Disclosures Jan/Feb 2013 by The Warren Group

BROUGHT TO YOU BY THE VIRGINIA SOCIETY OF CPAs

An eye on enforcement

JANUARY/FEBRUARY 2013 I VOL. 26 NO. 1 I WWW.VSCPA.COM

Inside the mind of the white collar criminal

FRAUD

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In this together: The profession and higher education

Save the date

The Leaders’ Institute May 31 & June 1, 2013, at The Mason Inn on the campus of George Mason University

Sponsorship Opportunities Join Founding Sponsor Baker Tilly at the 2013 Leaders’ Institute and gain access to Virginia’s top accounting students All sponsorships include: • Recognition on the Virginia Society of CPAs (VSCPA) website (www.vscpa.com) and promotion via VSCPA social media (www.vscpa.com/socialmedia) • A listing in one issue of Disclosures, the VSCPA’s bimonthly magazine (circulation 11,000+) • The opportunity to distribute your firm or company’s promotional items • A link to The Leaders’ Institute sponsor list in VSCPA e-newsletters, distributed to more than 11,000 VSCPA members … more than 1,000 of whom are student members! • Your information/logo listed in The Leaders’ Institute marketing materials, handouts and event signage

For more information on sponsorship options and to become a Leaders’ Institute sponsor, contact: Molly Wash Virginia Society of CPAs, 4309 Cox Road Glen Allen, VA 23060 Phone: (804) 612-9417 Fax: (804) 273-1741 Email: mwash@vscpa.com

INSIDE this issue

More than two years after Bernie Madoff ’s fraud was uncovered, the U.S. Securities and Exchange Commission and other enforcement agencies are cracking down on financial fraud. On page 14, check out the current state of enforcement actions, from attacking insider trading within the hedge fund industry to uncovering oversees malfeasance. And on page 18, learn how you, too, can identify white collar criminals.

FEATURES

ARTICLES

AN EYE ON ENFORCEMENT 14

MAP SURVEY

Almost five years after the financial crisis, the U.S. Securities and Exchange Commission has received more than $2.2 billion in penalties and other monetary relief associated with crisis-related misconduct. Now, enforcement agencies are turning their attention to other areas of concern.

Virginia catches up on employee benefits.

INSIDE THE MIND OF THE WHITE COLLAR CRIMINAL

The beginning of the end to a fraudster’s crime often starts with a hunch that something is not quite right. CPAs can put their instincts to good use when sniffing out financial fraud, and there are red flags that can help.

SECTIONS 10

CLIENT PROCRASTINATION 12 Auto-retrieval technology can help.

BACKTALK

LINE ITEMS

DATA DRAFT

CPA IMAGE

SELF-ASSESSMENT 28

ADVERTISERS INDEX Audimation Services Inc. p. 20 • Beth A. Berk, CPA p. 3 • Geico p. 9 • Keiter back cover • Poe Group Advisors inside back cover

VSCPA NEWS

MEMBER NEWS

VSCPA EDUCATIONAL FOUNDATION 34 CLASSIFIEDS 35 I AM

IN THIS TOGETHER: THE PROFESSION AND HIGHER EDUCATION

In 2012, the Pathways Commission on Accounting Higher Education released its report on challenges facing the future of accounting higher education. But educators are only part of the solution. DISCLOSURES

disclosures is published bimonthly for members of the Virginia Society of CPAs.

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Our mission is to enhance the success of CPAs.

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BACKTALK you said it

VIRGINIA SOCIETY OF CPAs

4309 Cox Road Glen Allen, VA 23060 Ph. (800) 733-8272 Fx. (804) 273-1741 www.vscpa.com

disclosures http://disclosures.vscpa.com EDITORIAL STAFF Jill Edmonds Managing Editor disclosures@vscpa.com Chip Knighton Contributing Editor cknighton@vscpa.com Jenny Hansen Communications & Marketing Director jhansen@vscpa.com

VIA EMAIL >>

KUDOS ON COMMUNICATIONS From my perspective, when I look at what you all are doing at the Society I am amazed at how you are using social media to communicate with your members and am very impressed with the conferences and subject matter that you report. Further, I eagerly read your tweets and click through the relevant links. It’s quite impressive and a great resource to me personally. I will proactively share my feelings with other members when attending society events but felt that you might appreciate the feedback. You guys are doing a great job and I notice it and thank you for it! Keep up the great work. GEORGE D. FORSYTHE, CPA Wells, Coleman & Company, LLP, Richmond

EDITORIAL TASK FORCE Joan D. Aaron, CPA Lindsay S. Andrews, CPA Adam G. Chaikin, CPA David L. Cotton, CPA Gary D. Dittmer, CPA Elizabeth M. Helle, CPA Clare K. Levison, CPA George D. Strudgeon, CPA Thomas L. Visotsky, CPA DEADLINES Articles and advertising for future issues are due by 5 p.m. on the following dates: May/June 2013 July/Aug. 2013 Sept./Oct. 2013 Nov./Dec. 2013 Jan./Feb. 2014

Feb. 15, 2013 Apr. 15, 2013 June 15, 2013 Aug. 15, 2013 Oct. 15, 2013

FROM THE VSCPA FACEBOOK PAGE >> A HUGE thank you to the staff at Baker Tilly! Yesterday, they raised over $2,600 for the VSCPA Educational Foundation. Contributions help provide accounting scholarships for deserving Virginia students and ensure the Foundation will continue inspiring and supporting future CPAs for years to come. FROM THE VSCPA FACEBOOK PAGE >> While most of Strickland & Jones P.C. associates volunteered indoors during the VSCPA Day of Service, a few spent part of the afternoon cleaning the Norfolk Hague.

Looking forward to my presentation on leadership for the VSCPA. They exercise leadership every day. — @ERNIEALMONTE @TerryNewberry and I have returned from the VSCPA’s A&A conference with lots of relevant information for our clients & staff — @BECKYTRES Proud to represent Va. CPAs — VSCPA members Elsie Rose, Jamie Walker and I visited with Senators John Watkins, Frank Ruff & Bryce Reeves — @MAUREENDINGUS

BLOG: www.cpacafe.com CONNECT: http://connect.vscpa.com TWITTER: @VSCPANews, @FinancialFit LINKEDIN: http://tinyurl.com/VSCPALinkedInGroup

The Warren Group Design / Production / Advertising www.thewarrengroup.com custompubs@thewarrengroup.com

FACEBOOK: www.facebook.com/VSCPA

Get in touch

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TWITTERSPHERE >>

BOB MISLAND, Strickland & Jones, PC, Norfolk

Statements of fact and opinion are made by the authors alone and do not imply an opinion on the part of the officers, members or editorial staff.

From the

At the Virginia Society of CPAs, we love to hear from you. Whether it’s a quick email to a staff member, chat on the phone, Disclosures letter to the editor, tweet, blog comment or something different altogether, let us know what you’re talking about, how you feel about different issues affecting CPAs and how we can help.

Attention CPAs:

Whether A Decision Maker Looking To Upgrade Your Talent, Or A CPA Looking to Upgrade Yourself/Your Skills, Ask Yourself: Who really chose who in joining your company? Are you/your professional staff really at the right level where you should be/you need them to be? Are you/your staff in a position that truly suits your/their personality, values, and professional and personal needs?

Why leave your future to chance? If you’re seriously interested in making the “right” move for your next hire, I can help you. I am an actively licensed CPA in Maryland and Virginia with over 20 years of experience including public accounting (E&Y) and consulting (KPMG), financial accounting (American Cancer Society), internal audit (Moneyline Telerate), and recruiting (Acsys, formerly Don Richards). As a networker who truly enjoys helping others and sharing my career experiences to guide fellow professionals, here is how I can help you: Decision Makers:  Ask you questions, and most likely ask many more questions than other recruiters about your company, duties involved, skills required, corporate culture and more  Work with you on finding the “right” professional that is the “right fit”  Provide you with valuable information about the professionals I work with, the marketplace, what your competitors pay, and more Career Seekers:  Guide you on career paths available in public accounting and industry  Enable you to capitalize on your strengths  Coach you on how to put your best foot forward to find the “right fit”  Advise you when to stay in your current position if that is the right move If you’re interested in working with a recruiter who understands your background, skills, and is genuinely interested in helping you find the “right fit”, then I welcome meeting you!

BETH A. BERK, CPA, CGMA Independent Recruiter

Phone: 301-767-0670 Email: BethABerk@msn.com

Specializing in CPA Firm, Accounting & Finance Positions in Metropolitan DC & Nearby Suburbs/Baltimore/Richmond/Tidewater

Connecting You To Your Next Hire

Contingency & Retained Staffing Solutions

matching skills, experience & values with needs

CPA Ambassador for the state of Maryland, sponsored by the AICPA and Ethics Instructor for VSCPA

Serving clients and professionals as an Independent Recruiter since March 2005

LINE items VSCPA LEGISLATIVE AGENDA >>

Advocacy efforts move forward in 2013 In the next year, VSCPA leaders and staff will be refining the Society’s advocacy philosophy as part of the new 2012–2015 strategy focusing on government affairs.

• Support financial literacy education, including the mandatory one-credit course graduation requirement in Virginia high schools.

That strategy aims to achieve the VSCPA’s legislative and regulatory agenda by strengthening the Society’s influence, engaging more members and developing strategic relationships. In 2013, leaders and staff will focus on the same hot topics that affected Virginia CPAs and their clients in 2012:

• Support the continued independence and expertise of the Virginia Board of Accountancy.

• Advocate for automatic conformity of Virginia’s tax code with the U.S. Internal Revenue Code.

• Support and promote practice mobility among all states.

• Advocate for CPAs on state legislative and regulatory matters, including but not limited to promoting sound tax policy, preventing duplicative licensure requirements and protecting the important services CPAs offer.

For more information on these agenda items, or if you see something in session you think the VSCPA should address, contact VSCPA Government Affairs Director Emily Walker at (804) 612-9428 or ewalker@vscpa.com. n

NEW COLUMN!

ASK THE ETHICS COMMITTEE

Question: When would a CPA have a reportable condition if the citizens of a locality elected a constitutional officer to the position of treasurer who does not possess the suitable skill, knowledge and/or experience to oversee the financial operations of their locality or any non-audit services performed by the CPA? The CPA would also perform the locality’s annual audit. VSCPA Ethics Committee Chair Morgan Aronson, CPA, responds: When you see the term “non-audit services” or “nonattest services” in an ethical question, the first word that should come to mind is “independence.” Before a CPA (“member”) performs any non-audit service for an audit client, the member should consult the AICPA Code of Professional Conduct Rule 101 —

• Advocate for CPAs on federal legislative and regulatory issues, including but not limited to tax preparer registration, tax strategy patents and private company financial reporting.

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Independence, Interpretation No. 101-3 — Nonattest Services. One general requirement for performing nonattest services is that the member should determine that the client designated an individual, preferably within senior management, who possesses suitable skill, knowledge and/or experience, to oversee the services provided by the member. Given our scenario, if the treasurer refuses to designate an individual with the necessary skill, knowledge and/or experience, the CPA’s independence would be impaired if he/she provides nonattest services. As an employee of a government agency, I’ve met and worked with political appointees who do not possess suitable skills, knowledge and experience to oversee financial operations and the services provided by contracted CPAs. Then, government

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agencies hire individuals like me, with a business degree, CPA license and accounting and auditing experience, to oversee the organization’s financial operations and services provided by contracted CPAs. One final note: Interpretation No. 101-3 is an invaluable resource as it describes other requirements that a member must consider before performing attest services, as well as the effect that performance of certain specific nonattest services for an attest client can have on a member’s independence. It can be located at http://tinyurl.com/ cz2ht3c. DO YOU HAVE A QUESTION FOR THE ETHICS COMMITTEE? EMAIL DISCLOSURES@VSCPA.COM AND PUT “ETHICS QUESTION” IN THE SUBJECT LINE.

