Top Investor Scams

http://www.ssb.state.tx.us/News/Press_Release/08-03-10_press.php

Watch out for the vultures! I am writing a module on investor fraud for my Texas State University online course on the Public Funds Investment Act. Small goverments are particularly succeptible to scammers in dark suits. AND they are managing substantial amounts of the citizen's money.

Thankfully - COSO is Being Looked at Again!

OSO Announces Project to Modernize Internal Control - Integrated Framework

November 18, 2010

ALTAMONTE SPRINGS, Fla. -- The Committee of Sponsoring Organizations of the Treadway Commission (COSO) today announced a project to review and update the COSO Internal Control - Integrated Framework (Framework). This initiative is expected to make the existing Framework and related evaluation tools more relevant in the increasingly complex business environment so that organizations worldwide can better design, implement, and assess internal control.

“Organizations can continue to apply the current Framework, inasmuch as its basic components are timeless, but the more detailed guidance and examples are somewhat dated,” says David Landsittel, COSO chairman. "This project is not intended to change how internal control is defined, assessed, or managed, but rather provide more comprehensive and relevant conceptual guidance and practical examples."

The Framework has been widely accepted as an internal control standard for organizations implementing and evaluating internal control related to operations, compliance, and financial reporting objectives, and more recently, internal control over financial reporting in compliance with the U.S. Sarbanes-Oxley Act of 2002 (SOX) and similar regulatory requirements in other countries.

Enhancements to the Framework are not intended to alter the core principles first developed in 1992, but rather facilitate more robust discussion of internal control. Certain concepts and guidance in the Framework will be refined to reflect the evolution of the operating environment, changed expectations of regulators and other stakeholders. In addition, enhancements are expected to consider more than financial reporting and to consider ways to enrich the guidance on operations and compliance objectives.

COSO has engaged PwC to support its update of the Framework. As such, PwC will be working under COSO's leadership and direction in developing the updated Framework. To help ensure a broad representation of perspectives, COSO is also forming an Advisory Council comprised of representatives from industry, academia, government agencies, and not-for-profit organizations to provide input as the project progresses. In addition, the updated Framework will be exposed for public comment to capture any additional input from the general public. Such due process will help ensure that the update adequately addresses internal control challenges of organizations today.

"The updated Framework is intended to help organizations more effectively design and manage internal control," explains Miles Everson of PwC, project team leader. "Additionally, it will further explain the interconnections with the Enterprise Risk Management - Integrated Framework, the 2006 Internal Control over Financial Reporting - Guidance for Smaller Public Companies, and the2009 Guidance on Monitoring Internal Control Systems."

The initiative is expected to culminate in an updated internal control framework publication in 2012, the 20th anniversary of the initial Framework.

###

About COSO
Originally formed in 1985, COSO is a voluntary private sector organization dedicated to improving organizational performance and governance through effective internal control, enterprise risk management and fraud deterrence. COSO is jointly sponsored by the American Accounting Association (AAA), the American Institute of Certified Public Accountants (AICPA), Financial Executives International (FEI), the Institute of Management Accountants (IMA), and The Institute of Internal Auditors (IIA).

About PwC
PwC (www.pwc.com) provides industry-focused assurance, advisory, and tax services to build public trust and enhance value for its clients and their stakeholders. "PwC" refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

OSO Announces Project to Modernize Internal Control - Integrated Framework

November 18, 2010

ALTAMONTE SPRINGS, Fla. -- The Committee of Sponsoring Organizations of the Treadway Commission (COSO) today announced a project to review and update the COSO Internal Control - Integrated Framework (Framework). This initiative is expected to make the existing Framework and related evaluation tools more relevant in the increasingly complex business environment so that organizations worldwide can better design, implement, and assess internal control.

“Organizations can continue to apply the current Framework, inasmuch as its basic components are timeless, but the more detailed guidance and examples are somewhat dated,” says David Landsittel, COSO chairman. "This project is not intended to change how internal control is defined, assessed, or managed, but rather provide more comprehensive and relevant conceptual guidance and practical examples."

The Framework has been widely accepted as an internal control standard for organizations implementing and evaluating internal control related to operations, compliance, and financial reporting objectives, and more recently, internal control over financial reporting in compliance with the U.S. Sarbanes-Oxley Act of 2002 (SOX) and similar regulatory requirements in other countries.

