1. WorldCom This fraud occurred in a major public company and went undetected for 3-4 years. How could this occur? Why did this occur? Was Betty Vinson a victim or a villain?

2. Sarbanes-Oxley 2002 Passed in July 2002 in response to accounting failures at Worldcom & Enron Expanded the rules for corporate governance, reporting, and disclosure Impact on CEO’s, directors, auditing firms, & whistleblowers

3. Company Audit Committees All need to be independent/outside members No affiliation with the company other than audit committee Staffed by at least one financial expert (knows GAAP & has prior auditing and financial statement preparation experience) If not, must explain why Establish procedures for complaints regarding internal controls, accounting & auditing matters Appoint and oversee work of auditors

4. Executives CEO & CFO must personally certify the accuracy and completeness of financial reports and accuracy of internal controls Up to 20 years in jail for willfully/knowingly certifying noncompliant financial reports

5. Companies Report on internal controls Disclose whether code of ethics adopted for senior financial executes – if not, say why not Minimize loans to directors/officers Whistleblowers Company must reinstate with back pay, pay attorney fees, special damages to whistleblowers retaliated against for assisting in an investigation

6. Public Accounting Firms (outside auditors) Rotate lead partner every five years Strict limitations on non-audit services that can be provided to clients Such as bookkeeping, outsourcing of internal audit, financial information systems, valuations Pay fees to the PCAOCB Public company accounting oversight board Clients CEO, CFO, controller, chief accounting officer could not have been employed by the auditor within the prior year

7. Federal False Claims Act (1986 amendment) False claim Falsified reports, “hot stamping” (stating product has met qualifications, yet it has not been tested or in fact failed to meet government specifications) Medicare & Medicaid (Columbia) Defense contracts (Hercules example) Applies ONLY when federal government money is involved

8. Financial incentives for the whistleblower Whistleblower may receive between 14% and 25% of the amount of the amount recovered by the government Recovery amount: Triple the amount of the false claims, plus a penalty for of $5,000 to $10,000 per occurrence, plus everyone’s attorney’s fees