Posted by Kimberly Culcay.

In the article, “What the PCAOB’s new related-party standard means for auditors,” Maria L. Murphy captures the new standard put in place by the Public Company Accounting Oversight Board (PCAOB). The new standard will require auditors to perform specific procedures that are intended to strengthen auditor performance in high-risk areas, such as significant unusual transactions and financial relationships, and transactions with executive officers. The reason behind the new standard is that in the areas of accounting mentioned above there was a lack of guidance on how to report or treat certain transactions.

The Auditing Standard (AS) No. 18 requires auditors to understand the relationships and transactions with related party transactions as if they were someone working in the company. The auditors must also understand and document the process of understanding the relationships and transactions of the company just as the internal controls of the company itself. The auditors not only have to record how they gained understanding of the relationships and transactions but the auditors must properly account for the transactions, perform procedures to test that the company’s related parties and transactions with those parties have been completely and accurately identified, accounted for, and disclosed. Before this standard, there was a vague and unstructured way of handling related party transactions. Related party transactions are a way that a company can commit fraud by transferring property to a related party thereby creating a conflict of interest. In the article, it also states that the AU Section 316, Consideration of Fraud in a Financial Statement Audit, was amended to require specific procedures to identify and evaluate significant unusual transactions. The main point of amending the standards is for the professional auditors to be able to identify procedures quickly if a situation of fraud exists.

I think amending the standards of accounting to include specific procedures to prevent fraud from happening rather than a professional figuring out what to do if fraud is already done is way more useful. I also think that with the incentive to have these procedures in place, it eliminates some of the gray area of accounting. The need for Forensic Accountants has increased ever since the recession in 2008, with all of the fraud that was done due to the lack of strict standards and procedures to be able to detect fraud early. I am currently a graduate student at Montclair State University; I have been striving to complete my combined program in Accounting BS/MS with a Certificate in Forensic Accounting. Personally, I find that in the emerging economy people have learned from the mistakes made in the past with the scandals, fraud and so on. I think it is important to be a Forensic Accountant in order to apply sophisticated set skills in other aspects of accounting and litigation. I think that if you already know how to be an accountant and with some background knowledge on Forensics, then it could be easier to detect some of the common problems that lead to fraud.

Kimberly is an accounting major with a certification in forensic accounting at Feliciano School of Business, Montclair State University.

Reference:  Murphy, Maria L. “What the PCAOB’s New Related-party Standard Means for Auditors.” Journal of Accountancy. 22 July 2014. Web. 20 Oct. 2015. .

Posted by Sabrina Gilliam Formey.

Health care fraud may be more extensive than fraud in other industries because deception branches from an assorted group of players; those players being insurance companies, pharmacists, providers, suppliers, health care vendors, health care provider employees, physicians, specialists, and patients.  To compound the problem, some of those players are not only acting independently, but also participating in fraudulent activities within a network, or organized crime rings, and or with computer hackers who are unjustly profiting from committing health care fraud.  As a brief example, insurance billing claims that a facility submitted for a number of Alzheimer’s patients receiving “group therapy”, when they were actually placed in a room to watch the movie “Forrest Gump”, doesn’t scratch the surface on how persistent health care fraud has been; and how it continues to morph into new dimensions, that are discovered months and sometimes years after millions of dollars have been dispersed for fraudulent claims.

Lack of public awareness about health care fraud fosters a criminal subculture of operators that swindle unjust profits for their own personal gain.  Those fraudulent activities, not only create health and safety risks, but also drive up costs for healthcare.  These costs are later transferred to patients resulting in higher costs for care: higher employer sponsored or group premiums, higher deductibles, and higher co-pays.  Additionally, there are “double jeopardy” costs that further become a burden for citizens to bear through state and federal tax increases levied to close deficit gaps for government healthcare programs.

Common Channels for Health Care Fraud

1. Billing for services not rendered.

2. Billing for a non-covered service as a covered service.

3. Misrepresenting dates of service (billing one treatment date as separate dates).

4. Incorrect reporting of diagnoses or procedures (includes unbundling).

5. Overutilization of services.

6. False or unnecessary issuance of prescription drugs.

“According to the Centers for Medicare & Medicaid Services (CMS), national health expenditures in the U.S. reached $2.6 trillion in 2010 – 17.9 percent of GDP.”  With the expansion of coverage of an estimated 22 million people that were previously uninsured prior to the U.S. Affordable Care Act(ACA), health fraud crime will become an undeclared war between government agencies and insurance companies that are trying to stop these crimes and the many players that are many steps ahead due to the gap in systems, lack of controls, and stratagem for auditors/investigators deployed to  monitoring claims activities and continuous oversight that would be required.

