Forensic Accounting: Assignment Sample Essay

ZZZZ Best had started operations in the twelvemonth of 1982 as a little. door-to-door rug cleansing operation. A sixteen-year-old immature talented enterpriser. Barry Minkow who is the laminitis of the company. ab initio runs it out of his parents’ garage. ZZZZ Best experienced enormous growing in both grosss and net incomes during the first several old ages of its being. During the period from 1984 to 1987. the company’s cyberspace worth poured from less than $ 200. 000 to more than $ 5 million on grosss of $ 50 million. Barry Minkow was introduced to the rug cleansing industry at the age of 12 by his female parent. who helped do terminals run into by working as a telephone canvasser for a little rug cleansing house. Although there are many companies making rug cleaning industries out at that place. it is comparatively easy to come in to the concern as it requires minimum entryway for person like Minkow.

There are no barriers to entry such as no apprenticeships to be served. no licensing demands and merely a minimum sum of start-up capital needed. A simple concern as this. Minkow had no job to get down his concern every bit early as the age of 16. Minkow rapidly realized that rug cleansing was non an easy manner to gain a support. The ferocious competitions in the industry with marginally net incomes restrain him to spread out and to last with his concern. Bad cheques. pecking sellers and client ailments demanding payment obscured the immature talented individual. The challenge begins when he barely had sufficient on the job capital and deriving loans from Bankss because of his age and the status of his concern. These state of affairss turned up that the immature enterpriser came up with his ain smart and advanced ways to finance his concern by recognition card counterfeits. theatrical production of larcenies and look into kiting to overcharge his insurance company. Subsequently on. his ‘creativity’ widens when his company indulges in the concern associating to the insurance Restoration undertakings.


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It was all begun when Barry Minkow widens his concern into Insurance Restoration Project. where he gained a contact from an extended societal web of friends and familiarities. These relationships he developed are largely from the Swanky Los Angeles wellness nine. The confederacy started shortly after going a friend of Tom Padgett. an insurance claims adjustor. came to seek for his aid to allow and to corroborate over the telephone to Bankss and any other interested 3rd parties that Minkow’s company was the receiver of occasional insurance Restoration contracts. All of the activities were wholly fabricated. It was a method that Minkow falsified to bring forth bogus paper net incomes and grosss to convert bankers to loan him money for his evil intents. and he expanded his operations by opening several rug cleaning mercantile establishments across the San Fernando Valley. The undertakings that he got from the blessing from Padgett. were easy obtained because his friend was the insurance claim adjustor and reasonably good trust Minkow in making his concern with unity.

When he realized that his ‘profitable’ insurance Restoration contracts became tremendously successful. shortly his concern switched and became the major beginning of gross on the ZZZZ Best fiscal statements. The deceitful activities were concealed and were non discovered by the first hearer. George Greenspan who audited ZZZZ Best Company’s Financial Statements. Minkow someway non merely confirmed the being of the insurance Restoration occupations but besides obtained and reviewed transcripts of all cardinal paperss sing those occupations. after passing 1000000s of dollars to take the hint. in which he obtained financess from his investors. However. the problem comes in when the 2nd hearer. Ernst & A ; Whinney a twelvemonth after. audited the first few months of battle. Despite of refering and oppugning unity of ZZZZ Best’s direction. they resigned and that was where the confidence of the Financial Statement was being prejudiced.

5 ) The 5th term of mention in the affair of the end product is the customers’ satisfaction. The ZZZZ Best Company’s best hazard of the purported contracts failed to place the insureds. the insurance companies. or the location of the occupations. Customers’ satisfaction is foremost derived as a step of how merchandises and services supplied or offered by a company meet or surpass client outlook. In other words. it is one of the cardinal public presentation indexs within concern and is frequently portion of a cardinal component of concern scheme. In this instance. ZZZZ Best is really do non hold any client ( at all ) as the contract is wholly fabricated. as to bring forth paper net incomes and grosss to convert bankers to loan and to fund the company. It is the scheme of Ponzi Scheme. This strategy is a deceitful investing operation that pays return to its investors from their ain money or the money paid by subsequent investors.

