xin-paper_research_project

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Running head: AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING
ENFORCEMENT RELEASES CASES
An Empirical Study on Accounting and Auditing Enforcement Releases Cases
Xin Tan
Southeast Missouri State University
Author Note
This paper was submitted in partial fulfillment of the requirements of the degree of Masters in
Business Administration
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
Abstract
The objective of the paper is to provide an empirical study about the characteristics of
accounting fraud and fraudulent financial reporting occurrences, including violation length,
industry, audit tenure and violation types. To do so, I collected Accounting and Auditing
Enforcement Releases (AAERs) issued by the Securities and Exchange Commission (SEC) for
accounting fraud committed by companies during 2009-2011, which provides a fraud sample
consisting of 66 companies. I analyzed each incident and explore key company characteristics in
instances of fraudulent reporting in AAERs.
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AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
APPLIED RESEARCH ACCEPTANCE SHEET
An Empirical Study on Accounting and Auditing Enforcement Releases Cases
Submitted by Xin Tan in partial fulfillment of the requirements for the degree of Masters
in Business Administration.
Accepted on behalf of the Faculty of the School of Graduate Studies and Research by the
Applied Research Project Committee.
(Date)
Advisor/Chair (Name,Ph.D.)
______________________________ (Date)
MBA Coordinator (Name, Ph.D.)
ii
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
CONTENTS
ABSTRACT.............................................................. .............................. ……………. i
AC CEP TANC E P AGE............................. ................. ………………… ii
CONTENTS....................................... …………....................................... …………iii
INTRODUCTION……………………………………………………. …...1
LITERATURE REVIEW……………………………………………… .....3
METHOD…………………………………………………….……………… 4
RESEARCH DESIGN AND RESULT ………………………………...… 5
CONCLUSION………………………………………… ……………….....15
LIMITATION…………………………………………………..... .... …...... 16
REFERENCES………………………………………………………… . …18
A P P E N D IX … … … … … … … … … … … … … … … … … … … … … … . … … . 2 0
iii
I.
Introduction
While the United States experienced an unprecedented storm of accounting fraud, like
Enron and WorldCom, around the beginning of twenty-first century, it is still unclear to what
extent the typical fraud profile has changed in recent years. In the last decade, the accounting
industry has made a variety of legislative and regulatory changes because of accounting fraud,
such as the Sarbanes-Oxley Act of 2002. This act was enacted as a reaction to major
accounting scandals and it enhanced standards for all U.S. public companies boards,
management and public accounting firms. Fraudulent financial reporting can have significant
consequences for companies, stockholders, investors, auditors and regulators. High profile
fraud cases may decrease the credibility of the financial reporting system and erode the
confidence of capital markets.
Whether or not companies are likely to engage in accounting fraud is not easy to
determine or obvious to track. That’s why this research analyzed the firms who were
involved in fraudulent financial reporting and aimed to provide a useful understanding of
fraud occurrences. The Committee of Sponsoring Organizations of the Treadway
Commission (COSO) conducted studies (Beasley et al, 1997) about fraudulent financial
reporting in order to provide a comprehensive analysis of fraud incidents investigated by the
SEC. It offered a great method for researchers to analyze companies who committed fraud
and fraud occurrences.
This paper follows COSO’s method to collect sample firms and make an empirical
study of those cases. Every sample firm in this paper was investigated by the SEC and
presented in Accounting and Auditing Enforcement Releases (AAERs) during a three year
period from 2009 to 2011. The AAERs summarizes the actions brought by the SEC against
public companies, audit firms, mangers and auditors. Moreover, those releases contain the
process of the fraud occurrences, such as name of firms or people, violation date, time period,
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AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
types of fraud and the main purpose of fraud. Some of those cases even indicate the dollar
amount of money involved in the fraud and monetary penalties for the firms who committed
fraud.
This paper identifies 66 organizations involved in fraudulent financial reporting.
There are two advantages to analyzing sample organizations. On one hand, it will help people
to obtain a better understanding of organizations involved in fraudulent reporting and the
fraud process. Most of the occurrences of accounting fraud behavior are the result of behavior
tending towards the firms’ benefit. For example, Farber (2005) indicated that 60 percent of
the fraud involved in fictitious transactions, such as creating phony invoices, which tend to
overstate net income. Finding out the key features of recent fraudulent activity will help
outsiders, such as auditors, regulators and potential investors to more accurately evaluate
organizations.
