#NACVANation
#NACVANation
Current Issue
Table of Contents
- Impact of the Tax Cuts and Jobs Act on the Valuation of S Corporations
- Defining Auditor Expertise in Fraud Detection
- A Fraud Triangle Analysis of the Libor Fraud
- The Use of Zappers by Financial Terrorists
- The Effect of Peer Reciprocal Relationship and Interpersonal Affect on Internal Fraud Reporting
- Using a Forensic Accounting Novel to Increase Student Engagement with Accounting Ethics and the Profession
- Detecting Fraud in Non-Benford Transaction Files
- Toshiba Corporation—How Could So Much Be Wrong?
- Pressure to Commit Fraud in the Workplace: Two Teaching Cases Addressing Fraud and Whistleblower Protection
- The Accountant and the Error of His Ways
- Book Reviews
Impact of the Tax Cuts and Jobs Act on the Valuation of S Corporations | Full Article (PDF)
Charles J. Russo
James A. DiGabriele
Abstract: Recent tax changes under the Tax Cuts and Jobs Act (TCJA) have preserved the premium associated with the business valuation of S corporations. The C corporation tax rate has been lowered to a twenty-one percent flat rate, individual rates have been lowered, and the S corporation shareholder may be able to deduct up to twenty percent of qualified pass-through entity income. A Section 199A deduction lowers the effective personal tax rate on qualified pass-through income. This article reviews valuation issues related to closely-held private entities and the specific valuation issues of pass-through entities. Differences in the tax structure of C corporations and S corporations are discussed. Seminal court cases on tax-affecting the earnings of pass-through entities are examined. Practitioner models and empirical studies are surveyed. This article examines the impact of the Tax Cuts and Jobs Act on C corporation and S corporation valuations. Due to its single-level tax structure, the S corporation has a valuation premium when compared to an otherwise identical C corporation. This research makes several significant contributions to the literature in forensic accounting and the valuation of privately held companies. The academic disciplines of accounting, economics, and finance will find the research a unique resource. Practicing accountants, investment bankers, and financial analysts also will benefit from this article.
Keywords: Business valuation; C corporations; S corporations; partnerships; tax-affecting earnings; pass-through entities; premiums; TCJA
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Defining Auditor Expertise in Fraud Detection | Full Article (PDF)
Grace Y. Mui
Abstract: Mandatory auditing standards require auditors to consider fraud in their audit work. However, auditors fail at fraud detection because of their lack of appropriate training and skills. Further, fraud has an inherent element of deception and concealment by perpetrators that results in minimal opportunities for auditors to develop knowledge of fraud and fraud detection. This study investigates auditors’ fraud detection capabilities from the perspective of auditor expertise with the aim to define auditor expertise in fraud detection and to identify the determinants of auditor expertise in fraud detection. Exploratory in-depth interviews were conducted with auditors and fraud investigators who are recognized by their peers to be successful in detecting fraud. The resulting model of auditor expertise in fraud detection combines determinants of auditor expertise in other audit tasks and additional determinants relevant to the fraud detection task. Two reference groups—fraud investigators and internal auditors—validated this model. The participation of practitioners provided a real-world perspective of fraud detection expertise. This article contributes to the objective of auditing expertise research to transfer expertise to non-experts by identifying the capabilities of fraud detection experts and the strategies proposed by these experts to develop knowledge of fraud and fraud detection.
Keywords:Auditor; auditor expertise; fraud detection; interviews
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A Fraud Triangle Analysis of the Libor Fraud | Full Article (PDF)
Mark Lokanan
Satish Sharma
Abstract:This study examines the effectiveness of Cressey’s (1953) fraud risks factors adopted by the AICPA and the ACFE in detecting fraud in banks involved in the LIBOR scandal. Cressey (1993) posits that, for fraud to occur, pressure, opportunity, and rationalization must be present. In this article, we develop variables which serve as proxies for pressure, opportunity, and rationalization and test them using data from S&P Capital relating to the sixteen banks that were involved in the LIBOR scandal with a matched sample of non-fraud banks. We identify one pressure variable (profit margin) and three opportunity variables (percentage of outside directors in the banks, number of board members on the banks’ audit committee, and the banks’ involvement in litigation) that are linked to increased incidence of fraud. The variables representing rationalization are not significant in predicting fraud in banks. Auditors are encouraged to employ these variables in analyzing fraud risks in banks.
