ZZZZ Best's Story

2733 Words Nov 2nd, 2008 11 Pages
ZZZZ Best, Inc.

The start of ZZZZ Best:
ZZZZ Best started as a carpet cleaning company. Barry Minkow founded ZZZZ Best in his parents’ garage in 1982 when he was only sixteen years old. Due to high competition in the industry, low enter barriers, and bad internal control, this young entrepreneur started to have cash flow problems, and a shortage of working capital.
Pressure Leads to Fraud:
Under financial pressure, Minkow started to commit fraud. He forged credit card applications, staged theft, used bogus financial statements, and used his networking skills to entice wealthy investors. The most serious fraud he made was inflating the value of the company’s insurance restoration contracts (Knapp, 2006).
Inflated Insurance
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2. Opportunity:
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.
3. Rationalization:
Minkow words, “I started with the best of intentions, really I can say that,” show that he started lying because it was an easy way to start and maintain his business. However, he could not stop after he borrowed a lot of money, and was forced to create bigger lies to cover the small ones. Minkow’s rationalizing behavior made it easy for him to continue lying in order to support the lifestyle he had become accustomed to and to keep his fraudulent company afloat.
4. Individual’s Capability:
Personal charm, conviction, and good organizational skills helped Minkow to get through many problems during the fraud period. In particular, he was convincing
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