Premium Essay

Accounting Frauds

In: Business and Management

Submitted By ANSHUTARIT
Words 6695
Pages 27
ACCOUNTING FRAUDS

CONTENTS WHAT ARE FRAUDS? | WHAT ARE ACCOUNTING FRAUDS? | NOTABLE FRAUDS | NOTABLE OUTCOMES | MANIPULATION & FALSIFICATION OF RECORDS | MISAPPROPRIATION OF CASH BALANCES | MISAPPROPRIATION OF GOODS | TEEMING & LADING | WINDOW DRESSING | SECRET RESERVES | ENRON FRAUD | WORLDCOM FRAUD |

WHAT ARE FRAUDS ???
FRAUDS AND THEIR CHARACTERISTICS

Misstatements in the financial statements can arise from fraud. In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual, Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud Industries most commonly effected by fraud are banking, manufacturing, and government. Fraud can be committed through many media, including mail, wire, phone, and the Internet (computer crime and Internet fraud). * The term “fraud” refers to an intentional act by one or more individuals among management, those charged with governance, employees or third parties, involving the use of deception to obtain an unjust or illegal advantage. Although fraud is a broad legal concept, the auditor is concerned with fraudulent acts that cause a material misstatement in the financial statements. Misstatement of the financial statements may not be the objective of some frauds. Auditors do not make legal determinations of whether fraud has actually occurred. Fraud involving one or more members of management or those charged with governance is referred to as “management fraud”; fraud involving only employees of the entity is referred to as “employee fraud”. In either case, there may be collusion with third parties outside the entity. * Two types of intentional misstatements are relevant to the auditor’s consideration of fraud misstatements resulting from fraudulent financial...

Similar Documents

Free Essay

Accounting Fraud

...Accounting Fraud by: If you were to visit Qwest Communications website today you would find under the Code of Conduct pertaining to Ethics this quote, “…A company’s achievements are the sum of countless interactions every day, every week and every year – with colleagues, customers, and communities. If we are to carry on Qwest’s excellent reputation for ethics and integrity, all of our transactions must be based on doing the right thing. This is the only way to do business and it will remain the Qwest way.” - Ed Mueller Chairman and Chief Executive Officer. But in October 2004 this was proved that this company in fact did not operate at all like this or came even close. As we look over Qwest Communications we find that it is a large telecommunications carrier that provides voice, data, and in some areas television services. Qwest Communications also provides long-distance services and broadband data, as well as voice and video communications globally. The company sells its products and services to small businesses, governmental entities, and public and private educational institutions through various channels, including direct-sales marketing, telemarketing, arrangements with third-party agents, company’s Web site, and partnership relations. As a company grows so does its problems as with any real life situation; complaints regarding Qwest involved allegations that the then-long-distance-only company switched local telephone service customers over to Qwest's......

Words: 1763 - Pages: 8

Premium Essay

Accounting Frauds

...Analysis of Accounting Frauds and the Timing of Analyst Coverage Decisions and Recommendation Revisions: Evidence From the US Susan M. Young* Associate Professor Fordham University New York, NY 10019 syoung16@fordham.edu Emma Peng Assistant Professor Fordham University New York, NY 10019 ypeng@fordham.edu *Corresponding author We thank workshop participants at the AAA annual meeting, City University of New York, CUNY Baruch College Emory University, and the editor for their helpful comments. We are grateful for the data provided by an anonymous reviewer and research assistance of Aili Weng and Xiaolan Wang. We appreciate funding from Fordham University. Electronic copy available at: http://ssrn.com/abstract=2202393 An Analysis of Accounting Frauds and the Timing of Analyst Coverage Decisions and Recommendation Revisions: Evidence From the US Abstract: This paper provides a comprehensive exploration of the types of accounting fraud committed by firms over the period 1995 – 2009. Using detailed data from US SEC Accounting and Auditing Enforcement Releases (AAER), we examine the likelihood and timing of analyst coverage decisions and recommendation revisions related to fraud firms versus firms without accounting fraud. We find that analysts have a higher probability of taking the more severe action of dropping coverage rather than only revising down recommendations for firms with any type of accounting fraud and also for specific egregious types of......