Enhancements to the Framework are not intended to alter the core principles first developed in 1992, but rather facilitate more robust discussion of internal control. Certain concepts and guidance in the Framework will be refined to reflect the evolution of the operating environment, changed expectations of regulators and other stakeholders. In addition, enhancements are expected to consider more than financial reporting and to consider ways to enrich the guidance on operations and compliance objectives.

COSO has engaged PwC to support its update of the Framework. As such, PwC will be working under COSO's leadership and direction in developing the updated Framework. To help ensure a broad representation of perspectives, COSO is also forming an Advisory Council comprised of representatives from industry, academia, government agencies, and not-for-profit organizations to provide input as the project progresses. In addition, the updated Framework will be exposed for public comment to capture any additional input from the general public. Such due process will help ensure that the update adequately addresses internal control challenges of organizations today.

"The updated Framework is intended to help organizations more effectively design and manage internal control," explains Miles Everson of PwC, project team leader. "Additionally, it will further explain the interconnections with the Enterprise Risk Management - Integrated Framework, the 2006 Internal Control over Financial Reporting - Guidance for Smaller Public Companies, and the2009 Guidance on Monitoring Internal Control Systems."

The initiative is expected to culminate in an updated internal control framework publication in 2012, the 20th anniversary of the initial Framework.

###

About COSO
Originally formed in 1985, COSO is a voluntary private sector organization dedicated to improving organizational performance and governance through effective internal control, enterprise risk management and fraud deterrence. COSO is jointly sponsored by the American Accounting Association (AAA), the American Institute of Certified Public Accountants (AICPA), Financial Executives International (FEI), the Institute of Management Accountants (IMA), and The Institute of Internal Auditors (IIA).

About PwC
PwC (www.pwc.com) provides industry-focused assurance, advisory, and tax services to build public trust and enhance value for its clients and their stakeholders. "PwC" refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

Press release from IIA

Scott C. McCallum
Manager of Corporate Communications & PR
Tel +1-407-937-1247
Email Scott.McCallum@theiia.org

Whas'up With Your Teams Writing?

Enjoy this excerpt from Audit Reporting: Yellow Book Style available at www.yellowbook-cpe.com This text is also available in the newsletter archives at http://www.auditskills.com/archives.html

Whas'up with Your Team's Writing?
The Root of Writing Problems

"What kind of writing issues does your staff have?"

When a potential client calls to ask me to conduct a writing seminar, this is one of my first questions. It was my first question when I was asked to be an editor and writing coach at the Texas State Auditor’s Office.

Invariably, the project manager, manager, or director with whom I am chatting says, "My staff just doesn’t know how to write! They need help!"

So I dig a little deeper.

"Are they unable to write clear sentences?"

The response is usually, "No, they can write sentences. I end up having to fix a lot of their sentences, but they can write sentences."

"Is the problem grammar or spelling?" I ask.

"No, not really. That is easily fixed."

"Is it that the concepts are unclear or disjointed? Do the reports make any sense?"

"I think that is the real problem. The staff doesn’t seem to be able to focus on what is important about an issue, and we go round and round and round trying to distill what the main issue is. It takes us way too long. Sometimes it takes us over a month to get a report out."

Are you laughing to yourself right now? You may be thinking:

• A month! I wish we could get our reports out that fast!
• A month! What are those people thinking? We take a week at the most.

  OR

• Yes, a month is how long it takes us, and that is ridiculous.

Would you believe that some audit teams only take a few days to issue a report? Would you believe that some audit teams take six or more months? Yep, it’s true. I have been in the profession for over 20 years and have worked with a variety of audit shops and firms, and I have seen the gamut.

And what I found, both as a writing coach and as a writing instructor, is that all of the problems with writing usually stem from a few simple problems:

On the front end, the powers that be are not clear about what they expect the audit report to look like. The reporting process is broken. The powers that be are control freaks who won’t allow the staff to have their own voices.

Did you notice whom I was holding accountable for problems in those bullets? The directors, managers, and project supervisors call to ask me to fix their staff, when it is really the director, manager, or project supervisor that is causing the problem! Not convinced? Hang in with me as I use the guidance of the Yellow Book (Government Auditing Standards) to help us out of this quagmire!

Four Criteria for Good Business Writing

Many moons ago, I read a great book titled The Basics of Business Writing by Marty Stuckey. She really hit the nail on the head when she listed four criteria for good business writing.

