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  • feedwordpress 08:01:12 on 2018/06/24 Permalink
    Tags: accounting, , , , fraud, , , , ,   

    “A firm’s income statement may be likened to a bikini- what it reveals is interesting but what it conceals is vital”*… 

     

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    A recent (Roughly) Daily noted (by way of a quote from James Surowiecki) that “the challenge for capitalism is that the things that breed trust also breed the environment for fraud.”  A painful recent example was, the failure of credit ratings agencies honestly to assess the risk of derivatives being traded against home mortgages, which contributed mightily to the crash that occasioned The Great Recession.

    But, as Richard Brooks argues, there’s a bigger and more pervasive problem still lurking:  accountancy used to be boring – and safe.  Today it’s neither.  Have the ‘big four’ firms become too cosy with the system they’re supposed to be keeping in check?  Are we in for Enron all over again, only this time on the financial system-wide basis?

    The demise of sound accounting became a critical cause of the early 21st-century financial crisis. Auditing limited companies, made mandatory in Britain around a hundred years earlier, was intended as a check on the so-called “principal/agent problem” inherent in the corporate form of business. As Adam Smith once pointed out, “managers of other people’s money” could not be trusted to be as prudent with it as they were with their own. When late-20th-century bankers began gambling with eye-watering amounts of other people’s money, good accounting became more important than ever. But the bean counters now had more commercial priorities and – with limited liability of their own – less fear for the consequences of failure. “Negligence and profusion,” as Smith foretold, duly ensued.

    After the fall of Lehman Brothers brought economies to their knees in 2008, it was apparent that Ernst & Young’s audits of that bank had been all but worthless. Similar failures on the other side of the Atlantic proved that balance sheets everywhere were full of dross signed off as gold. The chairman of HBOS, arguably Britain’s most dubious lender of the boom years, explained to a subsequent parliamentary enquiry: “I met alone with the auditors – the two main partners – at least once a year, and, in our meeting, they could air anything that they found difficult. Although we had interesting discussions – they were very helpful about the business – there were never any issues raised.”

    This insouciance typified the state auditing had reached. Subsequent investigations showed that rank-and-file auditors at KPMG had indeed questioned how much the bank was setting aside for losses. But such unhelpful matters were not something for the senior partners to bother about when their firm was pocketing handsome consulting income – £45m on top of its £56m audit fees over about seven years – and the junior bean counters’ concerns were not followed up by their superiors.

    Half a century earlier, economist JK Galbraith had ended his landmark history of the 1929 Great Crash by warning of the reluctance of “men of business” to speak up “if it means disturbance of orderly business and convenience in the present”. (In this, he thought, “at least equally with communism, lies the threat to capitalism”.) Galbraith could have been prophesying accountancy a few decades later, now led by men of business rather than watchdogs of business…

    A chilling, but important report: “The financial scandal no one is talking about.”

    * Burton G. Malkiel

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    As we count beans, we might recall that it was on this date in 1873 that Samuel Clemens (the author known as Mark Twain) received a U.S. patent, his second, for a self-pasting scrapbook (No. 140,245).  His creation used a dried adhesive on its pages so that users need only moisten a page in order to attach pictures.

    In 1871, Clemens had scored his first patent, for “an Improvement in Adjustable and Detachable Straps for Garments”–an adjustable strap that could be used to tighten shirts at the waist that was later used on women’s corsets, and is considered by many to be the precursor of the adjustable bra strap.  He earned his third patent in 1875 for a history trivia game,“Mark Twain’s Memory-Builder Game.”

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  • feedwordpress 08:01:11 on 2018/06/10 Permalink
    Tags: , cyber-attack, fraud, , , , ,   

    “The challenge for capitalism is that the things that breed trust also breed the environment for fraud”*… 

     

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    WannaCry, a computer virus that encrypts data and demands a ransom to unscramble it, hit thousands of computers in May, causing several hospitals in Britain to close their doors. Hardly a week now goes by without a large company admitting that its systems have been breached: Yahoo recently confessed that 1bn accounts had been compromised in an attack in 2013. Cyber-attacks are a scourge of modern life, but their history goes back further than you might expect.

