Accounting Fraud

In: Business and Management

Submitted By katiemarie08
Words 494
Pages 2
Kaitlin Sleasman
Fraud Paper
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 a corrupt corporate culture in which meeting Wall Street expectations was a paramount. Senior management projected unrealistic revenue growth and would not tolerate missing the numbers. As a consequence, accounting rules, policies, and controls that interfered with meeting financial targets were ignored. The Commission will continue its investigation in an effort to hold personally…...

Similar Documents

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 Emma Peng Assistant Professor Fordham University New York, NY 10019 *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: 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

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

Accounting Frauds

...Accounting 860 Case 2: Wilkerson Co. Group 6 Julia Boggs Scott Drake Chengyuan Wang Yichun Wang October 16, 2013 1. What is the competitive situation faced by Wilkerson? Wilkerson has three products and they each faces different competitive situations. a. The pump market is highly competitive and Wilkerson has to match current market prices to keep its current market share. b. Wilkerson is a market leader in the valve industry and the market is mature and has only a few players. c. Flow controller market is an emerging market and is in the growth stage with unsatisfied demand and price sensitivity seems low in this market. d. The design for valves is unique and it can be produced to tolerances that are better than any in the industry. e. Wilkerson established a loyal customer base because of the high quality of their valves. f. Wilkerson’s existing labor skills and machining equipment can be used to produce pumps and flow controllers. 2. Given the problems Wilkerson is having allocating overhead to products, should it consider abandoning overhead allocation altogether and switching to a direct costing or contribution margin approach (measuring product profitability as price less direct materials and direct labor costs only) with its products? They should have both. Net income under variable costing and absorption costing won’t be different because Just-In-Time system minimizes inventory, which is the root of the......

Words: 1464 - Pages: 6

Accounting Fraud

...Accounting 557 Assignment 1 Student EAS Professor Alfred Greenfield Strayer University 27 October 2013 Many organizations have been in the news over the past few years due to accounting ethical breaches that have affected their customers, employees, and the general public. I searched the Internet to locate a story in the news that depicts an accounting ethical breach. I selected Krispy Kreme. I enjoy their hot donuts and was curious to learn more about how they played with the numbers. For some reason I always want to dig into the trickery behind the manipulation of financial statements. When we get right down to it playing games is what happens. Someone comes along and they think they know something the rest of us are too dumb to know. They think they are special and that God bestowed upon them special powers to get away with something no one else has been able to get away with in the entire history of mankind. I am intrigued with the thought process behind the faces of these people who think they have what it takes to trick the rest of us. I can only think of a few words; hubris, vanity, ego, arrogance and delusional. I do not believe it is truly possible to ever get away with anything. No man has a good enough memory to be a successful liar. Given the corporate ethical breaches in recent times, I will assess whether or not I believe that the current business and regulatory environment is more conducive to ethical behavior. I will say up front that as I start this...

Words: 4137 - Pages: 17

Accounting Fraud

...Accounting frauds are a consistent problem all around the world and while some may be minor in scale, others can have large impacts. Cendant was one of the biggest accounting frauds of the 90’s. The company formed in 1997 when Hospitality Franchise Systems (HFS) decided to merge with CUC International. Cendant Corporation mainly dealt with travel and real estate services, marketing and franchising brands such as Days Inn and Avis rental cars. Only a couple months after the merge, Cendant was found to have created $500 million in fake revenue over the course of three years to help CUC International match analyst records. The company intended to use a portion of the reserve it gained from its merge to unlawfully increase earnings in upcoming years. CUC International was already under investigation for fraud prior to the merge since the 1980’s and was found out due to the continuing investigations. Stock plummeted from $41 to around $12 once the fraud was brought to light and CEO Walter Forbes, along with eight other directors, quickly resigned. Henry Silverman then took control as the new CEO and helped bring Cendant back to success by the start of the 2000s. Walter Forbes was the CEO during the whole scandal and was also the CEO and founder of CUC International which had been under investigation prior to Cendant. Forbes at the time was also Cendant’s president and chairman of the Board of Directors. The ex-CEO was sentenced to 12 years and 7 months in prison along with a......