This research differs from previous studies in the following aspects: first, data from
previous studies are outdated and may not represent the current relationships and facts.
Second, the present research focuses on AAER cases against companies, not individual
people.
The remainder of this paper is organized as follows. In section II, a brief review of the
relevant literature is provided. Section III presented the research method and a description of
the sample. Section IV contained the research design and empirical results. A summarized
conclusion is provided in Section V.
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AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
II.
Literature review
There is much research available on fraudulent financial reporting based on the
empirical study. Previous researchers have tested and verified almost every aspect of firms
identified by SEC as fraudulently reporting.
One study supported by COSO in 1997 analyzed 347 accounting fraud cases,
providing an extensive updated analysis of financial statement fraud occurrences. One of the
finding was that “most fraud overlapped at least two fiscal periods, frequently involving both
quarterly and annual financial statements.”(Beasley et al, 1997, P.7)
Most of the literature clustered in governance mechanisms. Beasley (1996) found that
larger proportions of outside members on the board of directors significantly reduced the
likelihood of reporting fraud and that fraud does not have a connection with committees
meets. Farber (2005) examined the association between the credibility of the financial
reporting system and the quality of governance mechanisms. Sample firms tend to have poor
governance relative to control sample firm. He found that firms who committed fraud have
fewer audit committee meetings and a small percentage of Big Four1 audit firms. He also
mentioned that improve governance would results in superior stock price performance.
Coffee (2002) and Cox (2003) highlighted some cases of fraudulent financial
reporting of public accounting firms to indicate the undeniable link between auditors and
fraud companies. The sample firms showed an obvious preference for inflated profit rather
than the inflated net assets in fraudulent financial reporting. With inflated profit, fictitious
income is the most common technique and obtained by the inflated sales’ revenue. Lennox
1
The Big Four present the four largest professional services networks in accountancy and professional services,
which handle the vast majority of audits for publicly traded companies. This group is known for the following
companies: PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG. Others present
other auditors except Big Four.
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AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
and Pittman (2010) conducted a research study about whether the Big Four public accounting
firms are associated with higher quality financial statements. They suggested that the clients
of the Big Four firms are less apt to engage in fraudulent financial reporting.
Maksimovic and Titman (1991) found that companies are more likely to commit fraud
when they have longer audit firm tenure because they suffered from financial distress. The
General Accounting Office (GAO) indicated that “mandatory audit firm rotation may not be
the most efficient way to strengthen audit independence” (2003, Highlights). Thus an
increasing number of researches papers to address this point have emerged in recent years.
Carcello (2004) examined the relation between audit firm tenure and fraudulent financial
reporting and found that in the first three years of engagement relationship is more likely to
detect fraudulent financial reporting. However, he failed to find evidence to prove longer
client relationship would lead audit failure. O’Mally (2002) examined auditor tenure and
auditor performance but failed to detect a relationship between tenure and fraudulent
financial reporting. New York Stock Exchange (2003) advised that companies should
periodically change their audit firms for high profile audit quality.
III.
Methods
Sample collection
In order to conduct this research, samples are quite essential in every aspect. The
researcher use AAERs as a proxy for the occurrence of fraud. Consistent with Beasley
(1996), this proxy is intended to capture extreme cases of fraud in the error-to-fraud
continuum. The analysis period is restricted to three years to make data collection more
accessible. The AAERs appear to be reasonable sources for identifying financial statement
fraud occurrences because they depict the detail of each fraud and it is controlled by
Securities and Exchange Commission (SEC). Another source of my research is the EDGAR
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AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
database. It provides access to corporate information, including a company’s financial
information, registration statements, prospectuses and periodic reports.
An illustrative example of SEC’s justification for issuing AAERs follows (per AAER
No. 3093, in the case of UTstarcom, Inc.):
The SEC's complaint charges UTStarcom with violations of the anti-bribery, books
and records, and internal controls provisions of the FCPA (Sections 30A, 13(b) (2) (A)
and 13(b) (2) (B) of the Securities Exchange Act of 1934, respectively). UTStarcom
agreed, without admitting or denying the charges, to the entry of a permanent
injunction against FCPA violations and to provide the SEC with annual FCPA
compliance reports and certifications for four years, in addition to paying the $1.5
million penalty.
