Artful accounting schemes have been going into the books since the Sumerians started scratching crop sales into clay tablets. No one wants to pay The Man a dime more than they have to. And, inevitably, some people will take it too far and try to get away with paying a lot less.
Tax fraud hits the government below the belt, but it’s even worse when the victims are individuals. Bernie Madoff’s fraudulent investment schemes lost clients more than $65 billion, and lead to the suicides of at least four different people connected to the case. You probably heard about the former Reynolds and Reynolds CEO Robert Brockman too. His indictment in 39 counts of tax evasion with a record $2 billion dollars in fraudulent transactions grabbed headlines in 2020.
And, of course, there was Charles Ponzi, the Italian con artist who gave all other cons his name. Ponzi hit on a straightforward scheme that Madoff and others simply built on over the years: he added a zero to the end of the projected profits from his investments, and paid off early investors at that rate using the money he got from later investors. By the time the whole thing collapsed on itself, those investors were out $10 million in 1920 dollars ($133 million in 2021) and Ponzi fled the country to serve as financial advisor to Mussolini, which didn’t work out nearly as well for either of them.
While you have heard all those names, the reality is that fraud is way more common and way more strange than most people realize. The Association of Certified Fraud Examiners estimates that American businesses lose an average of 5 percent of gross revenues to fraud each year. The FBI estimates that insurance fraud costs $40 billion per year.
Almost all of that comes in cases that you never hear about. The Bernie Madoffs of the world get the headlines. The craziest stories of accounting mix-ups and fraud might fly under the radar in the 24-hour news cycle, but internal auditors and forensic accountants are likely to get an inside look at hundreds of these cases in the course of their careers. We got the inside scoop, and put together a list of some of the most interesting cases we’ve come across.
Here are 13 of the unluckiest cases and craziest stories of fraud and accounting disasters that you have probably never heard about.
Florida Man… A Tale of Magic Mushrooms and Bank Fraud
With some of the craziest news stories consistently coming from the Sunshine State, the Florida Man trope has strong roots in reality. Whether it’s trying to smuggle drugs into jail in a prosthetic leg or engaging in bank fraud to obtain $4 million in COVID relief funds, you’ll never fail to find entertainment value in headlines that begin, “Florida Man…”.
And it turns out that Florida man can shake things up in the accounting department, too. PR Newswire reported that a Florida CPA and attorney has decided to launch a venture capital firm aimed specifically at the psychedelics industry. Backed by the respected Fort Lauderdale firm, Iter Investments, the CPA plans to find that magic intersection where mind-altering substances and rock-solid accounting and investing principles meet.
The results are sure to be interesting for both the buttoned down CPAs involved with mixing magic mushrooms and Schedule K-1 forms, and the high-flying angel investors looking to get in on the ground floor.
Sleepless Nights for Arizona CPAs Working in the State’s Cannabis Industry
Accountants in Arizona have handled a lot of crazy situations over the years. The notorious Frank Stilwell, suspected murderer of Morgan Earp was fired from his job as a deputy sheriff over “accounting irregularities” according to the History Collection.
Considering that Stilwell once killed a man for serving him tea when he ordered coffee, the nameless accountant who conducted that audit must have had nerves of steel.
History does not record if he survived Stilwell’s wrath but his example sets the bar for high-stakes confrontations in Arizona accounting. And although it’s not exactly the Wild West anymore, CPAs here are bracing themselves for a modern day showdown.
When Arizona became the 13th state to legalize recreational marijuana, accountants were already right in the thick of it. An independent accounting firm was selected by the Arizona Department of Health Services to randomly pick the first marijuana sales licenses, according to KVOA in Tucson. But although the state gave its blessing to this potential $375 million pot market, according to the Feds, serving up that sweet green is still strictly out of bounds.
That’s giving accountants who are keeping the books for marijuana businesses some sleepless nights. The Arizona Board of Accountancy has given its blessing, but the Feds have not. Which means every day comes with the looming threat of a DEA SWAT team breaking down the door at 3am with an arrest warrant for criminal conspiracy.
So far, no one is blinking, though, just like that Old West number cruncher going through Stilwell’s books.