Keywords: LIBOR fraud; logistic regression; banks; fraud techniques; fraud triangle; auditors; algorithm for fraud
Back to Top
The Use of Zappers by Financial Terrorists | Full Article (PDF)
Hossein Nouri
Abstract:This article examines the use of zapper software (i.e., automated sales suppression device) to finance terrorist activities by financial terrorists. Zappers and phantom-ware software can be used to skim cash receipts from electronic cash registers. The term “financial terrorist” was advocated by Nouri and Lafond (2012) when they explained how terrorists may use information obtained from the outsourcing of tax returns to finance terrorist activities. In other words, financial terrorists are those who provide financial support for terrorism without themselves being directly involved in terrorist activities. This research takes a proactive view to discuss how technology-assisted fraud can be used to fraudulently skim cash and finance terrorist activities, their impact on tax evasion, and how to detect and prevent such activities.
Keywords:Zappers; sales suppression software devices; financial terrorists
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The Effect of Peer Reciprocal Relationship and Interpersonal Affect on internal Fraud Reporting | Full Article (PDF)
Andrea M. Scheetz
Abstract: Based on social exchange theory, for organizational goals to be accomplished efficiently and effectively, employees must establish reciprocal working relationships. Inherent in social exchange theory is the norm of reciprocity, the acts of giving and taking in personal relationships. Interpersonal affect, the like or dislike feeling one has toward another, is present in all these personal interactions. I conduct a 2 x 2 between-subjects experiment with master’s level business students as participants. I expect, and find, that reciprocity and interpersonal affect predict the intention to whistleblow. My findings about the effect on whistleblowing intentions are especially worrisome and deserving of further study.
Keywords: Whistleblowing; interpersonal affect; reciprocity; social exchange theory
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Using a Forensic Accounting Novel to Increase Student Engagement with Accounting Ethics and the Profession | Full Article (PDF)
Chris G. Jones
Kiren Dosanjh-Zucker
Abstract: The use of narrative as a teaching strategy has expanded into an avenue for engaging students in technical subjects and fostering critical thinking. The purpose of this research was to investigate whether the use of a pedagogical novel can improve student professional writing and increase understanding of accounting ethics. Along with a traditional textbook, advanced accounting students were asked to read a full-length forensic accounting mystery novel written as a teaching tool (pedagogical novel) and write weekly reflective journal entries regarding ethical dilemmas faced by the major characters. At the end of the course, students were surveyed regarding their journaling experience and their perceptions regarding skill improvement. Results from a two-year trial indicate that students believed the semester-long exercise did improve their writing skills and even more so, their understanding of professional ethics. There was less agreement among students that weekly writing practice increased confidence in their writing abilities. A majority (eighty-two percent) of participants recommended that educational novels be used as a teaching aid in future coursework. The study concludes with an examination of lessons learned and recommendations for improving the application of such teaching novels in the accountancy classroom.
Keywords: Accountingpedagogy; forensic accounting; teachingnovels; ethics instruction;reflective journaling
Back to Top
Detecting Fraud in Non-Benford Transaction Files | Full Article (PDF)
William R. Fairweather
Abstract:Preliminary evaluation of a transaction file to determine whether a forensic audit is likely to be fruitful often involves consideration of the first digit or the first two digits of the transactions. The distribution of these leading digits can be compared to the theoretical Benford distribution in which the probability that the digit is i as given by log10(1 + 1/i), for i = 1, ..., 9 (or for i = 10, …, 99). The presence of fraud may be indicated by a difference in distribution from Benford. In this paper we remove the assumption that the leading digits in a transaction file without fraud must be distributed according to the Benford distribution. We propose an estimator of the proportion of fraudulent transactions in such cases, and we describe its properties and use in a preliminary evaluation of transaction files.