I adapted them to make them sound more audit-y. Here goes:

Principle #1: A Good Audit Report Engages the Reader’s Attention

Let’s face it: we have a challenge before us. Audit reports aren’t well known for being engaging or entertaining. To make our reports appealing, we have to create user-friendly formats, meaningful titles, and enticing content. Yes, enticing content!

Principle #2: A Good Audit Report Persuades the Reader That Change Should Occur

All statements lead to the recommendation! Your recommendation is the core of the report. It is the reason clients pay you. They want to know what they need to do better. And you’d better tell them clearly and convincingly.

Later in this text, we are going to talk about the elements of a persuasive argument, also known in the Yellow Book as the elements of a finding. Each element is designed to support the recommendation.

Some folks think that the purpose of an audit report is to inform. I disagree. Information without action is boring and unhelpful. As a professional, take the additional step and advise the client what should be done to mitigate the risks you uncover.

Persuasive audit reports have a clear purpose: to elicit change. Only audit reports with clear, feasible recommendations have the potential to elicit change. Otherwise, everyone is too confused to act!

Also, to persuade a reader to change, the recommendation must be supported by good, logically organized evidence.

Principle #3: A Good Audit Report is Mercifully Brief

Because audit reports are not an enjoyable mystery novel or a juicy magazine, the best way to make them tolerable is to cut their length.

Good business writing makes its point and leaves the reader alone to take care of other business. We will discuss the length of audit reports in Chapter 3.

Principle #4: A Good Audit Report is Clear and Well Organized

The best audit reports have a clear, logical structure. One of the best ways to ensure good organization is to use a structure.

Reporters answer the questions: Who, What? Why? Where? And How? And auditors usually spell out the condition, effect, cause, criteria and recommendation—all elements of a good persuasive argument.

Writing without a structure is messy and will cause you to ramble on and on in a disjointed fashion.

How the book is organized

No doubt about it, the clearer you are about what you want, the more likely you are to get it! As my mama always said, "You can’t get what you want until you know what you want!"

This book is divided into four sections. This first section focuses on general business writing and issues that need to be addressed before we begin the writing process. Next, in Section 2, we review the standards for writing audit reports. In the third section, we discuss the nine-step writing process, and the final section covers how to coach writers to improve their writing.

In order for your report to have any impact at all, it has to be written so that your intended audience can digest it. And to do this, you have to follow some basic rules of writing etiquette.

In the first chapter of Section 1, we looked at some basics of good business writing. Chapter 2 clarifies the importance of the audit process in writing the report and discusses ways to improve the audit process. And in Chapter 3, we help you determine whom your audience is and how to remove those hurdles that you set up for your reader. We also discuss different tones you can use in your reports and the effects they have on the audience, and how long your reports should be.

Next, in Section 2, we look at what the audit standards say we have to do. First, we review the basics of audits and the standard-setting bodies, discuss how the standards work together, and contrast the Yellow Book standards and AICPA standards (Chapter 4). Then, our focus is on the various reporting standards for financial audits in Chapter 5 and turns to the reporting standards for performance audits in Chapter 6. The last chapter in this section discusses the IIA standards and the AICPA standards for audit reports.

At this point, we have a much clearer idea of what we want. The next question is, "How do we get it?" So that is the topic of Section 3. Here we cover a step-by-step process for creating the audit report of your dreams … okay, that is taking things a little too far. We learn how to create an audit report that someone is compelled to read. This section is divided into four chapters that correspond with the major aspects of the nine-step process: planning, drafting, editing, and formatting.

Then, our last section discusses coaching techniques and tips to help you help your team improve their audit reports. In general, writers are very self-conscious about and protective of their writing. Men and women who normally exude self-confidence turn into nervous schoolchildren when they have to talk about their writing. And Chapter 12 provides guidance for coaching to make these experiences less painful—for you AND the writer!

Beginning a Discussion of the Federal Deficit

The GAO came out with a report this week about the fiscal sustainability of the federal government. Seehttp://www.gao.gov/highlights/d11201sphigh.pdf for a summary of the report.