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LINE items MOBILITY UPDATE >>

VSCPA ADVOCACY >>

Making the case for CPA issues Throughout the year, VSCPA leaders, staff, task force members and other volunteers consistently monitor hot-bed issues affecting Virginia CPAs. Sometimes, the VSCPA issues an official statement or letter. In the past few months, the Society has advocated for members on the following issues: >> MOBILE WORKFORCE ACT: In November, the VSCPA

urged U.S. House Majority Leader Eric Cantor (R-Va.) to address the Mobile Workforce State Income Tax Simplification Act of 2011, which would enhance compliance with state personal income tax laws and simplify burdens placed on employees who travel to other states for work. >> PRIVATE COMPANY GAAP: At the end of October, the

VSCPA Accounting & Auditing (A&A) Advisory Committee submitted a comment letter to the Financial Accounting Standards Board (FASB) on which criteria and circumstances should be used to determine when to modify U.S. Generally Accepted Accounting Principles (GAAP) requirements for private companies. >> LIQUIDITY RISK DISCLOSURES: Also in the October,

the VSCPA A&A Advisory Committee sent a comment letter to FASB expressing significant concerns on its proposed Accounting Standards Update on disclosures about liquidity and interest rate risk. The Committee asked FASB to perform a cost-benefit analysis before requiring the proposed disclosures. >> NONPROFIT PERSONNEL SERVICES: In September, the

VSCPA supported FASB’s efforts to update guidance on how nonprofits recognize and measure personnel services received from an affiliate.

Hooray for 50! After a process that has spanned seven years, the effort to get all accountancy jurisdictions to enact mobility provisions finally hit the 50 milestone. California and Washington, DC, became the 49th and 50th jurisdictions to join the group. DC’s statute went into effect Oct. 1, 2011, and the California statute will become effective on July 1. The remaining jurisdictions are Hawaii, Guam, Puerto Rico, the U.S. Virgin Islands and the Commonwealth of the Northern Mariana Islands. In 2012, Puerto Rico enacted substantial equivalency legislation. n

>> EXCELLENT EXCEL

GAIN PRODUCTIVITY WITH ‘PRECISION AS DISPLAYED’

Tired of chasing very small differences between your countless schedules? Try Excel’s “Precision as Displayed” function. Your differences are caused by Excel holding and adding more numbers than what you see on the screen. This means that if you take $1.25+$1.25=$2.50 and decrease the decimal for that great report for your boss, it will look like: $1+$1=$3 — and you will be looking for a new job. To make your report look right, go into Excel Options, Advanced, and under “When calculating this workbook,” check “Set precision as displayed.” That will make 1+1 equal 2, and you can keep your job. However, using this function comes with a big warning: You will never get back the cents you lopped off and any ratios or other calculations in the entire workbook will also lose their precision. That’s why you may only want to use it in those cases in which you end up wasting time looking for very small, but important, differences that can make you look like a non-CPA. Next time, I will cover VLOOKUP.

All of the VSCPA’s comment letters are available at www.vscpa.com in the “Advocacy” section.

GEORGE D. STRUDGEON, CPA, is an audit director at the Virginia Auditor of Public Accounts in Richmond. He is a member of the VSCPA Editorial Task Force. Have Excel questions you want him to cover? Email him at george.strudgeon@gmail.com.

Are you interested in helping craft Society positions or helping out in another way, such as developing conference agendas? Volunteer enrollment is open now at www.vscpa.com/ Volunteer! n

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DATA draft

Social Security and the truth about poverty 21.4 million. That’s the number of people who would be reduced into poverty without Social Security benefits, according to the Center on Budget and Policy Priorities, which evaluated the latest available U.S. Census data, from 2011. The analysis discovered that while most of those kept out of poverty are elderly, nearly a third are under age 65, including 1.1 million children. Statistics for Virginia show that, without Social Security benefits, 37.8 percent of the Commonwealth’s elderly would be classified as poor. That percentage is reduced to 9.5 percent when benefits are calculated — effectively lifting 270,000 Virginians out from under the poverty line. n

Tax credits ripe for fraud From 2006 through 2009, the U.S. Internal Revenue Service (IRS) gave out $2.3 billion in erroneous refundable tax credits. By the end of 2011, around $1.3 billion had been recovered. Particularly vulnerable to fraud are the Earned Income Tax Credit, Additional Child Tax Credit and the First-Time Homebuyer Credit. Other tidbits on refundable credits, as discovered by the Treasury Inspector General for Tax Administration (TIGTA), are: >> The majority of funds, about 70 percent, are recovered via withholding taxpayers’ future refunds. >> On average, it took the IRS 49 weeks from the time of the initial refund to review and disallow the refundable credit. An additional 27 weeks was spent on average for collection. >> TIGTA contends that expanding controls over these credits can help reduce issues. For example, the IRS would have prevented more than $108 million in erroneous Additional Child Tax Credit claims if they had reviewed claims made by taxpayers who were previously disallowed the credit. n Source: “Expansion of Controls Over Refundable Credits Could Help Reduce the Billions of Dollars of Improperly Paid Claims,” Treasury Inspector General for Tax Administration

TOPS FOR TOURISTS According to a report prepared for the Virginia Tourism Corporation by the U.S. Travel Association, the top five most visited counties and/or cities in Virginia, based on tourism-related revenue, are:

1. 2. 3. 4. 5.

Arlington County: $2.7 billion Fairfax County: $2.6 billion Loudoun County: $1.5 billion Virginia Beach City: $1.2 billion Henrico County: $712.9 million

HOW VIRGINIA TAXES COMPARE >>

BY THE NUMBERS

912 The number of juveniles held in Virginia juvenile correction facilities in 2012

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Virginia ranked 27th in State Business Tax Climate Index Each year the Tax Foundation compares and contrasts the tax climates in each state, and Virginia continues to fare in the middle, dropping only one spot from last year. The rankings denote whether a state is more favorable for business. The absence of a major tax, such as corporate or individual, is a major factor for the states that made the top of the list. States No. 1 through No. 5 are: Wyoming, South Dakota, Nevada, Alaska and Florida. Virginia’s individual tax rankings are: sixth in corporate tax, 38th in individual income tax, sixth in sales tax, 38th in unemployment insurance tax and 27th in property tax. n

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Introducing...

C nnect

Our new, interactive member directory makes it easy to  Add your picture  Use LinkedIn® to update your profile  Add contacts  View accounting jobs  Access members-only resources  Create industry-specific discussions  View event attendees  And more!

Complete your profile at connect.vscpa.com.

CPA image CPA DAY OF SERVICE >>

The accounting community gives back

Volunteers from Homes, Lowry, Horn & Johnson removed invasive plants at Nottoway Park in Vienna.

Hundreds of CPAs and volunteers took Sept. 21 off to serve others across the Commonwealth. As part of CPA Day of Service, CPA firms and individual CPAs across Virginia united together for volunteer activities of their choice. Hosted by the VSCPA, this single day of volunteer service represents the CPA profession’s ongoing commitment to serving the communities where its professionals live and work. Approximately 700 people volunteer statewide each year and work at locations encompassing a variety of organizations, including both indoor and outdoor projects. Some organizations with CPA volunteers include Honor Flights, Central Virginia Food Bank, BARK, James River Park System, The Arc and many more.

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“Often, certified public accountants are pigeonholed as the treasurer of an organization,” said Jamie Walker, CPA, of WalkerChaney, CPAs, in Glen Allen. “But they have so much depth and breadth about them; they have so much more to offer.” “It is very important as individuals and citizens to give back and for the CPA community to step out of what they would normally do,” he added. Led by VSCPA member Dawn Jessee, CPA, the Richmond chapter of the American Society of Women Accountants (ASWA) volunteered at the Sophie House, which supports single women and single mothers who are in life transition. “While not all members are CPAs, we welcome the opportunity that the CPA Day of Service offers to add one

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CPA image more beneficent activity to our roster,” Jessee said. And VSCPA members’ charitable endeavors aren’t limited to CPA Day of Service. “In addition to participating in the Day of Service each year, we collect presents for the girls at the Jackson Feild Home every Christmas,” Jessee said. “In the past, we’ve helped Caritas by donating and serving food. We also maintain two scholarship funds for deserving accounting students.” To spotlight the value CPAs offer the Commonwealth’s citizens and commerce, Virginia Gov. Bob McDonnell signed a proclamation recognizing Sept. 16–22, 2012, as Virginia CPA Week. The VSCPA hopes the commemorative week, along with the CPA Day of Service, builds awareness of the significant growth and importance of the CPA profession and the VSCPA, which now serves more than 10,000 members. CPAs are trusted advisors to businesses, organizations and

Members of the VSCPA’s Thomas Jefferson Chapter put together packets for child care providers in Charlottesville.

individuals, helping them make sound financial decisions, and this week highlights the CPA profession’s important contributions to Virginia citizens and communities. n

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MAP survey

MAP results are in: Virginia catches up on employee benefits Virginia firms lagged behind the national average in gross fees earned but made up some of the difference with judicious spending, according to the results of the 2012 PCPS/TSCPA National Management of an Accounting Practice (MAP) Survey. The biennial survey, conducted by the American Institute of CPAs (AICPA) Private Companies Practice Section (PCPS) and the Texas Society of CPAs (TSCPA), benchmarks accounting firm management policies for firms of all sizes, including sole practitioners.

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The survey drew 2,362 respondents, including 45 from Virginia. Nine large firms, 11 medium firms and 25 small firms made up the Virginia participants. Virginia firms reported an average of $1,309,071 in gross fees, compared to $2,121,362 nationwide. Virginia firms

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MAP survey

also spent significantly less than national firms ($746,107 in the Commonwealth, $1,169,579 nationwide).

VIRGINIA BENEFITS CATCH UP Virginia firms were nearly 10 percent less likely than the national average to provide health insurance in 2010, but the Commonwealth has closed the gap and then some. Both the national and Virginia averages indicate that two-thirds of accounting firms provide health insurance for their employees, with Virginia firms slightly more likely to do so (67 percent vs. 66 percent). Virginia firms are also more likely to pay for: >> CPE fees (82 percent vs. 79 percent) >> CPA Exam fees (36 percent vs. 32 percent) >> Dental insurance (31 percent vs. 27 percent) >> Life insurance (42 percent vs. 40 percent) >> Professional dues (82 percent vs. 76 percent) >> Professional licenses (82 percent vs. 73 percent) Virginia firms were 6 percent less likely than the national average (18 percent vs. 24 percent) to provide health insurance for employees’ dependents. But firms in the Commonwealth provided 2.6 more vacation days and one more sick day than the national average.

INSIDE THE BUSINESS Respondents from Virginia and across the country made the bulk of client fees from tax. Total tax (individual and other) made up 56.7 percent of Virginia firms’ net client fees and 53.4 percent for national firms. The other major components were write-up (12.2 percent in Virginia), total audit (8.2 percent), compilation/review (7.3 percent) and consulting (6.3 percent).

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PLANNING FOR THE FUTURE Virginia firms appear to be behind the curve on

SERVICE

VIRGINIA AVERAGE

NATIONAL AVERAGE

Write-up

12.2 percent

11 percent

Total audit

8.2 percent

10.7 percent

Compilation/review

7.3 percent

9.8 percent

Consulting

6.3 percent

6 percent

succession planning, with just 9 percent of respondents indicating they have a succession plan in place. The national average was 14 percent. Virginia firms also lagged behind the national average on written firm partnership agreements, partner compensation formulas and malpractice insurance policies (although they carried a higher malpractice insurance limit).