Key Words: Transaction fraud; preliminary test; arbitrary leading digit distribution; Benford assumption; Benford distribution; least squares estimator; estimating proportion fraudulent
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Toshiba Corporation—How Could So Much Be Wrong? | Full Article (PDF)
Susan Hass
Priscilla Burnaby
Masumi Nakashima
Abstract: This case introduces students to the fraudulent acts committed by Toshiba Corporation(Toshiba)over a seven-year period from 2008 to 2014. The case objectives involve a review of the accounting frauds that occurred at Toshiba and the environment that encouraged employees to take unlawful actions. Areas reviewed include percentage of completion accounting for long term contracts, inventory channel stuffing, and early booking of sales. The main learning objectives of the case are to understand the definitions of fraud, the fraud triangle and corporate governance; their differences and interrelationship; the importance of corporate and country norms and customs to an organization; the critical thinking skills needed to determine how the frauds were committed; and to develop business writing and public speaking skills. This case can be used in a fraud, forensic, auditing, or international accounting class to introduce the students to the study of how companies commit fraud in violation of the law but in accordance with cultural norms. It can also be used to cover ethics, governance, and accountability.
Keywords: Accounting fraud; Toshiba Corporation; Japanese cultural norms; ethics; fraud triangle; corporate governance
Back to Top
Pressure to Commit Fraud in the Workplace: Two Teaching Cases Addressing Fraud and Whistleblower Protection | Full Article (PDF)
Constance M. Lehmann
Ira Abdullah
Alisa G. Brink
Abstract: These teaching cases provide students with scenarios describing fraudulent activity and retaliation by employers when fraud was reported by employees. One case involves a mortgage company, and the other case involves an online university system. In each of these cases, fraudulent activity was occurring, one or more employees tried to report the fraud, and one or more employees were fired after they reported the fraud. Aspects of the protections available to employees under the Sarbanes Oxley Act (2002) and the Dodd-Frank Act (2010) are illustrated, as well as the importance of a strong control environment.
Keywords: Fraud Triangle; Dodd-Frank Act; Sarbanes-Oxley Act; COSO 2013; whistleblower protection; rewards; retaliation
Back to Top
The Accountant and the Error of His Ways | Full Article (PDF)
Brigitte Muehlmann
Virginia Soybel
Robert Turner
Abstract: This case provides an opportunity for students in an introductory accounting course to evaluate the use of financial reporting vocabulary in a scene in a recent popular film and to understand the implications of financial transactions on the three primary financial statements. In the movie “The Accountant” (Dubuque and O’Connor, 2016) Christian Wolff, played by Ben Affleck, has been hired by Living Robotics to perform a forensic audit on their financial statements. Some questionable financial transactions have been discovered by a junior accountant, Dana Cummings, played by Anna Kendrick. Chris has taken this information and goes back through years of the company’s records as part of the audit. He explains to Dana how his analysis of the balance sheets, income statements, and cash flow statements leads directly to his conclusions that the financial statements include fraudulent transactions.
Keywords: The Accountant; forensic accounting; case; financial reporting; Benford’s law
Charles J. Russo
James A. DiGabriele
Abstract: Recent tax changes under the Tax Cuts and Jobs Act (TCJA) have preserved the premium associated with the business valuation of S corporations. The C corporation tax rate has been lowered to a twenty-one percent flat rate, individual rates have been lowered, and the S corporation shareholder may be able to deduct up to twenty percent of qualified pass-through entity income. A Section 199A deduction lowers the effective personal tax rate on qualified pass-through income. This article reviews valuation issues related to closely-held private entities and the specific valuation issues of pass-through entities. Differences in the tax structure of C corporations and S corporations are discussed. Seminal court cases on tax-affecting the earnings of pass-through entities are examined. Practitioner models and empirical studies are surveyed. This article examines the impact of the Tax Cuts and Jobs Act on C corporation and S corporation valuations. Due to its single-level tax structure, the S corporation has a valuation premium when compared to an otherwise identical C corporation. This research makes several significant contributions to the literature in forensic accounting and the valuation of privately held companies. The academic disciplines of accounting, economics, and finance will find the research a unique resource. Practicing accountants, investment bankers, and financial analysts also will benefit from this article.
