Corruption? Foreclosure Fraud Investigators Forced Out at Pam Bondi’s Office

Asia Times Online :: South Asia news, business and economy from India and Pakistan

Dec 3, 2009
India’s forensic auditors join war on fraud
By Raja Murthy

MUMBAI – Even as India’s federal investigating agency last week stunningly doubled to US$3.02 billion the amount of money involved in the Satyam Computer Services scam exposed early this year, a tribe of forensic auditors is emerging to upgrade the country’s war against corporate crooks and book-keeping frauds.

“Forensic auditing work has seen growth of at least 100% in the post-Satyam era,” Mayur Joshi, a leading Indian forensic accountant, told Asia Times Online. “The nature of work involves investigating frauds committed by employees against their companies. Retail, telecom, insurance and banking sectors are the biggest sufferers.”

As forensic auditor, Joshi applies a more penetrating and skeptical approach to auditing than conventional methods. Forensic auditors follow the accountancy equivalent of presuming a suspect is guilty until proved innocent. The evidence they unearth can be presented in courts for prosecution.

These auditing sleuths are trained to probe for fraud, unlike conventional auditors at the likes of PricewaterhouseCoopers (PwC) who failed to spot, or ignored, the seven-year long Satyam scam when PwC was the outfits auditor. In early January, Satyam chairman and founder, Ramalinga Raju, shocked the Indian corporate world when he confessed to the fraud, initially put at $1.5 billion, at what was then one of the country’s top software companies.

This September, India took a big step against corporate crimes with regulator Reserve Bank of India (RBI) asking banks to include forensic auditing practices. A cleaner, transparent banking system is key to fighting accounting fraud and other white-collar crimes like money laundering.

RBI chief general manager PK Panda’s circular on September 16th, 2009, titled “Fraud Risk Management System in banks – Role of Chairmen / Chief Executive Officers”, urged banks to identify and train staff in forensic auditing to investigate “large value frauds” or scams involving more than 1 crore rupees (about US$200,000).

The Ministry of Corporate Affairs has also established the Serious Fraud Investigation Office (SFIO), which seeks the help of forensic auditors. The five-year old SFIO says it has filed 756 serious fraud cases for prosecution. Even so, it is not well placed to detect in it early stages a Satyam-sized fraud.

That’s where globally networked forensic auditors and their number skills can help expose frauds earlier and reduce the risk of governments facing multi-billion-dollar bailouts to fraud-wrecked companies while investors’ life savings vanish, jobs are lost and families ruined.

International standards are sought by many of those involved. Mayur Joshi, whose Pune-based Indiaforensic does work for US and well as Indian companies, was in 2006 the first Indian fraud investigator to receive the “Outstanding Achievement in Outreach/Community Service” from the United States-based Association of Certified Fraud Examiners (ACFE).

The 50,000-member ACFE, headquartered in Austin, Texas, calls itself the world’s largest anti-fraud organization and a leader in anti-fraud training. In the US alone, fraud cost companies an estimated $994 billion last year, according to the industry body.

“We have 555 members registered in India, and 2,857 in Asia overall,” says ACFE spokesman Scott Patterson. “We have an active ACFE – India Chapter based in New Delhi.”

Patterson told Asia Times Online that there is growing awareness in India about fighting fraud. “Several organizations from India signed up as supporters of our International Fraud Awareness Week” in November. Among them, former Satyam auditors PwC. The event included free fraud prevention seminars and other activities.

India is starting to get an idea of the mountain of corporate ***** that fraud cleaners face. Joshi said his firm discovered a staggering 1,200 stock exchange-listed companies indulging in crooked accounting practices. This study in 2008, he says, was done before the Satyam fraud was exposed.

“Companies need to do a lot more to tackle the fraud menace, as they face more threats within the company than from their competitors,” said Vinod Khurana, president of the Delhi-based Institute of Forensic Accounting & Investigative Audit (IFAIA).

The IFAIA will be conducting one-day workshops on corporate fraud in various Indian cities, including the financial capital, Mumbai, this month. Khurana, a practicing lawyer, revealed his firm has invariably found some type of accounting fraud in nearly every company they have investigated.

Another headache facing the authorities arises from government investigators of fraud themselves being arrested for fraud. On November 24, R Vasudevan, acting chairman of the Company Law Board (CLB), which arbitrates on fraud cases, was arrested in New Delhi at his official residence for accepting bribes worth $118,000. The CLB, a quasi-judicial governmental body, and Vasudevan were among various investigators probing the multi-billion dollar Satyam scam.

Such “jeewollockies” – or highly embarrassing official mishaps – don’t help a case where the full contours and complexity of the Satyam scam are still being mapped, nearly a year after it was unearthed. India’s top investigation agency, the Central Bureau of Investigation revealed last week that the scale of the fraud had crossed the $3 billion mark.

Another forensic auditor who directly investigated the Satyam scam revealed how in-house crooks had spun a meticulous, extensive web of deceit. “They made swift use of technology to create forged documents and developed software internally to avoid audit trails,” the accountant told Asia Times Online. “They had a team of highly qualified professionals perpetrating the fraud by considering every aspect of pros and cons of their fake accounts.”

Khurana of the IFAIA mentions in his paper “Frauds & White-Collar Crime” that “While in recent years frauds are growing in size and complexity, well-planned fraud is too complicated to be unearthed by any plain investigating agency.” Forensic auditing bodies such as the IFAIA and Indiaforensic say they are also training law enforcement officials in piercing accounts for scams. (click here for an edited interview with Khurana.)