According to Vinod (2002), “An industry is a collection of firms offering goods or
services that are close substitutes of each other”. That’s why all fraud firms in this paper were
reviewed to identify with the four-digit SIC code. The researcher obtained this data from SEC
10-K Form. The first two-digit as general SIC code is taken in order to facilitate the analysis
of the sample firm’s industry distribution.
IV.
Research Design and Results
Table 1 provides the information about the sample. The SEC issued 437 AAERs
related to the violation of regulations from the year from 2009 to 2011. Three hundred and
twenty two of them are firms not involved in financial statement fraud or are cases against
individual CPA or auditors. I abandoned 21 firms because they did not file any financial
statement to the SEC and 23 more firms because financial statement data was unavailable.
Finally, 5 more samples were deducted from the final sample because the cases were
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AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
duplicative. Thus, there are 66 firms allegedly engaged in fraudulent financial reporting and
investigated by SEC that were used as research.
Table 1: Sample Selection of 66 Firms Subject to AAERs
Number of AAERs issued between 2009 and 2011
Less:
AAERs against individual CPA or auditors
Firms without SEC files
Firms without proxy or financial statement data
Duplicate firms
Final Sample
437
322
21
23
5
66
After making sure all the information is accurate, the researcher started to manage the
data to generate results in an effective way. Inputting or uploading the data into a spreadsheet.
Then, based on the shape of the charts and the data itself, the researcher was able to
categorize each fraud firm by SIC Code.
Table 2 indicates that sample firms were widely distributed among industries.
Consistent with COSO’s 1999 and 2010 study, fraud occurred in a variety of industries but
unlike their findings, manufacturing account for about 42% of the incidents, with 28 firms out
of 66 in this research. According the 2010 COSO study, the most frequent industries cited
were computer hardware and software, with a number of 20%. One reason of the different
results is that the COSO study measured samples by numbers of schemes occurred in total
while the researcher measured samples by numbers of firm. In general, Table 2 shows no
significant difference in industries so it is a good idea to limit behavior of prevention in any
particular industry.
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AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
Table 2: Sample Firms Distribution by Types of Industry
Services
17%
Mining
12%
Finance,
Insurance and
real estate
11%
Retail trade
6%
Wholesale trade ,
6%
Transportation,
communications,
electric, gas and
sanitary services
6%
Manufacturing
42%
Table 3 reports summary statistics of the sample. The company data are picked from
their SEC 10-K filings and those financial numbers are cited at the first year of violation date.
It shows zero in net sales and total assets because one incidence is startups with not assets or
revenues in its construction phrase. There is a significant difference between median and
mean in net sales, net income and total assets, which implies that some big numbers occurred
and greatly pull up the average number.
Johnson et al. (2002) stated that “In the United States, there is no mandatory audit
firm rotation and companies tend to change auditors after relatively long tenure.
Consequently, the age of the client and the tenure of the audit firm may be correlated”.
Consistent with their research, the researcher measured the audit firm tenure as the number of
consecutive years that the audit firm has audited the client and used SEC files to collect audit
tenure. The table indicates that most schemes lasted several years. They average violation
period is 4.36 years, with median fraud period 4 years. In another point of view, frauds or
violation behaviors are not easy to prevent in a single fiscal year.
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AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
The average audit tenure is about 2 times longer than the length of GAAP violation.
Since client-specific knowledge is useful in detecting material misleading presentation in the
financial reports, the longer tenure of the audit firm, the more likely the auditor will be able
to detect financial fraud or errors.
Table 3: Descriptive Statistics of Sample Firms
No. of Sample
Median
Mean
Std. Deviation
Max
Min
Company Data:
No. of Employees
66
3,920
22,145
68,259
426,751
6
Net Sales (In thousands)
66
$502,604
$3,547,150
$7,190,884
$38,300,000
0
Net Income (In thousands)
66
$16,926
$371,785
$1,679,639
$13,425,000
($370,000)
Total Assets(In thousands)
66
$491,949
$5,406,624
$14,791,796 $109,022,000,
0
Auditor Data:
Audit Tenure (In years)
66
8
7.89
4.72
18
1
Length of Violation (In years)
66
4
4.36
2.92
15
1
Money Involved (In thousands)
Penalty (In thousands)
51
45
Violation Data:
$8,800
$1,000
$72,340
$9,800
$173,685
$31,497
$921,000
$177,000
$80
$25
Note: One observation reported zero in net sales and total assets because it is startups with no assets
or revenues in its construction phrase.
