Accounting Fraud And The Financial Fraud

It is important to first gain an understanding of the various types of fraud, in order to aid understanding in regards to the prevention of fraudulent activity. This paper begins with a review of the definition of financial fraud, and identification of the different fraud types. Further, included is an examination of what motivates individuals to commit fraud, including an identification of some of the method in which people commit fraud. A discussion of the importance of the fraud triangle, and how rationalization contributes to fraud is a key area of focus. Finally, there is an examination of some controls that prevent and detect fraudulent behavior, including the value and importance of understanding the nature of fraud for

The company became successful through the process of buying over 65 assets, and enormous about of money spent. After the internet downfall the company stocks had increased, but putting the company into a lot of debt. Worldcom was soon to be discovered by wall street bankers, investors, etc. Later to become one of the second largest long distance telephone company in the United States. The accounting collapse didn't happen right away. However from the early 2000s Bernard Ebbers, and other employees used fraud and invalid accounting procedures to deceive investors and others. Some people saw it as an honor, until it was involved in one of the largest accounting crimes in American History, Worldcom led to bankruptcy. "WorldCom then admitted to inflating its profits by $3.8 billion over the previous five quarters. A little over a month after the internal audit began, WorldCom filed for bankruptcy.When it emerged from bankruptcy in 2004, WorldCom was renamed MCI. Former CEO Bernie Ebbers and former CFO Scott Sullivan were charged with fraud and violating securities laws. Ebbers was found guilty on all counts in March 2005 and sentenced to 25 years in prison, but is free on appeal." (Case Study: Worldcom, Lee Ann

The stakeholders in this fraudulent case of WorldCom consist of Bernie Ebbers, Scott Sullivan, Buford Yates, David Myers, Cynthia Cooper, and Betty Vinson belong to the company. While the other stakeholders would consist of the creditors, Andersen (accounting firm), investors, and the public. This fraudulent act committed within WorldCom impacted every single stakeholder in a way. Either in a negative or positive way, most of the impact was caused with harm to everyone. The main individuals such as Ebbers, Sullivan, and Vinson all had major consequences as resulting with the fraud. Criminal trials were a major result with their fraudulent acts within WorldCom. Cooper was a lifesaver by most of the community. Aside from these individuals, the rest also got affected by the fraud. Investments conducted by the investors were all lost within the fraud process. The impact towards much of the image for Andersen was ruined. Many of the public lost their trust on the honesty and professionalism of Andersen and other certified public accounting firms. The entire employees from the top management to the smaller group of workers stayed unemployed and some with criminal punishment.

Deception, whether intentional or not, did occur. The shareholders had a right to know the financial state of WorldCom. In Ebber’s defense, he had unscrupulous bed fellows on this board. Their intentions are also at question especially regarding their eagerness to grant Mr. Ebbers a breathtaking loan for $341 million dollar at an interest rate of 2% to shield the instability of the company’s financial situation from shareholders. There were also some concerns whether such loans were ethical from the Security Exchange Commission Enforcement official Seth Taube. He stated that large loans to senior executives are commonly sweetheart deals involving interest rates that constitute a poor return on company assets. Federal prosecutors in New York cited Ebbers 's expensive lifestyle, and his overspending, as a motive to hide WorldCom 's mounting financial troubles. The impropriety associated with the largest loan any publicly traded company has lent to one of its officers in recent memory is evident. Unfortunately, if Ebbers had pressed the matter and sold his stock, he would have escaped the bankruptcy financially whole, but Ebbers honestly thought WorldCom would recover.”

WorldCom and The Mississippi Scheme are both large financial scandals that have occurred. WorldCom was a telecommunication company that overstated their cash flow by reporting $7.6 billion in operating expenses as capital expenses. WorldCom is the largest accounting scandal in US history as of March 2002. The Mississippi Scheme was a business scheme that destroyed the economy of France during the 1700’s. The scheme involved the loss of paper money’s purchasing power as a result of asset inflation. Both WorldCom and The Mississippi Scheme were frauds involving manipulation to create higher stock prices and dubious practices within the organizations to keep the public unaware.

Due to these criminal activities, many top executives were convicted fraud and sentenced to spend time in prison. WorldCom activities did not align with the company's overall mission and goals. The actions taken by management were not in the best interest of the customer instead they were consumed with acquisitions and increasing the value of WorldCom Shares. The management also should have considered general accounting practices during their strategic planning. Furthermore, create procedures that protect all stakeholders within the firm.