Sabrina Gilliam Formey is a graduate student at the Feliciano School of Business, Montclair State University.

Article

10 popular health care provider fraud schemes ‘Do no harm’ isn’t their motto By Charles Piper, CFE, CRT

January/February 2013

http://www.acfe.com/article.aspx?id=4294976280

Additional Readings

• Health care: A ‘goldmine’ for fraudsters

January 13, 2010: 3:07 PM ET   By Parija Kavilanz, senior writer

http://money.cnn.com/2010/01/13/news/economy/health_care_fraud/

• Blockchain: Putting the ‘Block’ On Healthcare Fraud, Waste, And Abuse

July 19, 2017, 08:16:38 AM EDT By Michael Scott Bitcoin Magazine

http://www.nasdaq.com/article/blockchain-putting-the-block-on-healthcare-fraud-waste-and-abuse-cm817907

Additional Readings

• Health care: A ‘goldmine’ for fraudsters

January 13, 2010: 3:07 PM ET   By Parija Kavilanz, senior writer

http://money.cnn.com/2010/01/13/news/economy/health_care_fraud/

• Blockchain: Putting the ‘Block’ On Healthcare Fraud, Waste, And Abuse

July 19, 2017, 08:16:38 AM EDT By Michael Scott Bitcoin Magazine

http://www.nasdaq.com/article/blockchain-putting-the-block-on-healthcare-fraud-waste-and-abuse-cm817907

Posted by Abigail Hofmann.

Francisco Garcia of the Sacramento Kings was lifting weights on a Ledraplastic exercise ball on October 9^th, 2009. The 195 pound player was lifting two 80 pound weights while on the ball when it suddenly burst beneath him. This supposed “burst resistant” ball advertised its ability to withstand weight up to 600 pounds. In the fall, Garcia suffered a fracture to his forearm, causing ineligibility for upcoming games. This injury came shortly after signing a five year, $30 million contract. Because of this, the Sacramento Kings wanted “to recoup the more than $4 million in salary, medical expenses and other costs it incurred after Garcia’s injury, as well as prejudgment interest.” (Bricketto)

Ledraplastic initially refused to reimburse the Kings or Garcia for the financial loss or issue a statement recalling the products or forewarning about potential dangers. In the Kings’ product liability case, they were able to prove that the ball burst at weights of mere 400 pounds, rather than the advertised 600 pounds, and that “for a very small expense, the ball could have been made thicker and would have provided the burst resistant capacity as represented.” (Bricketto) Eventually, a settlement was done in private, but the Kings “sought reimbursement for the salary they paid Garcia,” and “Garcia had also sought damages for pain and suffering as well as loss in future earning capacity.” (Lu)

Ultimately, this product liability case was pretty clear on who was at fault: Ledraplastic claimed to have a ball that withstood weights up to 600 pounds, yet failed to hold even 400 pounds. This caused an injury resulting in millions of dollars of damages, and up until the settlement, Ledraplastic refused to forewarn others about this potential danger. Although the settlement was private, we do know that Ledraplastic is now required to warn users of the dangers of using the ball while lifting free weights, hopefully preventing many similar injuries.

Abigail is a management, marketing, and finance major at the Stillman School of Business, Seton Hall University, Class of 2019.

Works Cited:

Bricketto, Martin. “NBA Team Sues Exercise Ball Cos. Over $4M Injury – Law360.” NBA Team Sues Exercise Ball Cos. Over $4M Injury – Law360. N.p., n.d. Web. 08 Sept. 2016.

Lu, Andrew November 1, 2012 5:54 AM. “NBA Star Francisco Garcia Settles Exercise Ball Lawsuit.” Injured. N.p., n.d. Web. 07 Sept. 2016.

Bank of America must pay a Florida couple for failing to answer a harassment complaint.  The couple received relentless phone calls from the bank regarding past due payments on a mortgage.

BofA alleged the calls “were not to collect debt, but help the couple avoid foreclosure.”  The couple, however, claimed they received about 700 calls over a four year period.  At times, both their cell phones and home phone would ring in succession.  The couple filed suit in federal court under the Telephone Consumer Protection Act for harassment and subsequently received a default judgment. The judge refused to reconsider the order.

Default judgment is taught in business law class. This case exemplifies the importance of obeying court rules and responding promptly to a complaint.

The Federal Reserve Bank of New York has come under fire recently with the release of secret tapes supposedly of regulators planning to “go soft” on Goldman Sachs.  Carmen Segarra, a former employee who was assigned to Goldman, claims in a lawsuit that she was under pressure by her superiors to overlook certain findings she made concerning the company.  The Fed eventually fired her allegedly because she refused to comply and change the findings.

