicare Part D

Crooks are taking advantage of lax oversight in Medicare’s Part D prescription-drug program to obtain highly addictive drugs including oxycodone, Ritalin, and methadone, according to results of a federal investigation. Pharmacies and other Medicare contractors are supposed to enter in a form a number that identifies prescribers. But in many cases, that information is being left blank or assigned a dummy number, the report found. The missing information doesn’t always indicate fraud and could include clerical errors, but without prescriber identifiers, it’s hard for investigators to determine.

Questions:

1.     What types of overrides of internal controls are allowing the situation mentioned in the article to happen? What types of overrides of internal controls are allowing the situation mentioned in the video to happen?

 2. The article mentioned that “the CMS paid $20.6 million for 228,000 prescriptions for so-called Schedule II drugs with invalid prescriber IDs in 2007.”  What does this work out as the average price per prescription?

 3. How do you think that pharmacies would record in their accounting records the prescriptions that they fill on Medicare D?

 4. What types of costs do the problems mentioned in the video result in for taxpayers? What types of costs do the problems mentioned in the article result in for taxpayers?

5. What recommendations would you make to eliminate either of these two fraudulent issues related to Medicare Part D? Explain.

Sources:

Kennedy, K. (2011) Lax scrutiny of Medicare Part D tied to drug fraud, The Philadelphia Inquirer-Digital, Feb. 12 (Retrievable online at http://www.philly.com/philly/business/116045359.html)

Kavilanz, Parija (2011). Drug Shortages at All-Time High, CNN.com, June 10 ((Retrievable online at http://money.cnn.com/2011/06/10/news/economy/drug_shortages_fda/index.htm)

Dwelling House is no more

A Pittsburgh woman has pleaded guilty to bank fraud and money laundering for taking advantage of an online glitch that enabled her to make $1.1 million in overdraft withdrawals. Forty-six-year-old Jammie Harris learned of the glitch from another woman. That woman was indicted in January on charges that she stole more than $900,000 from Dwelling House Savings and Loan. Unfortunately, Dwelling House closed down in 2009 because it couldn’t absorb $3 million in fraud losses.

Questions:

1. How was the bank able to recover about $1 million of the stolen funds in 2009?

2. What was the mission of the savings and loan?

3. Prior to the shutdown of Dwelling House, what service was one of the regulator’s major concerns over? Discuss.

4.  In terms of accounting/finance, explain what led to the downfall of Dwelling House.

Sources:

Associated Press. (2011).Woman Admits Million-Dollar Bank Ripoff, WTAE.com, April 6 (Retrievable online at http://www.wtae.com/news/27455532/detail.html)

Grant, Tim. (2009). Dwelling House Savings’ deadline to recover $3 million nears. Pittsburgh Post- Gazette, June 28 (Retrievable online at http://www.post-gazette.com/pg/09179/980186-28.stm).

Not too squeaky clean

A suit called GSP Finance LLC v. KPMG LLC was filed on March 29 with GPS alleging that KPMG “was well aware of the desperate financial condition of Hicks Sports” — specifically, the Texas Rangers and Dallas Stars — when it was hired to conduct the ’08 audit. The suit says Hicks Sports Group suffered losses of $113 million in 2002, $67.8 million in ’03 and $95 million in ’04. Till the Stars are sold, it won’t be clear exactly how much Hicks’s lenders have lost.

Questions:

1. What issues are in question regarding the clean audit?
2. What was the related party issue that is coming to light?
3. Identify all the financial statement users impacted by this clean opinion.

Source:
Wilonsky, R. (2011)KPMG Sued For Giving Tom Hicks “Clean Audit” a Year Before $525-Million Loan Default, March 30 (Retrieved at http://blogs.dallasobserver.com/unfairpark/2011/03/kpmg_sued_for_giving_tom_hicks_clean_audit_a_year_before_525-million_loan_default.php)

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