Professor Elam

NIck Cage Owes the IRS

How did Nick Cage end up with a $6 M IRS Bill?  He is suing his manager. 

But, even stranger to me, why does he have to borrow the money from Johnny Depp?

The Star of National Treasure cannot borrow  a mere $6 M against future earnings?

A few years back Willie Nelson made headlines owing about $1.6 M which he did pay back. Seems there is a long history of stars with bad management. 

I suspect the large CPA firms all have a personal management section, why not hire them?

Were I in Nick's position, I would not have one person but a reliable CPA firm receiving all my tax correspondence, and filing the returns. 

In fact I was just thinking about that so I looked up an example, click here for Alexander Grant Wealth Service. When you get there click on the service matrix. Now that is about what I would have in mind were in the the league Nick Cage is in. It also makes the point that today's CPA firms are involved in a a very broad range of service activities. 

External Audit at SAPD

The Express News now supports an external audit of the Police Dept.   Please read the article, it is not about money but procedure. I put this one up to get you thinking that auditing is not necessarily about adding up strings of numbers to see if they total checks. These days it is about procedure, benchmarking the best procedure to assure top results. 

The article states that internal audits are too slow. My guess is that is not the problem with the internal audit, I suspect the internal audit lacks enough clout to effect real change. If the City spends a quarter of a million on an external audit, that will carry some weight, just guessing but that is my take.

Note that an accounting firm will be chosen to conduct a procedural audit of a large city police department. Accounting is a diverse and growing field. 

Come to think of it, here is an example of what I mean. Someone  got the staff over ruled and substituted another towing firm for a city contract. Now look at the results. It often takes an outright failure or an outside expensive source to overcome internal strife, in any organization.

Accounting Careers

Global Systems Audit Manager

Our client is a Fortune 100 company and they are seeking an IT Audit Manager. They are requiring 10+ years of experience in IT with direct hands on experience managing application development within an IT organization. 
- Strong SAP experience 
- At least one audit certification: CISA, CISSP, CCSA, CIA, CPE 

I spotted this ad via one of the e mail notices I get. I would draw your attention to it for several reasons.

• Auditing is in a transition stage. We have moved in my lifetime from a pencil and paper system to a computerized paperless system.  The problem is that audit systems lag that change. The perspective of most audit textbooks and courses is still grounded in the pen and pencil era. no wonder, the bicycle was invented when people rode horses. Hence the position of a person on a bicycle mimics the position on a horse. Modern recumbent designs are more efficient but we still cling to the original design based on another mode. 
• Note the world global, IBM has had more business overseas than in the US since the 70s yet we have yet to adopt intl accounting standards.  
• I posted yet another fraud at Baylor hospital on this blog last weekend, the thief worked in IT, he was not an accountant, hello! 
• Only one chapter of the audit text is devoted to auditing computer systems, no wonder the guy managed to steal the money, we of course never hear of the successful thieves that slip away or hte companies too embarassed to admit it.  
•   Take another look at the certifications desired, do you notice anything? Yep CPA is not one of htem!  The first three all have to do with computer systems not accounting systems, but wait, is there a difference?j
•  Gee Bob Dylan got it right, the times they are a changin
• See my post for July 25 about the theft at Baylor Hospital 

Hoboken New Jersey

The docks of Hoboken New Jersey were the scene of the Academy Award winning On the Waterfront in 1955. Gee nothing has changed.  I commented on this last semester  to my Wiley rep who is in Hoboken. She said it had changed, apparently not. 

FBI arrested local officials and yes rabbis in a scheme involving money laundering through Israeli charities. 

Frankly the story is a bit hard to follow, but no indictments yet just arrests so it may take a bit for the story to come out. 

Fraud, despite SARBOX et al, still with us. No wonder HBO put The Sopranos in Jersey....

Mother and Son Steal; $1.4 M from Baylor Hospital

Here we go again! 

Gary Stephens worked in the IT dept at Baylor Hospital in Dallas. This is a huge medical complex.

No doubt the budget runs to the hundreds of millions each year. Click for the story, it is a good one.

Gary created a fake company, submitted fake invoices, got the checks printed, picked them up and had his 59 yr old mother deposit them. So far so good. Take a relatively small amount over time, less than material in each billing, and perhaps you will not be noticed. 

