A former agent of a financial products and services company pleaded guilty today for his participation in fraud conspiracies related to contracts for the investment of municipal bond proceeds and other municipal finance contracts, the Department of Justice announced.
According to plea proceedings today in U.S. District Court in New York City, Adrian Scott-Jones, a resident of Morriston, Fla., pleaded guilty to participating in two separate fraud conspiracies with companies that provide a type of contract, known as an investment agreement, to public entities throughout the United States, such as state, county and local governments and agencies. These public entities were seeking to invest money from a variety of sources, primarily the proceeds of municipal bonds that they issued to raise money for, among other things, public projects. Scott-Jones also pleaded guilty to one count of wire fraud. According to the plea agreement, Scott-Jones has agreed to cooperate with the ongoing investigation.
The department said in court documents that Scott-Jones’ former company, located in North Palm Beach and Ocala, Fla., marketed financial products and services, including services as a broker or advisor to various public entities that issue municipal bonds. Public entities typically hire a broker to conduct a competitive bidding process for the award of investment agreements. Major financial institutions, including banks, investment banks, insurance companies and financial services companies, are among the providers of investment agreements and other related municipal finance contracts. Competitive bidding for these agreements is the subject of regulations issued by the U.S. Department of the Treasury and is related to the tax-exempt status of the bonds.
According to court documents, Scott-Jones participated in one fraud conspiracy from as early as September 2001 until at least November 2006, and in a second fraud conspiracy from as early as August 1999 until at least November 2006. In each conspiracy, Scott-Jones gave co-conspirator providers information about the prices, price levels or conditions in competitors’ bids, a practice known as a “last look,” which is explicitly prohibited by U.S. Treasury regulations. Scott-Jones also solicited and received intentionally losing bids for certain investment agreements and other municipal finance contracts. As a result of the bid manipulation, the co-conspirator providers won contracts at artificially determined price levels, which deprived municipal issuers of money and property.
The court documents also charge that Scott-Jones and co-conspirators misrepresented to municipal issuers or their bond counsel that the bidding process was in compliance with U.S. Treasury regulations. This caused the municipal issuers to award investment agreements and other municipal finance contracts to providers that otherwise would not have been awarded the contracts if the issuers had true and accurate information regarding the bidding process. Such conduct caused municipal issuers to file inaccurate reports with the Internal Revenue Service (IRS) and thus placed the tax-exempt status of the underlying bonds in jeopardy.
Each of the fraud conspiracies for which Scott-Jones is charged carries a maximum penalty of five years in prison and a $250,000 fine. The wire fraud charge carries a maximum penalty of 20 years in prison and a $250,000 fine. The maximum fines for each of these offenses may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.
This is the sixth guilty plea to arise from an ongoing investigation into the municipal bonds industry, which is being conducted by the Antitrust Division’s New York Field Office, the FBI and IRS Criminal Investigation. The department is coordinating its investigation with the Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York.
Three former employees of Rubin/Chambers, Dunhill Insurance Services Inc., also known as CDR Financial Products, a Beverly Hills, Calif.-based financial products and services firm that acted as a broker of investment agreements and other municipal finance agreements, have pleaded guilty to bid-rigging and fraud conspiracies in relation to the ongoing investigation. Two other individuals have also pleaded guilty to charges related to the ongoing investigation.
As a result of the ongoing investigation, three former financial services executives were indicted on July 27, 2010, for participating in fraud schemes and conspiracies related to the bidding for investment agreements. In addition, CDR, two of its employees and one former employee were charged in October 2009 for participating in bid-rigging and fraud conspiracies and related crimes. The CDR trial is scheduled to begin on Sept. 12, 2011.
An illegal gratuity is when someone gives gifts or gratuities in hopes of future favor. The gifts are not tied to any particular favor or decision, they are intended to influence the recipient’s future decisions.
For example, imagine a government official who encourages corporations to fund his re-election campaign. The corporations and the official running for office understand that the corporations will experience preferential treatment from the official in the future. Sound like some remote South American banana republic? Unfortunately, this is how our “system” works in America.
If a lobbyist gives a government official a significant campaign contribution and helps her raise more money for her campaign while at the same time explaining his position on, let’s say, drilling off of the coast of Alaska, is that bribery, extortion, or illegal gratuities? Or is the congresswoman suffering from conflict of interest? The behavior of our congresspeople might be considered all three at once.
