Conference on Christian Business Ethics Today, Philadelphia, Pennsylvania, June 10-11, 2011

1. Fraud and Resolution in the Public Company:
Keeping the Eighth Commandment with Heart and Hand
“Thou Shall Not Steal”
Conference on Christian Business Ethics Today
Philadelphia, Pennsylvania
June 10 – 11, 2011
Steve Austin, CPA, MBA
Managing Firm Partner | Swenson Advisors, LLP | San Diego, CA
Keith Krzewski
Partner & COO | Swenson Advisors, LLP | San Diego, CA
Andrew Peterson, Ph.D.
President | Reformed Theological Seminary ‐ Virtual Campus | Charlotte, NC

2. The Autonomy of Fraud and the Paths to Resolution
Paths to resolution and prevention for the Christian are
praise, prayer, and practice
As seen in Philippians 4:4‐9
4Rejoice in the Lord always; again I will say, Rejoice.
5Let your reasonableness be known to everyone. The Lord is at hand;
6do not be anxious about anything, but in everything by prayer and
supplication with thanksgiving let your requests be made known to God.
7And the peace of God, which surpasses all understanding,
will guard your hearts and your minds in Christ Jesus.
8Finally, brothers, whatever is true, whatever is honorable, whatever is just,
whatever is pure, whatever is lovely, whatever is commendable, if there is
any excellence, if there is anything worthy of praise, think about these
things. 9What you have learned and received and heard and seen in me—
practice these things, and the God of peace will be with you.
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3. Biblical Presuppositions for Public Companies
Relevance of God’s Word for establishing an ethical foundation for the
public company
• Transparency should be the biblical way of life
• Four‐stage analysis for implementing business ethics
from Scripture
I. Teachings
II.Conviction
III.Correction
IV.Training
• The abundance of the Garden of
Eden is the beginning of understanding
our environment for business
• Trust in God to complete the
stewardship of life in all of its rich dimensions
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4. Biblical Presuppositions for Public Companies
Relevance of the public company in God’s world
• Guard your hearts and your minds – there is no valid reason to steal...
It is sinful, lazy, and stupid
• Business done to God’s glory is a blessing of:
– Personal achievement
– Family prosperity
– Church life
– Community progress and the public company
• Self‐government reflects the fear of the Lord (Proverbs 1:7)
• The government “bears the sword” to punish “evil doers,” including
thieves and frauds
• The Westminister Larger Catechism, Q140‐142, contains biblical
elements for a rich, workplace training program
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5. Case One: Financial Statement Manipulation at WorldCom
• Mid‐90s darling of Wall Street in technology space
• Rapid growth through 50+ mergers and acquisitions
• Negative “Tone at the Top” – organizational culture where leaders were
not to be doubted or questioned
• False top‐line accounting entries made to meet to market expectations
• So called one‐time event continues over multiple quarters with
capitalized expense in excess of $9 billion
• Internal audit director “blows the whistle”
• Thousands of employees laid‐off, stock prices plummet resulting in
millions of dollars of market value lost for investors
• Imprisonment of senior management and accounting team
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6. Case Two: Asset Misappropriation at Tyco
• Abuse of corporate assets in excess of $600 million
• Weak internal controls coupled with “Tone at the Top”
reflecting excessive greed
• No whistleblowers however, unlike WorldCom – Tyco had a solid,
profitable business model
• Resolution process focused on integrity, excellence, teamwork, and
accountability
• Turnaround team ultimately replaces every
senior manager
• Major theme provides for clear separation
of finance and operations
• Tyco’s New Guide to Ethical Conduct reflecting
lessons learned
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7. Case Three: Corruption at Parmalat, “Europe’s Enron”
• Italian food giant has $19 billion gap in financing needs
• Financial woes caused by acquisition of
underperforming Latin American companies/misappropriation of funds
• Covered financial problems through complex financial instruments and
siphoning funds through Cayman Island subsidiaries
• Falsified bank document for approximately $5 billion – not detected by
auditors
• Pressures exerted to compete in global markets on Parmalat and Grant
Thorton lead to fraud
• Blackstone Group alerts SEC to
the financial discrepancies leading
to Parmalat’s bankruptcy
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8. Techniques and Tools for Resolution and Prevention of Fraud
• Fraudulent behavior by key executives of public companies has brought
about various regulations
– U.S. Foreign Corrupt Practices Act of 1977 (FCPA)
– U.S. Sarbanes‐Oxley Act of 2002
– U.S. Federal Sentencing Guidelines ‐ 2005
– Organization for Economic Co‐operation and Development Anti‐
Bribary Convention ‐ 2007
– Dodd‐Frank Wall Street Reform and Consumer Protection Act ‐ 2010
‘
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9. Restatements are on the Decline
• 630 companies filed 675
restatements in 2009
• 27% decline from 2008
• The number of restatements
peaked in 2006 with
1,795 restatements
Audit Analytics
Report: Financial Restatements –
A Nine‐Year Comparison
Published March 10, 2010
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10. 2011 Fraud Scorecard
What’s Hot What’s Not
Global financial meltdown investigations Restatements
Insider trading scandals SOX 404 material weaknesses
FCPA violations Accounting scandals
COSO monitoring Weak Audit Committees
Repeat offenders Mild mannered auditors
SEC troubles
PCAOB foreign accounting
firm investigations/fines
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11. Techniques and Tools for Resolution and Prevention of Fraud
• Key principles for developing a fraud risk program:
– Suitable fraud risk management oversight and expectations exist
(governance)
– Fraud exposures are identified and evaluated (risk assessment)
– Appropriate processes and procedures are in place to manage these
exposures (prevention and detection)
– Fraud allegations are addressed, and appropriate corrective action
is taken in a timely manner (investigation and corrective action)
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12. SWENTRACK
A Cost‐effective, Web‐based Tool to Help
Simplify SOX Compliance Efforts 12

13. Biblical Perspectives for Hope and Help for
Public Companies in the “New Normal”
• Normative standards
for practice and training
• Situational goals
for practice and training
• Heart motives
for practice and training
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14. Biblical Perspectives for Hope and Help for
Public Companies in the “New Normal”
• Prevention of fraud in the public company setting comes through a new
heart obedient to God’s law by His grace
• Cure covetousness, and you will kill
the root of fraud and theft
(Baxter – Direct I, pg. 823)
• The link from Commandment 8 to
Commandment 10 is quite clear and compelling
• May the Holy Spirit help replace sin with righteous action to the benefit
of neighbor and the glory of God
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15. Our Gift to You
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16. Thank You
Steve Austin, CPA, MBA
steve.austin@swensonadvisors.com
Keith Krzewski
keith.krzewski@swensonadvisors.com
www.SwensonAdvisors.com | www.SwensonForensic.com
Andrew Peterson, Ph.D.
apeterson@rts.edu
www.virtual.rts.edu/connect
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