The Fraud Factor by Mathias K. Kopetzky - Essay Example

The Fraud Factor by Mathias K. Kopetzky Fraud The article, ‘The Fraud Factor; A Case Study’ by Mathias K. Kopetzky as indicated in the CPA journal outlines the norm fraud and ways that can be used as countermeasures to the norm. The author describes Herbert Kearns, a salesman and his future business partner, Simon Leary. From the author, we learn that these two had very conflicting character traits in that Kearns had learned about business from a very tender age, and as he grew, he acquired business skills that made him prosper. However, he always lived beyond his means which forced him to work even harder to get the money. Leary on the other hand had a shy personality. These two future business associates met at an organization referred to as CCC Computer Corp, where Leary was the manager at the technical support and assembling center and Kearns was a noteworthy and store computer. These two were very proficient salespeople who often delivered more sales that the company would realistically be able to sale. The two worked for CCC for many years, but later Kearns quit the job due to low pay, and he decided to start his own business ventures. His planned to call his new business ‘Gamma Computer Inc.’ and with the help of Simon, he hoped to draw all customers to his new founded business (Wells 115). From the author, we learn that this new business showed tremendous growth in quite a short time interval. This was extremely easy for it to achieve since Herbert had learned enough while at CCC Company, hence he would easily apply business practices for all clients. Second Savings Bank, one of the largest financial corporations in the country supported Gamma in this corporation. Such help is also important as it enhances the market segment of the weaker company since people are always pulled towards a company that has noteworthy performance. From the author, we learn that Second Saving supported Gamma in a variety of ways. We learn that Second Savings pre-financed most of its accounts. This move guaranteed that almost 100% of Gamma accounts receivable was guaranteed collectible. This ensured that Gamma witnessed one of the fastest rises ever to be witnessed in the stock market. As a result of its noteworthy and proficient stock performance, Gamma was targeted for takeover. The article reveals that, the Netherlands Holding Company, an Amsterdam based company proposed to purchase 100% of the stock of Gamma. At this time, gamma had sales of about $100million. This made Herbert Kearns a very ecstatic man since this had been his lifelong dream; to be wealthy at aged 45. The deal required that Herbert and Simon had to stay on with the new buyers for a period of three years after the sale, and they would be able to cash in if at all a third of their acquisition proceeded, and the remainder was to be earned through a three year period of business success. We are told that Simon resigned a few weeks later due to ‘family reasons’, which as the author reveals later was a farce. This was astonishing since it went against the requirements of the deal they had made i.e. he forfeited two thirds of sales of the company’s price since he did not remain for the stipulated period. Later, we see that receivables of the company being sold in unclear circumstances, albeit the opposition of Jim Muller, the account representative of Gamma. However, eight weeks after, Gamma again bought all receivables and it pledged these receivables to Second savings for purposes of financing. Therefore, the situation reverted to normal in that Second savings exhibited outstanding credit that had receivables of Gamma Computer. This happened in March, and by October of that year, Gamma was declared bankrupt due to its inability to clear its invoices within the required time despite the company having increased sales. The collapse of Gamma shocked Second Savings bank as it was always unaware of the financial difficulties of its client. However, Second Savings thought it was in a comfortable position since it believed that payments on all the receivables it owned would materialize. However, this was a wrong notion since these failed to materialize later. Upon contacting Gamma, the bank was shocked to find that receivables were either non-existent and if they were existent, payments had been made months or years earlier (Wells 115). This was contrary to policies of Second Savings which stipulated that receivables less than 180 years would be the ones that would be accepted for collateral. Second Savings felt that this was fraud; hence it forwarded this case to the public prosecutor’s office. The article explains that the findings were that duplicate databases existed in Gamma’s accounting system, and these duplicat6es had different data types. Hence, this was one key way that had been used as a tool for fraud. Further analysis of the accounts revealed that Gamma had indeed defrauded Second Savings Bank through giving inaccurate and falsified data. Herbert and Company were charged for defrauding the bank but instead of accepting charges, Herbert also gave his views. He asserted that Second Savings was aware of the fraud for quite a long period of time. Prosecutors for sure were convinced that the bank had always known the truth, but did not do anything to protect itself. Gamma was, hence, not found guilty of any fraudulent acts since for an act to be termed fraudulent, one party must not be aware of what is happening. However, they received a two year prison sentence for being part of a fraudulent scheme. Instead, Second Savings was charged for being negligent about the fraudulent acts of its clients, and by so doing, they allowed gamma to survive much longer than they would have. The article completes the fraud case by outlining some recommendations that can be put in place to ensure that such cases do not occur again. For one, the author urges all auditors to be keen about any information that they are given by corporations since this information may be falsified. They should analyze the information well so that they are able to look for any irregularities. This would bring an end to fraud cases. The article has also revealed that, for the case of Gamma and the bank, staff members would have undertaken various procedures that would have averted the crisis that occurs at the end. They should have verified whether lists were complete, ensured that they recalculated totals and subtotals, searched for any duplicates or omissions. Conducted random confirmations and cross checked the accounts with others. The author leaves a parting shot by asserting that only when rules are followed is when they become effective (Wells 132). Works Cited Read More