I got in hot water a few years ago with one of my government clients for allegedly trying to influence their buying decisions. I was only trying to show appreciation, which is pretty common in the commercial realm. I receive a half-dozen gifts each Christmas from my vendors and my clients and I thought I would join in. One of my last names is Hart, and so I thought it would be cute to send out Valentine’s gifts to my clients instead of Christmas presents. Get it? Hart, Valentines? So, I sent a small heart-shaped dish full of Dove chocolate to one of my legislative audit clients. They promptly sent it back to me with a scolding letter from their lawyer admonishing me never to give them a gift again. I guess they thought an $8 gift qualified as an illegal gratuity! Whoops.
Some people mistakenly confuse the terms extortion and bribery. The difference between bribery and extortion is in who makes the first move. The person wanting a favor from a powerful person initiates bribery. In extortion, the person in power initiates the transaction. In other words, in extortion the public official asks for goodies instead of being offered goodies.
One contractor told me that the head of the purchasing department for a large city always held a meeting with the bidders on a project before the project was awarded. The experienced contractors realized that he was asking for gifts when he said things like, “My car is so filthy. It needs a detailing!” “Or, my lawnmower sure is getting tired.” Whichever contractor took care of his car or bought him a new lawnmower was awarded the project. The contractor admitted to engaging in some funny business of his own. All of the contractors would meet frequently and decide who among them would get that particular contract. They took turns and counseled each other on what to charge. One good turn deserves another, eh?
David Letterman was in the news in 2009 because the boyfriend of the woman with whom he was having an affair threatened to expose his infidelities to the public unless David Letterman paid the boyfriend several million dollars. Wisely, David Letterman decided to fess up to the affair on the air (and he took a whopping 30 seconds to do so), but he turned the boyfriend into the authorities first. What an interesting turn of events for the boyfriend. He is broke, girlfriendless, and in prison for extortion.
Broward County Public School Board member, Beverly Gallager, was arrested for extortion, wire fraud, and bribery after undercover FBI agents passed $12,500 to her in return for her awarding construction contracts. U.S. Representative, Debbie Wasserman Shultz, was appalled saying, “It shakes the confidence of the public in their elected leaders.”[11]
When you gather your team together to brainstorm the risks of fraud in order to plan your audit (this procedure is required if you are following AICPA or Yellow Book standards), make sure you consider the four facets of government corruption in your discussion.
Have you ever wanted to say something in your audit report that you can’t support with evidence? Or have you ever wasted a significant amount of time on an audit methodology that you didn’t need to perform? Are you using a canned audit program that was created years ago for someone else’s audit?
GAO Yellow BookIn this fast-paced course, we will design audit methodologies that get you where you want to go as quickly and as easily as possible. We will re-evaluate the audit procedures you are currently using and make sure that your audit programs help keep the audit team on the right road. Critical audit tests will be scrutinized for how direct, safe, and quick they are.
“Leita engaged the entire class in exercises, and I learned not only from her but from other peers in the class. She had good energy, and the right mix of humor and instruction to keep the day moving along.” – Audit Methodology Workshop participant
“She was by far the best instructor I’ve had at XX. She kept us working and on task the whole day, but it felt fun. She really knows her audience and makes everyone feel comfortable enough to ask questions.” – Audit Methodology Workshop participant
Passive sentences may leave the actor – or responsible party – out of the sentence entirely, which can be a little dangerous in government auditing. To correct any issues, our public officials must be held accountable.
Perhaps you don’t want to call out the actor and leave them unnamed, so people need to guess who is responsible. Maybe everyone reading your audit report already knows the actor and directly naming them could appear as harsh and rude.
Even though your software complains, it might be best to not name the actor and write in passive voice. Be careful not to always use passive voice when leaving the actor silent or moving them to the end of the sentence. You could end up with bureaucratic, lengthy sentences not holding anyone accountable and, ultimately, that’s not a good thing.
Management is ultimately responsible for establishing and implementing internal controls. Both the COSO literature and the GAO’s Green Book make that very clear. But because auditors use internal control concepts extensively in their work, the line can get blurred regarding management and auditor responsibilities for internal control. You see, the COSO model and the Green […]
The 2018 version of the Yellow Book mentions audit objectives 163 times in one chapter on performance audits! That tells me that objectives run the show! And you know, the broader your audit objective, the longer your audit becomes and the harder your audit report is to write. A few years ago, I created […]
The Government Accountability Office has quite a lot to say about continuing education and if you are subject to their requirements, you are going to have an awful lot to do! Here are a few quotes from the 2011 version of the yellow book along with my interpretation of them in hopes of helping you understand what kind of training – and how much training – you will need to get every two years to comply with the standard.