In the recordings, one supervisor tells Segarra that basically consumer laws do not apply to certain institutions.  Michael Lewis, best-selling author of “Flash Boys: A Wall Street Revolt,” said after listening to the tapes that, “The Ray Rice video for the financial sector has arrived.”

Segarra’s lawsuit was dismissed for failing to connect her firing with the alleged Goldman disclosures.  The suit is pending appeal.  Nevertheless, the tapes may prompt a Congressional investigation into the matter.  Sen. Elizabeth Warren (D-Mass.), a member of the Senate Banking Committee, stated, “When regulators care more about protecting big banks from accountability than they do about protecting the American people from risky and illegal behavior on Wall Street, it threatens our whole economy.”  She further stated, “Congress must hold oversight hearings on the disturbing issues raised by today’s whistleblower report when it returns in November.”

Posted by Jen Suarez.

To what extent is defamation? From my last blog article, I defined defamation as “malicious and damaging misrepresentation,” where an organization was falsely accused of rape. However, can anyone play to the “defamation card” if they don’t like what other’s have to say? For example, Yelp.com is a website where consumers can post and rate the quality of businesses anonymously. The Rhodes Group, which is a Collin County Texas real estate firm, received a poor review on the Yelp website and is now suing on the grounds of defamation; they are requesting the name of the customer, whose username is “Lin L.” The Rhodes Group does not even believe that “Lin L.” is a real person. In fact, they openly suggest that this username belongs to someone from a competing organization, trying to ruin The Rhodes Group’s reputation. The Rhodes Group, however, is fighting in court against Public Citizen, which claims that revealing the user’s identity violates the user’s right to privacy. Though the negative Yelp review has been removed, there is no confirmation its removal was due to the impending lawsuit.

The Public Citizen lawyer, representing Yelp, stated that there is no justification for revealing the user’s identity, especially since The Rhodes Group did not file any complaint until well over a year after the review had been posted. According to its website, “Public Citizen maintains that the Rhodes Group’s claim violates the one-year statute of limitation for libel suits and, additionally, that the subpoena was issued in the wrong state and therefore cannot be enforced by the Texas court.” The Rhodes Group is fighting back stating, “You can’t use the First Amendment as a shield to make false and defamatory statements about an individual, particularly in a commercial arena.”

The Rhodes Group is absolutely right that Yelp cannot hide behind the “First Amendment Shield,” however, Yelp and Public Citizen are correct that the user’s identity should remain anonymous and there is no justification to reveal it. Bad, anonymous reviews, whether they are fake or genuine, are part of the online world. Millions of users have the ability to hide behind a keyboard and this allows us to bestow harsher criticism without fear of consequences. Freedom of speech does not include libel. Therefore, the result of this court case could determine how “free” freedom of speech actually is on the World Wide Web.

Jen is a business administration major with a concentration in management at Montclair State University, Class of 2017.

Posted by Ethan James.

There was a chemical spill into the Elk River, two years ago, that came from a storage tank owned by Freedom Industries. This spill caused a temporary shutdown of businesses within the region around the river, as well as many residents of the Charleston area needing to go to the emergency room with symptoms of rashes and nausea. The damages caused by the chemical spill hurt the local economy and people, so a class-action lawsuit was ensued.

The lawsuit was against Eastman Chemical and West Virginia American Water Co., as through the actions of both companies lead to damages against the people of the Charleston area. “The suit alleged the water company was unprepared for the spill and that Eastman Chemical didn’t advise Freedom of the dangers of the coal-cleaning agent,”(Michael Virtanen). There is a fear that Eastman did not properly warn the water company of the damage to others or how to properly contain it. In addition, the water company was said to be “unprepared for the spill”(Michael Virtanen), in both the damages that were inflicted on the tanks and how to proceed with the consequences of the spill.

The U.S. District Judge John Copenhaver approved a $151 million dollar settlement that involved both companies, splitting the settlement. West Virginia American Water Co. is going to pay $126 million, while Eastman Chemical will proceed to pay $25 million. “The money will be distributed to affected residents and businesses through an application process to be determined later,”(The Associated Press). There has been an update to proceedings within the water company in order to avoid a repeat of the damages that occurred, while the chemical company has placed new regulations on inspections in order to better advise companies of their products.

Ethan is a management, finance, and ITM Majors and legal studies minor at the Stillman School of Business, Seton Hall University, Class of 2020.

Hacking into computer systems is nothing new, and government and businesses alike have always been aware that they must be one step ahead of computer criminals. But the attack on Sony Pictures Entertainment was more than that. It was a shot across the bow in what appears to be a potentially rampant future form of warfare. As a result, every cyber attack on government or business systems must now be carefully examined to see whether it is either criminal or an act of war.