Words: 572 - Pages: 3

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

Accounting Fraud

... | | | |Raising interest rates from 8.25% to 14% per annum on June 11, 2008 | | | | | | | | | | | |On social security policy | | | |An unemployment insurance policy from January 1, 2009: accounting for| | | |60% of the average salary of the employee. | | | |TVET programmes: | | | |+ intensive training | | | |+ vocational training at enterprises and workplaces | | | |+ training cooperation between vocational institutions and ...

Words: 732 - Pages: 3

Accounting Fraud

...ACCOUNTING PROCEDURES AND RECORDING PROCEDURES IN THE EARLY ISLAMIC STATE OMAR ABDULLAH ZAID UNIVERSITY OF BAHRAIN ACCOUNTING HISTORIANS JOURNAL VOL 31, NO 2 Abstract: Despite advances in historical knowledge the precise origins of accounting systems and recording procedures remain uncertain. Recently discovered writings suggest that accounting has played a very important role in various sections of Muslim society since 624 A.D. This paper argues that the accounting systems and recording procedures practiced in Muslim society commenced before the invention of the Arabic numerals in response to religious requirements, especially zakat, a mandatory religious levy imposed on Muslims in the year 2 H. INTRODUCTION In an influential contribution Parker [2000] wrote that "the writing of accounting history is increasingly dominated by writers in English discussing private-sector accounting in English-speaking countries of the 19th and 20th centuries ... the scope of accounting history is much wider than this" [p. 66]. This paper seeks to further advance our increasing knowledge of the history of accounting outside English-speaking countries in periods earlier than the modern era. It also contests de Ste. Croix's claim [1981, p. 114] that "there seems to have been no really efficient method of accounting, by double or even single entry, before the thirteenth century". Analysis of medieval bookkeeping systems in Muslim society throws doubt on this assertion. The paper seeks......

Words: 10626 - Pages: 43

Accounting Fraud

...Assignment 1: Accounting Fraud Strayer University 08 February 2015 Abstract This assignment will investigate the unethical and unlawful activities perpetrated by three members of DHB Industries leadership team. David Brooks was convicted of insider trading, fraud, and obstruction of justice on September 14, 2010. This paper will describe the company and the fraud that was involved, outline an audit plan that could have prevented the fraud from occurring, determine and evaluate key types of audit evidence, and speculate two areas that would require more sampling and two areas that require less sampling in the audit process. Description of Company, Fraud, and Fraud Drivers David Brooks was the founder and CEO of DHB Industries, a government supplier of body armor used by law enforcement. DHB Industries, formerly known as DHB Capital Group, started with the primary goal to “identify and then purchase small, underperforming companies and convert them into profitable operations by retooling their business models” (Knapp & Knapp, 2013, p.131). One of the first companies DHB Industries acquired after DHB’s securities were registered on the American Stock Exchange was Point Blank Body Armor, which was purchased out of bankruptcy for $2 million (Knapp & Knapp, 2013). DHB Industries’ primary operations soon became Point Blank Body Armor, aided by the terrorist attacks on September 11, 2001 and a spike in demand for tactical armor. Fraud......

