Maxwell Case Revised Essay

In this case, there are several conspirators who is involved in the fraud receiving punishment from either SEC or federal government. Robert Levin, the AMRE executive and major stockholder, and Dennie D.Brown, the company’s chief accounting officer, were subject to the punishment in the form of a huge amount of fine by the SEC and the federal government. This punishment came from reasons. After AMRE going public, the company have the obligation to publish its financial reports but its performance did not meet expectation. The investigation by SEC shows that Robert took the first step of this scam, fearing the sharp drop of AMRE’s stock price because of the poor performance of company. He abetted Brown, to practice three main schemes to present a false appearance of profitable and pleasant financial reports. Firstly, they instructed Walter W.Richardson, the company’s vice president of data processing, to enter fictitious unset leads in the lead bank and they originally deferred the advertising cost mutiplying “cost per lead” and “unset leads” amount, so that they deferred a portion of its advertising costs in an asset account. The capitalizing of advertising expenses allowed them to inflate the net income for the first quarter of fiscal 1988. Secondly, at the end of the third and fourth quarters of fiscal 1988, they added fictitious inventory to AMRE’s ending inventory records, and prepared bogus inventory count sheets for the auditors. Thirdly, they overstated the percentage

1. The three aspects of fraud - Perceived pressure, Rationalization, and Opportunity were present in the CIT case as follows:

Professional auditing standards discuss the three key “conditions” that are typically present when a financial fraud occurs and identify a lengthy list of “fraud risk factors.”

(TCO 5) Fraud is an intentional misrepresentation of facts, made for the purpose of persuading another party to act in a way that causes injury or damage to that party. In our readings and discussions we have seen several examples of fraud in business. Using that experience (1) provide an example of a common fraudulent practice in business with an explanation of how the practice works and (2) name and describe each of the elements of the Fraud Triangle.

Internal fraud consists in “a type of fraud that is committed by an individual against an organization. [Furthermore], a perpetrator of fraud engages in activities that are designed to defraud, misappropriate property, or circumvent the regulations, law, or policies of a company”[8]. Not only has the incidence of internal fraud increased in frequency because of the availability of sensitive information such as client details or confidential business documents; moreover, this type of fraud is found in various types of organizations, ranging from corporations, public service institutions and financial institutions. Our analysis will concentrate on the most common and prolific types of internal fraud, namely identity theft, insider trading, loan fraud and wire fraud. Interestingly, PriceWaterhouseCooper conducted a survey that revealed that the “demographics of a typical fraudster are as follows: males (85% of cases), 31-50 years (72% of cases), reached high-school level (50%), Bachelor’s or post graduate degree (50%) and middle or senior management (52%)”[9].

In this course, students are introduced to the conduct of fraud examinations, including a discussion of specific procedures used in forensic accounting examinations and the reasoning behind these procedures. Topics include an overview of fraud and abuse, forensic evidence, substantive procedures for cash outflow irregularities, substantive procedures for asset irregularities, financial statement fraud, and examination reporting.

This subject company in this case study is WoolEx Mills. The top management team at the Mills had to act fast to prevent the accusations charged upon them, so that they may venture deep into the United States market. In the process, they had to act in a way that will present the company’s financial statements; cash flows in a way that they did not show any suspicious fraudulent activities. The type of fraud in this case study is known as manipulation of accounts which involves the act of offering the accounts in the way they are not in reality.

1. Discuss three management events that occurred that should have been a “red flag” to the auditing firm.

The first hint of fraud came up and was discovered being a billing type scheme

Often time, people who commit fraud will use rationalization to justify their actions. A few common methods are to convince themselves that what they are doing is legal and that it is necessary as indicated by both Bucy et al.’s research (2008) and Dellaportas’ work (2013). Others have deployed Sykes and Matza's neutralization technique to help alleviate any guilt (Dellaportas, 2013; Trompeter, Carpenter, Desai, Jones, & Riley Jr., 2013). However, the key point here is that they must first view their action as wrong or else there will be no need to rationalize their actions (Trompeter et al., 2013). Mr. Boghossian in his court statement denied his wrong doing despite mounting evidence that pointed towards him committing fraud (R. v. Boghossian, 2015a), which shows that he is attempting to rationalize his behavior to alleviate himself of any guilt. Even though we now know significantly more about fraud then we used to, there is still an alarming increase in the rate of fraud (Wolfe & Hermanson, 2004), but perhaps by integrating criminal theories, we can grasp a greater understanding of why perpetrators commit fraud to better prevent them for doing so.

These elements are interrelated in order for fraud to be committed in an organization and every corporate executives needs to understand this theory to enable them know how and why employees perpetrate fraud. Diagram below describe the element and how they are interrelated.

The fraud triangle consists of three different parts. The first part would be the perceived financial need or the pressure upon the person. This could be caused by the person situation where they may be in need, or possibly someone in their life pushing them to do the act. It could also be something as simple as a want that they feel they should go after no matter what it takes or the cost. This will lead into step two of the fraud triangle which is perceived opportunity or, in other words, the opportunity to commit the fraud. This is what they do to actually do the crime. How they go about

i) Explain the factors that contribute to the success of Mazlan’s fraudulent scheme. You may explain from the perspective of fraud diamond.

Additionally, in Sheri Betzer’s Legal Elements of Fraud (ACCM 5650) course at MSUD, not only is class time dedicated to the introduction of interviewing, but the course has a practical exercise for the students. The practical exercise includes conducting four separate interviews of individuals related to an accounting litigation scenario. Over the course of those interviews, not all the individuals contacted are overly cooperative with the student interviewer. This gives the student a much more realistic view of what may happen when he seeks information from the

Essentially, all three elements of the fraud triangle must be present for fraud to be committed: pressure, opportunity, and rationalization. Additionally, nine factors provided the atmosphere for the perfect fraud storm of 2000 through 2002. The nine factors included: economy, moral values, incentives, expectations, debt, accounting rules, auditor dependence, greed, and educator failures (Albrecht et al., 2012). When combined with the elements of the fraud triangle these factors enabled organizations such as Enron and WorldCom to commit the fraudulent activities that resulted in this perfect storm.