Words: 17008 - Pages: 69

Premium Essay

Accounting Fraud

...Accounting Fraud Name: Institution: Course: Date: Accounting fraud Accounting fraud is an intentional manipulation of the financial records so that it looks improved compare to the previous ones. The fraud involves the employee in a business organization embezzling or misappropriating the business resources. Those holding higher positions in financial and accounting offices are the major promoter of the accounting fraud. There has been reported reports of the collapse of large companies mainly attributed to the impact of the fraud; the fraud only enriches oneself. On the other hand, there is deteriorations and failures in the business performance. Payroll fraud Is the past years, cases of payroll fraud has increased significantly. In this situation, the staff creates the payrolls of non-existing workers with the aim of receiving the money illegally in the end. The persons involved in the payroll fraud receives an additional payment of their salaries. There are failures in most companies because of the failure to keep enough and comprehensive records of the financial updates. Therefore, the best solution to the payroll fraud is the implementation collection of all the monthly payroll records and the account balance sheets. Through the tracking of the records will enhance the perpetrators of the vice held responsible(Singleton, T. W., & Singleton, A. J.2010). Prevention measures In any business organization, there is need of coming up with crucial......

Words: 615 - Pages: 3

Free Essay

Accounting Fraud

...Kaitlin Sleasman Fraud Paper 1/14/11 Acct. 211 In October of 2004, Qwest Communications International, Inc., was charged by the Securities and Exchange Commission for securities fraud and other violations of the federal securities law. The accusations were being traced back between 1999 and 2002. Qwest recognized more than $3.8 billion in revenue and also excluded more than $230 million in expenses in order to meet unstoppable revenue and earnings projections. Qwest Communications did not admit or deny any of the allegations but they did consent to the entry of judgment. Qwest Communication agreed to anti-fraud injunction, a $250 million penalty, and will have to permanently report to the Outside Directors of the Board. When deciding the penalty amount, the Commission considered Qwest’s current financial condition. Qwest Communication will permanently need to report to the Outside directors through a Chief Compliance Officer to ensure that the company performs within the federal securities laws. The CCO is put in place to help the Board maintain, implement, and enforce the standards of conduct for a company. Any employee that has concerns or questions about the behavior or decisions regarding whether something was “ethical” or not within the company would report to the CCO who would then further investigate the situation. During the investigation, Regional Director in the Commission’s Central Office, Randall J. Fons stated, “Qwest senior management created...

Words: 494 - Pages: 2

Premium Essay

Fraud and Forensic Accounting

...------------------------------------------------- Fraud and forensic accounting in small business’ Tasha S. Barnes ------------------------------------------------- Fraud and forensic accounting in small business’ Tasha S. Barnes Accounting fraud is serious issues for all businesses, but they are especially challenging for small companies that are “cash strapped”. Fraud undermine decision making, lead to financial losses and, in some cases, even force companies to lay off staff or shut their doors. Fraud is a common problem for small businesses. According to the Association of Certified Fraud Examiners (ACFE), 30 percent of all fraud occurs in small companies. That is a disturbing fact considering that the estimated fraud loses for business of all sizes was nearly $2.9 trillion in 2009. Fraud occurs so frequently in small business for a couple of reasons. A common reason is that small companies typically have small or even single-person accounting staffs and limited internal controls; lack of separation of duty. It is typical to have the accountant also be the office manager and receiving clerk. Problems can arise if for no other reason than on one double checks the work. Besides being more susceptible to errors and fraud, small businesses also are less likely to discover them because financial audits are almost never performed. It seems, as though a new scam comes to light every day, with electronic-media inspired frauds such as phishing and spoofing,......

