For nearly four decades, I have been investigating, researching and writing about occupational fraudsters. From the mailroom to the boardroom, what these criminals have in common is the inability to commit fraud once and quit.

So it was with Walter Pavlo Jr., who chronicles his descent from ambitious telecom worker to convicted embezzler in this book, which was published by a division of Pavlo’s company, Etika LLC.

The book is a terrific read—provided that you take Pavlo’s account with a grain of salt. One of the hallmarks of white-collar criminals is their ability to rationalize their actions and lay blame at the feet of others. Pavlo does his fair share of that even while admitting his guilt. Co-author Neil Weinberg, a talented writer and storyteller who is a senior editor at Forbes, serves as a counterweight to Pavlo.

One of their principal messages is that corrupt companies beget corrupt employees. Pavlo was recruited in 1992 by a subsidiary of MCI, which would later merge with WorldCom and collapse under the weight of fraud committed on CEO Bernie Ebbers’ watch. The book does not focus on Ebbers’ misdeeds or the MCI/WorldCom collapse, despite the impression given by the book’s jacket. Pavlo left MCI before WorldCom bought the company in 1998.

As MCI grew, so did its delinquencies. Pavlo was tasked with collecting on past-due accounts of large business customers. He contends that he was told to hide bad debts through accounting sleight of hand. One trick was to credit the delinquent receivable and debit a new one, which effectively brought the account current.

Pavlo alleges that Harold Mann, a delinquent MCI customer, hatched a scheme that cost MCI $6 million in losses. Pavlo pressured business customers struggling to pay their MCI bills and referred them to Mann, who, for an upfront fee and monthly payments, pledged to step in and negotiate substantial reductions in their debts.

Mann and Pavlo pocketed the loot. To conceal the crime, Pavlo developed a lapping scheme of sorts that worked by applying payments from a good customer to the accounts of those who had entered into the illegal arrangement. Ultimately, MCI’s accounting department uncovered the scheme and Pavlo and Mann were convicted and sent to prison.

Only time will tell if Pavlo has learned his lesson. I first met him about five years ago when he addressed the Eighth Annual ACFE European Fraud Conference in Copenhagen, Denmark. He also spoke at the 15th Annual ACFE Fraud Conference & Exhibition in Las Vegas.

More recently, Pavlo told his story in Fraud and the Tone at the Top , a video produced by the AICPA and the ACFE, that is available for free at http://antifraud.aicpa.org/
Resources/Fraud+and+the+Tone+at+the+Top.htm or www.acfe.com/about/press-release-08-24-2006.asp . It provides advice on how to avoid the kind of situations that plagued Pavlo.

The ACFE has used the experiences of white-collar criminals such as Pavlo for educational purposes for the last 18 years. They are paid nothing except travel expenses. We believe there is no better training experience than to hear fraudsters describe, in their own words, how and why they committed fraud. Stolen Without a Gun takes a page from that book.

By Joseph T. Wells , CPA, CFE, founder and chairman of the Association of Certified Fraud Examiners and a contributing editor to the JofA. Editor’s note: The reviewer’s opinions do not necessarily reflect those of the Association of Certified Fraud Examiners.

The Guide to ESOP Valuation and Financial Advisory Services (Second Edition) expands and updates information from the first edition on employee stock ownership plans (ESOP) published in 2005. The book is based on a compilation, adaptation and expansion of articles written by the authors over the past several years and reflects the current thinking of professional practitioners on ESOP valuation issues. Little text is devoted to how to value a business. Rather, the focus is primarily on uses of valuation reports and related issues.

Although primarily targeted toward other professional practitioners, the guide will be useful to ESOP-involved trustees, legal counsel, accountants and auditors, administrators and financial advisers. A broader audience will also find value in this publication, including: ESOP sponsors and potential sponsors; employer managements; non-ESOP stockholders; and plan participants.

The book is logically organized and begins with issues related to structuring the ESOP transaction. This first section includes discussions on the common uses of ESOPs and their tax benefits. The next section focuses on basic stock valuation issues and includes a discussion on the differences associated with valuing large and small corporations.

From there, the book moves on to more advanced valuation issues including different approaches to the valuation process and various adjustment factors that might influence a valuation. Chapter 14 provides a good introduction to the impact of the employer stock repurchase obligation on the valuation.

Sections IV through VI provide numerous examples of the various uses of financial adviser (that is, valuation) services ranging from fairness opinions to solvency determinations, reasonableness of compensation, litigation support and expert witness testimony. Checklists are provided for valuation and fairness opinions as well as for solvency opinions.

The last sections of the book contain sample reports for several ESOP-related purposes—one for a proposed ESOP transaction including a fairness opinion and one for an existing ESOP valuation. A sample case study determines the reasonableness of executive compensation. The authors make clear what goes into such reports, including the analysis, rationale and conclusions. The samples show the end user what to expect from a competent financial adviser and can serve as a benchmark against which similar reports can be prepared. Overall, the second edition of the Guide is a valuable addition to any ESOP practitioner’s library.