In order to obtain a more comprehensive understanding between audit tenure and
violation length, the author makes a scatter diagram and use a Pearson correlation test to
determine if the two variables are linearly related. Consistent with peer research, Table 4
shows a positive liner relationship connects audit tenure and length of violation. The
correlation coefficient r = 0.25 (p=0.04).
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AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
Table 4: Scatter Diagram about Audit Tenure and Violation Length
Audit Tenure
(In Years)
16
14
12
10
8
6
4
2
0
5
10
15
20
Violation Length (In Years)
Table 5 presents the violation length by audit tenure type of audit firm. Because the
average audit tenure is 7.89 years, the researcher defined short audit tenure as less than eight
years, and long audit tenure as eight years or more. Even though client-specific knowledge is
useful in detecting material misleading presentation in the financial reports, sample firms
which maintain longer audit tenure have longer length of violation. On the one side, it
supports the advice of New York Stock Exchange (2003) which states mandatory audit firm
rotation would have positive effect on financial reporting. On the other side, the results of
independent samples t-test show mean of 4.0 for Short and 4.67 for Long Tenure, p=.26,
which indicates the means of the two factors do not indeed differ significantly.
There are 50 out 66 sample firms (76%) employ Big Four auditors. The difference of
audit tenure between Big Four auditor and other auditors seems significant, compared 9.24
years to 3.69 years. It implies that Big Four auditors are likely to maintain longer clientcustomer relationship than other auditors. One important finding is that there is no significant
difference between length of violation and audit tenure when sample firms employ Big Four
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AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
auditors. However, firms employ non Big Four auditors show about 2-year difference in
length of violation.
Table 5: Exhibit Violation Length by Audit Tenure Type of Audit Firm
Average Audit Tenure
Others
Big Four
Total
No.of Sample
Mean (In Years)
St.Dev (In Years)
No.of Sample
Mean (In Years)
St.Dev (In Years)
No.of Sample
Mean (In Years)
St.Dev (In Years)
16
3.69
2.39
50
9.24
4.43
66
7.89
4.68
Violation Length
Short Tenure
Long Tenure
14
3.57
2.92
16
4.38
2.20
30
4.00
2.63
2
5.50
3.50
34
4.62
3.03
36
4.67
3.06
Average
Tenure16
3.81
3.13
50
4.54
2.79
66
4.36
2.90
Based on information provided by AAERs cases, the researcher identified techniques
used for fraudulent financial reporting. Table 6 offers a recap about methods of fraud.
Misleading presentation includes all frauds related to the financial statement, including
misreported statement and note disclosure, such as fictitious transactions, misstatement of
assets and improper use of accounting practice. Overstated income techniques represent fraud
behavior driven to boost income illegally, such as fictitious revenue recognition, and
understatement expenses or liabilities. Insufficient internal controls would lead a company to
unreliable financial reporting and ineffective operations, examples include improper payment
and bribery. Regulation violation relate to other miscellaneous issues related to legal
regulations, like illegal procedures in acquisitions.
Among the 66 observations, 58 (88%) of them are investigated by SEC because of
misleading presentation and 38 (58%) of them overstated their income. The main motivation
for violation and fraud behavior is to boost profit and bolster financial performance. In
speaking of internal controls, they have significantly impacted on the reliability of financial
reporting and effectiveness of operations, which may lead to fraud occurrence. When more
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AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
than half of the observations are involved in insufficient internal control, it is not surprising to
notice they are on the list of AAERs.
Table 6: Exhibit Fraudulent Reporting Methods
Types of Violation
Mislead Presentation
Overstate Income
Insufficient Internal Controls
Regulation Violation
Total
Numbers of Firms
58
38
28
5
-
Percentage of Total
88%
58%
42%
8%
-
Note: Most AAERs describe multiple infractions. Thus, the table does not sum to 100%.
