Reposted from the This Week in Nonprofit Fraud Blog – March 10, 2014
Regulatory Update: Increased Whistleblower Protections in the Public Company Sector
March 4, 2014: The United States Supreme Court backed increased whistleblower protections under the Sarbanes-Oxley Act of 2002. The court was asked to decide whether whistleblower protection extends to private contractors hired by publicly traded companies, and not just to internal employees. According to the court, contractors are absolutely covered by the Sarbanes-Oxley Act, since to exclude them would return “the very code of silence” that the Sarbanes-Oxley Act was passed to try to remove. The case before the court involved a pair of contractor research analysts for Fidelity Investments who had been harassed and terminated after voicing concerns over potentially misleading information in Fidelity’s public filings. While this ruling only covers contractors of publicly traded companies, it makes a critical point about the responsibilities of knowledgeable third parties, such as accountants and lawyers.
See more on this ruling at The Wall Street Journal
Photo courtesy of Bryan R. Smith, The New York Times
March 7, 2014: Cheon Park pled guilty to a multi-million dollar fraud involving preschool programs for developmentally disabled children. In New York, once disabled children reach kindergarten, their educational needs are provided for by the public school system. However, for preschool-age children, educational needs are provided for by a number of contractors, who in total cost the state more than $1 billion per year. In Park’s case, his company, Bilingual SEIT, claimed to be providing services, but instead, was failing to provide services altogether, as well as billing for children who did not have disabilities. Park also received kickbacks, paid relatives for no-show jobs, and paid his personal expenses using company money. He spent some of the embezzled funds on a 5,000 square foot mansion and a new Mercedes for himself. Park has already agreed to pay $2.1 million in restitution and he faces between four and five years in prison.
See more on this case at The New York Times
- Sadly, Park is one of many cases of corruption in the New York special education system. New York recently instituted an audit program for its special education programs; the first three audits performed all led to criminal charges.
- The program has been particularly vulnerable to abuse because it encouraged overbilling by contractors by allowing them to pay back overages over time. Many vendors submitted unallowable costs (like company cars, office renovations, and income taxes) or billed for no-show employees in the hopes that no one would notice.
- The overall costs of the program more than double in six years, which should have been a red flag for vendor fraud and abuse.
Raffa Forensic Practice Tips:
- Keep a careful eye on vendors that are helping you fulfill your organization’s mission. Be skeptical of the individual costs that they bill, and watch the overall program budget.
- Does your organization have a detailed review process for vendor reimbursement requests?
DON’T BE THE NEXT VICTIM OF FRAUD!
The Raffa Forensic Accounting Services Practice offers a wide variety of fraud prevention and detection services including Fraud Risk Assessments, Background and Workplace Investigations, Fraud and Internal Investigations, Transactional Due Diligence Investigations, Anti-Fraud Consulting and Training, and Computer Forensic Analysis.
For more information on the Raffa Forensic Accounting Services Practice please visit us at www.raffa.com/ProfessionalServices/Forensic/ and the Nonprofit Fraud Prevention Institute at www.raffa.com/Fraud.
You can also contact the following Raffa professionals with any questions or if your organization needs assistance in fraud prevention:
Lawrence J. Hoffman, CPA/CFF, CVA, CFE, Senior Partner: Lhoffman@raffa.com
Leslie C. Kirsch, CFE, Manager: Lkirsch@raffa.com