...Advanced Auditing Term Paper: World Health Alternatives, INC – Fraud Brian O’Rourke, Katharina Ryska 10/14/2013 Introduction Scandals like Enron, Worldcom and Tyco have taught society about CEO’s fudging financial statements in order to make some extra money. With millions of dollars lost for the shareholders, members of the management engaging in fraudulent activity face high penalties. However, these penalties do not stop executives from trying to scam the system. World Health Alternatives, Inc got negative press following a big fraud investigation. The company with its number of wholly owned subsidiaries provides “medical, professional, and administrative staffing services to the healthcare industry in the United States.” By comprising nurse and physician staffing one would expect the company to have integrity. This paper is going to look at the fraud case, auditor’s responsibility, financial statements as well as the charges against the auditor. Furthermore, this paper is trying to see if the SEC allegations were warranted against the auditor. Overview of the Case According to the SEC, World Health Altneratives, Inc (World Health) engaged in fraudulent and improper conduct from at least May 2003 – August 2005. They manipulated accounting entries by understating expenses and liabilities, which made World Health look more financially sound. According to the SEC Website, “every annual and quarterly report that World Health filed with the Commission contained false...
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...is the standard that requires an auditor to have independence in mental attitude. As with so many rules and guidelines set forth by the government and numerous other organizations, the interpretations of many of these rules can be vastly subjective. During the case against Health Management’s founder Clifford Hotte, his co conspirators and the auditors at BDO Seidman the defendant’s attorney Michael Young brought forth the idea that according to the generally accepted auditing standards that requires an independence of mental attitude it never formally states that a friendship between an auditor and the client is be completely prohibited. The dilemma with deciphering the interpretation of the standard is determining where the line should be drawn between these relationships and the auditor’s ability to maintain these relationships and the independence considered necessary to give an unbiased opinion when it comes time to write a report that is unprejudiced and reliable to the public and investors at large. Let us begin with Health Management’s CEO Clifford Hotte and CFO Drew Bergman’s 1995 inventory fraud scandal by which author Michael C. Knapp’s assertion could be considered as one of the least ingenious corporate fraud scams to date. The objective was to increase inventory as well as make minor adjustments to a small number of other accounts in order to reach the companies target earnings as reported by analysts previously in the year. Health Management did have what Drew Berman...
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...Propositions for improvement 7 Conclusion 8 Bibliography 9 Executive Summary This report is prepared to provide a brief description about the audit process of OHSAS 18001, which is a framework to effectively manage the Occupational health and safety policies including compliance with the legislation that applies to organization’s activities and identified hazards. As defined the objective of the standard is to have a clear management structure with defined authority and responsibility, clear objectives for improvement, with measurable results and a structured approach to risk assessment (Montero, Araque, and Rey, 2009).This also includes the monitoring of health and safety management failures, auditing of performance and review of policies and objectives according to the standard. In my previous organization in Bangladesh, we have started working towards qualifying for the OHSAS 18001 certificate and I was responsible as an internal auditor for the process. In this process, I also had the opportunity to work with the external auditor (certification audit). In the auditing process, I have monitored health and safety management failures, auditing of performance and managed to review of policies and objectives as suggested by the external auditor. In this report, some brief discussion has been made about the literature review about the framework and challenges in the auditing process (internal and external). Lastly, some propositions have been made to improve the quality of the...
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...document, test and maintain those controls and procedures to ensure their effectiveness. Non-for-profit healthcare organizations do not hold themselves to the same standards as the for-profit organizations. Although whether SOX guidelines apply to businesses in the healthcare industry depends on whether the business is a for-profit or non-for-profit organization, some voluntarily adopt SOX in an effort to strengthen internal management controls and increase the quality of healthcare financial reporting (Lohrey, n.d., ¶1). Non-for-profit organizations could certainly benefit from the SOX Section 404 to help reduce the possibilities of corporate fraud by increasing the stringency of procedures and requirements for financial reporting. Many health care executives and board members have concluded that SOX created a new benchmark for best practices, as well as provided extra protection from liability by evidencing direct board attention and oversight of organization compliance (Kusserow, 2013, ¶1). Without audit committees, non-for-profit organizations are at higher risk of financial disaster. Following the SOX compliances can be very beneficial for the non-for-profit healthcare businesses because it will increase the business’s public reputation by increasing the community trust and confidence in the organization. Having better internal controls will help eliminate the possibility of any type of frauds that could cause serious financial problem to any company. Stricter ethics...