The Arm of the California Franchise Tax Board Reaches from Coast to Coast
Poor Blair Bindley never saw it coming. An independent screenwriter living and working in Arizona, Bindley sold a couple of his works to companies based in California. Since Hollywood is the center of the universe for the American film industry, that doesn’t come as much of a surprise.
What surprised Bindley was that, despite not incorporating his business in the state, or living there, or even working there, he still received a big bill from the California Franchise Tax Board. On top of that, he was penalized for failing to file a return he never even knew he was supposed to fill out.
The Tax Board decided their authority meant that Bindley, or anyone else unlucky enough to be getting paid by one of the more than 3 million businesses operating in the Golden State, is on the hook for filing a return and coughing up enough to cover some of the highest tax rates in the country.
This bad news for Bindley is great news for accounting pros in California, though. According to the Tax Foundation, California ranks 49 out of 50 when it comes to the state business climate. Multiply Bindley’s case by those 3 million-plus companies and their vendors and employees, and it’s easy to see how CPAs in California have a ticket to ride on the gravy train when it comes to sorting out complex and expensive accounting issues.
Log Homes Sheltered $2 Mil in Unpaid Taxes and 1 Heavily Armed Non-Filer
When you think about Colorado, you think about wide-open prairie vistas, towering mountains, and glittering white downhill ski runs. What you don’t usually think about is fraud and tax evasion. But it turns out some of the log homes dotting those ski hills were the cover for nearly $2 million in tax evasion, leading to a two-month manhunt for the heavily-armed former owner of Tarryall River Log Homes.
Lawrence Birk fled the state with a fully-automatic assault rifle, hundreds of rounds of extra ammunition, bullet-proof helmets and vests, and gas masks.
Before he left, however, he hired a tax firm to help him put together the more than eight years of delinquent tax returns to try to get out of the jam. Unfortunately, he hid some $400,000 in distributions from the firm, too.
Sharp-eyed CPAs are trained to catch such discrepancies, and with non-filers owing billions to the IRS, there’s plenty to look out for.
No Good Deed Goes Unpunished by the Tax Collectors of Connecticut
In the teeth of the COVID-19 pandemic, when millions were out of work and thousands became sick from the virus, Middle School teacher Louis Goffinet stepped up when government agencies fell short.
Raising funds through a Facebook group and using his own personal vehicle, Goffinet spent his days loading his car up with groceries and delivering them to vulnerable people who were low on money and at risk of infection,.
Then, according to the Connecticut Mirror, he got a $16,000 tax bill from the IRS from the donations he had collected.
Like most average folks, Goffinet didn’t know about all the arcane rules and complicated paperwork you’re supposed to fill out to operate as a tax-exempt charity. He was just doing the right thing when it needed to be done.
But, fortunately for Goffinet, a local CPA firm had just as much heart as he did. Donating their own time, CPAs at a local accounting outfit helped Goffinet set up a tax-exempt organization and get that $16,000 bill sorted out.
Mess with Hawaii’s Sacred Land Trust and Get the Wrath of Manu Kea
Not every CPA in Hawaii gets to work with 5-0 to take down the bad guys, but that is one option if you’ve got what it takes.
Hawaii is an American paradise that attracts the kind of wealth and investment that dreams are made of… and that criminals and thieves are inevitably attracted to. Perhaps not surprisingly, CPAs almost always play a role in investigating financial crimes.
The state has the 18th highest per capita income in the United States, and real estate there is some of the most expensive in the country. Who doesn’t want to own a slice of paradise?
That’s exactly why the Office of Hawaiian Affairs was set up in the first place. The state agency manages the native homelands owned by the state and is responsible for using the funds generated by that land to strengthen Hawaiian community resources. It’s a sacred trust, but, unfortunately, that trust was betrayed by an aide named Paul Harleman.
Harleman used his own local accounting firm to defraud an Oahu-based landscaping business, routing their payroll payments directly into his own account. Then he rolled the money over into Bitcoin.
Although he might have thought he was set for life, Harleman was arrested by the Feds as he attempted to board a flight for the Netherlands in April of 2021. Forensic accounting pros tracked his transactions down and busted him before he could make his escape.