Words: 1750 - Pages: 7

Premium Essay

Fraud and Forensic Accounting

...Fraud and Forensic Accounting Forensic Services → are directed to delivering solutions to clients for issues where there is disagreement about facts, or where business-related behavior is not in accordance with expectations or standards. → Forensic means "suitable for use in a court of law" Forensic Accountants →  are experienced auditors, accountants, and investigators of legal and financial documents that are hired to look into possible suspicions of fraudulent activity within a company; or are hired by a company who may just want to prevent fraudulent activities from occurring. HISTORY OF FORENSIC SERVICES • Northern Hemisphere (North America and UK) evolved during late eighties and early nineties. • Australia evolved only during 1998. Before 1998, forensic services were provided by accounting practitioners on an ad hoc basis. TYPES OF FORENSIC SERVICES *Note: Forensic Services have been reactive rather than proactive. • Reactive → Tending to be responsive or to react to a stimulus. • Proactive → Acting in advance to deal with an expected difficulty; anticipatory DISAGREEMENT OVER FACTS – REACTIVE SERVICES o Expert Witness Services → Forensic accountant’s role may be in the capacity of the expert witness. → Expert witness will produce a report that will be filed in court and upon which they will give evidence and be cross-examined. o Valuation Services → Determines the...

Words: 1053 - Pages: 5

Premium Essay

India Accounting Fraud

...In the wake of global scandals involving kickbacks and accounting fraud, one unlikely country, India, is aiming to set a tone in overhauling its corporate oversight laws. This month, the nation’s upper house of Parliament passed the Companies Bill, 2012, sweeping legislation meant to overhaul auditing, impose stiffer penalties for fraud and create more government oversight of businesses. The lower house had passed the bill last year. Once India’s president, Pranab Mukherjee, signs it into law, it will replace India’s 57-year-old corporate legislation that critics say had failed to keep up with changes in business practices. India, a nation notoriously rife with graft and bribery, was partly motivated to pass the legislation in the wake of an accounting scandal that has been called India’s Enron. In 2009, B. Ramalinga Raju, the chairman of a prominent outsourcing company, Satyam Computer Services, confessed to overstating company assets and earnings by more than $1 billion, and then resigned. The fact that one company could defraud shareholders of such a large sum despite regular audits made painfully obvious the need for greater oversight in corporate India. But some four years after that startling case, little change in corporate laws had taken place until now. The new legislation will affect all companies doing business in India, regardless of their size, structure or ownership, including the estimated 8,000 corporations listed on three national stock exchanges. Yet......

Words: 1162 - Pages: 5

Premium Essay

Accounting Fraud

...Most Commonly Used and Most Effective Accounting Fraud Detection Method         The stacked bar chart exhibits which between manual methods and automated methods is more commonly used and is more effective in detecting accounting frauds, according to the perception of accounting professionals in DLSU. Unexpectedly, majority of the accounting professors perceive (x [mean] = 2.06, σ [standard deviation] = 0.79) the most commonly used accounting fraud detection methods as manual in form. The reason for this is in line with a previous study conducted by Shapiro (2011) which states that it is nearly impossible to eliminate the risks of accounting fraud, for it is generally a manual activity, and not a mere automated activity. In addition, Ms. Catada also asserted that manual methods are more ideal for detecting accounting misrepresentations since they constitute to scrutinizing supporting documents which could only be facilitated through manual checking. However, she also stated that automated accounting fraud detection methods could still be helpful in assisting and easing these manual processes. Based on the survey, the respondents disagreed (x = 2.39, σ = 0.93) to the idea that automated detection methods are more frequently used than manual methods in detecting fictitious sales. According to Ms. Catada, this type of fraud may be detected through bank reconciliation, third party confirmation or supporting documents to verify whether the sale actually occurred. Likewise, for...

