Why Is Barry Minkow Unethical

Appendix A.2 also lists several factors that could provide opportunities for management/employees to commit fraud. One factor that could lead to fraud is if, “There is ineffective monitoring of management as a result of: domination of management by a single person or small group without compensating controls.” The auditors should have taken notice of the lack of controls and segregation of duties with respect to Phar-Mor’s

In order to collect evidence of Carl's negligence, I would first contact the two senior auditors who have supervised Carl. They also suspected that he had not completed all of his assigned audit procedures. I would ask those two senior auditors for an advice on what I should do about this situation I am facing. I would also try to find out if they have any evidence that Carl wasn't doing his job. The main question I would ask the senior auditor is whether they kept record of amount of time Carl spent on each assignment in comparison to allotted time for same job done by other

Two of the three partners of the firm that performed the audit for the district had 55% ownership in the company that sold the district its financial management software “finance manager”. The partners’ role as vendors violated the general standard of independence under generally accepted government auditing standards. Also the auditors received a commission from the sale of another software called “student manager” and receiving commissions is prohibited by the AICPA. Also there were fundamental problems with their audit planning and efforts to test financial records. The CPA firm work that was so flawed and so far below professional standards that it failed to identify the millions that were stolen.

According to the SEC, Michael Sullivan was fully aware that the decision to use the earned value method would result in accelerating revenue by material amounts. It is very clear that the SEC believed that Sullivan acted in a very reckless manner throughout the audit and was very negligent to important audit procedures that are typically performed for the audits of construction companies. I think that by “Sullivan’s Audit Failures”, the SEC meant the Sullivan failed to perform these key audit procedures that are crucial to the audit of construction projects.

There were two external auditors mentioned in the case that dealt with ZZZZ Best. The first was not a firm that was included in the Big Eight accounting firms at the time. George Greenspan was the sole practitioner who performed the first full-scope independent audit for ZZZZ Best. Greenspan insisted that he had properly audited Minkow’s company, and testified that while planning the audit he had performed various analytical procedures to identify unusual relationships in ZZZZ Best’s financial data. Greenspan’s procedures reportedly included comparing ZZZZ Best’s key financial ratios with its industry norms. Greenspan identifies “unusual relationships” but does not go into detail in order to explain these unusual relationships. This shows that Greenspan did not show enough professional skepticism while conducting the audit and just blew off these unusual relationships. Also Greenspan testified that he had obtained and reviewed copies of all key documents that pertained to the false insurance restoration contracts. It would have been hard for Greenspan to uncover the fraud through the contract paperwork because Minkow and Morze went through such great detail in creating false documents in order to cover the false contracts, but finer details were overlooked by Greenspan. A journalist found one of these finer details which caused the domino effect leading to the destruction of ZZZZ Best. This shows that the first auditor,

Grant Thornton should be held liable for its reckless negligence because it ultimately prolonged Keystone bank’s ability to continue to partake in fraudulent activities. If the accounting firm would have held itself to GAAS, generally accepted as the minimum standard of professional conduct in performing an audit, Thornton would have known to exercise “heightened skepticism” during this high risk of fraud. Secondly, GAAS required written confirmations from third parties servicing assets in regards to a bank’s balance sheet. Not only did Thornton fail to obtain this written requirement, it also recklessly relied on an oral statement. GAAS also required in a high risk audit that monthly remittances of interest income on assets being serviced by

The one pattern within the data that appears to be inconsistent yet if the auditors had established an internal control systems would be Monus the founder moving so freely throughout every aspect of the company with no one checking his movements. From choosing what properties to purchase to purchasing supplies. In any company there should be segregation of duties. For example, the person making the deposits should not be the person writing the checks. Had there been stipulations made it would not have been so convenient to commit the

As indicated by PCAOB, the written representation cannot be a substitute for substantive procedures. Thus, auditors did not perform adequate procedures to test the management’s estimates. What’s more, inquires were heavily relied on the management’s integrity. Auditors ignored the professional skepticism. Finally, the 30 years and 15 years useful lives, which were adopted previously by Little Drummer, were not appropriately audited. Since the engagement team did not contact the predecessor auditors, the team did not get any audit documents from predecessor auditors regarding the assumptions of 30 years and 15 years. There was no evidence to show the reasonableness of these two assumptions.