Keywords: Business valuation; C corporations; S corporations; partnerships; tax-affecting earnings; pass-through entities; premiums; TCJA
Back to Top
Grace Y. Mui
Abstract: Mandatory auditing standards require auditors to consider fraud in their audit work. However, auditors fail at fraud detection because of their lack of appropriate training and skills. Further, fraud has an inherent element of deception and concealment by perpetrators that results in minimal opportunities for auditors to develop knowledge of fraud and fraud detection. This study investigates auditors’ fraud detection capabilities from the perspective of auditor expertise with the aim to define auditor expertise in fraud detection and to identify the determinants of auditor expertise in fraud detection. Exploratory in-depth interviews were conducted with auditors and fraud investigators who are recognized by their peers to be successful in detecting fraud. The resulting model of auditor expertise in fraud detection combines determinants of auditor expertise in other audit tasks and additional determinants relevant to the fraud detection task. Two reference groups—fraud investigators and internal auditors—validated this model. The participation of practitioners provided a real-world perspective of fraud detection expertise. This article contributes to the objective of auditing expertise research to transfer expertise to non-experts by identifying the capabilities of fraud detection experts and the strategies proposed by these experts to develop knowledge of fraud and fraud detection.
Keywords:Auditor; auditor expertise; fraud detection; interviews
Back to Top
Mark Lokanan
Satish Sharma
Abstract:This study examines the effectiveness of Cressey’s (1953) fraud risks factors adopted by the AICPA and the ACFE in detecting fraud in banks involved in the LIBOR scandal. Cressey (1993) posits that, for fraud to occur, pressure, opportunity, and rationalization must be present. In this article, we develop variables which serve as proxies for pressure, opportunity, and rationalization and test them using data from S&P Capital relating to the sixteen banks that were involved in the LIBOR scandal with a matched sample of non-fraud banks. We identify one pressure variable (profit margin) and three opportunity variables (percentage of outside directors in the banks, number of board members on the banks’ audit committee, and the banks’ involvement in litigation) that are linked to increased incidence of fraud. The variables representing rationalization are not significant in predicting fraud in banks. Auditors are encouraged to employ these variables in analyzing fraud risks in banks.
Keywords: LIBOR fraud; logistic regression; banks; fraud techniques; fraud triangle; auditors; algorithm for fraud
Back to Top
Hossein Nouri
Abstract:This article examines the use of zapper software (i.e., automated sales suppression device) to finance terrorist activities by financial terrorists. Zappers and phantom-ware software can be used to skim cash receipts from electronic cash registers. The term “financial terrorist” was advocated by Nouri and Lafond (2012) when they explained how terrorists may use information obtained from the outsourcing of tax returns to finance terrorist activities. In other words, financial terrorists are those who provide financial support for terrorism without themselves being directly involved in terrorist activities. This research takes a proactive view to discuss how technology-assisted fraud can be used to fraudulently skim cash and finance terrorist activities, their impact on tax evasion, and how to detect and prevent such activities.
Keywords:Zappers; sales suppression software devices; financial terrorists
Back to Top
Andrea M. Scheetz
Abstract: Based on social exchange theory, for organizational goals to be accomplished efficiently and effectively, employees must establish reciprocal working relationships. Inherent in social exchange theory is the norm of reciprocity, the acts of giving and taking in personal relationships. Interpersonal affect, the like or dislike feeling one has toward another, is present in all these personal interactions. I conduct a 2 x 2 between-subjects experiment with master’s level business students as participants. I expect, and find, that reciprocity and interpersonal affect predict the intention to whistleblow. My findings about the effect on whistleblowing intentions are especially worrisome and deserving of further study.
Keywords: Whistleblowing; interpersonal affect; reciprocity; social exchange theory
Back to Top
Chris G. Jones
Kiren Dosanjh-Zucker
Abstract: The use of narrative as a teaching strategy has expanded into an avenue for engaging students in technical subjects and fostering critical thinking. The purpose of this research was to investigate whether the use of a pedagogical novel can improve student professional writing and increase understanding of accounting ethics. Along with a traditional textbook, advanced accounting students were asked to read a full-length forensic accounting mystery novel written as a teaching tool (pedagogical novel) and write weekly reflective journal entries regarding ethical dilemmas faced by the major characters. At the end of the course, students were surveyed regarding their journaling experience and their perceptions regarding skill improvement. Results from a two-year trial indicate that students believed the semester-long exercise did improve their writing skills and even more so, their understanding of professional ethics. There was less agreement among students that weekly writing practice increased confidence in their writing abilities. A majority (eighty-two percent) of participants recommended that educational novels be used as a teaching aid in future coursework. The study concludes with an examination of lessons learned and recommendations for improving the application of such teaching novels in the accountancy classroom.
