Only the CEO can optimize the company for fraud. He has it invest in assets that have no clear market value. Professionals evaluate such assets-allowing the CEO to hire ones who will inflate values. Rapid growth (as in a Ponzi scheme) extends the fraud and increases the “take.” S&Ls optimized accounting fraud by loaning to uncreditworthy and criminal borrowers (who promised to pay the highest rates and fees because they did not intend to repay, but the promise sufficed for the auditors to permit booking the profits). The CEO extends the fraud through “sales” of the troubled assets to “straws” that transmute losses into profits. Accounting fraud produced guaranteed record profits-and losses.

CEOs have the unique ability to convert company assets into personal funds through normal corporate mechanisms. Accounting fraud causes stock prices to rise. The CEO sells shares and profits. The successful CEO receives raises, bonuses, perks, and options and gains in status and reputation. Audacious CEOs use political contributions to influence the external environment to aid fraud by fending off the regulators. Charitable contributions aid the firm's legitimacy and the CEO's status. S&L CEOs were able to loot the assets of large, rapidly growing organizations for many years. They used accounting fraud to mimic legitimate firms, and the markets did not spot the fraud. The steps that maximized their accounting profits maximized their losses, which dwarfed all other forms of property crimes combined.

While agreeing that the S&L served as both a “weapon” and a “shield,” control fraud theory cast doubt on those metaphors. Weapons and shields are visible; fraud is deceitful. The better metaphors would be camouflage, or a virus. Control fraud theorists rejected the economists' metaphor, “gambling for resurrection” (honest but unlucky risk takers). Gambling cannotexplain why control fraud was invariably present at the typical large failure. There were over 1,000 felony convictions of senior S&L insiders. Accounting fraud made control fraud a sure thing-not a gamble. Control fraud theory predicts the pattern of record profits and catastrophic failure and the business pattern of deliberately making bad loans. Both patterns are inconsistent with honest gambling.

The identification of the S&L “high fliers” as control frauds and understanding that they were Ponzi schemes relying on accounting fraud led to effective regulatory strategies against the wave of S&L frauds. The Federal Home Loan Bank Board reregulated the industry, curbing growth (a Ponzi scheme's Achilles heel) while the control frauds were still reporting record profits and were praised by top economists.

The second use of control fraud theory was to analyze the structures that produced criminogenic environments that led to waves of control fraud. Deregulation and desupervision of the S&L industry, combined with the industry's mass insolvency, optimized accounting fraud and made “systems capacity” limitations critical. The mass insolvency maximized “reactive” control fraud, and the deregulation, desupervision, and mass insolvency maximized entry into the industry by “opportunistic” control frauds.

Fraud waves can cause financial bubbles to hyperinflate (e.g., Texas real estate during the debacle) and cause regional or systemic injury (e.g., during Russia's “shock therapy,” the failures of “the Washington consensus,” and the U.S. high-tech bubble). Control frauds cause indirect losses by corrupting politicians and professionals and betraying trust. When control fraud becomes endemic, it can lock nations in long-term poverty.

Control fraud theory poses a fundamental challenge to the core models of finance and economics. The efficient markets (and contracts) hypothesis requires that markets be able to identify and exclude control frauds, and the dominant law and economics model asserts that they do so effectively and quickly. This claim is largely premised on the view that no top-tier audit firm would give a clean opinion to a control fraud. Control frauds have consistently falsified this claim. Deposit insurance was not the key to S&L control fraud. Control frauds deceive “creditors at risk.” High reported profits allow them to grow rapidly by borrowing and issuing stock.

To date, most of the work in control fraud discusses looting by the CEO. However, it also exists in government when the head of state uses the government to defraud. It can be used to defraud customers (e.g., “lemons” scams, in which quality or quantity is misrepresented, or cartels) and the public (e.g., tax fraud or a toxic waste firm that gains a cost advantage by dumping in the stream). These forms of control fraud create real profits and, absent effective enforcement, create a dynamic that causes fraud to spread. Systems capacity problems can lead to endemic control fraud in an industry.