As noted in Table 7, the most common scheme used for fraudulent reporting is
improper payment (32%), which is the result of insufficient internal controls. One instance
for improper payment is Watts Water Technologies, Inc. (AAERs No.3328). Its subsidiary
(CWV) in China made illegal payments to employees of an institute, who assisted in design
and construction to CWV’s project. The purpose and effect of those payments was to force
the institute to recommend its value of products and facilitate its sales. The improper
payments generated profits for Watts of more than $2.7 million.
Twenty-seven percent of the 66 sample firms’ financial statements were misstated
through the understatement of expenses or liabilities. Cablevision Systems Corporation
(AAERs No. 2920) is a diversified entertainment and telecommunications company. From
1999 through 2003, it recognized certain costs as current expenses when the cost should not
have been recognized in those periods. It overstated expense in earlier fiscal periods and
understated expenses in later periods. The improper recognized expenses understated $7,895
million expenses from 2001 to 2003, which results 5.1% understatement in net loss of 2003.
Even though bribery has relatively small percentage compared to others, it is a very
specific scheme and cannot be neglected. The SEC alleges that a subsidiary of Maxwell
Technologies, Inc. (AAERs No.3236) for repeatedly paying bribes to government officials in
China to obtain business from several Chinese state-owned entities. Maxwell manufactures
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AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
energy storage and power delivery products. A Maxwell subsidiary paid over $2.5 million in
bribes from 2002 through May 2009 for contracts that generated more than $15 million in
revenues.
There are 7 incidents (11%) found related to backdate stock options. One example is
about Hain Celestial Group, Inc. (AAERs No. 3045). At least from1998 to 2002, Hain
fraudulently backdated stock options granted to Company officers, directors, and employees,
concealing millions of dollars in expenses from the Company's shareholders. It granted stock
options at earlier dates in order to gain profit of low stock prices and misreport it on its SEC
filings.
Misconduct inventory is one of the most common techniques to overstate of assets.
Among all 66 samples firms, there are 6 of them committed misconduct inventory. Thor
Industries, Inc. (AAERs No.3280) was filed by SEC because Thor engaged in a fraudulent
accounting scheme to understate Dutchmen’s cost of goods sold. Thus, it would avoid
recognizing inventory costs that were not reflected in Dutchmen’s financial accounting
system.
Table 7: Exhibit Types and Frequencies of Schemes
35%
30%
25%
20%
15%
10%
5%
0%
32%
27%
Improper
payment
Understate
expense
9%
11%
9%
Bribery
Backdate stock
option
Misconduct
inventory
Note: Those are the most common schemes employed by sample firms and most of firms committed
multi-schemes at single fiscal year. Thus, the sum of percentage does not equal to 100 percent
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AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
Table 8 indicates the detail information about descriptive statistics of dollar amount
money involved in the incidents and the penalty by the schemes presented in Table 7. In this
research, the researcher found 51 AAERs cases (77%) specifically indicated the dollar
amount of money involved in schemes and 45 cases (68%) were fined by monetary penalties.
One important discover provided by Table 8 is that bribery comes with a heavier
penalty than other GAAP violation. The average dollar amount associated with bribery is $5
million, which is the smallest number compared to other four violations. However, the
average penalty for firms committed bribery is about $42 million, which is almost 10 times
higher than improper payment and inventory misconduct, and 70 times higher than
backdating stock options. It is not difficult to understand this finding because bribery is not
only a business behavior violation, but also relates to ethical or moral issue. Table 3 of
Appendix presents the detail information of percentage distribution about penalty over dollar
amount of fraud. The average percentage influence of penalty over fraud amount is 37%
while the median percentage is 11%.
As mentioned above, each AAERs case engaged in more than one GAAP violations
and detailed information is not presented well in the documents, so I cannot clearly allocate
the specific dollar amount in every violation. In other words, numbers shown in the table for
infractions are overlapped and overstated. However, Table 8presents the general relationship
tendency between dollar amount of fraud and penalties.
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AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
Table 8: Descriptive Statistics about Dollar Amount of Fraud and Penalty by Types of
Scheme.
Dollar amount of fraud
Type of Fraud Involving
Improper payment
Understate expense
Bribery
Backdate stock option
Misconduct inventory
Penalty
Type of Fraud Involving
Improper payment
Understate expense
Bribery
Backdate stock option
Misconduct inventory
No.
