A presentation we did for our Accounting class at the University of San Francisco. Made by Mackenzie O'Donnell, Winsy Wong and myself - Malvika Jain. Pretty fugly but hope you can get the necessary information from it if needed. The ppt is divided into Major Accounting Frauds around the year 2000 - Enron, Worldcom, Tyco SEC Introduction and analysis of Sarbanes Oxley Act Dodd Frank Whistleblower initiative Introduction and benefits of the Task Force Steps for management to take to steer clear of accounting fraud

1. Accounting Fraud
& the New SEC Task Force
Malvika Jain
Winsy Wong
Mackenzie O’Donnell
MBA 6011: Financial & Managerial Accounting
A background look at
“New Fraud Crackdown Looms”
by Emily Chasan
Wall Street Journal, July 9 2013

2. “Asking Tough Questions,
Delivering the Truth”
-Emily Chasan, WSJ,
on her aggressive reporting style
Always investigate the backgrounds of the folks who bring you the news!
Senior Editor at the Wall Street Journal’s CFO Report on accounting & auditing.
Former Senior Hedge Fund Correspondent for Reuters in NYC & Stock Market.
Former team leader of the Reuters bankruptcy and restructuring team, leading
coverage of the bankruptcies of Lehman Brothers, General Motors and Chrysler.
Reuters Company News Reporter of the Year, 2008
NewsBios 30 Under 30 Award, 2007
Newswomen's Club of NY Front Page Award, 2007
Newswomen's Club of NY Front Page Award, 2006

3. Fat Cigars & Private Jets: Recent Financial Fraud
Who’s In Charge Here? The SEC and Sarbanes- Oxley
2010 Whistleblower Amendment
A New SEC Task Force
What Factors are in Play Now? Advice for Corporate Management
Overview

4. Fat Cigars & Private Jets

5. Jeffrey Skilling, CEO
ENRON – Gas & Energy
$138.7bn to bankrupt in 2001
‘America’s Most Innovative Company’
• Hid debts & losses in Offshore accounts
• Mark to Market revenue recognition
Counted unearned rev
• Used Merchant Model. Reported sales
price as rev instead of just the middle-
man’s cut.
• Snowballed. Recorded flop ventures as
making profits.

6. Bernie Ebbers, CEO, Worldcom – Long distance phone calling
Former Sunday School Teacher & basketball coach.
Worldcom lost $11bn in accounting fraud in 2002
 Recognized revenue from unallocated accounts
 Capitalized ‘line costs’ instead of expensing

7. Dennis Kozlowski, Tyco International – Security systems
Cost company $600 million with Swartz & Belnick, 2002
Sentenced 25 years in jail.
 Took personal loans, not revealed to stockholders
 Spring loaded. Concealed positive news for future benefits.

8. MAJOR
&
minor

9. So Who’s in Charge Here?

10. THE ENFORCEMENT AUTHORITY:
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Since 1934 the SEC has overseen key participants in the finance & securities sectors:
securities exchanges, securities brokers & dealers, investment advisors, mutual funds.
Each year the SEC brings hundreds of civil enforcement actions against individuals &
companies for violation of security laws.
Typical infractions about securities and the companies that issue them:
-insider trading
-accounting fraud
-providing false or misleading information

11. Public Company Accounting Reform and Investor Protection Act,
more commonly referred to as Sarbanes-Oxley Act or SOX
2002
Sarbanes-
Oxley Act
Federal law setting new
standards for all public
company boards,
management & public
accounting firms.
Management
Reporting
- Management
Certifications
-Management Report
on Internal Controls
Auditor
Independence
Board Governance
Management &
Board Conduct
Enforcement
& Penalties
- Audit Committee
Standards
- Prohibition of loans
to Directors & Officers
-Accelerated
Reporting of Insider
Trading
-Disclose Code of
Conduct for finance
officers
- Whistleblower
Protection
-Public Company
Oversight Board
(PCAOB)
-Criminal Penalties
for known untrue
certifications
-Audit Committee
pre-approves all
auditor services
- Lead audit partner
limited to 5 year
rotation

12. Janet Dolan
President and CEO
Tennant Co., Minneapolis
Industrial cleaning products
"well-intentioned but it was a rush to
judgment.... (Congress) just threw something at
corporate America and left it to us to figure
out.... The legislation was broad on requirement
and short on specificity."
Richard Breeden
Former Chairman of the SEC
Director of BBVA, a Spanish bank
Court-appointed monitor for WorldCom Inc., now MCI
“one of the most important acts passed in
decades… but accounting firms see (a) license to
audit controls. That means every control has to
have a written set of procedures with the need
to audit now very costly.”
Dan Hale
Vice President and Chief Financial Officer
Allstate Corp., Northbrook, Ill.
" without precise definitions, different auditors may
reach different conclusions, even in similar situations.”

13. Frank Dodd:
The 2010
Whistleblower
Protection
Amendment
SEC is authorized by Congress to provide monetary awards to eligible individuals who come
forward with high-quality original information that leads to a Commission enforcement
action in which over $1,000,000 in sanctions is ordered. The range for awards is between
10% and 30% of the money collected.
Whistleblowers help the SEC identify possible fraud violations early.
Assistance from a whistleblower who knows of violations is among the most powerful
weapons in the law enforcement arsenal of the SEC.
Allows the Commission to minimize harm to investors, better preserve the integrity of the
United States' capital markets, and more swiftly hold accountable those responsible.

14. …despite SOX act, fraud still continues…
Companies may still easily be shifting their accounting and that a
new crackdown on fraud with new rules may only be providing new
loopholes to discover and exploit.

15. WHY Launch the Task Force NOW?
“The next fraud is going to happen, it’s just a matter of time”
-James Walker, Former Chairman
Institute of Management Accountants’ Ethics Committee

16. BACKGROUND:
Launched on 7/2/2013
Targeting 9,000 publicly
traded companies
Enforced by an expert
committee of attorneys
and accountants
PURPOSE:
Fraud Detection at
earlier stage
Being Proactive NOT
Reactive
To increase prosecution
of violations involving
false or misleading
financial statements and
disclosures
HOW IT WORKS:
Ongoing review of financial
statement restatements and
revisions
Analysis of performance trends
by industry
Insider help - bounties to
whistleblowers
Technologically advanced
software: Accounting Quality
Model

17. Others
• Management’s Discussion
and Analysis
On the Books
• Revenue Recognition
• Off-Balance Sheet
Transactions
• Capitalized VS
Noncapitalized Expenses
• Financial Reserves
• Acquisition Accounting

18. Protection from Accounting Frauds
On-going Process
• Internal Accounting Control (GAAP Standard)
• External Accounting Control
• Consult SEC for Rules
• Increase Transparency

19. What Factors Are In Play Now?
Watch Out!
Whistleblowers can come from within your company
Watch Out!
SEC will detect when you make changes to your statements
Watch Out!
Auditors will not necessarily on your side doing you a favor