The Last of the E-commerce Tax Avoidance Loopholes
Kansas may not strike everyone as a hotbed of accounting innovation and cutting-edge tax and financial developments, but there is more going on in accounting circles here than you might expect.
As one of the states in the top ten for sales tax collections in the country, Kansas was among the first to feel concern over the growth and spread of online shopping.
Although big sites like Amazon were easy to track down and bring into compliance, the state Department of Revenue realized that some local retailers were skipping out on paying on some revenues that came in from a different source: online coupon and deal sites like GroupOn and LivingSocial.
According to the CPA Journal, that kind of tax avoidance is now on the Department of Revenue’s radar, and tax and fraud experts are needed to help identify possible culprits.
Equally importantly, those businesses themselves are suddenly in the market for new accounting talent. Plenty of retailers aren’t intentionally avoiding paying. Instead, the new digital systems create tax liabilities in places they never even knew about, such as when GroupOn refunds a portion of an unused coupon.
Insurers Now Classify Climate Catastrophes as “Ordinary”
Living in Louisiana means dealing with extreme weather events, but there was nothing more extreme than Katrina in the history of Pelican State accounting.
The disaster caused more than 1,800 deaths and caused some $125 billion in damages, the costliest hurricane on record until Harvey came along in 2017 (which also took a chunk out of Louisiana, although it hit Texas harder).
In both cases, accountants had to hunker down to get through the storm like everyone else. But in accounting circles, the biggest hits came after the wind and floodwaters subsided.
That’s because they were followed by waves of insurance claims, bankruptcies, and strange tax and budget adjustments stemming from the disaster. According to The CPA Journal, Katrina resulted in some $70 billion in insurable losses. The incident resulted in a special ruling from the AICPA (American Institute of Certified Public Accountants) that, against all expectations, losses from the storm should be considered “ordinary.”
They may well become ordinary as global climate change continues to up the impact and number of major tropical storms. That means Louisiana CPAs will have to be prepared for even more disaster accounting in the future. That means more training, more education, and more research – all of which makes getting a CPA license here more critical than ever.
The Small Town Tax Collector Now Collecting Prison Tattoos
Even a lot of Mainers don’t have any idea where Anson is. The tiny little village of about 2,500 souls sits in the woods of Somerset county, west of Bangor, enduring heavy winter snows and staying out of the limelight in a state that doesn’t really have a lot of limelight going around in the first place.
At least, that was the case until town tax collector Claudia Viles was convicted on 13 counts of stolen funds, public records tampering, and income tax evasion. The case was so shocking that the prosecutor believed it was the largest instance of municipal funds theft in state history. Over half a million dollars is big money in a tiny place like Anson.
But that points to the importance of having qualified CPAs in even the smallest towns and counties to handle auditing and reconciliation tasks. Viles’ thefts were easy because she was the sole employee responsible for reconciling deposits and filling out treasurer’s receipts for her tax collection work. She was caught only because an outside auditor uncovered $77,000 missing from town accounts.
After 42 years of service, Viles wasn’t initially suspected, but, as the website Central Maine reported, further investigations uncovered hundreds of thousands missing from previous years as well.
It points to the importance of training more people how to become a CPA in Maine, spreading the skills to conduct audits and maintain strong public accounting standards even in the smallest villages of the Pine Tree State.
Don’t Think the IRS Won’t Challenge Real Property Valuations, Even If It’s for Charity
According to the Journal of Accountancy, Linda and Lawrence Mann of Maryland started off trying to do something good: they wanted to donate a house they had purchased to a local charity, keeping the land on which it was sitting. They made a deal with a local charity to tear down the house, providing job training and salvage. Then they wrote off the value of the donated building on their taxes, as they believed they were entitled.
Not so fast, said the IRS. Citing rules about divided interests in property donations, the feds claimed the Manns had not transferred the title properly and valued the building improperly. So it was back to the drawing board for the Manns, who had the house valued by the parts salvaged, and re-filed for a lower deduction.
But they got skunked on that one, too, the IRS claiming the valuation was still improper and didn’t address the title problems.