%
Mean
Median
St.Deviation
Max
Min
21 32%
18 27%
6 9%
7 11%
6 9%
82,984,631
75,930,279
5,036,000
109,439,571
139,890,000
13,000,000
20,500,000
2,500,000
37,000,000
27,000,000
177,189,488
155,046,949
5,348,082
133,307,340
241,375,327
622,000,000
622,000,000
15,000,000
399,500,000
622,000,000
81,000
185,673
80,000
2,677,000
250,000
21 32%
18 27%
6 9%
7 11%
6 9%
4,254,059
1,881,415
42,149,344
637,581
4,242,800
1,839,325
283,500
8,000,000
162,320
973,100
4,800,249
4,048,295
67,923,279
936,974
6,257,143
15,000,000
15,000,000
177,000,000
2,500,000
15,000,000
30,000
46,200
217,000
25,000
25,000
In Table 9 and Table 10, the changes are varied in every percentage number and the
influence of net income is much greater than net sales. The average impact percent on net
sales is 3.75% and on net income is 8%. Those tables provide distribution of Penalty impact
on net sales and net income by penalties respectively. Most changes are less than 1 % of both
net sales and net income, which implies that monetary punishment may not enough to prevent
fraud.
Table 9: Distribution of Penalty Amount as a Percentage of Net Sales
76%
11%
9%
2%
Less than 1%
1%-5%
5%-10%
14
2%
10%-100%
Over 100%
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
Table 10: Distribution of Penalty Amount as a Percentage of Net Income
47%
18%
13%
16%
7%
Less than 1%
1%-5%
5%-10%
10%-100%
Over 100%
Note: Percentage changes are both negative and positive, because 20 out of 66 sample firms have net
loss and 1 firm is a startup with no net income and net sales.
V.
Conclusion
Based on the results and the discussions above, this study explores several key
conclusions. Firstly, fraudulent financial reporting occurs in a variety of industries. Even
though fraudulent financial reporting is more likely to occur in some particular industries, we
can never limit behavior of prevention fraud in those industries. Secondly, fraud reporting
needs to be watched and prevented at the very first time, because the occurrence is not easy to
prevent in a single fiscal year.
Thirdly, audit tenure and length of violation are linearly related to each other, and
longer audit tenure tends to have longer length of violation. Big-Four audit firms tend to
obtain longer audit tenure compared with others. Moreover, whether or not periodically
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AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
change audit firms would shorten the length of violation is still unclear because the means of
violation length and audit tenure do not differ significantly.
Fourthly, improper revenue recognition is the leading type of fraud, which implies the
main motivation for violation and fraud behavior is to boost profit and bolster financial
performance.
Fifthly, the consequences of fraudulent scheme are severe to fraud firms and
monetary punishment differs in types of scheme. Penalties do not have significant impact on
companies, because percentage changes on both net sales and net income are less than 1 %.
VI.
Limitations
There is a significant time lag between the occurrence of fraud and the issuance of
AAERs case, and most of frauds are happened before 2009. Thus, the information and
conclusion offered in this study may be behind.
The use of AAERs has limitations. For example, because the SEC selects cases for
which it has the best chance of winning a judgment, they are likely to include instances of
the most extreme misleading reporting. Therefore, the results of this study are not likely to be
generalized to the entire population of firms that report fraudulently.
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Almost every sample firms committed more than one scheme at the same time period.
The researcher is unable to allocate the specific dollar amount of fraud for each scheme and
according penalties. The data in Table 8 is inevitably overrated and inaccurate.
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References
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http://www.sec.gov/divisions/enforce/friactions.shtml
Beasley, M.S. (1996). An empirical analysis of the relation between the board of director
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Beasley, M. S., Carcello, J.V., and Hermanson, D.R. (1997). Fraudulent Financial Reporting:
1987-1997, An Analysis of U.S. Public Companies. New York: COSO.
Beasley, M. S., Carcello, J.V., Hermanson, D.R., and Neal, T.L. (2010). Fraudulent Financial
Reporting: 1998-2007, An Analysis of U.S. Public Companies. New York: COSO.
Carcello, J., and Nagy, A. (2004). Audit Firm Tenure and Fraudulent Financial Reporting.