TECH TRENDS According to the survey, two-thirds of Virginia firms have an active/maintained website, compared to the national average of 71 percent. Every large firm in Virginia responded that they had a website, but just 64 percent of medium-sized firms and 56 percent of small firms gave the same response. Compared to their national counterparts, Virginia firms were more likely to have a blog (11 percent vs. 8 percent), use social media (31 percent vs. 25 percent) and maintain a paperless work environment (64 percent vs. 61 percent). At 42 percent, Virginia firms were significantly more likely than the national average of 29 percent to use cloud-based software. Visit www.vscpa.com/2012VirginiaMAPResults for a complete breakdown of the Virginia survey and www. tinyurl.com/2012NationalMAPResults for the national results. n

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CLIENT management

Solve the biggest 1040 tax prep challenge: Client procrastination BY ED JENNINGS

Automatic-retrieval technology can eradicate the issue of receiving source documents late in the busy tax season. For years, tax professionals have dealt with a recurring issue during busy season: getting client source documents in a timely manner. You know the drill all too well. Tax organizers are sent to clients at year end, usually in November or December. The information comes back in drips. You start client follow-up calls in March to request forms, and then call again in April for outstanding source documents. It’s a frustrating and time-consuming process, and has proven to be a major challenge for firms. In 2010, 850 American Institute of CPAs (AICPA) members responded to an annual tax survey that asked them, “What were the top three bottlenecks in your overall process to prepare and file returns this tax season?” A majority, 73 percent, answered, “Waiting for clients to send documents.” The second most popular answer, at 45 percent, was, “Processing late additions of client tax docs.” It’s clear that document collection is a key issue for the profession. Not only does it slow the tax prep process and hinder efficiency, it ties up resources, which directly impacts a firm’s bottom line. The time spent calling and emailing clients to chase down documents adds up quickly. Requesting information sooner, enforcing deadlines and sending out reminders all require additional follow-up action, and that

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means more time and more money. Hiring a full-time seasonal staff member can also hit a firm’s bottom line hard.

PORTALS ARE PART OF THE SOLUTION Everyone has heard the buzz around portals over the last several years. It’s the way the profession is moving; there’s no denying it. And it’s about time. Portals provide clients with the convenience of real-time access to documents and solve the issue of having to email, fax and deliver paper files. The fact is that more and more documents are being provided in digital format, including tax returns; financial, bank and brokerage statements; loan agreements; engagement letters; and more. Portals provide a conduit to move these documents conveniently between the firm and their clients. Portals represent the level of service that today’s clients expect. Clients are busy running their businesses, leaving little time to deal with administrative tasks. The convenience of web-based accounting services is a must, offering a way to communicate with their trust advisor quickly and efficiently. Portals are fast becoming a necessity. The 2010 AICPA tax survey further supports

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this stance, with 21 percent of survey respondents indicating they use portals to support basic file exchange. However, while portals facilitate electronic document exchange and delivery, the technology does not solve the issue of client procrastination with document delivery. Nor do portals alone help with tracking and gathering critical forms such as 1099’s, corrected 1099’s, W-2’s, K-1’s, mortgage statements and more. Portals are only part of the answer.

THE NEXT STEP: AUTOMATIC DOCUMENT RETRIEVAL In simplest terms, auto-retrieval technology provides a secure web interface (portal) where clients can connect with leading financial institutions and brokerage houses to set up automatic retrieval of source documents. This technology is intuitive and requires minimal setup time, making it convenient for the firm and clients. Tax preparers simply direct clients to a password-protected, individually customized interface where the client enters log-in credentials to each of their online accounts. As they become available, autoretrieval technology retrieves posted 1099 consolidated brokerage statements and other forms and delivers them directly to the firm for processing. Automating document retrieval is not a new concept. There are vendors that have supported this process for years, just not for the tax and accounting profession

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CLIENT management specifically. However, advanced automatic document retrieval technology is now available for tax practitioners. This advanced technology makes it easy for firms to collect client source documents in a timely manner and, because it’s a “set it and forget it” process, it places control of the tax preparation processing the hands of the tax professional — where it belongs.

clients with access to the client’s individual portal to set up automation of documents with financial institutions (portal accessed via the firm’s website for ultimate convenience for clients). >> STEP 3: Through a secure portal, the client adds financial institutions for automatic document retrieval. This is a one-time process so the convenience and time savings are even greater in future years.

Consider the value auto-retrieval technology offers:

>> STEP 4: Client documents are automatically retrieved as they become available and flow back to the tax professional’s dashboard for immediate processing. Those same documents are also then available to your client saving time and the hassle of dealing with paper forms.

• Experience significant time savings — you receive tax source documents months earlier in the tax season, without nagging your clients with multiple reminders. • Enjoy cost savings by eliminating manual faxing and mailing, as well as the cost of postage. • Provide clients with a far more secure vehicle for document delivery than email through portals. • Save clients from the hassle of manual document delivery. • Receive a variety of client documents in digital format, including 1099’s (original and corrected), W-2’s, K-1’s, mortgage statements and more.

HOW AUTO-RETRIEVAL WORKS One of the biggest value propositions autoretrieval technology offers is simplicity. From initial setup to document processing, little time investment is required by firm staff or the client. Consider each step of the process: >> STEP 1: Accountants manage clients and the return submission process within the system’s dashboard. >> STEP 2: Accountants provide

And that’s it. With today’s advanced technology, the process is simple. And the outcome is a completely paperless tax preparation process that allows practitioners — not clients — to drive the process. This translates into significant increases in efficiency and the ability to standardize and digitize the entire tax prep process. It’s important to note that through automatic-retrieval technology, tax professionals NEVER have exposure or access to the client’s log-in credentials. The system provides limited retrieval of documents only. Also, practitioners CANNOT manipulate account details or move account funds.

functionality. The popularity of this technology will most assuredly grow over the next few years. In fact, according to the 2010 AICPA tax survey, nearly 80 percent of respondents indicated that automatic retrieval technology would be “somewhat to very valuable” to their firm. Additionally, when asked to estimate a percentage of their clients who would take advantage of autoretrieval immediately, the most common answer among survey participants was 25–30 percent. These statistics are exciting, as they indicate a high level of engagement and interest from tax practitioners right out of the gate. At the end of the day, the biggest benefit is realized by eliminating a key pain point for tax professionals — client procrastination. Firms no longer need to wait for clients to deliver source documents, which bottlenecks the entire process. Auto-retrieval technology even handles corrected forms, notifying clients when they are available. It also puts required source documents in the hands of preparers months earlier in the season, allowing firms to keep tax return preparation on track and ultimately promising a much smoother busy season. What tax professional wouldn’t appreciate getting client documents 4–6 weeks earlier … and getting them electronically? That’s what today’s auto-retrieval technology can do for firms. Pain point eradicated! n

ED JENNINGS is the former

AUTO-RETRIEVAL TECHNOLOGY IS GAINING MOMENTUM Auto-retrieval technology takes the paperless tax preparation process to the next level. It also enhances the lure of portals — offering more than simple document exchange

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president and CEO of Copanion, where he was an expert in the areas of tax document automation, scanning, data security and the paperless tax workflow. He has been featured as a content expert in several accounting trade publications and in USA Today.

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FRAUD

An Eye on Enforcement After Madoff, where are we now? BY BETH HELLE, CPA

There’s no rest for the weary in the world of financial fraud. Almost five years after the financial crisis, the U.S. Securities and Exchange Commission (SEC) has received more than $2.2 billion in penalties and other monetary relief associated with the misconduct that led to or arose from the financial crisis.

Since 2010, more than two years after Bernie Madoff ’s sons revealed to authorities their father’s multi-billion dollar Ponzi scheme, the SEC has brought more than 100 additional Ponzi scheme enforcement actions against other entities and individuals. As the financial crisis and Bernie Madoff are written into the financial history books, the SEC and other enforcement agencies such as the U.S. Department of Justice (DOJ), the Public Company Accounting Oversight Board (PCAOB) and the U.S. Federal Bureau of Investigations (FBI) have focused on new types of investigations aimed at protecting investors.

AN EXPERT IN BREAKING THE LAW Since the days of Martha Stewart, insider trading has established new roots in the sometimes elusive hedge fund industry. The FBI launched Operation Perfect Hedge five years ago in an effort to target insider trading within the hedge fund industry. By using wiretaps, informants and cooperating witnesses, the FBI, along with other government agencies such as the SEC, have convicted nearly 70 individuals of insider trading. Those statistics are just the beginning. According to the FBI, insider trading cases have increased by 40 percent in just the past year.

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FRAUD

The most recent phase of Operation Perfect Hedge focuses on what are commonly referred to as “expert network” firms, which connect potential investors, usually hedge funds, with industry experts. These expert networks allow investors to gain insight on potential investment opportunities within a certain industry or business. While it is perfectly legal to obtain expert analysis and information through expert networks, it is illegal to trade on material nonpublic information. A problem arises when expert networks purport to provide industry analysis and instead disseminate non-public material to their clients. The SEC, along with the FBI and DOJ, continue to focus on expert networks that illegally provide confidential performance information and other non-public material to hedge funds and other investors. According to the SEC, at least 23 individuals were charged with insider trading through the use of expert networks during 2012. The SEC’s investigation identified widespread insider trading at several hedge funds and investment advisory firms, resulting in the discovery of more than $117 million in illicit gains. Recently, the SEC charged Tai Nguyen, founder of the equity research firm Insight Research, with insider trading.

The SEC alleges that Nguyen received inside information about the revenues and earnings of Abaxis, Inc. from a close relative who worked directly for the CFO. According to the SEC, prior to Abaxis’s public quarterly earnings announcements, Nguyen would telephone his relative to receive the earnings information. The SEC alleges that within hours of contacting his relative, Nguyen used the inside information to make illegal trades.

The FCPA poses a risk for almost every entity doing business overseas. FCPA violations not only come with pricey fines, but the potential for reputational damage, jail time for employees and shareholder lawsuits.

According to the SEC’s complaint, Nguyen didn’t just use the inside information to benefit himself. The SEC also contends that Nguyen provided the inside information to his expert network firm’s hedge fund clients, Barai Capital Management and Sonar Capital. According to the SEC, in exchange, Barai and Sonar paid Nguyen tens of thousands of dollars each month for “expert” advice; however, this “expert” advice included phone calls and text messages containing the inside earnings information Nguyen received from his relative at Abaxis. The SEC alleges that Barai and Sonar used Nguyen’s insider tips to make illicit earnings of $7.2 million.

BRIBING FOR BUSINESS With a greater emphasis on international business, many companies are finding themselves subject to the Foreign Corrupt Practices Act (FCPA).

