Financial Statement Fraud did Bruce Karatz pull off the Corporate Crime of the 21st Century?
Financial statement fraud involves intentional deceit and attempted concealment, like all other types of fraud. Financial statement fraud may be concealed through falsified documentation, including forgery. Financial statement fraud may also be concealed through collusion among management, employees, or third parties. A statutory definition of the criminal offense of fraud, defining it in three classes – fraud by false representation, fraud by failing to disclose information, and fraud by abuse of position.

Fraud is rarely seen especially if the CEO is the cause. Who is watching the CEO for, fraud symptoms, indicators, or the red flags? Sometimes these symptoms can also be caused by other, legitimate factors; the presence of fraud symptoms does not always indicate that fraud exists. The public needs to educate themselves on whistleblower issues and cases and to take action to help protect the rights of all employee whistleblowers to speak out without fear. You’ll see some fraud can only be accomplished with a closed set of members in an elite group who watch each other’s backs. “Got Your Back” comes from making sure you are safe by watching what’s behind you when you’re busy looking ahead. An expression assuring someone that you are watching out for him or her.

A paper may be misplaced, a general ledger may be out of calculation, or an analytical relationship may not have significance. Then again, these conditions may be the result of state of affairs other than fraud. Papers may have been justifiably lost.

A general ledger could be out of balance because of an inadvertent accounting blunder; and unforeseen analytical relationships could be the result of unrecognized transformation in fundamental economic factors. Care must be put into practice even when reports of suspected fraud are established, because the whistleblower supplying the tip or grievance may be provoked to make false charges or may be wrong.

An indication of fraud cannot simply be positioned in order of significance or blended into efficient predictive models. Some of these aspects will exist when no fraud is initiated, a smaller number may exist where fraud is being pulled off. Fraud is something that is obvious; sometimes so obvious no one questions it as in Bernard Madoff’s case. Fraud might be completely hidden, or stands out, irritates someone and demands fast action; “the fraud is like waving a red flag in front of a bull” The substance and motivation behind a red flags varies widely.

Because of the complexity of discovering and providing evidence fraud, the SEC, auditors and accountants have to carrying out acute care when controlling audits, performing fraud examinations, seek to quantify fraud, or perform other types of fraud-related actions.

Fraud can even be tricky to prove once it is suspected depending on the language used in the law or documents uncovered real or forged. Without a confession, an admission of misdeeds or faults, a number of repeated, similar fraudulent acts or obviously counterfeit documents, it becomes difficult to convict someone of fraudulent behavior. Over time fraud can be uncovered from a pattern, or a series of mistakes the fraudster makes once comfortable with their deceit.

As a whistleblower you need to understand the role financial statements play in U.S. business. Most fraud involves money or keeping someone’s interest from losing money. Understand the nature of financial statement fraud and see how financial statement frauds occur and are concealed.

Magnitude of Truthful Financial Information
In 2001 through 2002, Enron’s financial statement fraud received considerable attention in the media leading to the end of Enron. Enron’s officers allegedly manipulated Enron’s financial statements in many deceptive ways, consisting of hiding liabilities in off-balance sheet partnerships called “Variable Interest Entities” – VIEs, formally called “Special Purpose Entities” – SPEs. Enron hid losses in these VIEs, and artificially inflated it’s revenue by entering into buy-and-sell transactions with other trading companies that allowed Enron to substantially escalate its revenues and income and lower its liabilities.

When there’s a crime chosen by the media or the Government that will be for ratings or political gain, it’s is nearly impossible to have a fair trial because all the Nancy Grace types decide the suspect is guilty and he or she is “tried and convicted” in the press. Enron’s auditor, Arthur Andersen LLP, was “tried and convicted” for supposedly shredding documents by the media and was charged with obstruction of justice by the U.S. Government. This criminal trial and negative attention in the press led to the collapse of Andersen, one of the largest CPA firms in the world.

Maybe Enron and Andersen should have had more friends in the media on their board of Directors? Then more influence could have led to a different light on their behavior through the media, and many of their wrongs could have been concealed. As whistleblowers ask yourself who is on your Board of Directors and what influence do they have in the media, or other areas of society? Isn’t that why they were put in that position?

In the shadow of Enron’s demise, several law firms, financial institutions, and others have raised awareness among the public about financial statement fraud. On the other hand some firms may have become even savvier in their attempts to manipulate and conceive fraud.

Financial statements provide meaningful disclosures of where a company has been, where it is currently, and where it is going. Most financial statements are prepared with integrity and present a fair picture of the financial position and results of operations of the organization issuing them. When they are prepared only to manipulate the market and make people believe something they’re not that when the lies become bigger and bigger till even the liars begin to believe them too. The lies get so out of hand, then the reputation goes.

When financial statements are prepared in ways that misrepresent financial positions and financial fallout of a corporation from such acts as manipulating, falsifying, or altering accounting records and supporting paperwork. Misrepresenting financial statements cause grave problems in the economy and the markets. The end result is huge losses by investors, lack of trust in the brand and the market in accounting personnel and systems, litigation and embarrassment for individuals the Board of Directors and organizations connected with those financial statements.

Financial statement fraud, like all other types of fraud, involves intentional deceit and concealment, often through falsified documentation, forgery, and collusion among management, employees, or third parties. For these reasons, fraud is rarely seen. Where do you see fraud, with the CEO, the Board of Directors or at the street level? What do you think! A KB Home Sucks.