International Fraud Awareness Week Less Than One Month Away

GUEST BLOGGER

Scott Patterson
ACFE Media Relations Specialist

This year, International Fraud Awareness Week, Nov. 6-12, couldn’t come at a better time. With the largest identity fraud case in U.S. history busted last week and companies like Solyndra committing alleged financial statement fraud, the need for fraud awareness is stronger than ever. I encourage you to take the initiative to make an impact during the week, whether by hosting fraud awareness training for your employees, posting articles on your website and social media, or teaming with local media to highlight the problem of fraud.

Any organization can get involved – it doesn’t cost anything to sign up, and the ACFE shares resources with all of the official supporters to help them in their anti-fraud activities. Every year on FraudWeek.com we post downloadable resources, including the Fraud Prevention Check-up, Fraud IQ Quiz and educational presentations focused on fraud prevention and detection.

Here is a sneak peek at a few of the free resources you can use this year:

• Fraud Prevention Check-up (PDF): How vulnerable is your company to fraud? Find out by using the ACFE's Fraud Prevention Check-Up, a simple yet powerful test of your company's fraud health.
• Managing the Business Risk of Fraud: A Practical Guide (PDF): This guidance paper, developed jointly by the ACFE, IIA and AICPA, provides key principles for proactively establishing an environment to effectively manage an organization’s fraud risks.
• Profile of a Fraudster (PowerPoint): ACFE research helps identify common traits and behavioral red flags among those who perpetrate fraud.

Stay tuned for more resources!

Solyndra: Financial Statement Fraud Revealed

GUEST BLOGGER

Sheila Keefe, CFE, CPA
Principal, BDR Advisors LLC

The FBI is investigating the now-defunct Solyndra in connection with allegations of financial statement fraud. Solyndra received more than $500 million in government loans from the Department of Energy (DOE) as part of the stimulus package, but when it filed bankruptcy at the end of August 2011, the government realized it was not as healthy as it had presented itself in financial statements submitted to obtain and then renew government financing. 

The primary focus of the investigation is allegations of inflated (backlog) sales presented to the DOE to secure financing. Regulators are also looking into allegations of corruption on the part of senior executives, who for the moment are asserting their 5th amendment rights and refusing to answer questions on bonuses awarded.

The Solyndra bankruptcy sheds a harsh light on government oversight of stimulus money. Several red flags were overlooked when Solyndra’s financing was renewed at the end of 2010, including:

• Ballooning inventory, specifically raw materials. From the 2009 financial statements, the last set made available to the public, Solyndra reported an increase in inventory in the period between January and October 2009 from $3 million to $11 million. Perhaps most concerning, finished goods inventory during that period were stagnant, remaining in the $650,000-700,000 range. Raw materials grew from $2 million to $9 million; one would hope that a DOE official would have asked the cause of increase in raw materials. One likely explanation for the build-up of raw materials was Solyndra’s reliance on unproven automated manufacturing processes that ultimately failed with the costly built-to-suit manufacturing equipment ultimately scrapped. Another alarming red flag was that in spite of growing inventory, Solyndra invested (taxpayer money) in building a second factory.
• Suspicious revenue recognition. In Solyndra’s 2009 public filing, it defined its revenue recognition policy as recognized when “persuasive.” Such loose terminology does not approach the preferred standards that include objective measure such as transfer of ownership and minimal rights to return. 
• Sales backlog: if product sales required a deposit, the liability for customer deposit would grow. An area investigators are likely to look at is the handling of such deposits to be sure advances were appropriately recorded as deferred revenue (a liability) rather than sales revenue.

In spite of these red flags and mounting operating losses and cash deficits, the DOE doubled down on its bet by agreeing to continue helping Solyndra, going as far as to accept a secondary creditor position to any new money received after December 2010. The FBI investigation joins Congressional hearings set to explore the extent of fraud perpetrated by senior executives of Solyndra.