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The anti-bribery provision of the FCPA generally prohibits entities from bribing foreign officials in any part of the world. Bribery under the statute includes any payment of anything of value to a foreign official, foreign political party or candidate for public office with the intent of obtaining or retaining business. Companies and their agents, including officers, directors, employees, stockholders and consultants are all subject to the FCPA. The statute does include an exception to the antibribery provision when a facilitating or expediting payment is made to a foreign official with the intention of securing routine governmental action. In addition to the anti-bribery provision, the FCPA’s books and records provision requires that publicly traded companies maintain accurate and fair accounting records. The internal controls provision requires issuers to maintain a system of internal controls which provides reasonable assurance that FCPA violations are prevented and detected. The SEC and the DOJ are jointly responsible for enforcing the FCPA. The SEC is responsible for bringing 

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FRAUD civil enforcement actions against issuers and their directors, officers and other agents. The DOJ is responsible for criminally prosecuting all violators of the FCPA and bringing civil enforcement actions against nonissuers. Recent FCPA penalties by both the SEC and the DOJ have been severe, including the claw-back of profits earned through the use of illegal bribes, criminal fines and imprisonment, and mandatory independent compliance monitoring. Within the last year, FCPA violations have included bribing foreign government doctors to use certain medical devices and bribing customs officials to obtain permits for oil rigs to name a few. Pfizer and its subsidiary Wyeth recently reached a settlement with the SEC and the DOJ for alleged FCPA violations in Bulgaria, China, Croatia, the Czech Republic, Italy, Kazakhstan, Russia and Serbia. According to allegations by the SEC, Pfizer and Wyeth bribed foreign government doctors and other health care professionals with the intent of obtaining regulatory and formulary approvals to increase the sales of its pharmaceutical products. The SEC alleged that Pfizer attempted to conceal the illegal bribes in the company’s accounting records by recording the transactions as legitimate expenses for promotional activities, marketing, training, travel and entertainment, clinical trials, freight, conferences and advertising. According to Kara Brockmeyer, chief of the SEC Enforcement Division’s FCPA Unit, bribery was so entwined in Pfizer’s sales culture that bonus programs were established to reward

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employees who bribed foreign officials. In an effort to reduce fines and penalties, many companies facing FCPA violations are voluntarily disclosing such violations to the SEC and the DOJ. Additionally, companies are spending millions of dollars on exhaustive internal investigations into the allegations of bribery, usually hiring outside counsel and forensic accountants. By engaging independent third parties to perform investigations, violators are showing regulators that they take the allegations seriously and they are taking the appropriate steps to remediate the situation.

Companies are spending millions of dollars on exhaustive internal investigations into the bribery allegations, usually hiring outside counsel and forensic accountants. According to the DOJ, Pfizer implemented this proactive strategy by making a voluntary disclosure of the FCPA violations and fully cooperating with investigators. Additionally, Pfizer performed an extensive worldwide review of its FCPA compliance program. All of these actions likely led Pfizer to a more favorable settlement with the SEC and the DOJ. Pfizer agreed to pay a $15 million penalty to DOJ and Pfizer and Wyeth agreed

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to pay a combined $45.1 million in disgorgement of profits and prejudgment interest to the SEC.

A FOCUS ON CHINA Over the past few years, foreign private entities, particularly those based in China, have rushed to enter U.S. capital markets through so-called reverse mergers. With the influx of China-based entities trading on the U.S. market, the SEC and the PCAOB have identified numerous instances of alleged accounting fraud and inadequate financial disclosure associated with these companies. Many China-based issuers enter the U.S. capital markets through reverse mergers, which are often perceived as a quicker and cheaper method of going public. Reverse mergers provide private entities with the same benefits of an initial public offering (IPO) with less red tape, including lower accounting and legal fees. Another perk is that firms entering the U.S. capital markets through reverse mergers might not be subject to the same level of financial scrutiny by the SEC, as compared to those companies entering the market directly through an IPO. Public shell companies must report a reverse merger to the SEC through a Form 8-K, but unlike an IPO, there are no registration requirements under the Securities Act of 1933. In a reverse merger, a publicly traded shell company, an entity with little or no operations, acquires a private company. While the public shell company continues to exist, the private company’s shareholders acquire a

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FRAUD controlling interest in the public entity and the private company’s personnel assume the management of the combined entity. After the reverse merger, the combined company most closely resembles that of the formerly private entity. Reverse mergers create ease for the company entering the market, but they come with increased risks for regulators, auditors and investors. More specifically, most reverse merger operations are located on foreign soil, so obtaining accurate financial and operating information may present a challenge. As a result, U.S. regulators have recently explored the compliance and accounting practices of reverse merger companies, with a focus on those based in China. The SEC recently suspended trading on a number of Chinese reverse merger entities, citing numerous instances of questions regarding the accuracy and completeness of public company filings, including a failure to disclose material information. According to PCAOB member Lewis Ferguson, in the past year, 67 auditors have resigned from China-based issuers and 126 Chinese issuers have been delisted from the U.S. markets. These events represent a serious loss in market value and consumer confidence. The SEC recently filed charges against China-based issuer China Natural Gas, Inc. who entered the U.S. market via a reverse merger in late 2005. According to the SEC, China Natural Gas’s CEO, Qinan Ji, defrauded investors by secretly loaning $14 million of company money to his son and nephew. It is alleged that China Natural Gas’s financial statements, which were

signed by Ji, falsely stated that the loans were issued to third parties. The SEC contends that Ji lied to China Natural Gas’s auditors, board of directors and investors about the true nature of the loans. Part of the increased risk associated with Chinese reverse merger issuers is that they are often audited by Chinabased audit firms, rather than their U.S. counterparts. As these China-based audit firms perform audits on SEC registrants, they are required to register with the PCAOB. However, the PCAOB has been unable to assess the quality of the audits performed by Chinese firms, because of sovereignty restrictions by the Chinese authorities. The Chinese Securities Regulatory Commission and China’s Ministry of Finance prohibit any non-Chinese regulator from conducting audit investigations in China and it is illegal to remove audit work papers from Chinese soil. As a result, the PCAOB cannot perform inspections on China-based registered audit firms and the SEC has been unable to obtain audit work papers and other documentation related to Chinabased issuers under investigation for potential fraud. The SEC charged Shanghai-based Deloitte Touche Tohmatsu CPA Ltd. (D&T Shanghai) for failing to provide the audit work papers associated with its audit of a China-based issuer under investigation by the SEC. Since April 2010, the SEC has unsuccessfully sought to obtain the audit work papers through international sharing mechanisms. According to the SEC, as a PCAOB registered audit firm, Section 106 of the Sarbanes-Oxley Act requires D&T Shanghai to produce the audit

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work papers associated with the issuer under investigation. D&T Shanghai contends that Chinese law forbids them from producing the audit work papers. As a first step toward cooperation, the Chinese authorities have tentatively agreed to observational visits in which the PCAOB and Chinese authorities would watch each other perform audit oversight activities. In the meantime, the number of new China-based firms entering the U.S. markets has decreased dramatically, but the accounting uncertainties of those already listed on the U.S. market remains. As the enforcement trends shift away from the financial crisis to new types of fraud, there is no question that fraudsters will continue to infiltrate the U.S. market through more complex and creative measures. The enforcement trends are particularly crucial to us as CPAs — auditors, controllers and other financial professionals — as we have a responsibility to oversee so many aspects of the financial markets. n BETH HELLE, CPA/ABV, is a senior manager with Veris Consulting, Inc., a provider of specialized forensic accounting and litigation consulting services headquartered in Reston. Veris has experience assisting regulatory agencies with various types of investigations, including alleged FCPA violations and misconduct within the hedge fund industry. Beth is a member of the VSCPA Editorial Task Force. Contact her at bhelle@verisconsulting.com.

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FORENSIC accounting

Inside the mind of the white collar criminal There are red flags that can help you identify perpetrators of fraud on non-audit engagements. BY BILL BARRETT, CPA/ABV/CFF

I once was a glorified bookkeeper, working my way through college with a family, before I became a true controller. Back in the day of paper ledgers and journals, I worked for a leather goods manufacturer. They made purses, wallets and pad holders (for regular old paper yellow pads, not iPads).

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FORENSIC accounting

I had become increasingly concerned that while sales remained stable, the Cost of Goods Sold (COGS) was rising and negatively affecting the bottom line. I usually reported to the vice president, but something was nagging me about going to him with this problem. Maybe it was the new gull-wing DeLorean or the $10,000 ultra-thin Piguet Jules watch that he recently bought. So off I went to the president instead. After explaining the matrix of the income statement and its relation to inventory on the balance sheet, he was completely confused. However, he asked me to keep my analysis to myself. A week later, I was being toasted with a raise and a three-day family weekend at the beach. Turns out the vice president was taking work-in-process from the locked-down holding areas, after hours, to a plant he had set up. His crew (the foreman also worked in collusion) would finish the goods and sell them to the various distributors and department stores.

first sign of fraud is just a feeling that something is not quite right. Numbers may not totally add up or internal controls may be sloppy. A gut instinct can be very helpful when trying to catch white collar criminals. But there are certainly red flags to look for.

DEFINING THE CRIME The term “white collar” crime originated to distinguish the nonviolent nature of fraud from violent street crimes, such as armed robbery. It was used because most people in a position to commit fraud were “white collar” clerical, managerial or executive employees within a business organization rather than “blue collar” laborers. The term should not be taken too literally — a “blue collar” truck driver or receiving dock employee who steals the inventory to which he has access is also committing white collar crime.

And the vice president, needless to say, went to jail. But the real satisfaction came when he bent the face of his Piguet and couldn’t use it anymore.

Fraud that is visible on financial statements, however, is usually committed by higher levels of management. The perpetrators are typically well-educated, have a high social standing and are respected members of the community. They use their social and cultural background as well as their specialized knowledge and skills to their advantage.

What I learned is that sometimes the

In addition, they are usually experienced

The fraud was caught by the president, who had a trusted employee spend the night in his car outside the shop.

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and adept at bending others to their will. An organization in which management is dominated by a single person or small group may be a perfect breeding ground for fraud. Intimidation, domineering behavior and pressure from top management are often part of the psychological deception to conceal a fraud. The fraud accountant’s weapon to counter psychological deception is a well-developed professional skepticism. Professional skepticism is often described as a “show me” attitude that requires management to prove representations rather than present them to be accepted at face value.

FRAUD, RATIONALIZED Once a corporate fraud perpetrator is identified, it won’t take long for you to wonder: Why? You may not believe it, but criminals often believe they are doing the right thing (or at least close to it). From the 2002 Enron fraud scandal and forward, one of the most interesting behavioral beliefs held by perpetrators is their belief that they were acting in a legitimate manner. Prosecutors say these criminals, even after they enter a guilty plea, often take months or more to fully accept their guilt. All of the convicted criminals had spent most of their 

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FORENSIC accounting lives viewing themselves as law-abiding citizens. Each believed that they were performing acceptable business practices within their organization — that the operational practices, while aggressive, were legal and even necessary for the survival of the organization. This phenomenon of rationalization has been studied by the sociologist Robert K. Merton. In 1993, he first theorized that social structures provide motivation for misconduct because they focus individuals on competition, the importance of money in society and the erosion of norms that encourage legitimate money-making behavior (goal orientation). When individual goal orientation receives more emphasis than the norm of the social structure, the norms will lose their power to regulate behavior. This produces a state of “anomie,” or normlessness — an important concept in sociology that is said to lead to lawlessness. Merton also defines competitive economic activity — the production,

exchange, distribution and consumption of goods, with wealth assuming a “highly symbolic cast” — as “culturally legitimated successgoals.” This definition fits closely to the behavior of most profit-seeking organizations. For a business, economic success means not only cultural approval, but survival. Regardless of the cultural emphasis on profits, an organization must seek profits, and profits will be a prime indicator of prestige within a society, as well as the key to social mobility within hierarchies of organizations. In short, money talks in the business world. Merton states that to obtain financial success, individuals must compete, both for the means toward the goal and the goal itself. The availability of both the tools to compete and the profits themselves is limited by insufficient supply and demand. When these limits threaten a competitor with losses, innovation may result in the endless

quest for strategic resources. And that innovation, often necessary to obtain the holy grail of financial success, can sometimes be found on the wrong side of the law.