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...This act is what influenced my decision not be an auditor in a big six firm or smaller accounting firm, this change in law is why I choose to go into the private company accounting route. First let me start off by informing you want the Sarbanes – Oxley act is, it is a government act that changed the old SAS no. 59 as a result of the Enron and World Com financial collapses (Ryu 2009). The law was enacted to enhance the standards for all US based public companies financial reporting, this happened as a result of the Enron and World Com financial collapses (Elson 2008). This law was designed to help create auditor independence, so financial reports that are relied upon from prospective shareholders and lenders are accurate.(Li-ying 2011). The law, as I have said was enacted as a knee jerk reaction to the Enron collapse, it was discovered that Arthur Anderson the accounting firm for Enron was both their internal and external auditors. The two companies were so comingled it was hard to differentiate which employee worked for who, both the CEO and CFO both had previously worked for Arthur Anderson (Ryu, 2009). The law which is known as SOX changed how responsible auditors were for the opinions they gave on the financial reports they audited. The outside public depended on these reports to make financial decisions, and determine the financial health of any entity. This law changed the auditor’s liability; it now requires that auditors have a detailed knowledge of the internal controls...
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...materials you would like to add, and click submit. A Cengage Learning representative will contact you to review and confirm your order. G E T S T A R T E D Visit www.custom.cengage.com/makeityours/knapp7e to make your selections and provide details on anything else you would like to include. Prefer to use pen and paper? No problem. Fill out questions 1-4 and fax this form to 1.800.270.3310. A Custom Solutions editor will contact you within 2-3 business days to discuss the options you have selected. 1. Which of the following cases would you like to include? Section 1: Comprehensive Cases 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 1.11 1.12 Enron Corporation Just for FEET, Inc. Jamaica Water Properties Health Management, Inc. The Leslie Fay Companies Star Technologies, Inc. Lincoln Savings and Loan Association Crazy Eddie, Inc. ZZZZ Best Company, Inc. United...
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...safety training that is both instructor-led and computer based training. SCTC also provides the service of writing safety plans also known as Health, Safety, and Environmental (HSE) manuals. At the request of the petrochemical industry facilities, SCTC also offers Process Safety Management (PSM) audits. These audits are a way to ensure and verify information contractors are providing based on their Pre-Qualification forms (PQF). SCTC provides services to help contractors and their employees meet the requirements of the facilities. Contractors must meet requirements by completing a PQF and keeping it current on an annual basis. Contractors are also required to successfully complete a PSM audit which is based on the contractor’s scope of work. PSM audits are based on the completion of the PQF. The PQF contains information such as contractor’s basic information, organizational finances, HSE manuals, training, and documentation. PSM audits are conducted by retired individuals within the industry with no real process management background. Although these individuals have several years of experience in the industry, they do not necessarily have the health, safety, and environmental background. The purpose of the PSM audits is to verify information as well as ensure that the contractor is following the federal guidelines of Occupational Safety Health Administration (OSHA) (www.osha.gov, 2011). There are number of requirements that OSHA expects contractors and petrochemical...