Keywords: Accountingpedagogy; forensic accounting; teachingnovels; ethics instruction;reflective journaling
Back to Top
William R. Fairweather
Abstract:Preliminary evaluation of a transaction file to determine whether a forensic audit is likely to be fruitful often involves consideration of the first digit or the first two digits of the transactions. The distribution of these leading digits can be compared to the theoretical Benford distribution in which the probability that the digit is i as given by log10(1 + 1/i), for i = 1, ..., 9 (or for i = 10, …, 99). The presence of fraud may be indicated by a difference in distribution from Benford. In this paper we remove the assumption that the leading digits in a transaction file without fraud must be distributed according to the Benford distribution. We propose an estimator of the proportion of fraudulent transactions in such cases, and we describe its properties and use in a preliminary evaluation of transaction files.
Key Words: Transaction fraud; preliminary test; arbitrary leading digit distribution; Benford assumption; Benford distribution; least squares estimator; estimating proportion fraudulent
Back to Top
Susan Hass
Priscilla Burnaby
Masumi Nakashima
Abstract: This case introduces students to the fraudulent acts committed by Toshiba Corporation(Toshiba)over a seven-year period from 2008 to 2014. The case objectives involve a review of the accounting frauds that occurred at Toshiba and the environment that encouraged employees to take unlawful actions. Areas reviewed include percentage of completion accounting for long term contracts, inventory channel stuffing, and early booking of sales. The main learning objectives of the case are to understand the definitions of fraud, the fraud triangle and corporate governance; their differences and interrelationship; the importance of corporate and country norms and customs to an organization; the critical thinking skills needed to determine how the frauds were committed; and to develop business writing and public speaking skills. This case can be used in a fraud, forensic, auditing, or international accounting class to introduce the students to the study of how companies commit fraud in violation of the law but in accordance with cultural norms. It can also be used to cover ethics, governance, and accountability.
Keywords: Accounting fraud; Toshiba Corporation; Japanese cultural norms; ethics; fraud triangle; corporate governance
Back to Top
Constance M. Lehmann
Ira Abdullah
Alisa G. Brink
Abstract: These teaching cases provide students with scenarios describing fraudulent activity and retaliation by employers when fraud was reported by employees. One case involves a mortgage company, and the other case involves an online university system. In each of these cases, fraudulent activity was occurring, one or more employees tried to report the fraud, and one or more employees were fired after they reported the fraud. Aspects of the protections available to employees under the Sarbanes Oxley Act (2002) and the Dodd-Frank Act (2010) are illustrated, as well as the importance of a strong control environment.
Keywords: Fraud Triangle; Dodd-Frank Act; Sarbanes-Oxley Act; COSO 2013; whistleblower protection; rewards; retaliation
Back to Top
Brigitte Muehlmann
Virginia Soybel
Robert Turner
Abstract: This case provides an opportunity for students in an introductory accounting course to evaluate the use of financial reporting vocabulary in a scene in a recent popular film and to understand the implications of financial transactions on the three primary financial statements. In the movie “The Accountant” (Dubuque and O’Connor, 2016) Christian Wolff, played by Ben Affleck, has been hired by Living Robotics to perform a forensic audit on their financial statements. Some questionable financial transactions have been discovered by a junior accountant, Dana Cummings, played by Anna Kendrick. Chris has taken this information and goes back through years of the company’s records as part of the audit. He explains to Dana how his analysis of the balance sheets, income statements, and cash flow statements leads directly to his conclusions that the financial statements include fraudulent transactions.