Auditing:A Journal of Practice and Theory 23 (2): 55–70.
Coffee, J. C. (2002). Understanding Enron: It’s about the gatekeepers, stupid. Working paper,
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http://www.gao.gov/assets/250/240738.pdf
18
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
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Accounting Research, Vol. 27, No. 1, pp. 209-247, March 2010.
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http://info.umuc.edu/mba/public/AMBA607/IndustryStructure.html
19
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
Appendix
Table1: Table of Sample Firms from AAERs
AAERs No.
Firm Name
State location
Industry
2951
Allion Healthcare, Inc.
NY
Bituminous Coal & Lignite Mining
3348
Aon Corporation
IL
Crude Petroleum & Natural Gas
2972
Apogee Technology, Inc.,
MA
Drilling Oil & Gas Wells
3242
ArthroCare Corporation
TX
Drilling Oil & Gas Wells
3109
Assurant, Inc.
NY
Drilling Oil & Gas Wells
3021
Avery Dennison Corporation
CA
Drilling Oil & Gas Wells
3069
Bancinsurance Corporation
OH
Drilling Oil & Gas Wells
2920
Cablevision Systems Corporation
NY
Oil & Gas Field Services, Nec
3063
China Holdings, Inc.
CA
Food And Kindred Products
3127
Collins & Aikman Corporation
MI
Converted Paper & Paperboard Prods
2982
CSK Auto Corporation
AZ
Industrial Inorganic Chemicals
3048
Dana Holding Corporation
OH
Agricultural Chemicals
2955
Delphi Corporation
MI
Fabricated Plate Work
3134
Diatect International Corp.
UT
Miscellaneous Fabricated Metal Products
3007
Doral Financial Corporation
PR
Industrial Trucks, Tractors, Trailors & Stackers
20
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
AAERs No.
Firm Name
State location
Industry
3060
ECO2 Plastics, Inc.
CA
Pumps & Pumping Equipment
3036
Entrade, Inc.
IL
Computer & Office Equipment
3321
Escala Group, Inc.
CA
Computer Storage Devices
3108
General Re Corporation
CT
Computer Peripheral Equipment, Nec
3201
GlobalSantaFe Corp.
TX
Calculating & Accounting Machines
3283
GSI Group, Inc
MA
Electric Lighting & Wiring Equipment
3045
Hain Celestial Group, Inc.
NY
Telephone & Telegraph Apparatus
2935
Halliburton Company
TX
Radio & Tv Broadcasting & Communications Equipment
3026
Helmerich & Payne, Inc.
OK
Communications Equipment, Nec
2968
Ingram Micro Inc.
CA
Semiconductors & Related Devices
3254
International Business Machines Corporation
NY
Miscellaneous Electrical Machinery, Equipment & Supplies
3050
Isilon Systems, Inc.
WA
Miscellaneous Electrical Machinery, Equipment & Supplies
2934
ITT Corporation
NY
Motor Vehicles & Passenger Car Bodies
3268
Kentucky Energy, Inc.
KY
Motor Vehicle Parts & Accessories
2941
Krispy Kreme Doughnuts, Inc.
NC
Motor Vehicle Parts & Accessories
3297
LaBarge, Inc,
MO
Motor Vehicle Parts & Accessories
3213
LocatePlus Holdings Corporation
MA
Motor Homes
3015
LSB Industries, Inc.
OK
Search, Detection, Navagation, Guidance, Aeronautical Sys
21
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
AAERs No.
Firm Name
State location
Industry
3236
Maxwell Technologies Inc.
CA
Measuring & Controlling Devices, Nec
3022
MedQuist Inc.
NJ
Surgical & Medical Instruments & Apparatus
3067
Merge Healthcare Incorporated
IL
Electromedical & Electrotherapeutic Apparatus
2970
Monster Worldwide, Inc.
NY
Water Transportation
3102
NATCO Group Inc.
TX
Airports, Flying Fields & Airport Terminal Services
3165
Navistar International Corporation
IL
Cable & Other Pay Television Services
3229
NIC Inc.
KS
Hazardous Waste Management
3206
Noble Corporation
TX
Wholesale-Computers & Peripheral Equipment & Software
3199
Office Depot, Inc.
FL
Wholesale-Jewelry, Watches, Precious Stones & Metals
2943
Pediatrix Medical Group, Inc.
