Ohio University Beta Alpha Psi Awards Banquet Gary Zeune, CPA The Pros & The Cons 10356 Wellington Blvd, Suite D Powell, OH 43065 Phone 614-761-8911 Fax 206-202-0880 gzfraud@bigfoot.com www.TheProsAndTheCons.com

Satyam Computer Services Satyam = India’s Enron 4th largest Indian IT outsourcing firm Fake cash balance of ________ Reported employees 53,000 Actual _________ 6,400 Satyam employees quit 9/08-3/09 Others arrested: CFO, 3 in finance Served 1/3 of Fortune 500 Ramalinga Raju Founder+CEO $1+ billion 40,000 © Gary Zeune, CPA 2009

Satyam Computer Services Audit Partners S. Gopalakrishnan, left, and Srinivas Talluri, were arrested on charges of criminal conspiracy, cheating, forgery, falsification of accounts and causing the disappearance of evidence. © Gary Zeune, CPA 2009

Firm Vice Chairman Thomas Flanagan, 30 year partner Filed lawsuit October 2008 250 puts and calls trades January 2005 – 2008 12 clients and advisory partner on 7 "The independence policy is really the most important thing to this business. If you're not independent then you're not going to be an auditing firm," [firm attorney Paul] Lockwood said, noting the collapse of Arthur Andersen Ex-Deloitte exec loses bid to dismiss trading case Wed Apr 8, 2009 http://uk.reuters.com/article/governmentFilingsNews/idUKN0853765620090408?sp=true © Gary Zeune, CPA 2009

Bernie Madoff $50 Billion 30 years NASDAQ Affinity fraud Feeder funds Exclusivity © Gary Zeune, CPA 2009

Bernie Madoff’ “Auditor” Securities fraud, aiding and abetting investment advisor fraud, filing false reports with SEC Lied about performing audits to avoid peer review Possible sentence of 105 years $2.5 million bond Prosecutors going after people who didn’t know but didn’t do their jobs and/or lied Watch his arrest at www.TheProsAndTheCons.com Click Videos, Fraud, scroll to Bernie Madoff © Gary Zeune, CPA 2009

RCI Uses Illegal Workers RCI national janitorial services Grand Traverse Resort and Spa; House of Blues; Planet Hollywood; Hard Rock Café; Dave and Busters; Yardhouse; ESPN Zone; China Grill $54 million billings 2001 to 2005 Evaded $18.6 million in various Federal taxes 63% operating expenses 37% lifestyle © Gary Zeune, CPA 2009

RCI Uses Illegal Workers Christina Flocken, comptroller Pleaded guilty to… Conspiring to defraud the United States Harboring illegal aliens. Financial forfeiture of $1.5 million Christina Flocken, 59, formerly of Longwood, Fla., pleaded guilty to conspiring to defraud the United States, and harboring illegal aliens. Flocken also agreed to a financial forfeiture of seized assets. The plea agreement of Flocken and Edward Cunningham, former RCI vice president, both agreed to forfeit funds totaling $1.5 million © Gary Zeune, CPA 2009

Partner False Sign-Off Stephen Nardi, Philly assurance practice director Technical guidance, scheduling and assignment of personnel, directly supervised most audit managers, influenced promotion decisions Assigned audit manager Anne Marie Fitzpatrick to Hemispherx Biopharma’s 2004 audit She completed planning then Nardi stopped her Hemispherx work and assigned her to another client Field work was completed without ___________ and was never _________ as required by firm ________ Ex-BDO Seidman official penalized for lack of oversight supervision reviewed policy © Gary Zeune, CPA 2009

Partner False Sign-Off Nardi authorized release of _________________ which was included in the company’s _________ QC partners announced routine inspection and Hemispherx had been selected Pre-QC Review of the file disclosed ______________ Nardi told Fitzpatrick to ______________________ Nardi has been barred from public accounting but can petition after 1 year Fitzgerald was censured and resigned report Form 10K lack of initials on work initial, sign and backdate Ex-BDO Seidman official penalized for lack of oversight © Gary Zeune, CPA 2009

False Sign-Off Survey Results Signing off on work when in fact __________________ Sample slice % % of CPAs who observed False Sign-off 25 Auditing experience last 10 years 27 Auditors with some Big 4 experience 26 Auditors with only Big 4 experience Auditors with only Big 4 in last 10 years 28 it wasn’t done © Gary Zeune, CPA 2009

False Sign-Off WHY COMMIT ______________________________ WHAT TO SIGN OFF _________________________ PAY AND PROMOTION _______________________ WHY NOT DETECTED ________________________ WHY _____________________________________ HOW TO MINIMIZE __________________________ Come in under budget Something not expected to change Keep client and boss happy Assume the work was done TRUST Audit the auditors © Gary Zeune, CPA 2009

Judge Sentences 3 In Massive Tax Fraud….AP Headline Robert Pfaff Former tax partner 58 8+ yrs $3MM Jailed John Larson Former tax manager 57 10 yrs $6MM Ray Ruble Former Attorney 63 6½ yrs $0 Free on appeal Firm has signed a deal admitting its role in the tax shelter scheme. The firm avoided criminal prosecution by cooperating with authorities but was fined $456 million, including $128 million in forfeited fees from sales of the shelters. Judge Sentences 3 In Massive KPMG Tax Fraud Case http://cbs3.com/business/kpmg.massive.fraud.2.973790.html © Gary Zeune, CPA 2009

Judge Sentences 3 In Massive Tax Fraud….AP Headline Set up own firm Marketed BLIPS Bond Linked Issue Premium Structure $1+ billion phony tax shelters Brazen tax shelter "that didn't pass the smell test from Day 1“ 7% of amount their clients saved Tip: People behave the way they’re ________________ paid to behave © Gary Zeune, CPA 2009

Prof. Roger D. Blackwell Ohio State multi-million $$$ marketing prof OSU picture Ohio State multi-million $$$ marketing prof Worthington Foods board member Sale of company Sentence 6 years and $1 million fine Defense cost $____________ Blackwell and his law firm suing each other U.S. Supreme Court denies appeal Blackwell profited $__________ Ethics tip: _____________________________ 6 million 2007 convict Appeal of Blackwell conviction is rejected, CD, 3/10/07, B1 ZERO/NONE/NADA Some people commit fraud for no $$$ gain © Gary Zeune, CPA 2009