Words: 4742 - Pages: 19

Premium Essay

Accounting Fraud

...Accounting Fraud at Cit Computer Leasing Group Inc Article Reveiw Kiarra Banks Law/421 September 18, 2013 Professor Hughes In week four of class, we read about the Sarbanes-Oxley Act of 2002. According to Margaret Rouse, this act was passed as a response to scandals such as Enron and Worldcom, the nation’s renowned financial scandals, to protect the shareholders and the general public from accounting errors and fraudulent practices in the enterprise (Rouse, M. 2007). If not known, Enron was known for “cooking the books”. They had planned an accounting fraud that cost millions of dollars. In this article, it was similar situation but smaller and see how the SOX act takes effect in today’s business’. This article starts off with Haley Werle a manager, reminiscing back a couple weeks ago from when all the fraud was caught. CIT, a local company located in Jacksonville, Florida, a fortune 500 company, had at least $637,000 stolen from them in false inventory due to one employee, Kaveh Naikan. He was a supervisor at CIT for many years, but was fired reselling company computers to non-approved resellers and pocketing what he received. The red flag was when Werle recognized that some computers were sold to a non-approved warehouse. Once she remembered that the warehouse that wasn’t approved, was one of Naikan closest friends, now has gained access to CITS assets. At the end, he was sentenced three years wih owing CIT group $300,000. He did not have to owe it all back......

Words: 475 - Pages: 2

Premium Essay

Accounting Fraud at Worldcom

...the books numbers to look profitable because of a comment made by Ebbers. “Ebbers made a personal, emotional speech to senior staff about how he and other directors would lose everything if the company did not improve its performance.” p 4. 2.  What is the boundary between earnings smoothing or earnings management and fraudulent reporting? To me there comes a line where you know that the entry that you are making is incorrect, and you make the entry anyways. That to me is where fraud is committed. Otherwise make your best judgement call on what would be appropriate to capitalize, or develop a new way of calculating estimates for accruals if you believe them to be wrong. 3.  Why were the actions taken by WorldCom managers not detected earlier? There was no set of stated policies written in the company. The company most likely had around 30,000 employees in 1995, but didn’t have an employee code of conduct. Since this was not in place, every manager was able to act on their own accord. The accounting department sounded like a war room, where each group had to deceive the other of journal entries. The external auditor was stone walled during the audit, and simply stated the information was a moderate risk. The senior management team used scare tactics or “it’ll only be one time” tactic to coheres employees to making fraudulent entries. The internal auditors were never allowed to do their job. They couldn’t get...

Words: 764 - Pages: 4

Premium Essay

The Culpability of Accounting Fraud

...The Culpability of Accounting Fraud: Auditors, Managers or Both ACC 503 – Accounting for Management Abstract The purpose of this term paper is to provide insight to the reader about accounting fraud and on whom the responsibility lays whenever there is an allegation of accounting misconduct. Based on the rash of accounting fraud by major respectable corporations in recent years, no one organization is immune to accounting fraud and it is prevalent in the Federal Government down to the smallest neighborhood business. This paper will, discuss the responsibility of managers and auditors in preventing accounting fraud, show the relationship between internal and external auditors in identifying and preventing fraud, and the responsibility for managers to have strict internal controls within their accounting processes. Introduction Enron, WorldCom, Lehman Brothers, and Waste Management were three of the biggest corporations plagued by accounting improprieties. These companies were at one time multi-billion dollar entities that seemed to have unlimited growth prospects. They also were mega companies that have been involved in some sort of accounting scandal or an instance of accounting fraud. The Journal of Finance and Accountancy lists the definition of fraud as “All multifarious means which human ingenuity can devise, and which are resorted to by one individual to get an advantage over another by false......

Words: 3151 - Pages: 13

Premium Essay

Small Business Accounting Fraud

...The purpose of my presentation is to inform interested individuals about accounting fraud in small business and narrowing the topic to two main factors that allow the fraud to take place. The presentation will be specifically informational in nature. Once I have finished my presentation, the audience will have a clear understanding of my central idea, which is why limited staff and family trust are reasons that small businesses are victims of accounting fraud. The ideal audience for my presentation would be a meeting of a small business alliance, chamber of commerce, entrepreneur club, and any other group or class that would benefit from learning about accounting fraud in small businesses. My topic would benefit a more specific group of people such as those that are interested in or work in the field of accounting or business. Since my intended audience are adults that are working in the field of accounting or business or have an interest in these fields; my topic is appropriate for the age range, interests and general knowledge of my audience. The importance of my presentation to the audience is significant since the individuals in the intended audience will be either working or interested in business or accounting and quite possibly be involved in a small business at some level. It will be important for them to know about the reasons small businesses are the most common victims of accounting fraud. Once informed about the reasons, they will be able to apply what they......

