In my last project for my financial statement fraud class, we had to accumulate many different resources for a particular fraud and create a website. I have to be honest, I’ve never really tried creating a website before so I thought it was going to be hard. It actually wasn’t that bad and our website turned out to be pretty good.
The fraud that my group chose was Crazy Eddie. Crazy Eddie was a retail electronics company in the 1980’s. Eddie Antar along with his brother, Sam Antar employed many fraudulent practices to profit off of his company. One practice included cash skimming in which cash from sales was not recorded on the books. The Antars hide these funds in a bank account in Israel. After the company went public, they needed to inflate their income so they committed inventory fraud, underreporting accounts payable, channel stuffed and inflating sales.
Eddie was also known for his extravagant commercials trying to sell his products. Some of these videos can be seen on the website that we created. The website that we created is http://msf702crazyeddiefraud.weebly.com/about.html. It also contains web articles and documents about the Crazy Eddie fraud.
Sam Antar also has a website that gives many more details about Crazy Eddie as well as more resources. There are other websites as well that other students created. should be available soon and I will post them as soon as I can. This is just another example of some of the cool projects that we did in my fraud class.
Along with my fraud classes, I’m also taking a Non-for-Profit Accounting class. You wouldn’t think there would be many similarities between the two classes, but you would be surprised.
Nonprofits are a vital part of society; they provide free or low cost services to many individuals who do not have access to certain important services. However, nonprofits are more vulnerable to fraud for many different reasons. Many times nonprofits lack the resources to protect themselves from fraud.
Some nonprofits only have a few employees to complete the duties and obligations. This increases the chances of fraud because an employee can deposit money into the bank and also do the bank reconciliation. The same employee should not be completing duties that need to be segregated. However, many times managers and owners trust employees and do not question suspicious behavior.
Nonprofits usually do not have the money to hire more people or even hire an accountant. Many articles I have read suggest that managers at nonprofits simply verify and check up on their employees. They should review credit card statements or bank reconciliations. They should also follow up on any suspicious behavior regardless of how long an employee has worked there.
Just like businesses, nonprofits are susceptible to fraud. However, managers can be proactive about preventing fraud. People should also do their due diligence before donating to any nonprofit.
I recently completed a research project in my financial statement fraud class in which we had to research a major financial statement fraud. The company I chose was Bristol-Myers Squibb who committed fraud in the earlier 2000s. Bristol overstated their revenue by over $2.5 million and had to restate their financial statements.
While most people would search the web for news articles about this fraud on The Wall Street Journal or New York Times, there is another source. The SEC website is an excellent resource to use to uncover the specific details of a certain fraud. I learned about this website in my fraud examination class last semester.
The SEC provides a search engine in which you can search for a specific company. I searched for my company, Bristol-Myers Squibb. The search engine provided me with litigation releases and the complaint against Bristol. This provided me with valuable information about the different frauds that occurred at Bristol.
The SEC also keeps records of company filings in their EDGAR database. I was able to access Bristol’s annual reports from 1999, 2000, and 2001. These annual reports gave me the original financial statements that I could compare to the restated financial statements. The database also had the amended annual report from these years that also described the frauds.
With the help of the SEC, I was able to thoroughly research Bristol and the frauds they committed. Other information can also be found about the company that can be useful. I would recommend using the SEC site when looking into public companies.
One of the really cool things about my financial statement fraud class is the ability to apply what is learned in class to a company’s financial statements. Last class, we applied the Beneish M-Score Model to Green Mountain Coffee’s financial statements.
Professor Messod Beneish created the Beneish Model and it uses 8 financial ratios to determine whether a company has manipulated earnings or not. Once these eight ratios are calculated and weighted according to his formula, the score can indicate earnings management or not. A score greater than -2.22 indicates a company is manipulating earnings.
For class, we had to use this model and calculate the different ratios based on Green Mountain Coffee’s financial statements. Although it proved difficult at first to find the numbers to calculate the ratios, we were able to pull numbers from the annual report to calculate the final score.
The final score ended up being less than -2.22, which indicates that earnings probably were not manipulated. Instead of just learning about the model, we were able to calculate the ratios and plug them into the formula to determine if the company has manipulated or not. This class really gives us an hands on experience and provides us with another tool to use in the field.
One of the benefits of the forensic accounting program is the opportunity to listen to different speakers who have been exposed to fraudulent schemes or unethical situations. In my financial statement fraud class, Kevin Stoklasa from First Niagara spoke about his experiences at AIG Financial Products.
AIG Financial Products, a subsidiary of AIG, found itself in trouble in the early 2000s. Kevin was hired to help develop their accounting policy and to turn things around. He had prior experience working developing accounting policies at the Financial Accounting Standards Board.
Kevin immediately had trouble when he arrived at his job. His boss, Joe Cassano (CEO), didn’t like accountants and had been set on doing things his way for a long time. Plus he and many of the other employees made millions of dollars in bonuses. This top executive had a lot of influence over the employees and set the tone of the company.
The executives thought that Kevin would have the same way of thinking and allow them to continue. However, Kevin stood his ground and demanded the transactions be recorded correct. He often fought with the CEO who went against him on everything. The best piece of advice he gave us was to not give in to the pressure from executives when you know something is wrong.
No amount of money will ever be worth losing your family, your reputation, your friends and your life. Kevin never stayed at AIG Financial Products and got out when he could. It was a great lesson on how corporate culture and tone at the top can influence employees and bring a company down. AIG eventually collapsed as a result of the unethical decisions at AIG financial products.