Accounting
Auditors navigate a state of ‘permacrisis’
Richard Chambers is seeing a neverending series of crises confronting internal auditors and posing risks to their organizations.
A former chairman of the Institute of Internal Auditors, Chambers currently chairs the UNICEF Audit Advisory Committee and is senior advisor of risk and audit at the audit technology company AuditBoard. His fourth book, “
“The premise behind the book, and it’s something I’ve been talking about now for the better part of the last three years, is that it’s almost like when the 2020s dawned,” he told Accounting Today. “The switch was flipped in terms of risk, volatility and risk velocity.”
With a consequential election approaching, potential risks are top of mind for many voters. “Risks became much more volatile and unpredictable, and the speed with which they emerged became almost unfathomable,” said Chambers. “We’ve lurched from the pandemic to supply chain disruption to macroeconomic turbulence, to wars in Europe, wars in the Middle East. All of this has the combined effect of really challenging even the best risk managers out there, and the idea that risk managers can do their thing off in their silo.”
The election will bring its own set of risks. “Each party has clearly staked out its position on fiscal policies, tax policies and so forth,” said Chambers. “There’s a lot of uncertainty there as to which way it’s going to go, so you’ve kind of got to manage the risks in both directions. You’ve just got to be prepared for the.uncertainty that lies ahead.”
Internal auditors, risk managers and compliance professionals can no longer operate separately. “We are dealing with almost an existential threat to a lot of companies and a lot of industries,” said Chambers. “We’ve seen a lot of companies and industries be decimated in the last five years,” said Chambers. “What I’ve tried to do with the book is to offer a path forward. It’s in some ways a call to action that says, you know you can’t manage risks like you’ve traditionally managed them in the era of ‘permacrisis.'”
He sees it as a permanent state of crisis where everyone needs to get involved. “It’s all hands on deck,” said Chambers. “You’ve got to have the risk managers, the internal auditors, the compliance team, the information security professionals, everybody’s got to be on the same page. And there’s got to be a lot more collaboration, cooperation and communication to help companies manage the risks.”
Chambers experienced his own crisis in 2022 when his home in Florida was badly damaged by Hurricane Ian. He was only able to move back in this past June.
Cybersecurity and artificial intelligence open up a new set of challenges. “If I were to talk about, the top-of-mind risks in 2025, there’s a whole range of IT risks: cybersecurity, data security risks, increasingly AI,” said Chambers. “AI presents extraordinary opportunities, but it also is laced with some really significant risks. That’s going to become even more acute as we see more and more regulations put in place, legislation and regulations coming from governments to try and tie down how AI is used, to make sure it’s not misused.”
In addition, there is economic uncertainty around inflation, while recruiting is still a problem for many companies. “We’re still not out of the woods on talent management, the ability to recruit and retain the talent a company needs or an organization needs, has been in the top five for almost the whole decade so far,” said Chambers.
Internal auditors will be hard pressed to deal with all of these uncertainties. Chambers sees a “risk exposure gap” in the number of risks that are being presented to a limited number of auditors. “We’ve seen the risk continue to mount, but we have not seen a real increase in the resources to tackle those risks,” he said. “Internal audit resources have been stagnant at best. I personally think they’ve been in a modest decline for the last two or three years because they haven’t been keeping pace with inflation. You are seeing a lot of infusion of resources into risk management or into compliance.”
One way to offset some of the risk exposure gap is through better collaboration among various risk management professionals, along with more investment in up-to-date technology. “If everybody’s still trying to track risks and manage risks using spreadsheets, that’s really not going to be very effective in the volatile environment we’re living in,” said Chambers.
He wants to see more collaboration among internal auditors, risk managers, compliance professionals and information security personnel. “I often encourage the internal auditors to be the leaders in this collaboration movement,” said Chambers. “Start working more closely with the risk managers in your organization and with the compliance teams, in making sure that when you all get in front of the board or in front of the executive management, that you have a pretty good understanding of what the others are doing, that you have hopefully been able to align on what the true risk profile is of your company. There’s nothing that frustrates a board more than having two or three different folks come in and tell them that there are different risks that the company’s facing. I’ve had audit committee chairmen say we just throw them out and tell them to come back when they can find some common ground. There’s too much ambiguity out there anyway, and if a board has ambiguity in terms of their different key players coming in and telling them that the company’s facing different risks, it really leads to frustration. The key here is there’s no one player that has to be the one to take the lead. But if somebody’s going to take the lead and get everyone on the same page with risk management, I think internal audit’s a prime candidate.”
He sees the various risks multiplying now. “I’ve been in the profession for 50 years,” said Chambers. “Next year will be my 50th year since I joined internal audit right out of college, and I’ve never seen a period as volatile as these last five years. We have been averaging as many risk disruptive events per year as we used to see in a decade. The time has come for action and the key risk management players — the risk managers, internal auditors, compliance, infosec — the ball is in their court. If companies are going to navigate the second half of this decade with any degree of success, these players have to come together and be a part of it.”
Captive audience; some disagreement; game of 21; and other highlights of recent tax cases.
Barrington, Illinois: Tax preparer Gary Sandiego has been sentenced to 16 months in prison for preparing and filing false returns for clients.
He owned and operated the tax prep business G. Sandiego and Associates and for 2014 through 2017 prepared and filed false income tax returns for clients. Instead of relying on information provided by the clients, Sandiego either inflated or entirely fabricated expenses to falsely claim residential energy credits and employment-related expense deductions.
Sandiego, who
He was also ordered to serve a year of supervised release and pay $2,910,442 in restitution to the IRS.
