Egg Hunt

The first LISA, S.A. lawsuit was dated February 1998 and filed in Miami which touched off litigation between the parties in ten different jurisdictions over a ten year period. Some cases do need staying power. After the events in 1998 and 1999, Counsel required the assistance of a forensic accountant to assist their client in defending the various allegations of financial impropriety and in particular to critique the other side’s expert report. The plaintiff, a family member and a minority shareholder, alleged various claims against his fellow family members and majority shareholders. Each allegation was investigated and a response prepared to assist counsel with the various actions in multiple jurisdictions. The Supreme Court of the State of Delaware decision dated April 20, 2010 provides an outline and a little history into this matter.

Read extract from the “Supreme Court of the State of Delaware” decision dated April 20, 2010

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Roger was Too Busy to Chat

Hi-tech products can have a relatively short shelf life, which requires procedures including environmental to properly dismantle parts that are used, discontinued or deemed to be surplus. Counsel’s client had chosen through the bid process to contract with various vendors to obtain this service with their agreement requiring the vendors to share their sale proceeds from recycled parts and to not sell parts scheduled for scrap.

However, field investigators had found and confirmed the movement of scrap in the gray market and our mandate was to determine if any person or group of persons within a certain department of the company was involved. There are several issues to be addressed by the forensic accountant in a live internal investigation like this one.

In earlier cases, I touched upon the ‘purity of the company’ issue, the ‘con versus con’ interview approach and a belief that the human element is at least as important as the accounting for numbers. At the start of this matter, Counsel met with the division management in question to advise of our joint investigation with the Director of Internal Audit and to seek their cooperation. The ‘con versus con’ approach started immediately.

However, before the employees could be questioned, their concerns had to be anticipated, for example such questions as ‘Does management believe someone in this department has engaged in any misconduct or criminal activity?’ and ‘Assuming I cooperate, will I be guaranteed employment?’

Among the employees, the forensic accountant must establish creditability otherwise voluntary information may not be forthcoming. This is not easy because many people question the suggestion that an accountant can also be an investigator. Hence the investigative strategy is always flexible in terms of who to interview and when, sequence, topics, etc.

In this case, I started to interview Roger, (yes, ‘con versus con’ was in play) the leader of the department but he was too busy. Now think about this, if honest he would have given me all the time I required. So I knew the answer but now I just had to establish the trail of evidence. Then during an employee interview on the third day, a summary schedule of vendor bid prices was provided. A quick review and the document spoke, ‘rigged bid’. Several characteristics of a rigged bid were evident on this one piece of paper, an example of fraud knowledge at work.

About two months later, the leader of the department was requested to attend a meeting with the Director of Internal Audit and In-house Counsel. Toward the end of the meeting and the discussion of findings, Counsel extended his arms out to portray the scales of justice, with one hand higher than the other, to provide for some benefit of doubt. Then as Counsel mentioned one finding after another, the raised hand began to drop, significantly below the other hand. The leader was told that he had two weeks to balance the hands.

The leader, Roger St. Germaine and three others received early retirement and while the investigative phase took a couple months it was not full time. Sometimes the passing of time is an effective part of an investigative strategy to permit others to pursue their cover up efforts. This was a most enjoyable team effort working with internal/external counsel and the internal auditors.

Read ‘Ex-IBM Executive charged in multimillion-dollar scheme’

United States v. LaSpina

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Housewife becomes Informant

The forensic accountant must understand the cardinal rule of protecting the informant.

Quite often, a secretary will become the informant, however, in this case, the informant was a housewife and the alleged beneficiary of kickbacks, a division head of a public company.

The housewife heard the rumor from the receptionist working for the vendor, the alleged payor. The Director of Corporate Security Jim Poirier for Alcan called for assistance.

It is tough, particularly as a jolly-faced accountant to try to convince a stranger to completely trust your investigative skills. But she did, along with her friend, the receptionist who then told the President of the company that the word was out and as she believed, he, very upset, agreed to assist in any way.

Forensic accounting is much more than paper, in fact usually the paper comes second and the people come first. As a matter of interest, the bad apple had taken kickbacks worth $120,000 over 10 years. The receptionist grew tired of this practice, but with no corporate ethics policy and concern for her employment, she was forced to go outside her employer for relief.

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International Battle over Booze

Fosters, an Australian brewery through Elders had targeted a takeover candidate in the U.K., Allied Lyons PLC that sought the assistance of the U.K. anti-monopoly commission. The takeover candidate alleged that the Australian company was profitable only due to aggressive acquisition accounting. The question arose as to whether or not their public filings could support this allegation. It was time for international travel, a penetrating pursuit of public filings in Australia and lessons on how to make the best use of time in business class.

With many available hours and no phones, it can become time well spent to analyze the many years of annual reports of the parent company and the annual reports of each subsidiary. The movement of assets and liabilities, revenues and expenses amongst 100 acquisitions and the ever-changing location for each year’s profits appeared to support the allegation. For me, this experience confirmed that business and fraud are international languages and as I later realized after more international exposure, the human element remains a constant, notwithstanding the culture.

Read press extract on Foster’s Brewing

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