IT’S ABOUT THE THRILL Yep, committing crimes does give its perpetrators a thrill. High-dollar criminals describe their machinations as having a “kick.” They feel like they’re playing a game, and it’s the game of their lives. Behaviorists agree. Money is a “generalized reinforcer,” linked with many positive factors directly, and often taking on a symbolic power of its own, yielding a condition of strength. Game-playing exerts something similar on its participants; someone who manipulates a chess board or a deck of cards successfully gains a sense of strength over external events. We can play the game “for its own sake” because it yields the impression of strength.

audimation.com

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FORENSIC accounting Imagine the emotional charge to the “player” when the game’s power is combined with money as a generalized reinforcer, and both of these factors are played out with real people and settings. This dealmaker is racing through a thicket of reinforcements, and the greater the risk — financial, legal, personal — the greater the thrill. Now, with a generation growing up playing action video games and living with cloud realities, isn’t it realistic to foresee some professionals wanting to duplicate these thrills in their real lives?

IT’S ALSO ABOUT THE WHY: THE FRAUD TRIANGLE Research focusing on fraud has been performed in the fields of criminology, psychology, accounting, auditing and management. Among those fields, three key factors have emerged that determine whether a person will commit fraud. The factors, which comprise the three points of the so-called fraud triangle, are: 1.) a perceived pressure facing the person; 2.) a perceived opportunity to commit fraud; and 3.) the person’s rationalization or integrity.

difficult to determine and understand a fraudster’s rationalizations. (See Table 1.)

RATIONALIZATIONS As mentioned earlier, fraud can definitely be rationalized in the perpetrator’s mind. This is the ability to convince yourself that something you know is wrong is really okay. Fraudsters may often think: “I am only borrowing the money and will pay it back.” “Nobody will get hurt.” “The organization treats me unfairly, so they owe me.” “It’s for a good purpose.”

OPPORTUNITIES There are often opportunities inside corporations that make them vulnerable to fraud, particularly if an employee has both the pressures and the rationalizations to commit such an act. A few areas that provide opportunity for fraud are: • An inadequate separation of duties.

The research of Pamela Murphy, a professor at the Queen’s School of Business in Kingston, Ontario, Canada, demonstrates that just about anyone can convince themselves that what they are doing is right. Scan the QR code with your smartphone to read more from the Queen’s School of Business magazine on Murphy’s fascinating research. 

• Failure of management to adequately inform employees about company rules and the consequences of violations • Rapid employee turnover • Crisis conditions • A “workaholic” environment, with things such as the absence of mandatory vacations • The failure to uniformly and consistently enforce standards and policies or to punish perpetrators.

TABLE 1: A FRAUDSTER’S POTENTIAL PRESSURES

PERCEIVED PRESSURES Knowing these three factors can help determine who is committing fraud in an organization. For example, several employees in a department may have the opportunity to commit fraud. However, by investigating the employees’ personal lives, you might find that only one is facing pressures that would motivate him to commit fraud. Keep in mind that while it is beneficial to consider a perpetrator’s opportunities and pressures, it is very

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While certainly not all fraudsters are facing one or more of these perceived pressures, many white-collar criminals are dealing with some of these issues: FINANCIAL PRESSURES High personal debt levels Overuse of credit cards Divorce Investment losses Sheer greed Family or peer group expectations

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PERSONAL HABITS Addictions (alcohol, drug, gambling, etc.) An expensive extramarital affair WORK-RELATED FACTORS Feelings of resentment stemming from being overworked, underpaid or passed over for promotion

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FORENSIC accounting Rationalization takes place in the mind and is usually overlooked, but the observant accountant will be able to detect mannerisms and word-choice that typifies a fraud suspect’s behavior.

ON THE LOOKOUT Though the dollar amounts (and the audacity) of some white collar crimes boggle the average observer’s mind, the crime remains an act of behavior and so should be approached using the same method used to analyze a $3,200 credit card fraud. The perpetrator may be described as “obsessive” and “megalomaniacal,” but she or he is still behaving in a network of actions, where behavior is subject to operant conditioning. The specific measures will be particular to the crime. The actions dictate the response. But whether we’re dealing with a clerical worker’s credit card fraud or the

“business expense” of Tyco CEO Dennis Kozlowski’s $2.1 million toga party, our methods can be behavioral. Fraud examiners may never eradicate crime completely, but approaching criminal acts scientifically, we can become more successful in anticipating and preventing the acts. There are many ways an accountant may become suspicious that fraud is occurring in their company or their client’s company (see Table 2). Despite these warning signs, the Association of Certified Fraud Examiners (ACFE) has found that much of financial fraud is still detected by chance — even in the face of improved corporate governance. In fact, the annual Global Fraud Surveys conducted by PricewaterhouseCoopers have revealed a 22 percent increase in the last two years in the number of companies reporting financial fraud. Corroborating the ACFE assertions, fraud was detected by chance in more than a third of cases, and internal audit found the issues only 26 percent of

the time. Almost one quarter of the perpetrators were senior managers — the very people signing off on financial statements. Furthermore, the types of fraud are changing, with cybercrime as the next wave.

BREAKING THE CYCLE There are many ways to make an organization more impervious to fraud, but it is important that management tries to “break” the fraud triangle by implementing specific policies and procedures in addition to developing fraud deterrence controls (see Table 3). Most important is creating an ethical environment starting with a positive tone at the top and corporate-wide core values and policies to which all employees have buy-in. Secondly, organizations must reduce employees’ opportunities to commit fraud. Surveillance procedure and timely preparation and review of monthly financial statements help ensure

TABLE 2: WATCHER BEWARE OF INITIAL RED FLAGS The savvy accountant may catch wind of corporate shadiness if these warning signs begin to appear: 1. Problems detected by internal controls

6. Accusations from anonymous sources

2. Employee complaints

7. Unusual or unexplained financial statement trends

3. Problems detected by an internal auditor’s review of controls

8. Changes in an employee’s lifestyle that are not consistent with the employee’s salary or wages or other known sources of income

4. Customer or vendor complaints, such as payments not being credited to the customer’s account or contracts not received

9. Abrupt changes in an employee’s behavior that can’t be explained by other factors

5. Accidental discovery of something that warrants follow up, such as two expense reports that contain receipts for the same airline ticket

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10. Problems detected in the course of an external audit, review or compilation

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FORENSIC accounting that finances are well-controlled. Policies like periodic job rotation and mandatory vacations can help boost morale. And finally, management can monitor the pressures on employees that could push them to commit fraud and develop appropriate responses. Adopting appropriate personnel policies and swiftly enforcing violations, performing drug tests and providing counseling and dispute resolution services can all help reduce and mitigate employee pressures.

There are many areas in which the talents of CPAs are useful to detecting fraud. Once you know what to look for — and how the mind of a white collar criminal works — you could become

an indispensable forensic accountant to your company or your client. n This article was developed from Bill Barrett’s course, “Forensic Accounting in Non-Audit Engagements.

BILL BARRETT, CPA/ABV/CFF, a sole practitioner in Richmond, has investigated fraud and in business and professional entities, and has directed federal teams investigating multi-defendant money laundering, illegal income, tax evasion and white-collar fraud. He is the current vice president of practice for the American Accounting Association Forensic and Investigative Section. Contact him at billbarrett@barrettpc.com

TABLE 3: FIVE STEPS TO DESIGNING FRAUD DETERRENCE CONTROLS While developing a suitable fraud deterrence program is an in-depth process, there are five basic steps to those controls: STEP 1: Review the organization-level components of internal control and identify weak or nonexistent controls. STEP 2: Identify assets (and related transactions) susceptible to misappropriation. STEP 3: Review the organization’s systems and procedures relating to the vulnerable areas and identify weak or missing systems and procedures. STEP 4: Develop controls to reduce the risk of misappropriation in the vulnerable areas. STEP 5: Consider the cost/benefit relationship of the controls developed.

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ACCOUNTING education

In This Together: The Profession and Higher Education BY JIE LUO, RUIXUE DU AND JOHN BROZOVSKY, CPA, PH.D.

At the beginning of 2011, the American Accounting Association (AAA) and American Institute of Certified Public Accountants (AICPA) jointly created the Pathways Commission on Accounting Higher Education. The mission of the Pathways Commission is to explore the future structure of accounting higher education, as well as to develop recommendations for educational pathways to engage and retain the most talented students, academics and practitioners in the practice and study of accounting. The Commission carried out this project based on a fundamental premise:

“The educational preparation of accountants should rest on a comprehensive and well-articulated vision of the role of accounting in the wider society.”

In July 2012, the Commission released the report, “Charting a National Strategy for the Next Generation of Accountants,” to discuss challenges with regard to the future of accounting higher education. Accordingly, the Commission proposed a set of recommendations to solve problems faced by the accounting education and practice communities.

to accounting education and practice, and identify the role of the practice community in addressing issues shared by both communities.

While the list of possible actions for implementing each recommendation is an important to help meet the recommendation objectives, it is pertinent to add further to the solution debate. While much of the effort logically resides in the academic community, here we discuss the recommendations pertaining

Recommendation No. 1 refers to the integration of key outputs of the accounting profession — research, education and practice — to better serve its final users: students, educators and practitioners. We believe that eliciting the practice community preferences for research is the key to meet this goal.

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RECOMMENDATION 1: BUILD A LEARNED PROFESSION

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Many universities value researchers who receive grants, in particular when including standard university overhead, for tenure evaluation purposes. Just like government agencies disclose funding opportunities as an incentive for researchers to craft solutions to their needs, the practice community can try a similar method to spark researchers’ interest in solving their problems. We believe that educators would assimilate practice-oriented research results in their teaching, as they seek real-world examples of problems and solutions to motivate their lectures. Professionals can have a more direct impact on bringing the profession to the

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ACCOUNTING education students by serving as adjunct professors at their local universities. Those who retire from the profession and are too young to go to pasture should consider teaching full time as a clinical faculty member at some universities. Dennis Beresford serves such a function at the University of Georgia. Although integrating accounting research, practice and education is highly desired for making accounting a more learned profession, it is not free of impediments. First, the volume of academic research published in peer-reviewed journals is still the primary consideration in a university’s rankings. The faculty tenure process, therefore, is also closely linked to the evaluation of academic publications. Under this evaluation system, industry professionals are discouraged from seeking academic positions in accounting. Second, there are many professional standards and regulations imposing barriers to data sharing due to confidentiality issues. This latter issue is one that current accounting professionals can help address by allowing academic researchers to access practice data while still maintaining confidentiality. This data sharing could be done in two ways: 1.) a joint effort between an academic researcher and a professional researcher who has access to the confidential data; and 2.) hiring the academic over the summer or for a semester to work on research within the firm.

RECOMMENDATION 2: MEET DEMAND FOR FUTURE FACULTY The second recommendation relates to the shortage of qualified faculty

in accounting education. While the profession’s Accounting Doctoral Scholars Program, which until last year sponsored 30 professionals a year to get Ph.D.s, has had a positive impact, the situation is still potentially dire. We believe that attention should be paid to faculty and even Ph.D. students from highly technical areas where career-building is quite difficult. It is not unusual to find Ph.D.’s from areas such as economics, physics, chemistry or biology go through a series of post-doctoral positions before they have a shot at a tenure-track position. Many highly skilled individuals from these and other areas experience frustration in such prospects, and may be interested in other areas where their skills can be rewarded with a regular tenure track faculty position earlier in their career. Thus, there is room to attract fine minds into accounting research and teaching. We believe that extending the bridge programs between disciplines offered at some academic institutions, followed by appropriate advertising in departments such as those mentioned above, is an answer worthy of attention. The practice community can assist in this matter by providing temporary employment to give these people an appreciation of the practice of accounting.

