* Problems found in all 23 audits that inspectors checked
* Regulators tighten scrutiny after Madoff
By Dena Aubin
NEW YORK, Aug 20 (Reuters) - Nearly four years after Bernard Madoff admitted using his firm for a massive Ponzi scheme, a U.S. audit watchdog group says it is disturbed by problems that persist in audits of broker-dealers, including a failure to assess the risk of fraud.
In its first report on inspections of broker-dealer auditors, the Public Company Accounting Oversight Board said on Monday it found problems in all 23 audits it reviewed, including failure to test controls over customer funds.
The problems were found during inspections of small broker-dealer audits conducted between October 2011 and February 2012. Broker-dealers are typically people or firms that both execute orders for others and deal in trades for their own accounts.
"Even with this small group of audits inspected thus far, the results are disturbing," PCAOB board member Jeanette Franzel said at a news briefing on the report.
The inspections were authorized by the 2010 Dodd-Frank financial reform law, which expanded the PCAOB's authority over broker-dealer auditors after loopholes helped Madoff perpetrate his investment fraud.
The PCAOB did not name the broker-dealers or audit firms it targeted in the first round of inspections, citing confidentiality requirements. It said it would report any broker-dealer violations of laws or rules to the U.S. Securities and Exchange Commission.
BROKERAGE FRAUDS PERSIST
Madoff used an obscure auditing firm, Friehling and Horowitz, which was not registered with the PCAOB.
In a March 2009 complaint, the SEC said Friehling did not do meaningful audits or confirm that customer assets even existed.
Madoff admitted to operating a Ponzi scheme for decades at his investment advisory business, paying early investors with money from new clients. He also operated a registered broker-dealer.
Additional scandals at brokerages MF Global Holdings Ltd and Peregrine Financial Group have increased pressure on regulators to better protect customer money.
INDEPENDENCE VIOLATIONS FOUND
Federal securities law requires brokers to segregate customers' cash from the brokers' own business accounts. Auditors are supposed to check controls for assuring that customer assets are safe.
In 13 of the 23 audits the PCAOB checked, audit firms did not do enough to assess and respond to risks of material misstatements due to fraud, the board said.
In two cases, audit firms helped prepare the financial statements that they audited, a violation of SEC independence rules.
Franzel called on broker-dealer auditors to read the PCAOB's report and be sure they are not making the mistakes inspectors found.
The PCAOB was created by the 2002 Sarbanes-Oxley Act to police auditors after accounting scandals led to the collapse of Enron and WorldCom. That law gave the PCAOB the authority to inspect auditors of public companies, though the board did not have inspection authority over nonpublic broker-dealer auditors until the passage of Dodd-Frank.
The PCAOB said it planned to look at about 170 audits of broker dealers by year-end 2013 under an interim inspection program. It will then create rules for a permanent inspection program.
Online Dating Scams
<a href="http://www.huffingtonpost.com/2012/05/15/online-romance-scams-cost-50-million-in-2011_n_1518162.html" target="_hplink">Fraudsters feigned interest</a> in lonely online romance seekers to rob victims of about $50 million last year.
Debt Collector Scams
Phony debt collection agencies <a href="http://www.huffingtonpost.com/2012/04/11/ftc-busts-scam-debt-collector_n_1418582.html?ref=business&ir=Business" target="_hplink">have pressured victims</a> into giving up millions of dollars. The Federal Trade Commission recently closed down two California-based <a href="http://www.huffingtonpost.com/2012/02/21/ftc-indian-call-center-fraud-debt-collectors_n_1289751.html" target="_hplink">companies with call centers in India</a> after they defrauded Americans out of $5 million over the past two years.
Online Marketplace Scams
Craigslist and eBay are a playground for scammers. Consumers have sent payments to <a href="http://www.huffingtonpost.com/2012/04/23/craigslist-scams-tips-losing-money_n_1445763.html" target="_hplink">places like Nigeria </a>for items advertised online only to discover they have been scammed. Last year, Romanians pretending to be U.S. citizens put fake ads for pricey items on eBay and Craigslist, <a href="http://www.huffingtonpost.com/2012/04/23/craigslist-scams-tips-losing-money_n_1445763.html" target="_hplink">defrauding Americans out of more than $100 million. </a>
Prize Money Scams
<a href="http://www.huffingtonpost.ca/2012/04/28/lottery-scam-probe-nets-2_n_1460916.html" target="_hplink">Canadian police arrested a man </a>who tried to take a $70,000 processing fee from an elderly Californian woman who believed she was going to win a $7.5 million lottery prize in April. More recently,<a href="http://www.huffingtonpost.com/2012/05/17/jamaica-lottery-scam-fraud-suspects-arrested_n_1525498.html" target="_hplink"> eight Jamaican swindlers accused</a> of duping Americans in lottery scams were also arrested.
Fake charity organizations come out of the woodwork to exploit the generosity of others, <a href="http://www.huffingtonpost.com/2012/03/09/tornado-relief-fraud-scam_n_1334853.html" target="_hplink">especially during times of disaster.</a> Most recently, an organization that claims to help disabled veterans called Disabled Veterans National Foundation (DVNF) <a href="http://www.huffingtonpost.com/2012/05/08/charity-fraud-disabled-national-veterans-foundation_n_1499314.html" target="_hplink">took millions of dollars from donors</a> without spending the money on veterans.
Mortgage Foreclosure Scams
Scammers targeting struggling homeowners have offered false services to help with mortgage settlements. Mortgage foreclosure scams have shot up <a href="http://www.huffingtonpost.com/2012/04/16/mortgage-foreclosure-scams_n_1429805.html" target="_hplink">60 percent in 2012 as new federal programs</a> for mortgages have provided avenues for fraudsters to exploit.
Travelling Relative Scams
Scam complaints related to travelling surged right before <a href="http://www.huffingtonpost.com/2012/04/11/spring-break-travel-scams_n_1418954.html" target="_hplink">spring break last year. Crooks defrauded</a> grandparents out of money when their grandchildren were travelling abroad. The scammers, who find out about the travel plans from places like social media sites, pretend to be the grandchild asking for wire transfers on the phone. The scams have involved scammers pretending in an email to be a victim's travelling relative who has recently been mugged or has lost their passport.
Although there isn't much data on how often it occurs, food scams can pose a tremendous<a href="http://www.huffingtonpost.com/2012/04/20/food-fraud-hoax-grocery-store_n_1439995.html#s889480&title=Milk_" target="_hplink"> health risk. The chances</a> of dilution and counterfeiting increase when food is imported from other countries, and some foods like fish and olive oil are particularly prone to adulteration.
Online Prescription Drug Scams
Scammers have sold drugs to online consumers and then posed as government agents asking the buyers to pay money to <a href="http://www.huffingtonpost.com/2012/04/12/online-prescription-drug-scam_n_1420776.html" target="_hplink">avoid jail time. A Texas woman </a>killed herself after being caught up in one of these drug schemes.
Credit Card Scams
Credit card breaches allow fraudsters to make charges on other peoples' cards after getting a hold of numbers. Global Payments Inc., a third party payment processing service for MasterCard and Visa, made headlines in April for reporting that over a million card numbers had been compromised from their system, <a href="http://news.cnet.com/8301-1009_3-57407981-83/global-payments-calls-data-breach-contained/" target="_hplink">according to CNET.</a>