Keywords: The Accountant; forensic accounting; case; financial reporting; Benford’s law
Back to Top
| Book Reviews |
 Sunday Night FearsTom Golden, 2018, 292 pp. tom@tomgoldenspeaks.com Sam Halloran is older than most beginning auditors, which creates some of his problems going to work for the Hamilton Pierce accounting firm. He is married with two children, and the time period is the 1980s when there were the Big Eight. He is fired from a sales job and decides to become an accountant. This is a psychological and emotional novel but not a thriller in the usual sense. Hopefully, most students do not have the emotional problems of Sam when joining a CPA firm. Certainly, there is less action than in most of my novels (e.g., Ultimate Rip-Off: A Taxing Tale or The Big R: A Forensic Accounting Action Adventure). Golden’s novel reminds me of John Grisham’s The Associate (about the harsh life of a new law associate in a large firm). Golden does, however, do an entertaining job of describing the life of a new accounting employee on his first audit. The book should be read by new accounting associates (but they may not then go to work for a CPA firm), and professors with little or no auditing experience. Both groups will learn and enjoy. The novel may be too risqué to be used in the classroom, however. The author does stress the importance of skepticism. This long quote is informative for all accountants and valuation experts:
As a new associate, you might think your opinion does not matter. You’re wrong, just as I was wrong to think that on the GEL audit. However, if I held to that opinion and allowed the partner to sign off, imagine the consequences. Your opinion matters. And here’s the most important takeaway from today: you, not the partner or the manager, are the ones who touch documents, create spreadsheets, perform the analytics, interview the clerks, and review the details. If fraudulent transactions exist in the books and records of the company you are auditing and you don’t find the fraud, it most likely will not get caught.
As demonstrated in real life about the dangers in ignoring skepticism, on February 28, 2018 the U.S. Justice Department fined Deloitte & Touche $149.5 million for alleged fraud with respect to its role as the independent auditor of Taylor, Bean & Whitaker Mortgage Corporation. A judge found that PwC failed to discover a $2.3 billion fraud scheme between their audit client Colonial Bank and the mortgage lender Taylor, Bean & Whitaker.
Dick Francis in his novel, Risk, summarizes the red collar nature of auditing: “Although the majority of mankind think of auditing accountants as dry-as-dust creatures burrowing dimly into columns of boring figures, the dishonest regard them as deadly enemies.” If you wish to learn about accounting educational novels, please see the sixth article in this issue entitled “Using a Forensic Accounting Novel to Increase Student Engagement with Accounting Ethics and the Profession.” Also, a number of years ago J. Dayne Lamb wrote three Teal Stewart mysteries involving red collar crime. The female accountant made her debut in 1993 in the novel Questionable Behavior. Teal Stewart, CPA, the lead character, is an engaging intelligent professional who has a man fall dead at her feet. The financial fraud Teal uncovers challenge her professional and personal judgment, and changes her life as she tracks the facts and figures from Cambridge to California in a race with a cunning killer who is trying to kill her also. In a second novel, A Question of Preference, Teal becomes involved with art and murder as she works herself up the corporate ladder of the accounting firm. A 1995 sequel, Unquestioned Loyalty, focuses on issues encountered as a partner in a large, international accounting firm. D. Larry Crumbley |
 Secrecy World: Inside the Panama Papers Investigation of Illicit Money Networks and the Global EliteJake Bernstein, 2017, 352 pp. Henry Holt and Co. 175 Fifth Avenue New York, NY 10010 Unlike many other publications that take partisan stances on the Panama Paper debacle, the Secrecy World presents to readers a unique, fairly holistic and high-level insight of the issue from the respective perspectives of the journalists (International Consortium of Investigative Journalists [ICIJ]), the implicated government officials, and last but not least, Mossack and Fonseca themselves. In crafting this entertaining and captivating thriller, Jake Bernstein, an ICIJ affiliate and two-time Pulizer Prize-winning journalist, has vividly elucidated numerous enigmatic documents and personal dramas. Some of the intriguing episodes to mention include how Mossack employed blank documents, the firm’s founding members troubled pasts, how an IRS agent’s persistence had transformed into direct confrontation between the U.S. and Switzerland, and the ideological battle between ICIJ and WikiLeaks. In addition, the author took considerable effort in discussing the history and implication to the people