    The world’s first national data network was constructed in France during the 1790s. It was a mechanical telegraph system, consisting of chains of towers, each of which had a system of movable wooden arms on top. Different configurations of these arms corresponded to letters, numbers and other characters. Operators in each tower would adjust the arms to match the configuration of an adjacent tower, observed through a telescope, causing sequences of characters to ripple along the line. Messages could now be sent much faster than letters, whizzing from one end of France to the other in minutes. The network was reserved for government use but in 1834 two bankers, François and Joseph Blanc, devised a way to subvert it to their own ends…

    Nearly two centuries ago, France was hit by the world’s first cyber-attack.  With a nod to Isaiah Berlin**, Tom Standage argues that it holds lessons for us today: “The crooked timber of humanity.”

    * James Surowiecki

    ** Berlin’s title was a reference to a quote from Kant: “Out of the crooked timber of humanity, no straight thing was ever made.”

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    As we learn from history, we might recall that it was on this date in 1858 that two ships, the Niagara and the Agamemnon headed out from Keyham Dockyard in England to begin work on what would become the first operational Transatlantic cable, as previous attempts at laying a Transatlantic cable had failed.  Designed for telegraph operation, the cable run was completed on August 5th; and the first test message was sent on August 12th.

    The Niagara at work

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  • feedwordpress 09:01:32 on 2016/02/02 Permalink
    Tags: , , fraud, Gregor MacGregor, , , Mary Miles Minter, Poyais, scam, , William Desmond Taylor   

    “When I consider Life, ’tis all a cheat; Yet, fooled with hope, men favour the deceit”*… 

     

    A picture, supposedly of Poyais, fabricated by Gregor MacGregor

    In October 1822, Gregor MacGregor, a native of Glengyle, Scotland, made a striking announcement. He was, he said, not only a local banker’s son, but the Cazique, or prince, of the land of Poyais along Honduras’s Black River.

    A little larger than Wales, the country was so fertile it could yield three maize harvests a year. The water, so pure and refreshing it could quench any thirst – and as if that weren’t enough, chunks of gold lined the riverbeds. The trees overflowed with fruit, and the forest teemed with game. Painting an exotic, Edenic vision of a new life abroad, his proposal offered quite the contrast with the rainy darkness and rocky soils of Scotland.

    What Poyais lacked, he said, was willing investors and settlers to develop and leverage its resources to the fullest. At the time, investments in Central and South America were gaining in popularity, and Poyais appeared to be a particularly appealing proposition.

    Scotland didn’t have any colonies of her own, after all. Could this not be a corner of the new world for her own use?…

    MacGregor designed currency that was supposedly used in his fictional land

    Gregor MacGregor’s massive fraud and how he brought it off: “The con-man who pulled off history’s most audacious scam” (excerpted from Maria Konnikova’s The Confidence Game).

    * John Dryden

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    As we demur from accepting wooden nickels, we might recall that it was on this date in 1922 that Los Angles police were summoned to the home of silent film director William Desmond Taylor by a call about a “natural death” that had occurred the night before.  When they arrived they found actors, actresses, and studio executives rummaging through the director’s belongings… and Taylor lying dead on the living room floor with a bullet in his back.

    Mary Miles Minter, a teenager, had become a star in Taylor’s films and had fallen in love with him– much to the dismay of her mother,  Charlotte Shelby.  After Taylor’s murder, a love note to Taylor from Minter was found in his home, along with her nightgown in the bedroom.  Then other damning facts came to light: Minter had once tried to shoot herself with the same type of gun used in Taylor’s murder; Shelby had previously threatened the life of another director who had made a pass at her daughter; and most portentously, Shelby’s alibi witness received suspiciously large sums of money after the murder.  Still, no one was ever prosecuted for Taylor’s death– the case remains officially unsolved.

    Mary Miles Minter and William Desmond Taylor

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  • feedwordpress 08:01:05 on 2015/09/14 Permalink
    Tags: Alexander, , biogeography, fraud, , Humboldt, , ,   

    “A lie can run round the world before the truth has got its boots on”*… 

     

    Why do archaeological fraudsters work so hard to deceive us?  Because bad science makes for good stories: “What Lies Beneath.”

    And for run-downs of archaeological hoaxes both amusing and illuminating, visit here and here.

    [image above sourced here]

    * Terry Pratchett, The Truth

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    As we dig, we might send exploratory birthday greetings to Friedrich Wilhelm Heinrich Alexander von Humboldt; he was born on this date in 1769.  The younger brother of the Prussian minister, philosopher, and linguist Wilhelm von Humboldt, Alexander was a geographer, naturalist, explorer, and champion of Romantic philosophy.  Among many other contributions to human knowledge, his quantitative work on botanical geography laid the foundation for the field of biogeography; his advocacy of long-term systematic geophysical measurement laid the foundation for modern geomagnetic and meteorological monitoring.

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