Khurana splits accounting scams into two types: transaction and statement frauds. Statement frauds involve cheating investors and clients with fake profits, such as the $11 billion Enron, the $4 billion Worldcom and the $3 billion Satyam scams. Transaction frauds involve more direct theft and embezzlement of company funds.

Forensic auditor Joshi categorizes accounting frauds by unlisted and listed companies on the stock exchanges. “If a company is listed, then the fraud could inflate revenues for increased share prices. The second type of fraud is if the company is not listed on the stock markets; then it deflates revenues to avoid direct and indirect taxes.”

Is it possible to spot anything fishy about a company from its publicly available account statements.

“Yes,” said Joshi. “We have an entire chapter on early warning signs. For instance, if a company is showing increased profits for past 10 quarters but the cash flows are going down, then this is an indication of liquidity problems at the company. A second example could be salary differences. If the average industry salary for a position is 25,000 rupees, or US$538, per month and a ‘leader’ company in the same sector pays only 5,000 rupees for the same position, then there is something to worry about.”

Forensic accountants like Joshi are not a new species, with their earliest presence noted back to 1814, in an accountant’s advertising circular in Glasgow, Scotland. But they are finding increasing recognition in a frauds-ridden corporate landscape trying to regain investor trust. They also serve as a reminder of the truth that crime doesn’t pay, and that the truth can’t be hidden for long.

Hello all.

This is how scary it is in Florida. The only investigators in the entire state that were actually doing something to protect Florida homeowners are now gone…

We have been waiting for this story to break in the press before we discussed it. Now that it is out we will be providing more details on what went down here.

These women worked on these investigations intensely for over a year but shortly after Bondi came into office, they were fired…

More to come, but for now, from the Palm Beach Post…

Foreclosure fraud investigators forced out at attorney general’s office

By Kimberly Miller

A lead foreclosure fraud investigator for the state said she and a colleague were forced to resign from the Florida attorney general’s office, unexpectedly ending their nearly yearlong pursuit to hold law firms and banks accountable.

Former Assistant Attorney General Theresa Edwards and colleague June Clarkson had been investigating the state’s so-called “foreclosure mills,” uncovering evidence of legal malpractice that also implicated banks and loan serv­icers.

Despite positive performance evaluations, Edwards said the two were told during a meeting with their supervisor in late May to give up their jobs voluntarily or be let go. Edwards said no reason was given for the move.

“It all happened very abruptly,” said Edwards, who had worked in the attorney general’s office for about three years.

The foreclosure investigations were launched under former Attorney General Bill McCollum, but Edwards said she sensed changes were coming under Gov. Rick Scott and Attorney General Pam Bondi.

“I think they wanted to put people in there that were more in line with their thinking,” Edwards said.

Bondi’s press secretary said Tuesday that foreclosure investigations are still open and are being personally led or supervised by Division Director Richard Lawson.

“The division has made these investigations a top priority and will continue to actively pursue all of our investigations into foreclosure law firms,” said Jennifer Krell Davis.

But Edwards said she was given no time to brief anyone on the investigations and that there were notes that had yet to be transcribed and filed.

Davis said she could not comment on personnel issues when asked about the nature of the resignations.

On May 20, Edwards said she and Clarkson were summoned together to a meeting at 3:30 p.m. and told by Robert Julian, then the South Florida bureau chief for the Economic Crimes Section of the attorney general’s office, that they had the opportunity to resign or would be let go immediately. They turned in nearly identical resignation letters that day.

“We had absolutely no idea it was coming,” said Edwards, who in an April 22 performance review she provided to The Palm Beach Post was praised by Julian.

“During this interim period, Ms. Edwards has, along with another attorney, achieved what is believed to be the first settlement in the United States relating to law firm foreclosure mills,” the review says. “Her work has been instrumental in triggering a nationwide review of such practices.”

The Fort Lauderdale-based Law Offices of Marshall C. Watson agreed to pay $2 million in March to settle the attorney general’s investigation.

Clarkson, who is on vacation and could not be reached Tuesday, also received high marks from Julian on a performance evaluation in September, which was obtained through a public records request. She was given “above expectation” or “exceptional” rankings in 14 of 15 categories.

Edwards said Julian has since been placed in another position. A message left at his office Tuesday was not returned.

In sworn statements taken by Edwards and Clarkson as part of their investigation of the Law Offices of David J. Stern, former employees described conditions where signatures were regularly forged on foreclosure documents, paperwork was notarized by non-notaries, and flawed files were hidden from auditors of federal mortgage backers Fannie Mae and Freddie Mac.

Fannie and Freddie subsequently fired Stern’s Plantation-based firm, and would eventually stop sending business to two other South Florida firms facing state inquiry.

“I know those two ladies did a yeoman’s job, and it perplexed me when they left the office,” Josh Bleil, a partner in the Ticktin Law Group foreclosure defense firm, said about Edwards and Clarkson. “They were instrumental in creating the Power Point presentation that blew up everything.”

Bleil is referring to a 98-page report titled “Unfair, Deceptive and Unconscionable Acts in Foreclosure Cases,” which outlines instances of questionable signatures and notarizations, as well as foreclosures filed by entities that might not have had the legal ability to foreclose.

Julian notes in Edwards’ April performance review that the foreclosure investigation has faced criticism.

His opponents said McCollum was politically motivated when he issued subpoenas to three law firms in August before the Republican primary. McCollum, who now works for the SNR Denton law firm in Washington, could not be reached Tuesday.

You can check out the rest here…

And be sure to comment on the original article here…

Their “Unfair, Deceptive and Unconscionable Acts in Foreclosure Cases” presentation below…



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