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• eBook-Kapitel aus dem Buch Accounting Fraud

  Case 4: MiniScribe (1989)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 42 Case 4: MiniScribe (1989) The downfall of MiniScribe Corp., resulting from a major accounting fraud… …inventory and sales figures (see WSJ September 11, 1989): Accounting Fraud in U.S. Companies 43 – Although many companies accelerate shipments… …auditors had test-counted. Thus, they were able to inflate the number of items that the auditors had not sampled. Accounting Fraud in U.S. Companies… …. MiniScribe’s auditor, Coopers & Lybrand (now part of PricewaterhouseCoopers), was also sued by investors for its part in the fraud. The suits charged that the… …1992 settlement, it agreed to pay a total of USD 140 million for failing to detect the accounting fraud committed by MiniScribe. In July 1994, the… …amazing to see how close they could get to the num- Accounting Fraud in U.S. Companies 45 ber they wanted to hit.” A former MiniScribe manager… …the late 1980s. References: Albrecht, W. Steve / Albrecht, Chad: Fraud Examination & Prevention… …, pp. 5, 239, 246, 260 Schilit, Howard: Financial Shenanigans – How to detect accounting gimmicks and fraud in financial reports, 2nd… …, The Wall Street Journal, September 11, 1989 Fraud is Cited at MiniScribe, The New York Times, September 13, 1989 Large Award in MiniScribe Fraud Suit… …Trial for Fraud, Los Angeles Times, July 12, 1994 Wiles Convicted of Fraud in MiniScribe Case, Los Angeles Times, August 9, 1994…

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  Case 5: Phar-Mor (1992)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 46 Case 5: Phar-Mor (1992) In 1982, Michael “Mickey” Monus and a friend, David Shapira, visited a “deep… …growing businesses in the U.S. had been committing massive accounting fraud. Investigators eventually determined that from at least 1987 through 1992… …un- covered the fraud. Phar-Mor’s board of directors insisted that it was plenty active, but fully deceived until it got a tip in late July 1992. Monus… …day, a travel agent who Accounting Fraud in U.S. Companies 47 booked flights for league players received a USD 75,000 check for WBL expenses… …activities and helped to expose an intricate accounting fraud. The fraud was carefully carried out over several years by persons at different organ-… …collusive management fraud was almost inconceivable. The perpetrators made phony journal entries to increase inventory and decrease cost of sales… …, recognized inventory pur- chases but failed to accrue a liability, and double-counted merchandise. Members of the fraud team later indicated that one reason… …the fraud was not detected by the auditors was because Phar-Mor executives knew exactly what the auditors would be looking for. They made sure that… …informed Phar-Mor in advance which stores they would visit. The Phar-Mor fraud team stocked the four selected stores correctly, and allocated the phony… …“Cookies”. The fraud team used these entries to inflate inventory and earnings. As it would not have been practical to carefully scan all the packets, the…

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  Case 6: Bausch & Lomb (1994)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 51 Case 6: Bausch & Lomb (1994) In the early 1990s, Bausch & Lomb, Inc. was a respected American company… …estimates indicated that it might take some dis- tributors up to two years to sell the SVS lenses that CLD management was expect- Accounting Fraud in U.S… …date. The accounting scandal led to the departure of several CLD executives, and it severely tested inves- Accounting Fraud in U.S. Companies 53… …“refreshed” with the aid of APD personnel who manually altered the computer-generated aging reports. Accounting Fraud in U.S. Companies 54… …After the scheme was discovered, company management replaced all Hong Kong personnel that it held responsible for the fraud. There was no evidence that… …: Financial Shenanigans – How to detect accounting gimmicks and fraud in financial reports, 2nd edition, Boston 2002, p. 89 Securities and…

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  Case 7: Waste Management (1997)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 55 Case 7: Waste Management (1997) The Waste Management case provides an anatomy of an accounting… …portrays an accounting fraud perpetrated by the highest-ranking officers at WMI. As the scheme unravelled in 1997, the news sent WMI’s stock value tumbling… …that the auditors played a central role in allowing the fraud to continue. Year after year, Arthur Andersen complained about the efforts to inflate… …earnings, but still approved the company’s financial statements when their objections were effectively ignored. Unlike the auditors in other fraud cases… …client too hard. Accounting Fraud in U.S. Companies 56 For example, in its 1993 audit, Andersen quantified misstatements of USD 128 mil- lion… …Charge of Client Service” for Accounting Fraud in U.S. Companies 57 Andersen’s Chicago office and served as marketing director. In this position… …. Accounting Fraud in U.S. Companies 58 “Our complaint describes one of the most egregious accounting frauds we have seen,” said Thomas C. Newkirk… …management to falsify the financial statements by plugging in the additional income needed to achieve the desired earnings for each Accounting Fraud in… …. The scheme was orchestrated and implemented by WMI’s most senior officers. The driving force behind the fraud was Dean L. Buntrock, WMI’s founder… …, Koenig, Hau and Rooney profited handsomely from the fraud, receiving performance-based bonuses based on the company’s inflated earnings, retaining their…