Ft. Worth, Texas: A federal district court has entered permanent injunctions against CPA Charles Dombek and The Optimal Financial Group LLC, barring them from promoting any tax plan that involves creating or using sham management companies, deducting personal non-deductible expenses as business expenses or assisting in the creation of “captive” insurance companies.
The injunctions also prohibit Dombek from preparing any federal returns for anyone other than himself and Optimal from preparing certain federal returns reflecting such tax plans. Dombek and Optimal consented to entry of the injunctions.
According to the complaint, Dombek is a licensed CPA and served as Optimal’s manager and president. Allegedly, Dombek and Optimal promoted a scheme throughout the U.S. to illegally reduce clients’ income tax liabilities by using sham management companies to improperly shift income to be taxed at lower tax rates, improperly defer taxable income or improperly claim personal expenses as business deductions. As alleged by the government, Dombek also promoted himself as the “premier dental CPA” in America.
The complaint further alleges that in promoting the schemes, Dombek and Optimal made false statements about the tax benefits of the scheme that they knew or had reason to know were false, then prepared and signed clients’ returns reflecting the sham transactions, expenses and deductions.
The government contended that the total harm to the Treasury could be $10 million or more.
Kansas City, Missouri: Former IRS employee Sandra D. Mondaine, of Grandview, Missouri, has pleaded guilty to preparing returns that illegally claimed more than $200,000 in refunds for clients.
Mondaine previously worked for the IRS as a contact representative before retiring. She admitted that she prepared federal income tax returns for clients that contained false and fraudulent claims; the indictment charged her with helping at least 11 individuals file at least 39 false and fraudulent income tax returns for 2019 through 2021. Mondaine was able to manufacture substantial refunds for her clients that they would not have been entitled to if the returns had been accurately prepared. She charged clients either a fixed dollar amount or a percentage of the refund or both.
The tax loss associated with those false returns is some $237,329, though the parties disagree on the total.
Mondaine must pay restitution to the IRS and consents to a permanent injunction in a separate civil action, under which she will be permanently enjoined from preparing, assisting in, directing or supervising the preparation or filing of federal returns for any person or entity other than herself. She is also subject to up to three years in prison.
Los Angeles: Long-time lawyer Milton C. Grimes has pleaded guilty to evading more than $4 million in federal taxes over 21 years.
Grimes pleaded guilty to one count of tax evasion relating to his 2014 taxes, admitting that he failed to pay $1,690,922 to the IRS. He did not pay federal income taxes for 23 years — 2002 through 2005, 2007, 2009 through 2011, and 2014 through 2023 — a total of $4,071,215 owed to the IRS. Grimes also admitted he did not file a 2013 federal return.
From at least September 2011, the IRS issued more than 30 levies on his personal bank accounts. From at least May 2014 to April 2020, Grimes evaded payment of the outstanding income tax by not depositing income he earned from his clients into those accounts. Instead, he bought some 238 cashier’s checks totaling $16 million to keep the money out of the reach of the IRS, withdrawing cash from his client trust account, his interest on lawyers’ trust accounts and his law firm’s bank account.
Sentencing is Feb. 11. Grimes faces up to five years in federal prison, though prosecutors have agreed to seek no more than 22 months.
Sacramento, California: Residents Dominic Davis and Sharitia Wright have pleaded guilty to conspiracy to file false claims with the IRS.
Between March 2019 and April 2022, they caused at least nine fraudulent income tax returns to be filed with the IRS claiming more than $2 million in refunds. The returns were filed in the names of Davis, Wright and family members and listed wages that the taxpayers had not earned and often listed the taxpayers’ employer as one of the various LLCs created by Davis, Wright and their family members. Many of the returns also falsely claimed charitable contributions.
Davis prepared and filed the false returns; Wright provided him information and contacted the IRS to check on the status of the refunds claimed.
Davis and Wright agreed to pay restitution. Sentencing is Feb. 3, when each faces up to 10 years in prison and a $250,000 fine.
St. Louis: Tax attorneys Michael Elliott Kohn and Catherine Elizabeth Chollet and insurance agent David Shane Simmons have been sentenced to prison for conspiring to defraud the U.S. and helping clients file false returns based on their promotion and operation of a fraudulent tax shelter.
Kohn was sentenced to seven years in prison and Chollet to four years. Simmons was sentenced to five years in prison.
From 2011 to November 2022, Kohn and Chollet, both of St. Louis, and Simmons, who is based out of Jefferson, North Carolina, promoted, marketed and sold to clients the Gain Elimination Plan, a fraudulent tax scheme. They designed the plan to conceal clients’ income from the IRS by inflating business expenses through fictitious royalties and management fees. These fictitious fees were paid, on paper, to a limited partnership largely owned by a charity. Kohn and Chollet fabricated the fees.
Kohn and Chollet advised clients that the plan’s limited partnership was required to obtain insurance on the life of the clients to cover the income allocated to the charitable organization. The death benefit was directly tied to the anticipated profitability of the clients’ businesses and how much of the clients’ taxable income was intended to be sheltered.
Simmons earned more than $2.3 million in commissions for selling the insurance policies, splitting the commissions with Kohn and Chollet. Kohn and Chollet received more than $1 million from Simmons.
Simmons also filed false personal returns that underreported his business income and inflated his business expenses, resulting in a tax loss of more than $480,000.
In total, the defendants caused a tax loss to the IRS of more than $22 million.
Each was also ordered to serve three years’ supervised release and to pay $22,515,615 in restitution to the United States.
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