2. Facts of the Case & Prevailing Accounting Issues
• Crazy Eddie was operated by Eddie Antar and multiple family members.
• Antar’s wife and mother earned more than $100,000 a year for doing very minimal work.
• Crazy Eddie’s went public in 1983. Antar’s public offering was delayed for over a year due to the underwriting firm finding Crazy Eddie’s financial records in disarray.
• Crazy Eddie’s stock was a huge success once it went public. The SEC even authorized the selling of 200,000 more shares than originally agreed.
• In the late 1980’s, Crazy Eddie’s began to see a corporate meltdown.
• Crazy Eddie’s annual sales volume increased between 1984 and 1987, creating a more complex accountability for Crazy Eddie’s executives in regards
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This caused a whirlwind with Crazy Eddie’s stock price, which never recovered.
• Crazy Eddie was taken over by a new company in November 1987.
• The new company found $65 million in shortages of inventory.
• Antar ordered an employee of Crazy Eddie to overstate their inventory by $2 million, which caused in their overall gross profit to be overstated by $2 million.
• The next year, Antar ordered Crazy Eddie’s inventory to be overstated by $9 million and accounts payable to be understated by $3 million.
• Crazy Eddie employees were able to overstate inventory by making inventory count sheets for items that were nonexistent.
• Employees were able to understand accounts payable by preparing fake debit memos from vendors and entered them into the accounting records.
• In the later 1980s, Antar ordered employees to include in inventory consigned merchandise and goods being returned to suppliers. (Knapp, 2015, p.112)
• Antar also overstated inventory by using transshipping transactions.
• One of the biggest accounting issues is every employee of Crazy Eddie’s was a family member of Eddie
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Typically, most companies that experience rapid growth, such as Crazy Eddies, do not adjust their internal controls; therefore, their internal controls are then weak and make them susceptible to fraud. In the early 1980’s, Crazy Eddies grew rapidly and bought large amounts of electronic products from their suppliers at large reductions, and then sold them to smaller consumer retailers at slightly higher costs, therefore, allowing Crazy Eddies to make a profit. In order for Crazy Eddie’s to be able to increase their retail sales, they then had to classify these transshipping transactions as part of its internal retail sales in order to increase existing retail sales. If Main Hurdman would have investigated the transshipping transactions, they would have noticed something was wrong, and being able to develop a more understanding of the risk of transshipping. All audit companies should be aware of the conditions in which fraud exists: incentive and pressure, opportunity, and rationalization. When Main Hudman planned Crazy Eddie’s audit in 1986, the auditors needed to see that the electronic industry boom days were over. This should have been a red flag for the auditors during this time; to be sure, they were evaluating
Employees were using the cross-selling which is a concept of attempting to sell multiple products to consumers. This concept led to fraudulent actions, in fact employees were encouraged to order credit cards for pre-approved customers without their consent, and to use their own contact information when filling out requests to prevent customers from discovering the fraud. " The Wells Fargo scandal was far different. Instead of a select few doing bad things, the unethical behavior was widespread at the bank, with thousands of employees engaged in secretly creating new bank and credit-card accounts for customers without their knowledge, resulting in overdraft and other fees." (Kouchaki, 2016). According to the Los Angeles City Attorney, employees were opening and funding accounts without customers' permission or knowledge in order to "satisfy sales goals and earn financial rewards under the bank's incentive-compensation program." This means that the board members of the bank were aware of that it wasn't by the employees' own wills. In fact, they were pressured by aggressive goals and performance which led them to immoral behaviors. Facing this problem, Wells Fargo bank had to take some measures to avoid bankruptcy, losing customers, or loosing brand
Eddie Mabo was a recognised Indigenous Australian who fought for his land, Murray Island. Mabo spent a decade seeking official recognition of his people’s ownership of Murray Island (Kwirk, 2012). He became more of an activist, he campaigned for better access for indigenous peoples to legal and medical services, to house, to social services and to education. The Mabo case was a milestone court case which paved the way for fair land rights for indigenous people. The Merriam people wanted to ensure its protection. Eddie Mabo significantly contributed to the civil and land rights of Indigenous people in Australia due to his argument to protect his land rights. In a speech in 1976, at a conference on the redrawing of the Torres Strait border, Mabo articulated a vision for islander self-determination and for an independent Torres Strait Island (Stephson, 2009).