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  Case 8: Sunbeam (1998)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 61 Case 8: Sunbeam (1998) Sunbeam Corp., the Boca Raton, Florida-based maker of such well-known brands… …relied on question- able accounting gimmicks and outright fraud to enhance earnings. It happened under the direction of now disgraced CEO Albert J… …Accounting Fraud in U.S. Companies 62 million. “We are winning in every aspect of our business,” Dunlap told analysts in the conference call announcing… …the suppliers had no room for them; they would not be delivered and paid for Accounting Fraud in U.S. Companies 63 until spring. A similar… …be). SEC enforcement officer Thomas C. Newkirk noted that the fraud was engineered to dress up Sunbeam, in order to make the company look much more… …attractive than it actually was to potential buyers: “This Accounting Fraud in U.S. Companies 64 was a primer in the techniques of financial fraud, in… …from accounting fraud. Dunlap was ordered to pay a USD 500,000 fine and had to accept a lifetime ban from ever serving again as an officer or… …bestseller. Unknown to Sunbeam investors and to the Sunbeam board was that Dunlap had faced similar allegations of accounting fraud at a much smaller… …thereby concealed, when results improved later. Edwards also claimed that the accounting fraud had masked serious operating problems at Nitec. In 1982… …, Nitec filed for bankruptcy. The fraud accusations (which Dunlap denied) were never proved, as all his orders to alter the books had been oral. Dunlap…

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  Case 9: Cendant/CUC (1998)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 66 Case 9: Cendant/CUC (1998) The Cendant Corporation was formed in December 1997 by a merger of two com-… …creation of Cendant, a significant accounting fraud came to light at the CUC division. Before Enron, the case was considered the biggest accounting fraud… …ever. From its beginnings in 1983, the fraud was directed by Walter A. Forbes, CUC’s chairman and CEO, and his top lieutenant, E. Kirk Shelton, CUC’s… …president and COO. Commenting on the fraud, one FBI agent said: “Some people have referred to this as a case of earnings management. But this is an attempt… …Street analysts expected. In the earlier years, however, an important part of the fraud was improper revenue and expense recognition. CUC stated that its… …totally fictitious, including, for exam- ple, USD 500 million over the three-year period from fiscal 1995 to 1997. One fraud investigator commented: “It… …extended amortization periods. By shifting current expenses to a later period, the company further inflated its reported earnings. Accounting Fraud in… …U.S. Companies 67 In later years, the fraud extended well beyond improper revenue and expense rec- ognition practices. As time went on and… …improperly charged asset write-offs and other operating expenses against these acquisition reserves. By far, the largest part of the CUC fraud came from… …had been created, Forbes and Shelton congratulated each other on being masterful “financial engineers” who had been able to nurture the fraud through…

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  Case 10: MicroStrategy (2000)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 71 Case 10: MicroStrategy (2000) In 2000, the reversal of fortune could not have been greater for… …66 million, nearly one-fifth of the total USD 365 Accounting Fraud in U.S. Companies 72 million reported. It also wiped out USD 56 million in… …had not been signed by the close of the just-ended quarter, they clearly should not have been counted as that quarter’s revenue. Accounting Fraud… …MicroStrategy internally or sold to a third party. In December 2000, the SEC accused three MicroStrategy officers of fraud: CEO Michael Saylor, COO Sanjeev… …the SEC settlement in December 2000, the company and its officers ended all litigation stemming from the accounting fraud. “To have all this behind… …, in August 2003, the SEC ended its investigation of PwC with no enforcement action against the audit firm. Accounting Fraud in U.S… …recovery turned out to be a tough challenge. References: Biegelman, Martin T. / Bartow, Joel T.: Executive Roadmap to Fraud Prevention and… …Internal Control, Hoboken/New Jersey 2006, p. 159 Krishnan, Sudha: Revenue Recognition Fraud or Error – The Case of MicroStrategy, Inc… …Schilit, Howard: Financial Shenanigans – How to detect accounting gimmicks and fraud in financial reports, 2nd edition, Boston 2002, pp. 42–44… …, December 14, 2000 MicroStrategy, SEC settle, www.cnnmoney.com, December 14, 2000 MicroStrategy Chairman Accused of Fraud by SEC, The New York Times…

