Red Flags in Financials. A Bankruptcy Practitioner's Guide to Detecting Fraud and Uncovering the Evidence to Support Your Case

Transcription

1 Red Flags in Financials A Bankruptcy Practitioner's Guide to Detecting Fraud and Uncovering the Evidence to Support Your Case

2 Introduction Moderator William G. Krieger, CPA/ABV/CFF/CGMA, CFE Bill is a Managing Director/Shareholder with Gleason & Associates, P.C. He has nearly 30 years of experience in the areas of accounting, finance, financial analysis, business development, revenue cycle management, mergers and acquisitions, and turnaround management. As the leader of the firm s litigation, business valuation, and forensic accounting practice areas, Bill provides project management and analysis for a full range of accounting and consulting services in the areas of forensic accounting, financial reorganization, litigation support, business valuation. Bill has extensive experience in quantifying financial damages related to fraudulent conveyances, shareholder disputes, breach of contract claims, warranty issues, class action lawsuits and business interruption claims.

3 Program Agenda 1. Introduction of Panelists 2. Overview of Fraud and its Prevalence 3. Understanding Financial Reporting and Red Flags 4. Potential Remedies for Red Flags 5. Closing Comments

4 Introduction Judge Gregory L. Taddonio Judge Taddonio is a judge for the United States Bankruptcy Court for the Western District of Pennsylvania. Judge Taddonio was appointed to the Court on July 1, Prior to his appointment, Judge Taddonio earned his bachelor s degree at the University of Notre Dame and his J.D. at the University of Pittsburgh School of Law. Judge Taddonio began his career as an associate at Black McCuskey Souers & Arbaugh, where he worked from 1996 until He accepted a position at Reed Smith LLP and was elevated to partner in 2007, working in its Commercial Restructuring & Bankruptcy Group until his appointment to the bench.

5 Introduction William E. Kelleher Jr., Esquire Bill is a Director with Cohen & Grigsby, PC. and serves as Chair of the firm's Bankruptcy and Creditors' Rights Group. His practice concentrates on all aspects of bankruptcy, creditors rights, financing transactions and commercial law, as well as litigation. He is a past chair of the Bankruptcy and Commercial Law Section of the Allegheny County Bar Association and has been recognized as a Super Lawyer and in The Best Lawyers in America in the fields of Bankruptcy and Creditor Debtor Rights/Insolvency and Reorganization Law, and Litigation Bankruptcy. He is board certified in Business Bankruptcy by the American Board of Certification. He also is a Mediator in the local Bankruptcy Court s Mediation Program.

6 Introduction Jerome (Jeb) Schmitt, CPA/ABV/CFF, CFE Jeb is a Director with Gleason & Associates, P.C., with more than 15 years of experience in forensic accounting, financial reorganization, business valuation and litigation support. In over 12 years of experience at Gleason, Jeb has gained experience in all lines of business offered by the firm and managed a variety of engagements including performing fraud investigations, providing financial advisory services in the context of bankruptcy, providing expert witness testimony, and preparing valuations of closely held businesses.

7 Overview of Fraud and its Prevalence Is Fraud a Widespread and Costly Problem? Projected Potential Total Global Fraud Loss: $3.7 trillion Median Losses per Fraud Scheme: $145,000 The longer fraud goes undetected, the more costly it becomes. Small businesses (less than 100 employees) face different fraud risks than larger organizations. Employees were the source of almost half of all tips leading to fraud detection. Many organizations are never able to fully recover their losses due to fraud. Source: The Association of Certified Fraud Examiners (ACFE) 2014 Report to the Nations on Occupational Fraud and Abuse.

8 Overview of Fraud and its Prevalence Major Categories of Fraud o Financial Statement Fraud o Asset Misappropriation o Fraudulent Conveyance Common Types of Fraud in Bankruptcy o Actual Fraud versus Constructive Fraud

9 Understanding Financial Reporting and Red Flags Looking for Red Flags in Financial Statements o Financial Reporting Inside and Outside of the Bankruptcy Process Examples of Fraud Red Flags in the Context of: o Operating/Cash Flow Budgets o Bankruptcy Schedules and Monthly Operating Reports o Missing/Undervalued Assets o Fraudulent Transfers

10 Understanding Financial Reporting and Red Flags Role of the Financial Advisor Managing the Cost/Benefit of a Financial Advisor Early Engagement Focus on Value Added Work

11 Potential Remedies for Red Flags Appointing Examiner, Chief Responsible Officer, or Trustee. Rule 2004 examinations Conversion, dismissal, relief from stay, equitable subordination, objections to discharge of debt. Adversary proceedings such as avoidance actions, breach of fiduciary duty claims, diversion of corporate opportunity, conspiracy.

12 Closing Comments / Questions