involved, covering a period from the Nazi era all the way to 2016, and incidences in various parts of the globe. Despite the fascinating story-telling and dramatized presentation of cold documents, the book shed scant new lights on valuation practical guidelines, nor was it written at the practitioner level. Nonetheless, in chapter 17, there were some detailed accounts regarding Mossack’s IT blunders that could serves as daunting examples of risk mis-management. For instance, “the firm’s content management had at least twenty-five known vulnerabilities, some quite significant,” and the firms intranet and internal database were both kept on the same server as the public facing website. Furthermore, one also could deduce that the firm’s data encryption was woefully insufficient given the leaked materials were promptly made public. The stories also in a way invited reader to think about the fates of the people involved and the larger picture or the philosophical aspects of the profession. The debacle had transpired when both Mossack and Fonseca were approaching full retirement. Despite the partners’ life-long labor of layering risk management and their last-minute active damage controls, the firm at the end was vertiginously sinking; bringing into abyss with it are the professional lives and the reputation of many. As the text pointed out, Mossack and Fonseca envisage such disclosure of their internal documents as a “gross violation of human right to privacy;” they stressed that over ninety-nine percent of their customers are using their business in both legally and morally acceptable ways (the text noted certain voice in ICIJ admit that vast majority of the Mossack clients committed no crime), and they shouldn’t be held responsible for the conduct for someone else. However, starkly contrasted in the book was the notion of the leaker (using the alias John Doe), which stressed that “Mossack and the system within which it operated as helping to intensify “the growth of income inequality”, which he deemed have led “society’s progressively diseased and decaying moral fabric.” After all, albeit lack practical guideline, Jake Bernstein’s Secrecy World: Inside the Panama Papers Investigation of Illicit Money Networks and the Global Elite is a superbly entertaining bed-time reading that presents the chain of events of and the personal dramas of the Panama Paper debacle in a cohesive manner. The book also serves as a popular literary reminder to practitioners once more about the vitally important mentality of weighing what is permissible vis-à-vis prudent and responsible. Jimmy Ma |
 Burglars Guide to the CityGeoff Manaugh, 2016, 296 pp. Farrar, Straus and Giroux 18 West 18th Street New York, NY 10011 This interesting book indicates how burglars, thieves, and fraudsters think and plan. Starting out with the superburglar in the late 1880s, George Leonidas Leslie, the author provides many examples of smart and dumb burglars. Much of the information is appropriate for the study of fraudsters and forensic accounting. The word, “fraudster” can be substituted for “burglar” throughout the soft cover book. A skilled burglar is a defector: someone who uses his training and skills against the very people those talents were meant to benefit. Think of the doctor who becomes a torturer; the accountant who becomes a fraudster. A burglar understands architecture better than the rest of us. They misuse it, pass through it, and ignore any limitations. A fraudster or an executive “cooking the books” does the same. Burglars can be smart or idiots. The same for fraudsters. Burglars use cities and buildings better; even if in the end they get caught. Fraudsters use accounting, and they are often caught. Yet, learning to think like a burglar—or a police detective—is very much not the approach taught in architecture school. Similarly, most universities and colleges do not teach fraud auditing or forensic accounting as required courses. “To put it another way, burglary requires architecture.” Accounting is often required of a successful fraudster. |
 Bunk: The Rise of Hoaxes, Humbug, Plagiarists, Phonies, Post-Facts, and Fake NewsKevin Young, 2017, 560 pp. Greywolf Press 250 Third Avenue North Suite 600 Minneapolis, Minnesota 55401 Skepticism is a critical attribute of a forensic accountant and an auditor. In 1835, the New York Sun newspaper reported that men walked on the moon. The men were described with bat wings, unicorns, and biped beavers, which led to much speculation and vast newspaper sales in New York and the rest of the U.S. The new life on the moon spread like riots, and the Sun’s sales soared to almost twenty-thousand. The author covers the hoaxing of history and the ways that forgers, plagiarists, and fraud invent backstories and falsehoods to sell us lies about themselves and about the world. Accounting skepticism could have uncovered the Enron, HealthSouth, Worldcom, and the many other frauds much sooner. |
