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Adelphia
Enron
Global Crossing
WorldCom
Xerox
Try to locate articles or information about stock prices, how the fraud was conducted. You might wish to look at the following websites: edgar.sec.gov, www.hoovers.com, www.forbes.com.
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These activities were part of an elaborate embezzlement scheme that resulted in the loss of millions of dollars for the city. Mr. Peterman was intercepting checks written to the city and endorsing them to his personal bank account.
The procedural manual for Wooten's accounting department described mailroom policies, including the requirement for a clerk to log checks into a computer file and prepare a receipt. Another employee was responsible for preparing an independent verification of the amount of the receipts, and a third employee made the bank deposit. Despite these written guidelines, Mr. Peterman was often known to carry out some of these tasks himself, or to claim to be doing so.
In response to the news of this fraud, the CFO of a neighboring community commented that many cities are unable to achieve strong internal controls because of the limitations of small staff size and tight operating budgets. Rather, small cities often have no choice but to rely on the integrity of their employees.
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It's November 15, and Larry, brand manager for a major consumer products firm, is contemplating his year-end bonus. It is becoming increasingly obvious that unless he takes action, he will not achieve his brand profitability target for the year. Larry's eyes fall to the expense estimate for the new coupon “drop” slated for later in the month. His hand trembles slightly as he erases the 4 percent anticipated redemption rate on his estimate sheet and replaces the figure with 2 percent. Larry knows from experience that 2 percent is an unrealistically low figure, but he also knows that neither the firm's independent nor internal auditors will seriously challenge the estimate. This way, Larry's product profitability report will reflect the increased revenue associated with the coupon “drop” this year, but the entire redemption cost will not be expressed until next year.
“That should put me over,” he muses. A wry smile crosses his face. “If the auditors question the rate, I'll give them a story about seasonality and shifting consumer patterns. They won't know enough about marketing to question my story.” Eventually, of course, the real cost of the coupon drop will have to be expensed, and that will hurt next year's profit figure. “But, that's next year,” Larry reasons, “and I can always figure out a way to make it up. Besides, by the end of next quarter, I'll be handling a bigger brand—if I can show a good profit this year.”
A brief description of coupons and proper accounting for coupons might help us to interpret the situation just presented. Coupons are “cents-off” privileges, such as $0.50 off when you buy a certain brand of yogurt. When a company offers coupons to consumers, it must estimate the redemption rate and record an expense and the corresponding liability. This is similar in concept to warranty expenses.
Required:
During the next year, the College of Business at Bozeman State University hired Mr. Brocamp as a part-time instructor to teach business strategy courses. The dean of the college suggested that the relationship was a personal matter and that Mr. Brocamp's wealth of experience is beneficial to students. Some who supported the hiring pointed out that other faculty members are not questioned about their personal lives. Others suggested that since management ethics is so important, someone who violated a company ethics policy should not be teaching students about the proper management of organizations.
Required:
Janie's neighbor, Steve, actually received the mail order package intended for Janie. Because Steve had been out of town last week, he had not had the chance to promptly bring the package to Janie's house. Even though the box correctly showed Janie's name and address, it appears that the carrier merely left the package on the doorstep of the wrong house.
Disgusted with this chain of events, Janie decided to claim that she had never received the package. After all, she was not able to wear the dress for its intended purposes; she should not have to pay for it. Moreover, the carrier was not able to provide proof of delivery.
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After spending approximately ten hours calling on previous sponsors, Evan felt that he had hit a brick wall. For many reasons, most of last year's sponsors were unwilling to continue their involvement with this annual fund-raiser. Evan needed to look for additional sources of funding. He spent several hours researching potential new contributors and finally located a database containing a list of businesses within the local zip code. Since the list included e-mail addresses, Evan developed a letter of request and e-mailed it to all these businesses.
The response was overwhelming. Evan collected over $3000 from this new pool of business contacts. While compiling the checks received to turn over to the fraternity treasurer, Evan noticed that one business had made its $200 check payable to Evan personally.
Rationalizing that the additional time he had spent on the project and the success he was able to achieve were worthy of compensation, Evan decided to keep this one check. He wrote a letter of acknowledgment to the donor and deposited the $200 in his personal account.
Required:
Reread the Robatelli's case material at the end of Chapter 1, and then answer the following questions:
Required:
1Stephen D. Williger, “Phar-Mor—A Lesson in Fraud,” The Wall Street Journal, March 28, 1994.
2The Committee of Sponsoring Organizations includes the following organizations: AICPA, AAA, FEI, IIA, and IMA. The purpose of COSO is to improve the quality of financial reporting through business ethics, effective internal controls, and corporate governance. The COSO website is www.coso.org.
3Committee of Sponsoring Organizations of the Treadway Commission (CSOTC), Internal Control-Integrated Framework (COSO Report), 1992 and 2012 drafted edition.
4Report to the Nation on Occupational Fraud and Abuse, Association of Certified Fraud Examiners, 2010, p. 4.
5Securities and Exchange Commission, Litigation Release No. 17465, April 11, 2002.
6Paul Zikmund, “Ferreting Out Fraud,” Strategic Finance, April 2003, pp. 3–4.
7Barbara Lamberton, Paul H. Mihalek, and Carl Smith, “The Tone at the Top and Ethical Conduct Connection,” Strategic Finance, March 2005, p. 38.
8Olen L. Greer and George D. Schmelzle, “Are You Being Bullied?” Strategic Finance, September 2009, p. 41.
9 COBIT 4.1, IT Governance Institute, Rolling Meadows, IL, 2007.
10 Trust Services, Principles, Criteria and Illustrations, American Institute of Certified Public Accountants, Inc. and Canadian Institute of Chartered Accountants, 2009 (www.aicpa.org).