In theory, the bidding system has a secret reservation price to limit abuses by putting a ceiling on the acceptable bid price. Two facts stand out about the reservation price. First, it is set very high, allowing excessive charges to the public. Second, the winning bids come in extraordinarily close to the reservation price; one survey found that the average winning bid was 99.2 percent of the cap. One can infer that the dango consistently knows the “secret” cap and had no concern about making this obvious through their bids. How does the dango learn what the reservation price is? Senior bureaucrats in Japan generally take early retirement and are provided with a sinecure in private industry or Japan's large quasi-nongovernmental organization (QUANGO) sector. This is known as amakudari (“descent from heaven”)-a revealing phrase that shows the great respect once felt for the bureaucrats. Their primary responsibility once they “descend” is to maintain close ties with their successors. A bureaucrat who refused to leak the reservation price would put his career in jeopardy. Bureaucrats are, effectively, immune from prosecution for leaking the reservation price. The “systems capacity” limitations are not resources, but the unwillingness to prosecute senior bureaucrats (who are far more powerful than their American counterparts). The dango is a cartel, and although the conventional economic wisdom is that cartels cannot exercise effective discipline, the dango has been able to maintain nearly complete discipline for over a half century. Corruption is part of the explanation. Japan's dominant party, the Liberal Democratic Party (LDP), comprises factions are known as zoku (“tribes”). The “construction tribe” is composed of LDP leaders who get a percentage kickback from the winning construction bidders. Faction leaders gain followers by providing campaign funds. The dango kickback ensures that the government does not interfere with the cartel. The faction leaders provide the “voice of heaven” (tan no koe) when necessary to resolve disputes that might threaten the dango's discipline. In addition to entrenching the LDP in power, the dango has major indirect effects. It serves as an informal trade barrier. Foreign construction firms cannot join the dango-and if they did, they could be prosecuted in their home nations for bribery. The dango directly makes construction far more expensive and indirectly creates an inefficient and bloated industry. The kickback creates strong incentives to spend far too much in public works construction. This, in turn, has done great damage to Japan's environment.

While the dango raises prices, it does not necessarily produce excessive industry profits. Domestic entry into construction is fairly easy. Easy entry and bid rigging have led to an industry that is at least twice as large as it needs to be. Many construction firms are insolvent because of their imprudent investments during the twin bubbles.

Japan's overall economic development has been harmed by the indirect consequences of the dango in three major ways. Productivity fell for many years in the construction industry, which is so large that it, in turn, materially lowered the nation's overall productivity. Japan's “main” banks are vital to growth because of the dominant role they play in capital allocation. The collapse of the twin bubbles left the main banks crippled, and Japan covered up their condition rather than “bailing them out.” This means that the banks generally do not collect loans from financially troubled borrowers, for if they demanded payment and were not repaid, they would have to recognize the losses. But Japanese banks cannot fund growth unless their loans are repaid. Many of their worst loans are to construction firms. The political support that the dango enjoys makes it extremely difficult for the banks to demand repayment from troubled construction firms.

Finally, the dango encouraged public works that would make no sense even if the bids were not rigged. As this is written, Americans are deriding the “bridge to nowhere” in Alaska that a Senator was able to demand as part of “pork barrel” politics. Japan is the champion of high-speed rail lines to nowhere and many other “white elephants.” The public works budget became so extreme that Japan's deficit became a barrier to growth. The dango allocates capital to the least productive uses.

A Convicted Felon

Five years ago, I committed a felony. My crime was discovered. I was charged with it. I was prosecuted for it. I was convicted of it. I was sentenced for it. I was punished and incarcerated for it. I made financial restitution to the victim. I made financial restitution to the courts. I "paid my debt" to society. It was hell to get through, but it was suppose to be. I survived it.