 Information Security and IT Risk ManagementM. Agrawal, A. Campoe, and Eric Pierce, 2014, 414 pp. John Wiley & Sons 111 River Street Hoboken, NJ 07030-5774 A basic book designed to be used in the classroom to help students acquire the information security skills sought in the professional workforce. The book introduces the professional environment of information security. Forensics is third on the list of training needs of information security professionals. The authors introduce the basic model of information security consisting of assets, vulnerabilities, threats, and controls. The rest of the book is devoted to characterizing assets, vulnerabilities, and threats and responding to them using security controls. The book ends by integrating all these topics within the general umbrella of organizational risk management. A reader can obtain an awareness of how information security concerns have evolved in our society and how they can use contemporary frameworks to respond to these concerns in a professional environment. An excellent book to have available to search for situations faced by forensic accountants. |
 Illusion of Justice: Inside Making a Murderer and America’s Broken SystemJ.F. Buting, 2017, 339 pp. HarperCollins 195 Broadway New York, NY 10007 The author provides a compelling expert view into the high-stakes arena of criminal defense law; the difficulties of forensic science; and the horrifying reality of biased interrogations, coerced or false confessions, faulty eyewitness testimony, official misconduct; and more. Buting believes the American criminal justice system leads to results that are unreliable, unjust, and sometimes both. Our courts are less fair and more punishing than they ought to be. Unseen by global audiences of documentary viewers, men and women, some of them barely more than boys or girls, move through the machinery of the system every day on conveyor belts that rarely lead to trial. Instead, the vast majority of American criminal cases are resolved in negotiated pleas: deals made between lawyers for a sentence in exchange for an admission of guilt, rather than take the risk of a harsher punishment after a trial verdict. He explains the flaws in America’s criminal justice system and lays out a provocative, persuasive blueprint for reform. |
 Cypherpunks: Freedom and the Future of the InternetJulian Assange, 2016, 183 pp. OR Books/Counterpoint Cypherpunks are activists who advocate the mass use of strong cryptography as a way of protecting our basic freedoms against this onslaught. Julian Assange, the editor-in-chief of and visionary behind WikiLeaks, has been a leading voice in the cypherpunk movement since the 1990s. Assange believes that the Internet has led to revolutions across the world, but a crackdown is now in full swing. As whole societies move online, mass surveillance programs are being deployed globally. Our civilization has reached a crossroads. In one direction lies a future promoting “privacy for the weak and transparency for the powerful.” In the other is an Internet that transfers power over entire populations to an unaccountable complex of spy agencies and their trans-national corporate allies. |
 Warnings: Finding Cassandras to Stop CatastrophesR.A. Clarke and R. P. Eddy, 2017, 405 pp. HarperCollins Publishers 195 Broadway New York, NY 10007 Are there Cassandras among us warning of ticking disasters, whose predictions fall on deaf ears? The authors try to separate the accurate Cassandras from the crazy doomsayers. There were people who predicted the invasion of Kuwait, the Fukushima Nuclear Disaster, the rise of ISIS, the 2008 recession, and yes, Madoff’s Ponzi scheme. The authors present a Cassandra Coefficient: four components with twenty-four characteristics. The authors have an excellent chapter on Harry Markopolos and his warnings about Madoff’s Ponzi scheme (chapter 6). What is really interesting is his chapter on “The Engineer: The Internet of Everything” about Black Energy (a family of malware). The chapter relates this example about a city in the Ukraine and the state’s electric utility:
Someone had hacked into the control consoles in its operations room, then accessed the controls for thirty electric substations and thrown the breakers on your home’s electric power panel. The result was the same: the power went off. Neighborhoods served by the affected substations were plunged into darkness. It was only four-thirty in the afternoon, but the winter sun had just set, and the temperature was dropping fast. Some residents found their telephones in the dark and tried to call the power company. Few could get through. There have been cyber incidents in almost all of the industrial infrastructures; electric distribution system, transmission systems, hydro plants, fossil plants, nuclear, combustion-turbine plants, oil and gas pipelines, water and water treatment systems, manufacturing facilities, and transportation. These are worldwide, not just in the U.S. None of this is hypothetical. It has already occurred. |