Enron mainly dealt in the energy business, eventually becoming one of the world’s leading energy and communication companies with claimed revenues of $111 billion in 2000. At the end of 2001, their financial condition was reported to be sustained mostly by systematic and creatively planned accounting fraud, eventually causing the dissolution of the Arthur Andersen accounting firm. This scandal was mainly attributed to Enron creating offshore entities which were not subject to business taxes that raised the profitability of their business. The corporate officers led the deception and created the illusion that they were raking in revenues of billions of dollars when in reality, it was losses. Executives and insiders knew about these offshore accounts that were mainly used to hide losses with the investors completely left in the dark.
These scandals cost investors billions of dollars when the share prices of affected companies collapsed, and shook the publics’ faith in the security markets. When examining the SOX act you can see that since 2002 many things have changed in the past eight years. Corporate governance is one of many things that have changed; Public companies must now have a totally separate audit committee composed of entirely independent directors and must contain one financial expert. Security fraud now has much more extreme punishments for those who commit or conspire to commit fraud. Since the introduction of SOX auditors of public companies must keep documentation of an audit for seven years, destruction of any documentation or evidence that someone has committed fraud is now punishable by jail time and fine.
Accounting – Fraud case Satyam Systems, a global IT company based in India, has just been added to a notorious list of companies involved in fraudulent financial activities, one that includes such names as Enron, WorldCom etc. The Satyam Computer Services scandal was publicly announced on 7 January 2009, when Chairman Ramalinga Raju confessed that Satyam's accounts had been falsified. The preliminary investigations by Registrar of Companies and confession by Mr. Raju revealed the balance sheet of Satyam for the year 2008 contained `cash and bank balances’ of Rs 5040 crore (US $ 1.12 billion) as against the Rs 5361 crore (US$ 1.12 billion) reflected in the books, an accrued interest of Rs 376 crore (US$ 83.85 million) which was described by Raju as `non existent’ , an understated liability of Rs. 1,230 crore (US$ 274.29 million) on account of funds was arranged by himself and an overstated debtors' position of Rs. 490 crore (US$ 109.27 million) as against Rs.
Their bankruptcies became inevitable as the Securities and Exchange Commission (SEC) and financial analysts began to see the signs of irregularities among numerous companies. When the SEC ordered the restatement of their financial reports in accordance with the GAAP rules, it turned out that these companies were mostly founded by inflated revenues and negative financial conditions. Short after, companies reputations and financial credibility began break like bubbles, in the wake of the ensuing investigations. The result of these action caused investors once again lost their trust and confidence in America’s publicly traded companies, which eventually led to more bankruptcies. As a result, multitudes became jobless, and the trend went from bad to worse throughout the decade.
In 2003, the U.S. government sued Northrop Grumman for overcharging them in regards to space projects. In the year 2000, the GAO (General Accounting Office) concluded that Northrop Grumman was joined the list of military contractors that guilty of fraud and abuse. The charges include procurement fraud, defective pricing, cost/labor mischarging, substitution/ nonconforming product, undelivered product and others. Northrop Grumman reportedly paid $4,000,000 to the government to settle this incident. It’s scary that although Northrop Grumman has been implicated in numerous scandals continues to have a military contract.
During an investigation there were many questionable accounting transactions that were brought up, such as large executive bonuses as well as many loans for large amounts of money that were later forgiven without repayment. Kozlowski and Swartz were sentenced to 8 – 25 years in prison ("Investopedia", 2014). Then a lawsuit against Tyco cost the company $2.92 billion in repayment to its investors ("Investopedia", 2014). The biggest issue here was allowing for a CEO and CFO to have too much access to funds. A protocol should be in place that when a sale of stocks is made and no one authorized it then a full audit should take place from a third party or if a loan is going to be made then more then just the CEO and CFO’s approval needs to be given.
Accounting Fraud Examination October 12, 2011 Introduction As we look back on the first decade of the 21st Century, we see that Corporate America and the Financial Markets were riddled with corruption and fraud. At the beginning of the decade we saw the likes of Enron and WorldCom become insolvent due to accounting frauds of epic proportions. The one case that stands out amongst all of them is the Bernard Madoff case, which is considered to be the largest fraud case of all time. “Madoff managed to lure billions of dollars away from huge charities, as well as wealthy individuals in both the United States and Europe by getting them to invest in his hedge fund. He did so by claiming extraordinary returns (generally in the low double digits).
The Department of Veterans Affairs estimates there could have been a billion dollar loss owing to the hacking or unauthorized access to the information. It is important to note that thousands ofveteransreceived bills from large companies such as Bank of America, USAA and the Federal Credit Union bank. The veterans whom had accounts at these banks will not be comfortable banking with a bank where their information is not
Jordan Hall ACCT 201-A Cassandra Catlett 10/15/2012 “Olympus and Ex-Executives Plead Guilty in Accounting Fraud” Business Article Review The Olympus Corporation, which is a company that makes camera and medical equipment, and three of it’s ex-executives pleaded guilty on accounting frauds on September 11, 2012. This was the biggest cover up in Japanese business scandal history, because it was comprised of a 1.7 billion dollar cover-up. The person who brought this problem to the public’s attention was earlier fired for bringing up the subject of this to the board of the company. The former chairman of the board, Tsuyoshi Kikukawa, was at least ethical enough to admit that all of the blame should be put on him and he was genuinely sorry for his actions. The other two men that were involved and also charged with this crime were Hisashi Mori and Hideo Yamada.
These financial settlements were immense and a huge hit to the company, and directly impacted their product quality. Since the merger, GSK racked up over $5 billion dollars in lawsuits. Despite being such a lucrative industry, getting hit with such fines could drive any company’s corporate responsibility down. 2. When Glaxo Wellcome initially merged with SmithKline, immediately arose a management dilemma.