Personal use of company assets. Substandard financial processes. Unreported shareholders. Related party transactions. Sophisticated grafts.

Corporate malfeasance is not "new" news. It remains prevalent in spite of the passage of the Sarbanes- Oxley Act and increased awareness among investors. Accountants surely have been beneficiaries of SOX as demand for their services have skyrocketed. But, are shareholders better off?

Our recent engagements demonstrate that illicit behavior by corporate officers continues to run rampant. Interestingly, in spite of awareness created by SOX, the courts, and the media, routine financial audits at these companies have not uncovered the problems. Or, maybe SOX is the culprit as increased demands on auditors reduce quality or cause very junior staff to be performing the work.

Over the last 6 months alone, we have discovered activities by corporate officers that we doubt would be sanctioned by the companies' shareholders and boards of directors. We have seen significant self- dealing and conflicts of interest occuring through various disclosed and undisclosed related party transactions, many of which have not been at fair market value. We have also seen instances where the financials were manipulated to ensure transparency of these transactions was not apparent. For example:

• Family members on the payroll, although they have other full-time positions or do not provide a service to the company.
• Operating cash flow used to support personal hobbies and activities.
• Personal aircraft utilized within the company where the economics were questionable.
• Undocumented or below-market-value agreements for shareholders and/or family members to use company assets.
• Essentially, using the company's cash flow as a personal "piggy bank."

Is there a moral to this story? Perhaps it is that there is nothing like ol' fashioned experience to ensure that an investigation is worthy of being considered "forensic", suitable for use in litigation.

Brandlin & Associates is an exclusive provider of investigative accounting, financial consulting and strategic consulting services. We pride ourselves on offering superior technical expertise, years of practical experience and unparalleled service to decipher financial and operational performance metrics. As a result, our clients are able to make informed decisions in a timely manner.

email: news@brandlin.com

phone: (310) 789-1777

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