RECOMMENDATION 3: MAKE TEACHING RESPECTED AND REWARDED

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A key challenge is that measuring teaching quality is not as easy as measuring research quality using peer reviews. At large schools, student evaluations are generally the only thing considered in assessing teacher quality. This is recognized as a faulty mechanism, and has led to significant grade inflation in order for the professor to win the “popularity” contest. Smaller schools may utilize more, and therefore more appropriate, mechanisms. In addition to conventional student evaluations, it is technically possible to let peers evaluate teaching. Many professors post videos of their classes on their websites or at other online sources. It is possible to let outside parties evaluate similar digital teaching samples and give them appropriate treatment in a tenure evaluation. We therefore suggest, on the best interest of teaching valuation, that institutions take affirmative steps to collect and bring teaching samples to qualified evaluators. The accounting practice community can contribute to this end by both nominating evaluators and ensuring, through fundraising and donations, that institutions are properly equipped to produce and incentivize teaching samples. On the large-school scene, mission statements usually include teaching as a critical component in achieving the institution’s missions. However, what is on paper and what is practiced do not always correspond when the reward structure is tilted one way or another. For example, what do you do if you 

The fact that teaching is not as valued as heavily as research by academic institutions is another concern of the Commission. The relative weight

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assigned to teaching varies by the level/ size of the school. Recommendation No. 3 asks for higher valuation of teaching.

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ACCOUNTING education have projects that you can bill at double your normal rate and will take threefourths of your time, normal projects that will take three-fourths of your time and pro bono or practice-building work that will take three-fourths of your time? You can run 100-hour weeks for only so long before you burn out. We suspect that the first to go is the practice-building and pro bono work, even when you see nonprofits start to unravel without your efforts. Next to get shortchanged might be your normally billed clients, as even 60 hours a week gets to be pretty trying over the long haul. In a large university, we have a similar situation: Research work gets the double reward, teaching the single reward and dealing with students one-onone with advice and help is the pro bono work. The last two are critical to producing students you will want to hire, but the first gets the financial reward. Fortunately, for both you and the students, not all professors make the most profitable financial decisions. As a professional, you can change this by directing your contributions (yes, money IS an incentive) toward supporting the latter two activities. When looking at the incentive structure, many people will deliberately weight their effort to maximize the rewards. While you cannot directly change the structure, you certainly can adjust it by making financial contributions that directly support the activity you want to encourage. Endowments are the best because then people know that the reward is something that will be there on a continuing basis, but annual awards would help. For the endowment, you can ask the department to set up a

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specific account that would support your preferred activity and make it available for all the interested professionals to contribute to. In this way, a significant amount of funds can be accumulated in a relatively short time and can potentially have an impact on faculty decisions. The goal of the endowment support must be clear; if it is not, it will be used to support research — not teaching or advising the students.

RECOMMENDATION 4: DEVELOP CURRICULA MODELS Another concern in regards to accounting teaching is course curriculum. The advances experienced in accounting practice over the last several decades were substantial enough to justify revising teaching topics. However, there is no consensus about what body of knowledge to consider for curriculum revision. We believe that accounting practitioners can make an important contribution to solve this problem. One way is by letting the practice community provide the body of knowledge from a handson perspective by completing a survey listing nearly all accounting topics and letting each practitioner rank the 10 most relevant. Academics and publishers could learn which topics should be considered in accounting classrooms and textbooks. Another mechanism is to have practitioners volunteer to serve on universities’ departmental advisory boards. In this capacity, accounting practitioners could have direct input into curriculum revision choices. If your university does not have a departmental advisory board, you can work to set one up.

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Finally, we note that many academics have been in academia for more than a decade. In that time span, the profession has changed. Even if it had not, their understanding of the profession has gotten stale and could use some refreshing. Larger firms could hire faculty members for the summer to provide a taste of what the profession is doing and can be doing in today’s world.

RECOMMENDATION 5: ATTRACT ENTRANTS TO THE PROFESSION Recommendation No. 5 refers to attracting the best talent into the profession. Highly skilled individuals who have interest in corporate and managerial work usually feel attracted to careers in areas with high-pay prospects and out-of-the-box thinking. However, the accounting profession is not currently perceived as high-paying and innovative as other careers, such as finance. Our perception from classroom experience is that students believe accounting practitioners do boring work, such as recording transactions or applying carved-in-stone standards. In addition, they are unaware of the attractive salaries paid in many accounting specialties, such as taxation and auditing. Thus, we believe that the solution to the talent attraction problem builds on proper marketing of the accounting profession. In addition to increased publicity of wage statistics and career prospects, appropriate efforts should be made to make accounting “sexy.” It is important to break the image of the stiff-suit professional who merely applies accounting standards to transactions.

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ACCOUNTING education Instead, the advances in accounting research and practice should be promoted as evidence that both innovation and high-paid careers also exist in accounting. Some things are currently being done by the profession, such as the promotion of financial literacy. While this does not directly bring people in, it does illustrate an area that many young adults feel to be much more “sexy” than they had earlier perceived. Also, as professionals, you can start this promotion in your local high schools. High schools frequently have career days in which local professionals can participate. If not, DECA or any of the high school business classes would likely love to have a practicing professional come in and speak. Those attracted to the profession in high school have a high likelihood to continue in >>

college and on into the professional ranks.

changes in a smooth, continuous process. While the practical implementation of these measures is mainly a technical issue out of the scope of this article, we believe that the feedback and financial support of accounting practitioners is critical.

RECOMMENDATIONS 6 AND 7: ANALYSIS AND IMPLEMENTATION Finally, the last two recommendations of the Pathways Commission regard creating mechanisms to collect, analyze and disseminate information about current and future markets for accounting professionals and faculty, as well as to implement

Easy-to-access information about the accounting profession is the backbone of feasible solutions, such as the ones we propose. n

JIE LUO is assistant professor at

Concord University in Athens, W.Va. RUIXUE DU is a Ph.D. candidate at Virginia Tech in Blacksburg.

JOHN BROZOVSKY, CPA, PH.D., is an associate professor at Virginia Tech. Contact him at jbrozovs@vt.edu.

EVEN IF YOU AREN’T IN ACADEMIA, YOU CAN HELP

Although the Pathways Commission outlined seven focus areas for creating a solid future for accounting education, these changes are not to be addressed just by higher education and academia. The accounting profession as a whole, and especially CPAs, has a duty to be involved and ensure the profession remains viable for years to come. Here are ways CPAs working in public practice or private industry can contribute:

4. Hire university faculty members over the summer so they can more easily understand the topics and challenges facing today’s accountants. 5. Help universities evaluate their instructors by nominating impartial evaluators and/or contributing money to ensure schools can properly gather teaching samples.

1. Allow students and researchers to access data from your practice. This can include hiring someone over the summer or for a semester to work on research within your firm.

6. Give donations to universities that are specifically earmarked to certain areas, such as teaching and advising. Establish specific endowments that other accounting professionals can contribute to as well.

2. Serve as adjunct professors. This can be especially attractive for CPAs who are retiring from the profession but not ready to quit working entirely.

7. Help academics and publishers understand the most relevant topics that today’s students need to know to be well-equipped in the real world. Serving on departmental advisory boards can help.

3. Temporarily employ students from other disciplines, such as engineering, chemistry or biology, to instill in them an appreciation of the practice of accounting.

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8. Speak at local high schools to instill in students an interest in accounting before they arrive at college.

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VSCPA self-assessment Complete this 12-question test and submit to the VSCPA for 1 CPE credit. Exams will not be graded until after the submission deadline. A 75 percent or better pass rate is necessary to receive credit. After your exam is graded, you will receive either a certificate of completion via email for your records or an email notification that the 75 percent grade was not met.

1. EXPERT NETWORK FIRMS MAY BE SUB-

SUBMISSION DEADLINE: Feb. 28, 2013. Exams received after this date will not be graded and your money returned.

2. THE FOREIGN CORRUPT PRACTICES ACT (FCPA) GENERALLY:

COST: $15 for VSCPA members / $30 for nonmembers. Please note that this exam will not be live online until Jan. 1, 2012. SUBMISSION INSTRUCTIONS You may submit this self-assessment and make the exam payment online at www.vscpa.com/ January2013DisclosuresExam. You may also circle each answer and mail this paper exam to: CPE Team Virginia Society of CPAs 4309 Cox Road Glen Allen, VA 23060 Fax submissions are acceptable to (804) 273-1741. Name _________________________ Address _______________________ _______________________________ Email Address ___________________ Date __________________________ Method of Payment

• Check (payable to the VSCPA) • Credit card Credit Card Number _______________________________ Expiration Date ________________ Signature _____________________ Date

_________________________

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JECT TO A U.S. SECURITIES AND EXCHANGE COMMISSION (SEC) INVESTIGATION IF THEY PROVIDE INVESTORS WITH:

a. Insight on potential investment opportunities b. Material public information c. Material non-public information d. Expert analysis and information

a. Requires that companies maintain accurate and fair accounting records b. Prohibits companies from bribing foreign officials c. Requires that companies maintain a system of internal controls that provides reasonable assurance that FCPA violations are prevented and detected d. All of the above 3. AFTER A REVERSE MERGER, THE PUBLIC COMPANY GENERALLY:

a. Most closely resembles that of the formerly private entity b. Does not need to file periodically with the SEC c. Fires the management of the formerly private entity d. Moves all company operations to the United States 4. MANY REVERSE MERGER ISSUERS HAVE BEEN THE SUBJECT OF SEC INVESTIGATIONS BECAUSE THEY:

a. Failed to disclose material information b. Provided incomplete public company filings c. Failed to disclose related party transactions d. All of the above 5. WHICH OF THE FOLLOWING IS NOT TRUE ABOUT WHITE COLLAR CRIME?

a. White collar criminals use their social backgrounds to their advantage. b. Fraud that is visible on financial statements is most often committed by entry-level employees. c. “Blue collar” employees can commit white collar crime. d. White collar criminals are adept at manipulating others. 6. WHITE COLLAR CRIMINALS:

a. Always know they are doing something illegal b. Usually feel extreme remorse at the time of the crime c. Often feel emotional highs when committing fraud d. Generally do not view themselves as law-abiding

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7. WHICH OF THE FOLLOWING IS NOT TRUE ABOUT THE FRAUD TRIANGLE?

a. Research shows that it is very difficult for people to convince themselves they are doing the right thing. b. The structure of an organization can lead to opportunities for fraud. c. White collar criminals often face certain personal problems, such as financial pressures or dangerous personal habits. d. A company that does not consistently enforce standards and policies can be more vulnerable to white collar crime. 8. ACCORDING TO THE ASSOCIATION OF CERTIFIED FRAUD EXAMINERS, MUCH OF FINANCIAL FRAUD IS DETECTED BY:

a. Internal controls b. Chance c. The CEO d. Audits 9. HOW CAN PRACTICING ACCOUNTANTS AFFECT THE ACADEMIC ENVIRONMENT?

a. Serve as adjunct professors b. Fund research into questions of interest to practicing accountants c. Serve on departmental board of advisors d. All of the above 10. THE MOST FINANCIALLY REWARDING PART OF A PROFESSOR’S JOB IS:

a. Research b. Teaching c. Advising students d. Interacting with practicing accountants 11. WHO CAN AFFECT WHAT IS BEING TAUGHT IN TODAY’S UNIVERSITIES?

a. Faculty b. University administrators c. Practicing accountants d. All of the above 12. WHEN IS THE PRACTICING ACCOUNTANT MOST LIKELY TO BE ABLE TO AFFECT THE CHOICE OF WHAT PROFESSION A YOUNG PERSON WILL DECIDE TO ENTER?

a. High school b. College c. Graduate school d. None of the above

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VSCPA news

A CPA’s Chinese adventure Whatever you did this summer, it’s a safe bet it wasn’t as out of the ordinary as the “vacation” Bob Cochran, CPA, took. The quotation marks are there because it wasn’t all relaxation for Cochran, an associate professor of accounting at Longwood University and a relatively new member of the Virginia Board of Accountancy (VBOA). He spent the summer teaching two accounting classes at the Anhui University of Technology in Ma’anshan, China. BOB COCHRAN

“The administration at Anhui is very eager that their students experience American professors,” he said. “That’s why they send students to Longwood. They’re also very eager to have American professors teach at Anhui. The idea is that they can expose more students to English and an American methodology without imposing a financial burden on the students.”