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...IV. Conclusion Compliance Auditing Compliance auditing determines whether a process or transaction has or has not followed applicable rules. If rules are violated, the auditor determines the cause and recommends ways to prevent future deviations. The rules being tested can be those created by the organization for itself through corporate by-laws, policies, plans, and procedures; can be those imposed on the organization through external laws and regulations; or can be those external standards that the organization has chosen to follow. In addition Compliance auditors gather evidence regarding fraudulent or abusive activity affecting governmental entities. Their audits are designed to detect and deter the misappropriation of public assets and to reduce future fraud risks. (Associates, 2003) Compliance auditors must have the skills to research issues effectively using authoritative materials, understand how to apply the knowledge gained to the circumstances being tested, and be able to explain to the organization what compliance means in day-today operations. Reaching a conclusion that an outcome complies or does not comply with a standard is not necessarily simple, especially in domains governed by complex regulations (e.g. occupational health and safety, environmental, employment practices, health care, insurance, federal grants and contracts, employee pensions and benefits, federal tax etc.)....
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...Shopping Who are the stakeholders involved in this situation? Investors/Shareholders In terms of auditor switching, shareholders are dependent on the reliability of audit opinions on the financial reporting of management. Shareholders rely heavily on the quality of audits in valuing their shareholder wealth and making advised business decisions. The Board/ Audit Committee The directors are elected by the shareholders and are responsible for representing shareholders best interests and in overseeing management. They are interested in long-term profitability and are responsible for the audit committee overseeing both the external and internal audit functions. External Auditors External Auditors are concerned with minimizing legal and professional risk to maintain their reputation. They are responsible for objectively acquiring and assessing evidence regarding economic actions and events made by management. They are also responsible for communicating these results to interested parties. The two external auditors involved are the current auditor Paige & Gentry and Webster & Co. Regulators Regulators are concerned with the company’s compliance with specific environmental standards, health & safety product by-laws, and professional conduct rules. The three regulators involved in this case include Canada Environment Protection Agency, Health Canada, and Institute of Chartered Accounting Ontario. Customers Customers’ satisfaction plays...
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...the effects of SOX has been considered by companies in which use auditing services as their main source of business (Jelinek, Jelinek, 2010). SOX has caused agencies to have a strong battle obtaining clientele. The SOX act has changed provisions in which disallow an agency to sale services directly to company personnel (Jelinek, Jelinek, 2010). This has resulted in agencies having to go an outside committee to sale services or products (Jelinek, Jelinek, 2010). The act also requires the auditor agencies to resale from services after 5 years and disallows them to seek employment with a previous client within of a year of last audit (Jelinek, Jelinek, 2010). These new rules have caused the agencies to have very strict rules of operation procedures. With the information obtained in the article, is has been relevant that auditing agencies are having difficulty rendering services. So if auditing agencies are not doing auditing then companies are use internal auditors. With internal auditors the unethical practices and behavior chances have increased. These are however situations even with an auditing agency that can lead to unethical practices and behavior. Thus misuse of funds received, is a type of unethical practice. Potential scenarios in which unethical practices and behavior can be encountered is identified. When funds are used for items...
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...(PCAOB) has resulted in greater independence of auditors of public companies? Due to some major Corporate and Accounting Scandals in some prominent companies including Enron and WorldCom, Sarbanes–Oxley Act (SOX) was enacted in 2002. Through this, a lot of changes were introduced as to the regulation of Financial Practices and Corporate Governance. The SOX later on created the Public Company Accounting Oversight Board (PCAOB). The PCAOB is to oversee the audits of public companies and other issuers so that the interest of the investors can be protected and also further public interests in the preparation of Independent, accurate and informative audit reports. Therefore, all public companies are required to register with PCAOB and also follow its rules. Independence is one of the rules of the PCAOB. As stated in the PCAOB standards Section 101.01, “A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by Council”. Furthermore, according to the American Institute of Certified Public Accountants (AICPA), Independence can be defined as a state of mind that permits a member to perform an attest service without being affected by influences that can compromise professional judgment thereby allowing an individual to act with integrity and exercise objectivity and professional skepticism. Before the SOX act was enacted, the jobs of auditors were being influenced due to some unhealthy and...