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  Case 11: American Tissue (2001)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 75 Case 11: American Tissue (2001) Mehdi Gabayzadeh may not be as familiar a name as Adelphia founder… …. district attorney said, noting that the fraud cost lenders and bondholders about USD 300 million, and ultimately cost 2,700 employees their jobs. In… …ran into all sorts of obstacles) commented: “The more we investigated, the more fraud we uncovered.” American Tissue was founded in 1981 by two… …the books – in what the indictment later said was a futile effort to gain new Accounting Fraud in U.S. Companies 76 financing, even as it was… …, the affiliated companies, together with Accounting Fraud in U.S. Companies 77 the Gabayzadeh and Elghanayan families, owed American Tissue… …. In July 2001, the fraud was uncovered when it was figured out that the numbers at American Tissue didn’t add up. Two months later, the company… …and otherwise helped American Tissue destroy records that might have supported accusations of accounting fraud. “The paper trail of phony sales… …transactions, bogus supporting Accounting Fraud in U.S. Companies 78 documentation, and numerous accounting irregularities ended quite literally with… …defunct, gained notoriety for helping Enron cover up fraud. Gabayzadeh was accused of stealing nearly USD 300 million from banks, financial… …in the indictments, Gabayzadeh was convicted of spearheading a USD 300 million fraud. His sentencing was delayed several times because his attorneys…

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  Case 12: Enron (2001)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 80 Case 12: Enron (2001) Perhaps more than any other company facing scandal in recent years, Enron stands… …out as the poster child for corporate fraud. The crimes of Enron’s top executives resonated the most in the public mind, and the company’s name has… …become synonymous with corporate malfeasance. However, compared to other accounting frauds, the Enron fraud was very complicated; it involved many… …reports. They didn’t have to lie. All they had to do was to obfuscate it with sheer complexity – although they lied, too.” The impact of the fraud was… …since October 1929”. Besides, the fraud ushered in a wave of prosecutions against white-collar crime at the highest levels of American business, and it… …U.S. Accounting Fraud in U.S. Companies 81 borders; “Enron International”, a wholly owned subsidiary, was created to manage energy assets… …resigned, citing “personal reasons” (August 14); he was replaced once again by Kenneth Lay. Accounting Fraud in U.S. Companies 82 - Sherron Watkins… …transactions that involved setting up complex special purpose entities. Accounting Fraud in U.S. Companies 83 Enron’s financial reporting (I)… …Fraud in U.S. Companies 84 forward markets in the services Enron promised to provide; extremely optimistic numbers were simply conjured up out of… …structure in order to create false profits, to hide losses and to understate liabilities. It may be helpful Accounting Fraud in U.S. Companies 85…

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  Case 13: WorldCom (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 93 Case 13: WorldCom (2002) When Enron collapsed at the end of 2001, worried investors searched for who… …were managed. Former President George W. Bush condemned the fraud as “outrageous” and vowed to address the problems shaking Corporate America. The… …SEC said that WorldCom’s accounting improprieties were of “unprecedented magnitude”. But as enormous as the fraud was, it was accomplished in a… …relatively mundane way. The modus oper- andi of the fraud was rather simple, and it was carried out over a comparatively short period of time. Yet the… …reverberations of the fraud would echo around the world of business for years to come. Background: WorldCom from 1983–2002 The fraud was the consequence… …source of the culture that gave birth to this fraud. In 1983, he had discovered the telecom business and founded WorldCom. In the 1990s, the Clinton… …in this endeavour. Yet he continued to feed Wall Street’s expectations of double-digit Accounting Fraud in U.S. Companies 94 growth, and he… …fraud occurred. In the spring of 2002, amid questions regarding USD 400 million in personal loans, Ebbers was facing dismissal (although the board… …did not yet know about the fraud that had been committed). Knowing that the company had accumulated mas- sive levels of debt and that he could not… …standards others will follow.” It was shortly after Ebbers had left that the fraud was discovered and disclosed. Fraud detection and disclosure As…

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