And the Peterson Foundation has put up some amusing ads regarding the deficit. Have you seen the guy running for office promising to spend, spend, spend and leave it for our kids to worry about? Classic. The Foundation's website is full of scary facts about the deficit: http://www.pgpf.org/Issues.aspx

And this article is interesting http://www.businessweek.com/investor/content/nov2010/pi2010115_719576.htm

A month ago, David Walker, the Ex-Comptroller General of the GAO came to Austin. I escorted him to his two speaking engagements. His talk focused on how unsustainable our current path is. He shocked the students and UT and agitated and depressed the CPAs at a government conference. Our deficit isn't good news. He wrote a book called Come Back America which is detailed and full of solutions to the deficit problem. David has left the Peterson Foundation... but he isn't finished fighting He is the star of the documentary called IOUSA at http://www.iousathemovie.com/ You can watch the shortened version of the movie by clicking that option at the bottom right hand corner.

It is all good to know as - today - the Republicans are making a bid deal about forbidding earmarks. Any of these sites and references will tell you that will only take care of a tiny drop in the huge deficit budget. Medicaid and Social Security are our real problems. And few, if any, politicians have the guts to take those two enormous federal obligations on.

A Weight on our Shoulders

As a Texas CPA, I have to earn six hours of ethics education to maintain my license. My ethics instructor, David Holt, said during class that CPAs are the only profession that can save this country. Our ultimate responsibility is to the public while other professions view their ultimate customer their client – a.k.a. the one who pays them. We are Certified PUBLIC Accountants, after all.

My initial reaction to David’s statement was, “If we are the saviors of this country, we are all in for a world of hurt.” If auditors, who are CPAs , are holding the United States on our shoulders – forget it! We are as good as dead.

As a self-employed person, I have significant selfish and mercenary tendencies. These tendencies are some of my best business survival skills. But I am afraid we are facing a crisis in this country that can only be helped by considering how our choices affect the community as a whole instead of just our own family and business.

Why do I have such a dim view of the profession?

Well, I know myself! And I have worked with CPAs in all but a few states. I teach government auditing standards, the AICPA SASs, audit skills, etc. for continuing education credits. And I have come to know, through various comments and worried looks, that CPAs in public practice are primarily worried about getting sued. And if you are constantly worried about being sued, you won’t call a spade a spade; you won’t do what is right but instead do whatever it takes to cover yourself.

Here is the evidence that I have that CPAs are intensely worried about being sued:

· The Statements on Auditing Standards, promulgated by the AICPA, are written in some archaic legalize that doubles back and repeats itself in nuanced, confusing ways that can only be written under the influence of a lawyer

· A representative of the GAO, who works with the AICPA on a regular basis, jokingly complained at a national conference that she can’t meet with the AICPA without three of their lawyers present

· A CPA firm in Louisiana refused to follow the guidelines in the Yellow Book regarding developing the elements of a finding for clarity and completeness in their reports because they were counseled by a lawyer to be as vague as possible in audit reports

· PPC – a company that provides canned audit programs and checklists – is doing great business as CPAs refuse to think for themselves and lean on PPC to make sure they don’t get written up in a peer review

· Every time I teach the Risk Assessment Standards – every time – someone pipes up and says “But if we have to use our judgment on an audit – we might get sued.”

Most CPAs in my Yellow Book class look a little pale when I quote them the following phrases from the Yellow Book:

GAGAS 1.01 Auditing is essential to government accountability to the public.

GAGAS 2.07 A distinguishing mark of an auditor is acceptance of responsibility to serve the public interest.

As if our title Certified PUBLIC Accountant wasn’t enough, the GAO is reminding us of our ultimate responsibility as auditors is NOT to the person who is paying our invoice, but to the public!

Money? Did you mention money?

And on top of worries about getting sued, auditors are also worried about making money. And if you worry about making money, you aren’t going to be motivated to say what is so - to say what needs to be fixed - because you will anger the client. They might fire you and find another auditor who is either clueless or passive and unmotivated to stir things up.

Wow, these two forces – worries about getting sued and worries about getting fired – make auditors a pretty weak lot. And we are supposed to save this country?

Has anyone asked you where you were?

As I write, the details of the $50 billion dollar Ponzi scheme perpetrated by a Wall Street hedge fund manager are coming to light. Come to find out, that the SEC visited this guy twice and deemed his operation clean! What?

And what about Enron and WorldCom and the Department of Defense? The Department of Defense has NEVER been able to create an auditable financial statement.