Words: 1760 - Pages: 8

Premium Essay

Rite-Aid Accounting Fraud

...Rite- Aid Accounting Fraud: How It Could Have Been Detected Abstract Martin Grass assumed leadership of Rite-Aid from his father in the mid-1990s. In the next 5 years Rite-Aid experienced rapid growth. The company was reporting higher earnings per share each year and a rise in stock prices only to discover it was all because of accounting fraud perpetrated by its senior executives. The SEC filed multiple charges listing the fraud perpetrated by senior management. There were warning signs to investors and creditors that things may not be as good as they seem. Accounting process and techniques could have detected the fraud and prevented Rite-Aid from having the largest financial restatement in history. In 1995 Martin Grass took over as chief executive officer (“CEO”) and chairman of the board of Rite-Aid Pharmacy, which is the third largest pharmacy in the nation. Under Grass, Rite-Aid started to acquire other pharmacy companies such as Perry Drug Stores, Harco Pharmacy and Thrifty Payless. Rite-Aid also purchased PCS Health Systems Inc., which was a pharmaceutical benefits management company. Rite-Aid had a generous compensation program for senior executives that included an annual bonus plan, stock option plan and long term incentive plan (“LTIP”). These programs were based on the company’s earnings per share (“EPS”) and stock price. If the EPS or stock price wasn’t met, then the executives didn’t receive the compensation. It was the company’s compensation program......

Words: 2788 - Pages: 12

Premium Essay

Test Bank Fraud Accounting

...as feedback and images, are available for question creation. Add Name Description Instructions Modify Creation Settings Chapter 2--Why People Commit Fraud Add Question Here Multiple Choice 0 points Modify Remove Question Which of the following is NOT a common rationalization of fraud perpetrators? Answer The organization owes me I'm only borrowing the money No one will get hurt I don’t deserve more. Add Question Here Multiple Choice 0 points Modify Remove Question Which of the following is NOT a primary control procedure to minimize the occurrence of fraud? Answer Dual custody Systems of authorization Internal audit department Documents and records Add Question Here Multiple Choice 0 points Modify Remove Question Each of the following is an example of an inadequate control environment EXCEPT: Answer The HR department failed to check an applicant's background and hired someone who had committed fraud in the past. A manager instructs employees not to share passwords, and then shares her passwords with others. A company does not establish codes of conduct and does not have training meetings to teach employees to distinguish between acceptable and unacceptable behavior. The employees know who has responsibility for each business activity. Add Question Here Multiple Choice 0 points Modify Remove Question A fraud perpetrator uses the float time between banks to give the impression that he had money in his accounts. Which crime is he committing? Answer......

Words: 9238 - Pages: 37

Premium Essay

Accounting Fraud at Worldcom

...Accounting Fraud at WorldCom WorldCom grew rapidly in the 1980-90s through its various inorganic acquisitions – the resultant was a corporation with a hotchpotch of diverse and unaligned cultures. Exacerbating the situation, the Management (including the Board of Directors and CEO Ebbers) did little,if anything, to address the multiplicity of deontological and consequential ethics coexisting at WorldCom. CEO Ebbers in fact called an internal effort to create a corporate code of conduct a “colossal waste of time”. At WorldCom, the culture was also very much “top-down” – Managers gave instructions and employees were expected not to question their superiors. Any objections or challenges to senior managers are met with denigrating remarks or personal threats. The company also had a culture of compensating acquiescent employees generously, often beyond the company’s approved salary and bonus guideline. This further fueled a company culture of “do as told and be rewarded”. This was the institutional setting, which Betty Vinson was exposed to when she started working with WorldCom in 1996. In 2000, when Betty was asked to release the $828 millions of line accruals into the income statement, she herself recognized this as “not good accounting” practice. But after Yates (Director, General Accounting) replied that he himself was not happy with the transfer and that Myers (Controller) assured him that this was not going to happen again, she gave in to them. From a......

Words: 1067 - Pages: 5