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...effects of SOX have altered company practices in accounting which companies now use third party auditing services (Jelinek, Jelinek, 2010). The SOX act has changed conditions by which to disallow a business to purchase or trade services straight to business employees (Jelinek, Jelinek, 2010). This has triggered companies needing to go a third party panel to be able to purchase and trade services (Jelinek, Jelinek, 2010). The act also necessitates the third party auditor agencies to resale from services shortly after five years and not allow them to seek employment having a previous client within of the year of last audit (Jelinek, Jelinek, 2010). These brand new rules have triggered the companies to possess very strict rules of operation methods. Using the information acquired within the article, it continues to be relevant that auditing agencies are having difficulty rendering their services. Therefore if auditing agencies aren't doing auditing then businesses will turn and use internal auditors. With internal auditors the chances of dishonest practices and unethical behavior elevates. They are however situations despite an auditing agency that can result in dishonest...
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...hostile takeover of Crazy Eddie, Inc. After assuming control of the company, the new owners discovered a massive overstatement of inventory that wiped out the cumulative profits reported by the company since it went public in 1984. Subsequent investigations by various regulatory authorities, including the SEC, resulted in numerous civil lawsuits and criminal indictments being filed against Antar and his former associates. Following the collapse of Crazy Eddie, Inc., in the late 1980s, regulatory authorities and the business press criticized the company's auditors for failing to discover that the company's financial statements had been grossly misstated. This case focuses on the accounting frauds perpetrated by Antar and his associates and the related auditing issues. Among the topics addressed by this case are the need for auditors to have a thorough understanding of their client's industry and the importance of auditors maintaining a high level of skepticism when dealing with a client whose management has an aggressive, growth-oriented philosophy. This case also clearly...
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...Effective Controls of Health Care Information Michael Lewis CMGT/400 April 15, 2014 Kevin Hutchison Effective Controls of Health Care Information Protecting health care information has been a constant battle for the health care industry. Understanding and executing the Health Insurance Portability and Accountability Act of 1996 (HIPAA) has proven to be challenging because of the availability of health care information. Electronic Health Care (EHC) has taken the place of paper filing. Doctors and patients can view health care information over the internet with password protected access. EHC is covered under HIPPA, but also face problems of fraud and leakage of health care information. User access authorization, audit functions/features, and auditor access to patent records are three controls that would be effective in protecting health care information. User access authorization is an effective control because before a patient can access his or her health care information doctors give patients a unique code to enter into the EHC portal that would identify the patient's identity. The code is only effective for 24 hours. If the patient fails to use the code within 24 hours the code deactivates. If the patient does use the code, the patient is then prompted to enter in unique identifiers that only the patient would know. Username, password, and personal questions are unique identifiers. Once all the information is saved and entered...
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...rehabilitation clinics, outpatient surgical care operators, nursing homes and other health care companies. Mr. Scrushy had been a respiratory therapist who spotted a niche in the health care market and utilized his entrepreneurial talents, marketing skills, and super salesmanship to set up and run what became the third largest publicly held company in Alabama. Eventually, HealthSouth became the largest provider of ambulatory surgery and rehabilitative health care services in the United States with 1,700 facilities and 51,000 employees. In 2003, the Securities and Exchange Commission (SEC) accused the company and Mr. Scrushy of inflating earnings to the tune of $1.4 billion since 1999. In November 2003, a federal grand jury indicted Mr. Scrushy on 85 counts including conspiracy, securities fraud, money laundering and charges related to overstating HealthSouth’s earnings by nearly $3.0 billion. According to federal investigators, the company overstated earnings to meet analysts’ earning estimates, while hiding the accounting fraud from the auditors. However, questions were raised whether the auditors failed to find or simply overlooked the fraud at HealthSouth. Central to the investigation was the issue of what role Mr. Scrushy played in “cooking the books.” However, as the case unfolded, it highlighted many other issues such as: The role of Board of Directors in corporate governance; the role of the auditors; the effect of conflict of interest between an accounting firm and its consulting...
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