3.72 The staff assigned to conduct an audit in accordance with GAGAS should collectively possess the technical knowledge, skills, and experience necessary to be competent for the type of work being performed before beginning work on that audit. The staff assigned to a GAGAS audit should collectively possess
Thank you so much GAO for that word ‘collectively!’ That means that each individual auditor doesn’t have to bring all of those bits of knowledge to the team. The quality reviewer and peer reviewer will assess whether someone on the team knows GAGAS, and someone knows the environment you are auditing in, and someone can cipher, and someone with the specialized skills that you need to get the job done. The word ‘collectively’ allows new professionals to become auditors. Now here is the paragraph that talks about the hours required:
3.76 Auditors performing work in accordance with GAGAS, including planning, directing, performing audit procedures, or reporting on an audit conducted in accordance with GAGAS, should maintain their professional competence through continuing professional education (CPE). Therefore, each auditor performing work in accordance with GAGAS should complete, every 2 years, at least 24 hours of CPE that directly relates to government auditing, the government environment, or the specific or unique environment in which the audited entity operates. Auditors who are involved in any amount of planning, directing, or reporting on GAGAS audits and auditors who are not involved in those activities but charge 20 percent or more of their time annually to GAGAS audits should also obtain at least an additional 56 hours of CPE (for a total of 80 hours of CPE in every 2-year period) that enhances the auditor’s professional proficiency to perform audits. Auditors required to take the total 80 hours of CPE should complete at least 20 hours of CPE in each year of the 2-year periods. Auditors hired or initially assigned to GAGAS audits after the beginning of an audit organization’s 2-year CPE period should complete a prorated number of CPE hours.
Let me point out the main points of this paragraph. Four roles on the audit: Plan, direct, perform, report. The first sentence distinguishes between four roles on an audit. This is important, because later in the paragraph, those who perform may be able to bypass the 56 hour requirement. 24 hours in three buckets: 1. government auditing, 2. government environment, 3. specific or unique environment. Anything on this site satisfies one of the first two buckets. But as much as I’d like you to stick around and buy something from me, I do need to point out that your 24 hours doesn’t have to be governmental. For instance, I audited a pension system’s investments – so that year, my 24 hours was earned in an investment class. 56 hours in auditing: The GAO wants auditors to be experts in auditing – not dabblers. So, in addition to the 24 hours, most auditors must also get 56 hours in topics that enhance their proficiency to conduct audit. Estate planning and personal taxation probably won’t qualify – although this is an admittedly wide category. Planners, directors, reporters are in for the full meal deal: 80 total hours (24 + 56) . If you even touch a yellow book audit in order to plan, direct, or report the engagement, you are in for the full 80hours. Performers could be exempt: Those auditors who spend a minimal amount of time performing (Iread that as fieldwork) governmental engagements are exempt from the 56 hours. What defines minimal? Less than 20% of their year spent on governmental engagements. That is an awful lot of CPE! I bet you still have questions. Maybe you want to know when the measurement period starts or what topics qualify for the 24 hours. Those more detailed questions are answered on the GAO’s website in a CPE Q&A document at http://www.gao.gov/govaud/ybcpe2005.pdf. And if that doesn’t answer your questions, please write to me at Leita@yellowbook-cpe.com or to the GAO’s question answering folks at yellowbook@gao.gov.
CPE SponsorsYellowbook-CPE.com is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org.
For live courses (webinars or in-person seminars), full refunds will be granted if the student cancels by 30 days before the course start date. You may substitute another student from your agency up to 2 days before the course start date. To substitute a student, please email us at support@yellowbook-cpe.com.
Purchasing a self-study course grants the student access to the course and to the opportunity to earn a certificate for 1 year. Purchasing a self-study course is not a guarantee that a certificate will be earned. If a student leaves the agency that purchased their self-study course AND has not started the Qualified Assessment, the agency may request for the course to be transferred to another student for the remainder of the year. To request a transfer, please email us at support@yellowbook-cpe.com.