In the backward world envisioned 135 years ago by Samuel Butler in Erewhon , taxation is regressive, on the theory that a business fortune is evidence of society’s esteem toward its holder. Rather than the social Darwinism that Butler parodied, however, America subsequently developed a progressive system, which is alive, if not well, nearly a century later.

In diagnosing its ills, San Diego University law professor Lester Snyder has come to the same conclusion as many other reformers: A radical cure is needed. In the “double take” of the book’s title, Snyder demonstrates the tax code’s failure to live up to that bedrock principle of fair taxation, the equal treatment of similarly situated taxpayers.

He finds double standards and therefore government-sanctioned redistribution of wealth in the law’s differing treatment of earned vs. unearned income, hobby loss rules, preferential rates for capital gains, and the antiquated and punitive $3,000-a-year capital loss limitation. Also marriage penalties, marriage bonuses, passive investment rules, divorce property settlements and preferential treatment of donations ­­to charitable organizations of securities and cash versus other assets—all are discriminatory, he says. Even free parking and other tax-exempt employee perks come in for some spleen.

Snyder prescribes a flat rate somewhere under 20%, exempting the first $20,000 or $25,000 a year. He would retain deductibility of employer-paid health care and some home mortgage expense, adding a deduction for renters. Preferential capital gains rates would be abolished, as would pass-through taxation of business profits on individual returns.

If ever there were an open season on the tax code, it would seem to be now, as Congress frets over the alternative minimum tax and presidential hopefuls peddle their own, in some cases radical, cures. Although the tax code’s inequities raise serious and pressing issues, it remains unclear from Double Take and other such books from where the bipartisan resolve to adopt a new scheme would come. Given America’s seemingly increasing penchant for partisan stalemate, it’s hard to imagine it ever happening except in Butler’s mythical land, whose name is an anagram for “nowhere.”

It is difficult to remain the “quiet guy” when so many are singing your praises. Thus it became important for Frank K. Ross to write his autobiography. He provides a novel perspective as a West Indian immigrant who moved, as a 7-year-old, from St. Kitts to New York in 1951. His life paralleled the evolution of racial attitudes in American society and later in the narrower purview of the accounting profession, long identified as the domain of white men. Ross skillfully interweaves the societal changes of the period from 1951 through the present with his own life experiences and challenges he faced in his quest to move through the ranks.

As the first African American partner at Peat Marwick (now KPMG), Ross readily acknowledges that white men of power held open the doors to opportunity for him while other powerful white men tried to close those same doors. Yet, he exhibits little anger and virtually no bitterness in his story. Instead he channels his energies into making numerous significant contributions to the accounting profession, a major one as co-founder of the National Association of Black Accountants (NABA) in 1969.

Ross is “convinced that the most important ingredient in achieving success is a strong value system…instilled early in life.” His simple guidelines to a successful life include:

Prepare for tomorrow, not for today.

Develop a strong work ethic.

Believe you can overcome all obstacles.

Remember that no one achieves success alone.

Hold to your core values and the knowledge that you are not here alone.

Cherish the moment!

Compensation is a complex matter for most firms, with money being only one aspect of the equation. This book begins with a look at recent (past 25 years or so) paradigm shifts that have contributed to changes in the accounting profession including: a global economy and outsourcing; increased regulation; technological advancements; work/life balance; talent shortages; and fee pressures.

As consultants to the profession, the authors have also witnessed paradigm shifts in public accounting firm owner compensation plans that revolve around attracting, rewarding and retaining top performers. “Successful firms develop and implement processes that fundamentally change and nurture the relationship between owners and employees and the firms for which they both work,” they say. The new approach moves beyond traditional measurements and focuses on people by linking performance with effective compensation plans and aligning financial rewards with strategic direction. Evaluations based on customized criteria and goals, current production and future capacity, and at-risk compensation are a few examples of the changing approaches.

The authors break down compensation components in Chapter 6 (base pay, return on capital, bonus and return on equity) and examine the current criteria that many firms use to evaluate performance. The base pay discussion strives to answer these difficult questions:

What is the base value of any given position?

How much should you pay?

How do you determine what pay should be?

An assessment of current compensation methods in Chapter 7 helps the reader understand how these methods have contributed to firms’ success or prevented firms from reaching their full potential. The methods discussed include formula, equal pay, the managing owner’s choice of method and compensation committee methods. Recognizing that no single compensation system will solve the problems of every firm, the authors describe the elements of a good plan and best practices to consider in designing a new system.

As the accounting profession continues to adapt to evolving complexities, it is clear that compensation is another area where firms must embrace change. The book lays out a framework and methodology for firm leaders and owners who are interested in learning how to align compensation to their firm’s mission, vision, values and goals. When compensation is used effectively as a strategic asset, a firm will see improvement in the recruitment and retention of valuable staff as well as its overall profitability.