Old-Fashioned Fraud

Filed in Tax, Savings by on June 23, 2011

I saw too much old-fashioned fraud (before QuickBooks) to remember. My first audit, as an employee, caught repeat submission of the same petty cash receipts. The same company later caught the fraud of a neighbor’s son.

My first personal audit client caught much more old-fashioned fraud. A bookkeeper helped me get four good new non-profit clients, but resigned the day I began work. She was taking two paychecks a week, but pulling the extras from bank statements.

These non-profits clients used new checking accounts each year (around 1969). A small one used its auto expense budget for an expensive Lincoln rental. It also reimbursed an unusual $8,000 year-end payment (about $24,000 today). When asked, a young bookkeeper said I should ignore it because it was a next year expense. When I persisted, she said it was a mistake. It was a party for EIGHT, who were to get cash for 50% of a furniture and equipment invoice, but the caterer wanted immediate payment! N.Y. City auditors found $38,000 of furniture and equipment missing. The director’s plea deal let him keep his job, so he could reimburse the loss (and stop me from doing later audits).

A small public company voided a large invoice, shortly before the end of the year, so we did not confirm the canceled receivable. They later admitted fabricating more than half of subsequent interim sales, to roll over factor financing. Apparently, the unconfirmed canceled invoice related to this old -fashioned fraud.

A federally funded agency spent much of its money at the director’s gas station. I called Miami auditors, who shut it down. I then sued the City for my time. Its attorney agreed to a judgment, but then tried to reverse it. A judge refused, but the attorney only authorized payment after being told that a sheriff would seize his desk first.

A company sold oil well partnerships. An accounting change let it show the present value of reserves in income. This made it form a new company, which exchanged its stock for the old partnerships. My going-public audit was to use a geologist report with very large reserves, but I saw old-fashioned fraud in boiler room practices and did not get requested confirming documents. I resigned when I could no longer finish within the required 90 days. After trying to blackmail me into continuing, the company owner complained to the State CPA board. The Board attorney recited the complaint and my defense, but shocked everyone present by not suggesting sanctions. He later said that he previously took away the owner’s real estate license for fraud.

A Florida computer tech used an early computer board to cut electric costs. He sold 10,000+ as highly leveraged tax shelters, with payments from wildly projected shared savings. He did not deliver most boards sold by year-end, but said otherwise to buyers. He wanted financials showing projected savings, but my limited statements showed my lack of independence (due to promised company stock). We soon used his new Learjet, to see a New York State Attorney investigating the case, without defense counsel. IRS investigated the shelter sales manager, due to a prior fraud conviction. The manager’s new $30 million yacht stayed offshore, as IRS challenged tax savings due to late delivery and shelter terms. The SEC said combining board sales, shelters, electric savings buyers and later programming and monitoring created an unregistered security. The investors sued, class action, for more than a billion dollars. The tech went to jail.

The biggest old-fashioned fraud I saw related to a very large gold dealer, who sold at less than market prices, with deferred delivery. I was then prominent for tax-limit petitions and as an elected port commissioner (giving back my salary), so the owners hoped my reviewed financials might help quiet adverse publicity. I was unsure if their records would let me report, and a bit nervous about client legitimacy, so I did not accept a retainer before hiring extra staff for a March 15 start. I cut staff for a week, for lack of records. Then, with a CPA assistant present, I read the owners a 10-page letter (they were legally blind). It listed many problems with records not received or conflicting data, with possible results on any report cover letter. They promised records, but never called.

Complaints soon exploded, as deliveries stopped. Five states had 800 lines for them. A safe, with gold bars, had painted wood. I told a Florida State Attorney about my role. He showed me a law saying there is no privilege if clients try involving CPAs in felonies (issuing knowingly false financials). My attorney confirmed this. That let me testify as lead witness, after my staff distributed 30 bound copies of my documents. The document distribution was insurance, as I heard that one owner badly beat his drug dealer, while many watched. The same New York State Attorney had me see him again, before the owners pled guilty. That plea let me skip requests to see Texas, Illinois and California State Attorneys. The Florida CPA society complained that I revealed confidential information, without contacting me, though this old-fashioned fraud was a major Ponzi scheme ($100+ million). However, I had written statements from the Florida State Attorney and my attorney when I saw the Florida Board. It shocked them to hear that my total compensation was the New York plane ticket. They said the people of Florida owed me a debt of gratitude.



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