In the face of evidence from the FBI that North Korea was responsible for the Sony attack, senior Republican senators disagree with the administration that it was only a form of “cybervandalism.” Sen. McCain stated this attack “is a new form of warfare, and we have to counter that form of warfare with a better form of warfare.” Sen. Lindsey Graham called “the cyberhacking ‘an act of terrorism’ and suggested re-imposing sanctions on North Korea and adding the country to the terrorism list.” In 2001, President George W. Bush called North Korea part of the “Axis of Evil,” along with Iran and Iraq.

The FBI concluded the attack on Sony was evidenced by IP addresses directly linked to North Korea. This attack was similar to those that occurred last year against South Korean banks and media outlets. The FBI stated:

We are deeply concerned about the destructive nature of this attack on a private sector entity and the ordinary citizens who worked there. . . . Further, North Korea’s attack on SPE reaffirms that cyber threats pose one of the gravest national security dangers to the United States. Though the FBI has seen a wide variety and increasing number of cyber intrusions, the destructive nature of this attack, coupled with its coercive nature, sets it apart.

North Korea’s actions were intended to inflict significant harm on a U.S. business and suppress the right of American citizens to express themselves. Such acts of intimidation fall outside the bounds of acceptable state behavior.

There will most likely be more cooperation between business and government in sharing information and technology. Only together can this new threat to our national security and economy be defeated.

Posted by Bridget Uribe.

During the month of March of 2014, the Securities and Exchange Commission (SEC) charged three executives: Chairman Steven Davis, Executive Director Stephen DiCarmine, and Chief Financial Officer Joel Sanders of Dewey & LeBoeuf, the international law firm, with facilitating a $150 million fraudulent bond offerings. The SEC alleged that the three charged turned to accounting fraud when the firm needed money during the economic recession and steep costs from a recent merger.  They were afraid that their declining revenues might cause the bank lenders to cut off access to the firm’s credit lines. Thus, leading Dewey & LeBoeuf’s financial professionals came up with ways to artificially inflate income and distort financial performance.

The fraud didn’t stop there. Dewey & LeBoeuf then resorted to the bond markets to raise significant amounts of cash through a private offering that seized on fake financial numbers. Dewey & LeBoeuf since have officially went out of business, and the Manhattan District Attorney’s Office charged criminal charges against Davis, DiCarmine, and Sanders. According to the SEC’s complaint, the roots of the fraud dated back to late 2008 when senior financial officers began to come up with fake revenues by manipulating various entries in Dewey & LeBoeuf’s internal accounting system. The firm’s profitability was inflated by approximately $36 million (15%) at the end of the 2008 financial results. “The improper accounting also reversed millions of dollars of uncollectible disbursements, mischaracterized millions of dollars of credit card debt owed by the firm as bogus disbursements owed by clients, and inaccurately accounted for significant lease obligations held by the firm”(SEC Press Release).

Fast forward to the present, a New York judge declared a mistrial Monday bringing an end to the trial for the biggest law firm failure in U.S. history! The decision comes on the 22nd day of deliberations by a 12-member jury, which acquitted the ex-law firm leaders on several dozen counts of falsifying business records. The jury couldn’t reach a verdict on grand larceny and remained deadlocked on more than 90 counts charges facing Steven Davis, Joel Sanders, and Stephen DiCarmine. The three could have faced up to 25 years in prison if convicted of grand larceny, the most serious of the roughly 50 counts each brought against them. The defendants also faced related civil charges brought by the Securities and Exchange Commission and a private lawsuit brought by former Dewey investors who say, “They were duped into buying debt in a 2010 bond offering.” Both of those proceedings had been on hold pending the outcome of the criminal trial. Some highlights of the trial are: prosecutors had likened Mr. Davis to a drug kingpin, overseeing a criminal enterprise. Also, the defense side thought prosecutors didn’t present enough evidence to prove their case, thus choosing not to call any witnesses. Instead, the lawyers relied on the cross-examination of government witnesses to try to distance their clients from the actions taking place in the accounting department. At times, such questioning also prompted praise for the defendants from those on the stand. Where does this lead us now? How the Department of Justice completely lost the case or can a retrial give a favorable outcome in the future? It’s too early to tell, but what I do know is that the long deliberations and mistrial will raise questions about whether the case was too complex.

Bridget is a graduate forensic accounting student at the Feliciano School of Business, Montclair State University, Class of 2016.

Posted by Aitana Robinson.