VSCPA member Bob Cochran, CPA, right, found time to take in some historic sites during his visit to China.

time. In 2010, he visited the capital city of Beijing and took in the historic sites at Tiananmen Square and the Great Wall of China. This time around, his main side trip was a visit to the Terracotta Army, a collection of sculptures dating back to the third century B.C., in Xi’an. He also toured several Buddhist temples. He plans to go back to Ma’anshan again to teach, and he still has some sites left to see.

This summer wasn’t Cochran’s first trip to China — he’d taken a similar trip in 2010 — but the freedom and confidence he felt in seeing the sights this time was a new experience.

“I’d like to eventually go to Tibet and base camp for Mt. Everest,” he said. “I wanted to go this time, but the Chinese government denied me a permit. It’s a politically touchy issue.”

“I was certainly more adventurous in my out-of-school endeavors,” he said. “I found that I was much more comfortable. I had a map of the city, so although I don't speak Chinese, I had no trouble hopping into a cab and pointing to somewhere I wanted to go. During my first visit, I didn't know how comfortable my sponsors would be with me wandering around the city alone.”

Politically charged travel issues aside, Cochran is complimentary of his hosts. “When you are a guest of theirs, they bend over backwards to make sure that you are taken care of and you have a good time,” he says. He was also impressed with his students’ curiosity.

While Cochran admits the 2012 trip was a much better experience for him, he didn’t stay holed up in his room either

“During my first visit, one of my students arranged for students across the campus to participate in a conversation with me about American-Chinese relationships,” he said. “All topics were selected by the students and I was very surprised at how

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open it was. My expectation was that they would be quiet and timid about asking questions, because that's how they are in class. But in this session, every topic was wide open. “I found was that they were very, very curious, and they asked questions that I was very surprised by about AmericanChinese relationships.” Despite his previous trip, Cochran had a great deal of curiosity himself about his host country — and a passion for seeking out the best food he could. He had some dining experiences that would make Anthony Bourdain proud. “It’s unlike any Chinese food you would get in the United States,” he said. “They eat some very interesting things. Lots of tofu. If they serve chicken, it includes beaks and feet. The same goes for duck. I enjoyed the variety and there was very little there that I didn’t like.” And maybe that ease of identification was a good thing for Cochran, who admits he’s far from fluent in Chinese. “The only things I can say in Chinese are ‘Hello,’ ‘Thank you’ and ‘Cold beer,’” he said. n

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VSCPA news

VSCPA staff news

Hurry: Deadline to volunteer is Feb. 1

VERONICA BOYETT has joined the VSCPA as conference

The VSCPA is seeking volunteers for the 2013–2014 membership year, which runs from May 1, 2013 – April 30, 2014. VSCPA members cite volunteer opportunities as one of the most satisfying aspects of their membership. VSCPA volunteer work puts you in contact with other CPAs with similar goals and skill sets. Expand your professional network while expanding your leadership skills. As an added benefit, all VSCPA volunteers are invited to the Leaders' Summit, a free, two-day leadership training event which qualifies for CPE credit. VSCPA volunteers come from myriad backgrounds, interests and areas of the profession. Your time commitment is up to you. Show your commitment to the CPA profession and help the VSCPA in the following areas: >> GENERAL COMMITTEES: Foster your leadership

potential by serving on these committees.

specialist. She previously worked at the Virginia Hospitality and Travel Association. JENNIFER HARRIS has rejoined the VSCPA as business

development associate. She was previously marketing director at the Society. Vice President of Strategy & Development AMY PARKER marks her 19th anniversary with the VSCPA on Feb. 17. Two employees celebrate their 13th anniversary with the VSCPA: Technology Director JEN SYER on Jan. 10 and Vice President of Member & Public Relations TINA LAMBERT, CAE, on Feb. 7. Marketing & Communications Director JENNY HANSEN celebrates her seventh anniversary with the VSCPA on Jan. 9. Conference Manager VALERIE VAUGHN marks two years with the VSCPA on Feb. 7. Marketing Specialist CHRIS MURPHY celebrates his first anniversary with the VSCPA on Feb. 27.

>> CONFERENCE PLANNING: Work with our

Education Team to develop conference agendas, create session topics, identify and secure speakers and act as moderators for VSCPA conferences.

Education Specialist ANNE BEATTIE has left the VSCPA. Good luck, Anne! n

>> LEADERSHIP APPOINTMENTS: Contribute your

JENNIFER HARRIS

time through leadership positions that help govern the VSCPA. >> LEGISLATIVE: Take part in the VSCPA’s successful

legislative and advocacy programs. >>TASK FORCES: Showcase your technical expertise

and help the VSCPA develop its yearly events with these specialized opportunities. AMY PARKER

JEN SYER

JENNY HANSEN

>> PUBLIC SERVICE: Use your professional skills to help

Virginia’s taxpayers through these tax- and accountingrelated opportunities. >> WRITING & SPEAKING: Sign up for one-time, short-

term volunteer opportunities that involve speaking and writing on the topics you know best. To sign up or get more information, visit www.vscpa.com/ Volunteer. The deadline to sign up is Feb. 1, 2013. n

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TINA LAMBERT

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VSCPA news

Congratulations to the following members! ELIZABETH FOSTER, CPA, has been named

NEW HIRES >>

treasurer of the Virginia Symphony.

BILL KEATING, CPA, has joined Argy, Wiltse & Robinson as a

LISA GERMANO, CPA, president of Actuarial

partner in the firm’s McLean office.

Benefits & Design Company in Midlothian, received the Women on the Move Award from the National Multiple Sclerosis Society.

A.J. KRICK, CPA, has joined Marshall Consulting Group in the

firm’s Warrenton office. SHALINI PAI has joined

Steve Walls and Associates in Glen Allen as a staff accountant. SERENA RATCLIFFE has SERENA RATCLIFFE

joined Cole and Associates CPAs, LLC, in Roanoke as an accountant.

SHALINI PAI

LISA GERMANO

FIRM NEWS >> Virginia or suburban Maryland firms named in the list of Accounting Today’s 100 Best Firms to Work For are: BAKER TILLY VIRCHOW KRAUSE LLP; HOMES, LOWRY, HORN & JOHNSON, LTD.; KEARNEY & CO.; and MATTHEWS, CARTER & BOYCE. BDO USA has purchased McLean firm ARGY, WILTSE &

PROMOTIONS >>

ROBINSON. The merger went into effect Nov. 1, 2012.

JIM GARNER, CPA, has been named partner in the Washington,

Newport News firm MALVIN, RIGGINS & COMPANY has opened a new set of office suites in Raleigh, N.C.

D.C., office of SolomonEdwardsGroup. TOBY LESLIE, CPA, and RICHARD LEWIS, CPA,

TOBY LESLIE

RICHARD LEWIS

have been promoted to partner and CHRIS WALLACE, CPA, has been named practice leader in the business assurance and advisory services practice at Keiter in Glen Allen.

BETH MOFFETT, CPA, has been promoted to partner at Burdette

Smith & Bish in Fairfax. APPOINTMENTS & AWARDS >> HOPE CUPIT, CPA, was named to the board

of the Virginia Birth Related Neurological Injury Compensation Fund. She is president of the Southeast Rural Community Assistance Project in Roanoke. RUTH DICKERSON, CPA, with Cole and HOPE CUPIT

Associates CPAs, LLC, in Roanoke, was elected treasurer of Blue Ridge Literacy.

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Bethesda, Md., firm Rubino & McGeehin has changed its name to RUBINO & COMPANY. Washington, D.C.-area firm VIRTUS CONSULTING has been acquired by SOLOMONEDWARDSGROUP. n

CPA Assembly Day is a few weeks away Each year, dozens of VSCPA members visit the Virginia Capitol to meet with their legislators on CPA Assembly Day. This year’s event is set for Tuesday, Jan. 22. Last year’s CPA Assembly Day played a major role in the VSCPA’s successful work during the 2012 General Assembly session. CPAs from around the Commonwealth discussed important financial issues with their legislators and observed the General Assembly in session. Both chambers of the Assembly introduced the VSCPA on the floor. If you can’t attend in person, sign up for Virtual Participation or send an email or letter to your state legislator to make sure the voice of the CPA is heard in Virginia. Visit www.vscpa.com/ AssemblyDay2013 for more. n

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VSCPA news

The VSCPA mourns the loss of: RONNIE HIMELRIGHT, a sole proprietor from Winchester. A

LESLIE LEIPER, CPA, of Alexandria. A graduate of Fordham

graduate of Liberty University, he worked in industry for many years with Winchester and Western Railroad, Commonwealth Express and General Services, Inc.

University and Fairleigh Dickinson University, he served in the U.S. Army and spent 20 years working for the U.S. Defense Contract Audit Agency. He was a partner in the Washington, D.C., office of Leonard Birnbaum & Co. before starting his own firm.

PHILIP HOWELL, CPA, a VSCPA life member from

Williamsburg. A longtime partner at Goodman & Company, he served on the VSCPA’s Legislative Affairs and Accounting and Auditing Procedures committees.

DAVID MCKEE, CPA, a sole practitioner from Clarksville. A

graduate of Indiana University, he served in the U.S. Marine Corps during the Vietnam War and was an active member of Jamieson Memorial United Methodist Church. n

Corrections to Super CPAs In the November/December 2012 issue of Disclosures, we inadvertently printed an uncorrected list of winners. The VSCPA seriously regrets the error and apologizes to all members who were affected. Below is a list of members who were left off the list.

ASSURANCE SERVICES

Stephen Rumble, CPA

Norman Yoder, CPA

Angela Cain, CPA

Frank Snader, CPA

INDIVIDUAL TAXATION

Alexander Grib, CPA

EDUCATOR

Dian Calderone, CPA

G. Blake Manners, CPA

David Fordham, CPA

Lawrence Maher, CPA

BUSINESS VALUATION & LITIGATION SERVICES

Bradley Roof, CPA

Luke Martonik, CPA

EMPLOYEE BENEFITS Cynthia Kochersperger, CPA

PERSONAL FINANCIAL PLANNING

CORPORATE TAXATION

Edward G. Shaia, CPA

Mark Smith, CPA

Robert Baldassari, CPA

Craig Stanley, CPA

Theresa Waddell, CPA

Paul DiNardo, CPA

ESTATE PLANNING & TRUSTS

SMALL BUSINESS CONSULTING

Wilbert Thomas Miller III, CPA

James VanMeter Duty, CPA

Jacob Favaro, CPA

Jeffrey Lewis, CPA

Robert Bradshaw Cauley, CPA

GET IT ALL ONLINE >>

VSCPA CPE & NETWORKING Visit the CPE Catalog at www.vscpa. com for the latest VSCPA seminars, conferences, webcasts, networking events and more!