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.

The video “Cooking the Books” discussed the ZZZZ Best case of fraud, it tells how and why fraud was perpetrated by Barry Minkow and why it was undetected for so long. According to the video, ZZZZ Best was founded by Barry Minkow in 1982; when he was sixteen years old, it started as a carpet cleaning company. But, due to high competition in the industry, low entry barriers, and bad internal control, this young entrepreneur started to have cash flow problems, thus creating a shortage of working capital. As a result of the financial pressure, he started to commit fraud by creating false accounts receivable and sales, false documents (using photocopies of real

On March 15, 2005 former CEO of WorldCom, Bernard Ebbers sat in a federal courtroom waiting for the verdict. As the former CEO of WorldCom, Ebbers was accused of being personally responsible for the financial destruction of the communications giant. An internal investigation had uncovered $11 billion dollars in fraudulent accounting practices. Later a second report in 2003 found that during Ebber’s 2001 tenure as CEO, the company had over-reported earnings and understated expenses by an astonishing $74.5 billion dollars (Martin, 2005, para 3). This report included the mismanagement of funds, unethical lending practices among its top executives, and false bookkeeping which led to loss of tens of thousands of its employees.

WorldCom was the ultimate success story among telecommunications companies. Bernard Ebbers took the reigns as CEO in 1985 and turned the company into a highly profitable one, at least on the outside. In 2002, Ebbers resigned, WorldCom admitted fraud and the company declared bankruptcy (Noe, Hollenbeck, Gerhart, &Wright 2007). The company was at the heart of one of the biggest accounting frauds seen in the United States. The demise of this telecommunications monster can be accredited to many factors including their aggressive-defensive organizational culture based on power and the bullying tactics that they employed. However, this fiasco could have been prevented if WorldCom had designed a system of checks and balances that would have

P., & Coulter, M. K., 2012, p. 152), although it seems none of WorldCom’s executive management team seemed to feel this way. Many steps could have been taken to prevent the collapse of the WorldCom empire, but only a few key managers held the power and none were willing to take action. One control that did not exist in WorldCom’s culture was allowing both internal and external auditors access to all necessary documents and statements. Without full disclosure of these items no one could see how many risks the company was taking by making fraudulent entries against their books. Also the external audit team, Arthur Anderson, held WorldCom as one of its best customers which was a major conflict of interest. This relationship lead to many fundamental mistakes from Anderson not keeping pressure on WorldCom and getting all vital information that would prove how poorly the company was being run. Had they been operating transparently, auditors and employees would have seen the accounting deception and could potentially have stopped it prior to the company’s collapse. In addition, by employing multiple auditing firms many of the mistakes being made may have been caught and discontinued from the beginning.

Financial statement fraud is any intentional or grossly negligent violation of generally accounting principles (GAAP) that is undisclosed and materially effects any financial statement. Fraud can take many forms, including hiding both bad and god news. Research shows that financial statement fraud us relatively more likely to occur in companies with assets of less than $100 million, with earnings problems, and with loose governance structures (Hopwood, Leiner, & Young, 2011).

A business can not work out without an account system, which includes internal. Internal controls are used by companies to make sure financial information is accurate and valid. Strong internal controls are signs of a financially healthy company and protect the company’s integrity. Strong internal controls can also increase a company’s profitability. There are several types of internal controls that companies used to protect themselves such as: Segregation of duties, asset purchases, supervisor review, internal audits and adequate documents and records. This paper will discuss several topics from a case study about And the Fraud

A multitude of choices made by executives at WorldCom led to the ultimate demise of the company as it was previously known, the employees and their livelihoods’, and the trust of the American people. In a time when corporations fail to set ethical standards and provide transparency to investors, how do we change corporate culture on a national level? By analyzing choices made to improve stock prices and company image that ultimately result in failure-- we can guide

This paper will discuss the corporation WorldCom, a telecommunications company that was based in Mississippi. In 2002 WorldCom was involved in one of the largest accounting scandals in the United States. WorldCom inflated its assets by nearly $11 billion dollars, which eventually lead to about 30,000 employees losing their jobs, as well as, 180-billion dollars in losses for its investors. The CEO at the time of this accounting fraud was Bernard Ebbers and led to him receiving a 25-year prison sentence. This paper will go into the details of how WorldCom was able to manipulate its accounting records to deceive its internal auditors, as well as, investors.