The battle between Spirit and Led Zeppelin continues in the copyright infringement case over “Stairway to Heaven.” This past July 8th the District Court of California- Western Division, found in favor of the defendants, Zeppelin.  On the 15th of March, Attorney Francis Malfoy filled in the Ninth Circuit Court of Appeals representing Michael Skidmore, the Spirit guitarist, in the hope that the appeals court will correct the mistakes of the trial court.

At the heart of the lawsuit is the accusation that Led Zeppelin copies a riff found on Spirit’s song “Taurus,” which proceeded “Stairway to Heaven.”  Skidmore’s appeal is based off the assumed error that “the trial court refused to let the jury hear the full and complete composition of ‘Taurus’ embodied in the sound recordings…”

Skidmore’s attorney complained about the court “making a series of erroneous instructions on the scope of copyright protection[,] . . . limiting plaintiff’s trial time to 10 hours violated due process and was not even close to an adequate about of time to try this case,” and finally, that “the court seriously erred when defining originality.”  Skidmore has asked the 9th Circuit court to reverse the verdict and call for a retrial.

Aitana is a communications major at the School of Communications and the Arts, Seton Hall University, Class of 2019.

Posted by Natalie Kenny.

The parent company that makes Old Spice, Proctor & Gamble, is being sued by Rodney Colley of Alexandria, Virginia because of a defect in the deodorant. The plaintiff shared photos of himself with burns under his arms which he claims are from Old Spice deodorant. The plaintiff says he suffered “severe rashes, burning, and discomfort” after he used the product and he had to stop using it. In the photo, the rashes look severe.

Procter & Gamble, the parent company that owns Old Spice said that the people who experience rashes and irritation from using the deodorant are in the minority and only make up a small fraction of the company’s overall users. After news broke of this lawsuit, several other individuals came forward with stories about how the Old Spice deodorant gave them rashes and scabbing. The five million dollar lawsuit was filed in U.S. District Court in Ohio and is awaiting trial.

In my opinion, it is not okay for this deodorant to be giving people severe rashes. Even though Proctor & Gamble stated that only a small percentage of users get burns or rashes from the product that is simply not good enough. Consumers should not have to be concerned whether or not they will have a severe reaction to a product that they use every day.

I think that Proctor & Gamble should have to pay for the medical bills of the people who got severe reactions from this product as well as punitive damages to stop them from doing this and to get other companies to make sure their products are safe before selling them to the public.

Natalie is a marketing major at the Stillman School of Business, Seton Hall University, Class of 2019.

Posted by Keith Cleary.

For almost a half of a decade now, over 40 patent lawsuits have been going on between “the two largest smartphone companies, Apple and Samsung.” (Chowdhry). However, the two companies came to terms on ending all of the patent lawsuits that are outside of the U.S. These countries are all over the world including Britain, Spain, Germany, and Italy. Even though these two technology giants are dropping their lawsuits against each other internationally, they still have not ended their lawsuits against each other in the states. A few years ago, “a jury in California awarded Apple with $119 million out of a $2.2 billion lawsuit against Samsung three months ago”(Chowdhry). Even, though they settled their disputes overseas, the two competitors are still relentless with their lawsuits.

Some of the lawsuits are driven by a patent lawsuit filed in 2011. Steve Jobs was actually behind the lawsuits in 2011 saying, “I’m willing to go thermonuclear war on this.” (Chowdhry). “This” meaning the lawsuits filed in 2011 were over Samsung’s Android. The two companies have tried to work out their differences through a mediator but to no avail. Judge Lucy Koh of the U.S. District Court was actually really hoping for a resolution. She stated, “If all you wanted is to raise awareness that you have I.P. (Intellectual Property) on these devices, messages delivered. In many respects, mission accomplished. It’s time for peace.” She further stated, “If you could have your CEOs have one last conversation, I’d appreciate it.”(Chowdhry). She realizes that the two companies do not want each other copying off their designs and property.

The comical part about all of this is that, with all the lawsuits going on, Samsung and Apple are business partners. Samsung supplies major components to Apple’s products, such as memory chips and processors. However, it does not look like this relationship will last forever. While Apple is one of Samsung’s biggest customers, it looks like their taking business elsewhere—“Taiwan Semiconductor Manufacturing Company,” to be exact. (Chowdhry). Apple buys chips and other components from them.

The good news is that Apple is reducing the amount of lawsuits against Samsung. Apple dropped one of their lawsuits for patent infringement and the two companies settled another lawsuit with the U.S. International Trade Commission regarding an important ban on Samsung’s products (Chowdhry). With the dropped lawsuits, there is a chance for amends and a new relationship between them.

Keith is a business law student at Montclair State University, Class of 2017.