Report on Financial Statement Fraud Scheme - 825 Words

Report on Financial Statement Fraud Scheme (Other (Not Listed) Sample) Content: Report on Financial Statement Fraud SchemeStudent:Professor:Course title:Date:MEMORANDUM From: Anna MarieTo: Joy AdamsonDate: 28/11/2014Subject: Report on Financial Statement Fraud SchemeDear Madam,This memorandum is written for the purpose of communicating the examinations of the findings explained in the case that involve Eddie Antar, a fraudster who engaged in a financial statement fraud scheme for several years before eventually being found and prosecuted for his crime. Summary of matter under investigationsThe matter that is under investigation involves Eddie Antar who inflated stock price. He had an electronics empire, Crazy Eddies Inc. By the time Antars Crazy Eddies electronics company collapsed, Antar and his family members had distinguished themselves with a fraud of huge proportions, having garnered over $120 million. Eddie Antar over-reported his earnings and this increases the stock price of his company. In essence, he skimmed money to beat the taxman, an d then drew out money as he needed them for the purpose of boosting sales figures.The financial statement fraud schemes that Eddie Antar engaged include (i) overstated or fictitious revenue: this includes fictitious sales supported by phony invoices to genuine companies, invoices to fake companies, and no supporting invoices (Dutta, 2013). (ii) Skimming schemes: skimming is understood as the process through which funds is removed from the company before the money enters the entities accounting systems. It is an off-book scheme given that the receiving of the funds is never reported in any way to the business organization (Camay, 2009). (iii) Fraudulent inflation of inventory: this entails recording fictitious assets and overstating inventories (Association of Certified Fraud Examiners, 2014). Scope of examinationExamination of overstated/fictitious revenues and skimmingIt is pointed out in the case that for every few dollars to Crazy Eddies, Eddie Antar and his family members too k a dollar for themselves. This money was then secreted away into bank accounts at the Bank of Leumi in Israel. In essence, Eddie Antar himself smuggled some of the cash out of the United States when he strapped stacks of substantial bills of cash on his body. This skimming of money actually meant tax-free profits. When Crazy Eddies entered the stock market, Eddie Antar anticipated the shares of the Initial Public Offering by secretly easing money from Bank Leumi of Israel into the companys operation. The problem with Crazy Eddies is that after the firm had built up the books, they established a pattern of double-digit growth that they actually needed to sustain. Since they wanted the companys stock to rise, they came up with a 7-point plan. There was skimmed money waiting overseas which was brought back into the United States and then disguised as sales. Eddie and his family members illegally boosted retail sales by $2.2 million and income by $5.5 million and cashed in their stock for a windfall of $42.2 million. In the final year before the boom busted, they inflated retail sales by $18 million and income by $37.5 million.Examination of fraudulent inflation of inventory Eddie Antar and his family members also knew how to inflate inventory significantly. It is worth mentioning that debit memos were prepared that showed considerable quantities of VCRs and stereos as returned to manufacturer. Crazy Eddies Inc. was acclaimed for the wholesale cost due back from the manufacturer. Nonetheless, the machines were kept at the warehouse to be counted as inventory. Additionally, in a variation of the inventory scam, at least one wholesaler agreed to transport to Crazy Eddie truckloads of goods, putting off the billing to a later date. In this way, Crazy Eddies had substantial inventory volume. Eddie Antar also shared inventory amongst his many stores. After auditors had finished to count the holdings of a warehouse and left for the day, employees tossed the goods into trucks and transported the inventory overnight to an early morning load-in at another store. The moment the auditors got at that particular warehouse, they actually found a packed storeroom that is ready to be counted. Another instance of fraudulent inventory fraud was when Crazy Eddies broke into the records of the auditors and boosted the inventor...