An Applicant

Now, let's suppose I have all the required skills and qualifications to fill an opened position where you work, or at your own place of business. Would you considering hiring me?

Those of you who work for the government, at any level, in any capacity, are now excused because you either can't or will not hire a convicted felon. Those of you needing the prospective candidate to be bond able are also excused because a felon cannot be bonded.

How about those of you in the private sector? Would you consider hiring me? Isn't that why your application form inquires if the applicant has ever been convicted of a felony? It's because you would consider it, right? Be honest now. Those of you who are honest are now excused.

The Prospective Employer

And finally, we are left with those who would consider hiring me. What reason could you possibly have to do so? Either you are needing someone who is desperate enough for money to do something immoral or illegal, once again, because they can't find employment. Or, you once did something wrong or stupid in your own life, but were just never caught for it, legally or morally. Not being without sin yourself though, you are not going "to be the one to cast the first stone."

That leaves us with how many prospective employers? Approximately, two? Two kinds of people who would consider hiring a convicted felon; one for possibly committing illegal activities, and the other a rare kind of person to find.

In Conclusion

There's no question about it, my felony conviction has and always will prevent and/or severely limit my prospects of employment. Or to be more accurate, my stupid decision to commit a crime has affected my possibilities of employment.
But here is something to consider: the reluctantcy to hire a convicted felon also affects unemployment. The rise of unemployment means a rise in crime rates, not necessarily because felons have returned to a life of crime, but because the unemployed have decided to start a life of crime of their own.

So, do your country a favor. Hire a remorseful felon.

But let us start at the very beginning. Accounting is the process of identifying, measuring, recording, and communicating economic information about an organization or entity, in order to permit informed judgments by users of the information. On the other side of the coin is forensic auditing which is a new discipline under the umbrella auditing.

It is crime, and especially economic crime that gave birth to forensic auditing. Economic crime is an unpleasant fact and has escalated into a monster. It touches every country, every industry, and has no signs of stopping. During the past decade, the number of reported cases of fraud and corruption has continued to grow dramatically. Compounding this is the challenges faced by the criminal justice system and a general absence of the necessary skills to gather the proper audit evidence so vital to criminal investigations. Information from law enforcement and criminal justice agencies about corruption and fraud cases is that generally speaking, the success rate for convictions are not satisfactory - the reason being that prosecuting authorities lacked skills and knowledge to provide effective investigation and prosecution of corruption and fraud cases. Enter forensic auditing!

Therefore, forensic accounting draws its name from association with a court of law. It is performed to accomplish an objective that involves a judicial process. Examples of forensic accounting objectives include: computation of asset values in a divorce proceeding; assessment of damages caused by an auditor's negligence; fact-finding to see whether embezzlement has taken place, in what amount, and whether criminal proceedings are to be initiated; and the collection of evidence in a criminal proceeding. Forensic accounting is focused upon both the evidence of financial transactions and reporting as contained within an accounting system, and the legal framework which allows such evidence to be suitable to the purpose of establishing accountability. Forensic accountants are typically Chartered Accountants that specialize in those types of cases where there is a need for such evidence.

Their job is to detect and interpret the evidences of both normal (non- fraudulent) and abnormal (fraudulent) transactions in the books and records of an accounting system and the subsequent effect upon the accounts, inventories, and the presentation thereof. It is imperative; therefore, that forensic accountants first understand what normal accounting procedures and processes are - remember they are first and foremost Chartered Accountants. Just as forensic dentists and forensic anthropologists are dentists or anthropologists first (that is, they are foremost professionals in the underlying discipline and are specialists in its forensic aspects), so too forensic accountants are accountants first.

In conclusion, forensic accounting is sufficiently thorough and complete so that an accountant, in his considered independent professional judgment, can deliver a finding as to accounts, inventories, or the presentation thereof that is of such quality that it would be sustainable in some adversarial legal proceeding, or within some judicial or administrative review.

On a lighter note; never seek advice from a Chartered Accountant - they are trained to find problems not solutions.