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FINANCIAL MANAGERS, CFOS & CONTROLLERS: Deborah Harris, CPA

GOVERNMENT & NONPROFIT Mary Tuohy, CPA Sheri Wilson, CPA Brian Windley, CPA

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Phillip Shiflett, CPA

YOUNG CPAS E. Michael Hanger, CPA Ann-Marie Lock, CPA In the Young CPAs Category, Christina Dondarski Waller, CPA, was incorrectly listed as Christina Dondarski and Harvey Johnson, CPA, was listed as Harvey Jackson. n

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VSCPA news

VSCPA 100% Member Firms VSCPA 100% Member Firms show their commitment to their employees, the profession and the association. A 100% Member Firm is simply a Virginia CPA firm or company that has all of its CPAs enrolled as members in the VSCPA. Interested in being listed as a 100% Member Firm? Contact VSCPA Member Relations Director Brenda Fogg at bfogg@vscpa.com or (804) 612-9409. Anderson & Reed, LLP Anderson, White & Company, PC, CPAs Andrews, Barwick & Lee, PC Barnes, Brock, Cornwell & Heilman PLC Beale & Curran, PC Beck & Company, CPAs, PC Bennett, Atkinson & Associates, PC Biegler & Associates, PC BlackHeath Company, PLC Bowling, Franklin, & Co., LLP Boyce, Spady & Moore PLC Britt & Peak, PC, CPAs Bullock & Associates, PC Burdette Smith & Bish LLC Burgess & Co., PC, CPAs Cameron, Moberly & Hamrick, PC Charles S. Pearson Jr., CPA Charles W. Snader, PC Cherie A. James, CPA, PLC Chesapeake Accounting Group PC Christopher A. Enright, CPA, PLC Cole & Associates CPAs, LLC Coley, Eubank & Company, PC Corbin & Company, PC Craver, Green and Company, PLC Creedle, Jones and Alga, PC CST Group, CPAs, PC Dalal & Company David L. Zimmer CPA PC Diane Y. Smith CPA PC Didawick & Company, PC Digital Benefit Advisors Donald W. Coleman, CPA, Inc., PC Douglas L. Thompson, CPA PLLC Duvall Wheeler, LLP Eggleston & Eggleston, PC Elmore, Hupp & Company, PLC Everett O. Winn, CPA, PLC First Capital Bank Frank Edward Sheffer & Company Fritz & Company, PC Garland & Garland, CPAs, PC Garris and Company, PC G.L. Roberson CPA, PLLC Gregg & Bailey, PC Gregory & Associates, PLLC

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Gurman & Company, PLLC Hantzmon Wiebel Harris, Hardy, & Johnstone, PC Harris, Harvey, Neal & Co., LLP Henley & Henley, PC Henry R. Hortenstine III, CPA, PC Hogan & Reed, PC, CPAs Holland & Brown LLP Homes, Lowry, Horn & Johnson, Ltd. Honeycutt & McGuire CPAs Hughes & Basye, PC Hunt & Calderone, PC, CPAs Jay E. Reiner CPA PLLC John M. Watkins, CPA Johnson, Equi & Co., PLC Jones, Adams & Delp, PC Jones, Madden & Council, PLC Jones & McIntyre, PLLC JS Morlu, LLC Keiter Kositzka, Wicks & Company Kris McMackin CPA L.P. Martin & Company, PC Lane & Associates, PC Larry D. Greene CPA PC Lauren V. Wolcott, CPA, PC Lent & Hawthorne, PC M. Lee Winder & Associates, PC Mallard & Mallard CPAs, LLC Martin, Beachy & Arehart, PLLC McPhillips Roberts & Deans PLC Michael B. Cooke, CPA, PC Michael R. Anliker, CPA, PC Miller Foley Group Mitchell, Wiggins & Company, LLP Moss & Riggs, PLLC Murray, Jonson, White & Associates, Ltd., PC Nicholas, Jones & Co., PLC Paul Mitchell CPA CFP PBGH R.T. McCalpin & Associates Renner & Company, CPAs, PC Roger L. Handy, PC Rubin, Koehmstedt & Nadler, PLC Russell, Evans & Thompson, PLLC Rutherford & Johnson, PC

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Salter & Associates, PC Scheulen, Patchett & Edwards, PC Sells Hogg & Associates CPAs, PC Spencer, Hager & Mosdell, PC Spitler, Stephens & Associates PLLC Stephen Merritt CPA, PC Stephen T. Shickel, CPA, PLC Steve Guy & Associates, PC Steve Walls & Associates, PLLC Strickland & Jones, PC Sullivan, Andrews & Taylor PC Terry L. Jones, CPA, LLC Thomas E. Fraley, CPA Thompson, Greenspon & Co., PC Tongelidis Consulting, LLC Updegrove, Combs & McDaniel, PLC Valderas & Fishel, PC Verus Financial Partners WalkerChaney, CPAs Wall, Einhorn & Chernitzer Wells, Coleman & Company, LLP Wilkinson Consulting & CPA PLC William B. May Jr., CPA, PC Witt Mares, PLC Yancey, Miller & Bowman, CPAs PLLC Yount, Hyde & Barbour, PC The above list was compiled Nov. 14, 2012. Check www.vscpa.com/100Percent for a complete, up-to-date list.

WE WANT TO HEAR ABOUT IT! >>

Email disclosures@vscpa.com if you have exciting news to share. The VSCPA prints news of members’ awards, appointments and promotions as well as new hire and job change announcements. Firm news, as well as mergers and acquisitions, is also welcome.

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VSCPA educational foundation SCHOLARSHIP RECIPIENT PROFILE >>

Back to school Accounting students are from a wide variety of backgrounds and prior experiences. For every young go-getter fresh out of high school, there’s a student who took a different path to the accounting profession. Mary Scott is one of those who took the road less traveled. Scott, a 2012–2013 VSCPA Graduate Scholarship recipient, took the long way to get in position for the CPA credential. She plans to sit for the CPA Exam soon after completing her master’s program at Virginia Commonwealth University (VCU). Scott, 51, fell into accounting almost at random. After graduating from high school and going to college for a year, she took a job as a clerk in an accounting office at Fort Lee. Her supervisor allowed her to work on one of the base’s accounts, and as she put it, “I realized I liked the logic and order of accounting.” That led her to take the H&R Block tax course, which turned into a 25-year run as a sole proprietor in tax. MARY SCOTT

As for her day job ... life got in the way. Scott has two sons, 23-year-old Joshua and 21-year-old Cody, and left her day job to

home-school them. She got back into the job market after they graduated high school and earned her associate’s degree before earning her bachelor’s from Virginia State University (VSU), where Cody was also a student at the time. “My family has been nothing but supportive,” she said. “They are my biggest cheerleaders. My son and I were both together in college for a couple of years. Those were the most fun! They know my desire to get a master’s degree and are behind me 100 percent.” After graduating from VSU, Scott enrolled in her master’s program at VCU and is on pace to graduate in May. She’ll likely stick with tax work after graduating in order to utilize her previous experience. And she’ll always have the memories from her educational career’s second act. “At Virginia State University, I was one of two non-traditional students and I loved being a part of the classes with the young students,” she said. “At Virginia Commonwealth University, in the master’s program, there are many non-traditional students. Many of the students work during the day and take one or two classes a semester. There are also many international students who have been a joy to get to know.” n

SUPPORT THE FOUNDATION WITH AN ANNUAL FUND DONATION

The VSCPA Educational Foundation continues to work toward its goals of raising money for the Annual Fund, which supports important accounting scholarships and grants while supporting the Foundation’s general mission and goals. Unrestricted gifts to the annual fund help the Foundation cover its operating expenses and ensure that it can continue fulfilling its mission of inspiring and supporting future CPAs. To donate to the Annual Fund or any other VSCPA scholarship funds, visit www.VSCPAFoundation.com.

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CLASSIFIED ads

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OFFICE SPACE NORTHERN VIRGINIA SOLE PROPRIETOR looking to rent single office within existing CPA firm. Reply in confidence to VSCPA CC #87, 4309 Cox Road, Glen Allen, VA 23060 or classifieds@vscpa.com.

PEER REVIEW WE CAN PERFORM ENGAGEMENT, SYSTEM, OR PRE/ POST-ISSUANCE PEER REVIEWS for your firm. We are experienced and up-to-date on the latest regulations. Call me today to perform your peer review professionally and efficiently. Charles Coker, CPA (703) 931-3290 charles.coker@cpa-coker.com

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THE OFFICIAL MAGAZINE OF Virginia Society of Certified Public Accountants

Get noticed in VSCPA classifieds BROUGHT TO

YOU BY THE VIRGINIA

SOCIETY OF CPAs

SEPTEMBER/OC

VOL. 25 NO. 5 TOBER 2012 I

THE CPA

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18 Ethics education race to female 22 Thepartnership

More than 10,000 CPAs across the region turn to Disclosures for up-to-date information on issues affecting the accounting profession. Reach them all with a cost-effective classified ad!

Rates • VSCPA members: $30 for first 40 words; each additional word costs 99 cents • Nonmembers: $45 for first 40 words; each additional word costs $1.25 • Blind boxes: Blind box numbers are also available for $5.00 per insertion plus 14 words for the Society’s address, which will appear as: Reply in confidence to (BOX #), VSCPA, 4309 Cox Road, Glen Allen, VA 23060, or classifieds@vscpa.com. Simply notify the VSCPA that you wish to use this option when you place your ad. Responses will be forwarded to you immediately after they are received by the VSCPA. Contact us at classifieds@vscpa.com or visit the VSCPA website at www.vscpa.com and click on “Advertise or Sponsor” under “For the Public.”

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I AM the vscpa

COURTNEY DOBBS >>

A scholarship winner, Dobbs hopes to one day own her own business. FROM THE PIPELINE >>

Two minutes with Courtney Dobbs A native of Glen Allen, Dobbs is in her junior year at Virginia Tech in Blacksburg, where she is pursuing dual bachelor’s degrees in accounting and finance, to be followed by a master’s degree. She received the Kearney & Company Scholarship last year from the VSCPA Educational Foundation. When she begins her career, she will look for a quality team of coworkers, an environment where she will be challenged and a company where she is allowed to initiate and make bold changes. LAST SUMMER, I… Interned in the

accounting department at Southern States Cooperative. Gosh, I so enjoyed the people at SSC. They were down-to-earth and exposed me to a side of business you can’t learn about in a classroom.

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I AM PASSIONATE ABOUT… Three things:

MY ADVICE TO ASPIRING ACCOUNTING

1. Hosting people. Nothing makes me happier than for people to come over, enjoy my cooking and sit around the dinner table. 2. Distance running. Being a member of the Virginia Tech Varsity Track and Cross Country Teams has so enriched my college experience. 3. Entrepreneurship. If you want to meet the most confident and passionate students on campus, join the Entrepreneur Club. My latest project is to sell barbecue at our local market this summer. I have not told my Mom and Dad yet.

MAJORS IS… Do not change your mind. Put

PEOPLE DON’T KNOW THIS, BUT… I am

the oldest of Irish triplets. My sister Erica is 11 months younger than me, and Laura is 11 months younger than her.

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the studying hours in, and the knowledge will come. It’s not rocket science, but it does require time. I NEVER LEAVE HOME WITHOUT… A

bright blue rock from the Cow Pasture River. The river flows through my Dad’s hometown of Clifton Forge, and the rock reminds me of my roots and the mountains. I WANT TO BE A CPA BECAUSE… It is a

means for me to be a knowledgeable leader in any organization. Unlike any other position, accountants oversee transactions from every aspect of a business. As a CPA, I will always be learning and leading those who seek my experience and expertise. n

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Virginia Society of CPAs Virginia Society of 4309 Cox Road Glen Allen, VA 23060 Certified Public

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