You won’t see the Mann’s story in theaters next summer, although the whole episode was undoubtedly a big deal in their lives. But if you decide to learn how to become a CPA in Maryland, you can help folks in similar situations avoid that kind of drama.
Fraud Under the Guise of Environmental Protection Put 28,000 Taxpayers Under the Microscope
Residents of the Magnolia State are known as straight-shooters whose word is their bond. More deals get done on a handshake here than maybe anywhere, and those deals stick, too.
That’s what makes it so painful to find out that Mississippi has gotten wrapped up in a series of tax deduction scams around conservation easements in the state that has the IRS seeing red.
Syndicated conservation easements are a real deal, and with more than 4 million acres of wetlands, environmental proponents in Mississippi have done a lot of good preserving and protecting those magnolias and other flora and fauna the state is famous for. But unscrupulous brokers, advisers, and even accountants have tricked some investors into deals that are not exactly above-board.
According to the Investment News, as of 2019, some 28,000 taxpayers were under investigation and more than $21 billion deductions were suspected of being illegitimate under such schemes. Inflated appraisals lead to wildly overstated deductions that are landing many of those investors in hot water… and putting the accounting professionals who evaluated the deals under suspicion.
The Case of the Ma and Pa Deli Valued at $100 Million
Even before “The Sopranos” became must-see Sunday night television across the nation, New Jersey had something of a reputation for some shady business and financial dealings. For the most part, it’s a reputation that is unearned. There’s no evidence that the Garden State has any more fraud than any other heavily urbanized part of the country.
Still, you can’t help but see stories that make you scratch your head and dream about the exciting life of a New Jersey fraud investigator. The story of the $100 million deli in Paulsboro is one of them.
Your Hometown Deli apparently serves up a pretty decent cheesesteak, but even in 2020, it only raked in about $21,000 in sales according to Bloomberg TV. But the parent corporation that owned the deli was valued at over $100 million in 2021. Some reporting pegs the value at closer to $2 billion, the result of private investors in a shell corporation pumping money into it. Making matters even more interesting, the shell corporation was purchased in 2011 by Donald Trump’s real estate tax lawyer. It’s registration was revoked for failing to maintain disclosure requirements.
It turns out, after much investigation, that the deli is likely a very strange kind of SPAC, a Special Purpose Acquisition Corporation. The money is destined to be used in a reverse merger to acquire an overseas or private corporation which would otherwise have to jump through SEC hoops to go public.
The saga isn’t over, however: no merger has occurred, and you can bet that investigators will keep digging into the mystery.
As Netflix Turns New Mexico Into the New Hollywood, Municipal Coffers Could Suffer
There just isn’t any state that has more incredible scenery than New Mexico. From magnificent tall stands of evergreens to stark rock formations, to the glaring white sand desert, the state has been a favorite place for Hollywood to shoot movies ever since moving pictures became a thing.
Something few film-fans today really appreciate, though, is just how big a business the industry has become. Moviemaking today is less about finding a story to tell and actors to play the parts, and more about hooking up the right financing and distribution deals to make a profit worldwide.
And with Netflix establishing a major production hub in Mesa del Sol, New Mexico is still in the game in a big way when it comes to film financing.
The New Mexico Film Office, in partnership with Netflix, has developed a program to recruit and train CPAs in the state who have a background in the dark arts of film production accounting. The Production Accounting and Payroll Training Program is all part of a big plan to keep the local economy humming by making sure the Land of Enchantment remains a go-to destination for Hollywood filmmakers.
So, where’s the tension in this story? – you might ask. Government accounting experts are wary about hitching a city’s entire economic development plan to film production. Pat Garofalo, director of state and local policy at the nonprofit American Economic Liberties Project and author of The Billionaire Boondoggle, says deals like this invite “perpetual competitive purgatory.”
The problem lies in how much cities are willing to compromise to get investors to come, and then stick around for the long haul. When cities with limited budgets spend a lot of money on infrastructure and tax breaks to entice investors in the first place, then have to constantly spend more every year to prop up the industry, it’s like the serpent eating its own tail.