So how did he get caught?  You gotta love it. Seems a Dallas County Commissioner  bought a Bentley Continental GT trading in his Aston Martin (hey this is Dallas). Seems there were problems with the title, and Gary had traded or sold the Bentley to the dealership. Whoops, someone got to checking and gee what is an IT employee at Baylor doing with a Bentley.  

A classic problem in any movie dealing with theft, is that some foolish crook wants to spend the money now. This of course is always a mistake and leads to suspicions. Had Gary and Mom quietly left for another country, preferably one without an extradition agreement, this might have worked. Although these days that is not enough money to live forever somewhere else.....

But would your audit program or internal controls have detected that invoice among the thousands that Baylor receives?  Clearly Internal Controls were at fault as one person was able to submit, get approval, and a signature on the check, and picked up the check, all violations of a proper IC procedure. 

The point is that inside crime is always perpetrated by someone who knows the system.  The fact that all the work is on the computer will make discovering such stunts more difficult in the future. 

Professional Skepticism

Auditors should maintain professional skepticism. Here is yet another military veteraN 

embellishing his career with outright lies. Interestingly no one bothered to investigate Charles Bass stories until a KPRC tv story brought him to the attention of a Colorado Veteran. 

Charles Carlo Ponzi was exposed in similar fashion.  A reporter got to checking his background and it did not check out. 

Arlena Sones to Speak in Class

Monday July 13, 2009 at 12:15 Arlena Sones Internal Auditor with the City of San Antonio will speak in my Intermed II Accounting Class. 

Familiarize yourself with San Antonio IIA 

Internal Audit is perhaps the fastest growing segment of the accounting profession. SARBOX, accounting scandals et al have brought a demand to know what is going on. Internal audit is both quantitative and qualitative. There are some 100,000 candidates that take the CIA exam every year. 

I believe Internal Audit is a very viable career path for our non traditional students. Please come prepared with questions for our guest. 

Accounting Certifications

Did you know there are over 40 accounting certifications?

Traditionally it has been CPA, now there is Certified Internal Auditor, Certified Management Accountant, and several others particularly involving high tech. 

This is a result of two things I think. First, accounting has grown to be a much larger profession, it is not just about external audit. The things one studies to become a CPA does not encompass what a management accountant does. 

Second, the high failure rate of the cpa exam has caused candidates to seek other opportunities. 

Understand that CPA is still the only government license one can hold. The others are bestowed so to speak by independent organizations. 

The CPA exam now requires 150 college hours and a degree and well over 30 accounting hours. CIA can be taken with a BBA degree. Do not delay studying for and taking at least part of some certified exam. I believe that putting off the cpa exam causes students to fail to prepare. It becomes a bridge too far that defies preparation today. Pick a realizable goal and start on it now. 

Finally, the Other Audit Firms Pull Ahead

Grant Thornton scored a larger dollar increase (if I read the story correctly, it is not clear) than other firms for a recent period. They note these are not clients rejected by the Big Four but clients that switched from the Big Four. Note the client that helped get them there was a Chinese firm. 

Not  surprisingly the new CEO of GT is a Brit who has lived on three continents. 

So what, glad you asked. When I was an undergraduate shortly after Edison switched from direct to alternating current, there were the Big 8 Audit Firms. time winnowed those to six, and then whoops Arthur Andersen was gone and well am I missing one, we now have four large firms with over 50,000 firms. SARBOX meant those firms could not do audit and consulting so you guessed it, audit fees have more than doubled since SARBOX passed, well gee cost accounting wins again. 

The big firms work like this

If you are a Fortune 500.1000 firm you want our name on your audit

Guess what that costs a lot of money as our overhead is gosh awful and 

Our partners want to make as much money as your CEO

We pay the staff about $55K and work them so hard 90% quit in five years and we bill them out for over $200K

Okay that boys and girls is the business model for the large firms...

And so the day is beginning to arrive for the so called second tier firms, somewhere you might actually consider working. Take a look at the list on the link, sounds to me like there day is arriving. 

An Orderly Wind Down

Opus West filed for Chapter 11 bankruptcy. Nothing unusual about that these days but

what issues does this raise for the outside auditor? What will fair value be?  What is an empty office building in a recession worth? What would you want the owners to guarantee if you were the outside auditor?

Another dimension of the outside audit is client selection. Would you want Opus as a client?

What is a super priority lien in bankruptcy court?  Would you know to ask for one?

Are you familiar with the fair value rules, impairment tests?

This auditing thing is getting a lot more difficult.