The story of another failed bank is evidence of the rising importance for accountants to help locate corporate crooks. When the FDIC shuttered Park Avenue Bank, the institution seemed like an additional victim of the economic downturn. In fact, the bank’s saga reveals how accountants can deploy the auditing standards from CPA exam material to avert disasters.
Unfortunately, the auditors of Park Avenue Bank appear to have missed the corruption and tax fraud surrounding the financial entity. In their defense, it was well-hidden deception by the alleged perpetrators. However, details of the accusations against former bank insiders illuminate the degree of investigative diligence auditors must execute when applying methods from courses for CPA preparation.
Initial trouble at Park Avenue Bank appeared more than two years ago. That’s when the US Department of Justice charged the bank’s former president, Charles Antonucci, with “self-dealing, bank bribery, embezzlement of bank funds, and fraud, among others.” He pleaded guilty to most of the charges, thus becoming the first person sentenced to stealing money from the federal government’s Troubled Asset Relief Program (TARP).
Apparently, Antonucci needed the TARP funds for a personal bailout instead of the bank requiring the federal relief. How might auditors of the bank have uncovered this situation? Well, in addition to the numbers knowledge from CPA review courses accountants should learn the importance of basic exploratory steps. Looking for a money trail to Antonucci became a more diligent effort after observing that his lifestyle included flights at bank expense to the Super Bowl and the Masters Golf Tournament.
When the investigation was completed, the trail of greed led to more people than just Antonucci. Recently in 2012, the Department of Justice announced the arrest of a former senior vice president of the bank, Matthew L. Morris. In addition, Wilbur Huff is charged with thirteen counts of fraud amounting to over $100 million. Included in the allegations against Huff is a tax fraud for $50 million. Details about the tax fraud are instructive of the circuitous paths that may arise when utilizing the audit methods learned in CPA exam prep.
Huff controlled a payroll service company from 2008 through 2010. This business performed payroll calculations for Park Avenue Bank. The services included determining payroll taxes and remitting them to the IRS plus collecting worker’s compensation premiums and paying them to an insurance company.
Attention to such contractual arrangements with outside parties is one of the crucial auditing steps conveyed in study for CPA exam completion. In this case, the bank’s agreement with Huff’s company resulted in money flowing to the payroll service for taxes and worker’s comp. Unfortunately, the funds were not remitted to the IRS and the insurance company. According to the indictment against Huff, he used more than $50 million to support an expensive personal lifestyle. The accounting lesson is that audit verification of up to date payroll tax payments is vital. The bank is responsible for its payroll taxes despite contracting with a service to remit the payments.
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