The procedure of this strategy entices new investors by offering higher returns compared to the market. Prolongation of the high returns requires a comparatively high flow of money from new investors to maintain the strategy traveling and paid off the old investors and this scheme keeps on go oning until it profoundly prostration. Another cause of job to this is that. Minkow misused the trust given by his networking friend. Tom Padgett. an insurance claim adjustor. to corroborate over the telephone Bankss and other parties to obtain loans and recognition grant. This is one the acquaintance menaces because of close relationship with the officers when the individual becomes excessively sympathetic to the involvements of others. And this will impact the customers’ satisfaction for the bankers and investors as they took portion in such deceitful act. Another cause of job is that. a big California Bank relied upon the reappraisal study issued by Ernst & A ; Whinney. Because of it. they did non surmise ZZZZ Best’s fiscal statement fraudulent and fabricated activities. The new hearer barely received cooperation with the old hearer. obstacle them to carry on their true and just position of the fiscal statement.

6 ) The 6th term of mention for the end product is the sensing. rectification and rehabilitation actions taken by or to the company. In observing the possible hazard to the company by the fire and H2O harm. proper choice of proving and picks of method are important in giving confidence of the fiscal statement. The purported contracts failed to place the insureds. the insurance companies. or the locations of the occupation were some of the analytical processs that need to be taken from the hearer. It is a kind of proper certification. grounds and trial of balances to observe the existent of the company’s plus and besides their activities that have been conducted.

Although independent hearer of ZZZZ Best. Greenspan performed assorted analytical processs to corroborate the being of insurance Restoration occupations. the lone error that he had done was that he did non inspect exhaustively any of the insurance Restorations sites as one of the sensing steps. It is of import to attest and verify the existent of such undertakings which allocated more than 90 % of the grosss in the company. Next. the new hearer. Ernst & A ; Whinney did non pass on decently with the old hearer sing to the Restoration contracts as for betterment and apprehension and corrections for the criterion operating processs of ZZZZ Best. This consequences in deficiency of cognition of the client’s entity. This is tremendously impacting the critical portion of the confidence of the hearer where they did non unwrap such stuff and significantly. will take to misstatement that affect the judgement of the determination devising procedure.

The program of actions that can be taken for the customers’ satisfaction term of mention is that the clerk helper in the disposal section needs to corroborate hard currency or recognition card receivables from the clients. in this instance from the Bankss and loans. It must be approved by the General Clerk. which is the highest and merely authorization that confirms and reliable the receivables. Once the hard currency is received. the clerk helper needs to look into for the customer’s inside informations exhaustively. and hint and track back to the original beginning of papers for proof. Once the work can be verified. the sum transferred to the history demand to be confirmed by another people. This is where segregation of responsibilities takes portion. When the clerk helper has successfully transferred to the bank. the histories general will corroborate and formalize those histories. This is to guarantee that there are no people in the same section will catch both occupations.

And therefore. the result is that the physical plus can be verified and proved. and at same clip analyzed with those recognition balances in those histories related. Another thing that can protect the client is that the company should ever maintain the measure with its inside informations and prohibits balance charge. It is for the client mentions and besides from forestalling the company to add up fabricated and malicious unneeded measures. Next. the program of actions that can be taken for the sensing. rectification and rehabilitation actions is to fastening the process of engagement missive of the hearer where the old hearer needs to unwrap all of their findings that is material such as averments identified with fraud hazard factors. important accounting estimations and judgements. extremely complex minutess. application of new accounting criterions and others.

This includes all relevant information needed about their client in obtaining sufficient audit grounds and the appraisal of hazard is appropriated. The independent ( external ) hearer should be executor where it will be observed by Securities Exchange Commissions ( SEC ) . The result for this exposure is that hearer can understand more on the nature of the concern and its operations. This gives excess benefits for the hearer excessively in giving more confidence of the credibleness of the fiscal statement audited by the external hearer and more audit grounds can be gathered. This besides promotes the objectiveness of the hearer. which means that any material misstatement should be disclosed in the fiscal statement without colliding the struggle of involvement between the independent hearer and the company as a whole.


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