Buddy Fletcher’s actions were motivated by selfish desires that he attempted to justify through outlandish philanthropy. Lacking pure motivations, Fletcher used others to suit his own end. Exercising extreme moral hazard, Fletcher lied his way into millions of dollars12. When his fund turned out to be insolvent, it is the individuals’ pension funds that suffer, not Fletcher himself. This is a clear violation of the humanity principle. The humanity principle states that one must never use others as merely a means to their own end. He took pension funds from unwitting individuals and used them for personal needs, such as funding of his brother’s failed movie10. Not only did he lie to investors about the success of the fund, but he used their investments for personal use. He completely violates the humanity principle, using

1. There are numerous differences between performing a review and actual audit on the financial statements, but the major one is that the review does not contemplate obtaining an understanding of internal control structure. Also, a review does not assess control risk, tests of accounting records and responses to inquiries by obtaining corroborating evidence through inspection, observation or any other audit procedure. It can point out significant matters of the financial statements but does not provide assurance of their accuracy. The issue with ZZZZ Best case is that the auditors review was not sufficient enough to review any misstatements on the financial statements. Ernst & Whinney never questioned the internal control, reviewed

o The auditors should have done further testing should have been performed to discover the

Integrity might cause problems in this case as the main persons in this organization are family members and there are also family members with high functions in the bank and JRW Realty with which Prefab has close business relations. Moreover, the members of the audit and compensation committee are not all independent of the firm and therefore, the likelihood of fraud or material misstatements in the financial statements is quite high. The profitability of the engagement to the auditor should be considered as well. Due to the extensive investigation the auditor has to do, especially due to the relationships between the people at the top management and the independence of the audit and compensation committee, the profitability might be a concern. Furthermore, from the analysis of the business risks of accepting the audit it can be concluded that there are several severe problem areas in which fraud or material misstatements in the financial statements can take place. At the Prefab Sprout Company the risk of fraud or material misstatements is considered to be very high and therefore, the engagement should not be accepted.

This report is based on the history and collapse of a big Australian giant West Point group of companies. West point Corporation Pty Ltd was the head company of the western Australia based West point Group of Companies ("West point Group") which was primarily engaged in property development and collecting finance for that purpose. In this report, causes of the collapse of the company specially the role of auditors in the collapse will be discussed. This report doesn’t only throw light on the collapse of West Point group of companies but also look at the conduct of the auditors of another well reputed auditing firm KPMG which as a consequence of this negligence had to pay compensation for the damages caused to investors of West Point group of companies. The reason of choosing West Point group of industries to write a report on is that it involves the conduct of two big companies and ASIC action against both of the companies.

Kozlowski’s unethical behavior did not happen over night, his actions became more prominent and confident over time. Gino and Bazerman (n.d.) found that “people are more likely to accept the unethical behavior of others if the unethical behavior develops gradually over time than if it occurs abruptly” (p. 711). When Kozlowski began working for Tyco, he worked under CEO Joseph

The greatest opportunity for Minkow to commit fraud was ZZZZ Best’s lack of financial supervision. Lack of internal control facilitated manipulation of company’s assets and transactions. It gave the CFO the opportunity to falsify the documents and to create fictitious transactions. These transactions created formidable revenues on the company’s books and made it easy to borrow money from banks. The weak external audit was the other opportunity that allowed Minkow to commit fraud. The auditor was not familiar with the company and its related parties. In addition, the auditors placed too much trust in management produced documents and failed to verify key transactions. These two important reasons gave Minkow an opportunity to commit fraud.