What about all those banks with those weak loans or the mortgage companies that were processing them?

When I tell feisty folks what I do for a living, they ask me “Where were you? Why didn’t you guys catch this stuff?” If they really want to know the answer, we talk about how auditing works and I end up uncovering our dark audit secret – that audits have a very limited usefulness. I really don’t like saying that, at all. But you know it, and I know it.

Am I bugging ya’? Didn’t mean to bug ‘ya.

Bono croons “Am I bugging ‘ya? Didn’t mean to bug ‘ya?” at his concerts as he sings about serious world injustices. What a pretentious jerk, eh? Well, this little email is a plea to you – as Bono made to his listeners – to do something to stop the madness. I know I am insulting some of you who do your best to fight the good fight. But for the rest of us, please consider:

· Putting aside your worries about getting sued or getting fired and say what needs to be said

· Think of the big picture when working on your audits. Skip the minutia and think of what your client is involved in that is risky to the public and say something about it!

· Try to implement the intent of the auditing standards, the spirit, rather than just doing the minimum it takes to make a peer reviewer happy

· Teach new auditors what auditing means – why audits are important – and what their responsibilities are. Stop treating them like mushrooms and do your best to impart your hard earned wisdom to them.

· Accept the fact that we may be the only ones with knowledge of a particular situation that have any inclination to do something about it. The players in the process are not interested in changing or telling on themselves. We have to do it – and our role is very important.

And above all, remember, that we have a great weight on our shoulders. We have an ultimate responsibility to the public – to the taxpayers - not to let things get out of hand. We have the power to hold people accountable for their actions – and this is a significant role in the world.

GAGAS 1.02 The concept of accountability for use of public resources and government authority is key to our nation’s governing processes.

More power to you!

Schools

My husband is studying to be a school teacher. Yes, my entire household will be dependant on the government - in every conceivable way. Am I nervous? Yes.

But enough about me. He shared this u-tube video with me that was slighly disturbing - and exciting at the same time:

http://www.youtube.com/watch?v=pMcfrLYDm2U

He comes back from his certification seminars overwhelmed by what he is expected to pull off in the classroom. Learning has to be project based, because that is how people work now a days. He has to take into consideration 8 different learning styles - including naturalistic and musical... and ensure that the gifted and talented are challenged, while the learning disabled kids are mainstreamed and brought along with the group. Special needs must be catered to and the government will pay whatever it takes to help a disabled child perform - equipment, staff, whatever it takes.

He told me that his teacher - the teacher's teacher, if you will - said that parents don't get sued for being bad teachers - but they do get sued if they are not attentive to a needy child.

I had lunch with a gentleman who's daughter is a special needs teacher. She declined working at a tony school district because the high expectation parents band together and sue the principle, adminstrators, and teachers every year for whatever they can string together.

What is going on here? Is this all a good idea? I'm not sure. My teachers used to hit me with a ruler if I fell behind. They could have cared less if I finished. I don't even know why I did. I absolutely hated high school. But watching that video scares me and makes me think I am already a dinosaur. What about my kids? Are they going to be ready? Can we all get ready at the same time, or does bringing everyone with make for a mediocre trip?

And that gets me to thinking about drop out rates for large school districts in Texas where low-income students make up at least 80 percent of the enrollment have dropout/attrition rates of 50 percent or more. Source:http://www.chron.com/disp/story.mpl/metropolitan/7063520.html

Our friend's intelligent son was so bored in high school that he dropped out. The school district approached him and offered him $1500 to finish the year. He took it. Small price to pay in order to preserve the thousands that the district gets if they can get him to show up every day and pass those tests. Although I can't find an article on this to back me up - I did find this discussion of the idea in Bostonhttp://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2010/01/12/paying_kids_to_stay_in_school/

Vouchers anyone?

Benford's Law Analysis for Fraud Detection

I am working through Urton Anderson's fabuolously helpful book "Implementing the International Professional Practices Framework" and ran across a recommended preventative measure for fraud in chapter 9 - Benford Law's Analysis.

This rang a few vague bells - so I Googled the term and found this site that looks worth looking into. It includes a quick tutorial on how to analyze data for patterns to detect unusual or fraudulent transactions. See http://www.ezrstats.com/Benford.htm Is this vendor trustworthy? I don't know. What matters is the technique - and that the IIA thinks enough of it to expressly recommend it in its literature.