Reginald’s first target was Park Sausage. Unfortunately, the deal was lost to another buyer and he was devastated. Two years later (1977), the Almet acquisition fell through. The seller backed out of the deal on the day of closing. After threatening to sue the owner for breach of contract, Lewis was paid $250,000 to drop the suit (all fees and expenses were reimbursed). Determined not to display his disappointment, he came to the conclusion he wasn’t ready. Reginald took a long vacation and began to study every successful takeover he could find. He would be ready to take on his next corporate acquisition with a vengeance…and that he did.
Esquire alleged that Montgomery Ward supplied them with spare parts with a promise that they would buy back any excess
.... In addition, inventory turnover shows a consistent increase from 2.16 in 2011 to 2.38 and 2.49 for 2012 and 2013 respectively.
Madura, Jeff. What Every Investor Needs to Know About Accounting Fraud. New York: McGraw-Hill, 2004. 1-156
PepsiCo can potentially acquire California Pizza Kitchen and integrate it in the company’s decentralized management approach. Since PepsiCo executives have experience in the quick service food industry, it should not be a reach for the company to successfully run this casual dining restaurant. For this venture to be successful, it is imperative that management cut down the operating costs at California Pizza Kitchen through the PepsiCo Food Systems distribution network and improve on the 3.1% operating margin that California Pizza Kitchen is currently operating at.
In modern day business, there can be so many pressures that can cause managers to commit fraud, even though it often starts as just a little bit at first, but will spiral out of control with time. In the case of WorldCom, there were several pressures that led executives and managers to “cook the books.” Much of WorldCom’s initial growth and success was due to acquisitions. Over time, WorldCom discovered that there were no more opportunities for growth through acquisitions when the U.S. Department of Justice disallowed the acquisition of Sprint.
This did not last long because just a quickly as they rose so did they fall. Within a year their stocks were down to little of nothing, and their name was not one someone wanted to be associated with. The downward spiral can be contributed to the organization culture and improper checks and balances.
Phar-Mor was known as one of the major discount chain retailers in the late 1980’s - early 1990’s. It was founded by Mickey Monus, a gambler in nature, who with the help of senior management was “cooking the books” for years to cover up his loses. The reason why senior management agreed to do this fraud is the belief in unique ability of their leader to fix everything later on. This case is known as one of the biggest accounting frauds in the corporate history of the U.S. This paper will analyze who was affected by this fraud, the motives behind it and what systems of control failed to prevent it.
HealthSouth is A Public company who is providing outpatient rehabilitation services, They noticed that the business is not that great as they proclaimed, business is not so profitable and it also have too much expenses which this will end up taking away from the profit and they will show lower earnings that expected so they came up with a fraudulent idea to create false entries in their books by claiming that the expenses they have is not real expenses, they called it investing like everyone understands when a business is buying a building its not called a expenses which will show the business less profitable ,it is the opposite the business is growing, the same think they did with entering regular expenses like payroll or utility expenses
· In 1984 Ben & Jerry’s sets a precedent by establishing a Vermont-only public stock offering to raise money for a new manufacturing facility. Ben & Jerry’s sales exceed $4 million, a 120% increase from the previous year.
During the audit 213 sales transactions were examined to test revenue controls; 82 deviations were found and are as follows:
Controlling inventory is known to be one of the toughest problems for companies. With 39 million active customer accounts and a vision such as being "Earth’s biggest selection of product", Amazon has been putting a lot of effort to be as efficient as possible in their inventory management.
Auditing has been the backbone of the complicated business world and has always changed with the times. As the business world grew strong, auditors’ roles grew more important. The auditors’ job became more difficult as the accounting principles changed. It also became easier with the use of internal controls, which introduced the need for testing, not a complete audit. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. Computers played an important role of changing the way audits were performed and also brought along some difficulties.