Words: 1285 - Pages: 6

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

Fraud Accounting

...BAB I PENDAHULUAN 1.1 Latar Belakang Masalah Kecurangan (fraud) merupakan tindakan melawan hukum yang merugikan suatu entitas dan menguntungkan pelakunya. Kecurangan (fraud) bukan saja dapat merugikan suatu entitas tetapi juga dapat mengurangi reputasi suatu entitas. Ada berbagai macam bentuk kecurangan (fraud) yang terjadi di Indonesia. Salah satunya adalah korupsi. Kasus tindak pidana korupsi merupakan permasalahan besar di Indonesia yang menimbulkan kerugian negara yang sangat besar dan berpengaruh kepada turunnya kualitas kehidupan masyarakat maupun mengganggu stabilitas ekonomi. Kasus tindak pidana korupsi di Indonesia sudah banyak terjadi, dan kasus yang muncul tidaklah sedikit. Hal ini diperkuat dengan adanya artikel pada kompas pada tanggal 18 Agustus 2014 yang menyatakan bahwa : Berdasarkan data yang dirilis Indonesia Corruption Watch (ICW), Minggu (17/8), jumlah kasus korupsi cenderung menurun selama 2010-2012, tetapi kembali meningkat pada 2013-2014. Pada 2010, jumlah kasus korupsi yang disidik kejaksaan, kepolisian, dan Komisi Pemberantasan Korupsi (KPK) mencapai 448 kasus. Pada 2011, jumlahnya menurun menjadi 436 kasus dan menurun lagi pada 2012 menjadi 402 kasus. Namun, pada 2013, jumlahnya naik signifikan menjadi 560 kasus. Pada 2014, jumlah kasus korupsi diperkirakan akan meningkat lagi mengingat selama semester I-2014 jumlahnya sudah mencapai 308 kasus. Sedangkan berdasarkan data yang diperoleh dari BPS, kasus korupsi juga semakin banyak terjadi......

Words: 1853 - Pages: 8

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

Accounting Fraud

...THE NATION’S NEWSPAPER BS2003-01a Collegiate Case Study Enron law firm called accounting practices 'creative' By Greg Farrell Accounting fraud Part I: The problems “Creative accounting” is not a new technique, but it can certainly be a costly one. Businesses feel the pressure to appear profitable in order to attract investors and resources, but deceptive or fraudulent accounting practices often lead to drastic consequences. Are these so-called creative practices always illegal or can they ever be justified? This case study will present examples of companies who have used inappropriate accounting practices, the results of their deceptions and the government's plan to avoid future incidents. Did banks play role in Enron scandal? By Edward Iwata Banks face accusations in Enron case By Edward Iwata Banks defend e-mail about Enron By Edward Iwata WorldCom finds accounting fraud By Andrew Backover, Thor Vladmanis, Matt Kranz and Michelle Kessler Former controller comes up more often By Andrew Backover and Chris Woodyard Cover story WorldCom’s bad math may date back to 1999 By Jayne O’Donnell and Andrew Backover CFOs join their bosses on the hot seat By Jim Hopkins Capitalizing on oldest trick in book How WorldCom, and others, fudged results By Matt Krantz USA TODAY WorldCom's accounting game is stunning investors who thought the loophole the telecom firm used was sewn shut years ago. Bros. "How was this......

Words: 7153 - Pages: 29

Accounting Fraud at Worldcom

...Case Assignment #1 – Accounting Fraud at WorldCom 1. Discuss the fraud at WorldCom in terms of the objective of financial reporting. How was the objective subverted by the actions taken by the managers of WorldCom? A. To begin, the primary objective of financial reporting for most companies is to provide useful information to capital providers. Essentially, the objective is “to assist in the efficient functioning of economies and the efficient allocation of resources in capital markets” (pg. 21, textbook). However, in the fraud case at WorldCom, WorldCom’s senior managers did not endorse this objective nor made any attempt to provide useful financial information to present and potential equity investors, lenders, and other creditors. Why? The senior managers subverted these objectives by focusing on revenue growth, seen as the key to increasing the company’s market value. Now although this focus is encouraged, WorldCom, as one manager says, “encouraged managers to spend whatever was necessary to bring revenue to the door, even if it meant that the long term costs of a project outweighed short term gains” (Accounting Fraud at WorldCom article, pg. 4). Therefore, CFO Sullivan and others subverted the objectives of providing useful information to external users by using accounting entries to achieve targeted performance. 2. The fraud at WorldCom revolved around two accounting irregularities: accrual releases and expense capitalization. a. Explain how......

Words: 1388 - Pages: 6

Accounting Frauds

...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......

Words: 6695 - Pages: 27