FL
Wholesale-Drugs, Proprietaries & Druggists' Sundries
3203
Pride International, Inc.
TX
Wholesale-Farm Product Raw Materials
2949
Quest Software, Inc.
CA
Retail-Food Stores
3274
Rockwell Automation, Inc.
WI
Retail-Auto Dealers & Gasoline Stations
3068
SafeNet, Inc.
MD
Retail-Auto & Home Supply Stores
2963
Stratum Holdings, Inc.
TX
Retail-Miscellaneous Shopping Goods Stores
3189
Sunopta, Inc.,
ON
Commercial Banks, Nec
3157
Sunrise Senior Living, Inc.
VA
Mortgage Bankers & Loan Correspondents
3064
Symbol Technologies, Inc.
NY
Accident & Health Insurance
22
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
AAERs No.
Firm Name
State location
Industry
3047
Tenet Healthcare Corporation
TX
Hospital & Medical Service Plans
3035
Terex Corporation
CT
Fire, Marine & Casualty Insurance
3280
Thor Industries, Inc.
OH
Fire, Marine & Casualty Insurance
3207
Tidewater Inc.
LA
Insurance Agents, Brokers & Service
3202
Transocean Inc.
TX
Services-Help Supply Services
3154
Trident Microsystems, Inc.
CA
Services-Prepackaged Software
3187
True North Finance Corporation
FL
Services-Prepackaged Software
2995
Ulticom, Inc.
NJ
Services-Computer Integrated Systems Design
3093
UTStarcom, Inc.
F4
Services-Computer Integrated Systems Design
3044
VeriFone Holdings, Inc.
CA
Services-Computer Processing & Data Preparation
3117
Verint Systems Inc.
NY
Services-Computer Processing & Data Preparation
3217
Vitesse Semiconductor Corporation
CA
Services-Nursing & Personal Care Facilities
3328
Watts Water Technologies, Inc
MA
Services-Hospitals
2971
WellCare Health Plans, Inc.
FL
Services-General Medical & Surgical Hospitals, Nec
3019
West Marine, Inc.
CA
Services-Management Consulting Services
23
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
Table 2: Exhibit Violation Types Information of Each Sample Firms
Company Name
Allion Healthcare, Inc.
Types of
Violation
5,1,2
Aon Corporation
2,4,1
Apogee Technology,
Inc.
ArthroCare Corporation
1
2,1,5
It lacks internal control over sales.
It materially overstated sales revenue.
Assurant, Inc.
1
10,000,000
3,500,000
Avery Dennison
Corporation
Bancinsurance
Corporation
Cablevision Systems
Corporation
4,2
It is an insurance company and improper booked $10 million payment as a bona fide
reinsurance recovery.
It materially overstated the net income that it reported for the quarter ended September
30, 2004 to the public and in Commission filings.
Its subsidiary in China made illegal payment about $30,000 to foreign officials.
It failed to accurately record these payments in books and records.
It failed to account properly for more than $2 million of reinsurance claims
81,000
318,470
2,000,000
60,000
56,049,900
N/A
China Holdings, Inc.
3
N/A
N/A
Collins & Aikman
Corporation
2,1
It o overstated expenses in earlier fiscal periods, and understate expenses in later
periods.
It made improper prepays to its subsidiary.
It made material misrepresentations in nine public filings in 2008 and 2009, including
improper audit reports from current and former auditors.
It inflated reported income between 2001 and 2004.
It used false documents from suppliers designed to mislead its external auditors.
24
N/A
7,200,000
5,
2,4,5
Description
It understated interest expense for the warrants in conformity with GAAP
It overstated its net income and understated its loss per share in 2005.
It failed to maintain an adequate system of accounting controls.
It failed to maintain an adequate internal control system designed to detect and prevent
the improper payments.
Its subsidiaries made over $3.6 million in improper payments to foreign government
officials between 1983 and 2007 to get favorable business treatment.
It is a publicly traded company alleged to inflate earnings in 2003 and 2004.
Amt of
Fraud ($)
932,517
Penalty
($)
N/A
3,600,000
1,764,000
200,000
35,000
N/A
N/A
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
Company Name
CSK Auto Corporation
Dana Holding
Corporation
Types of
Violation
3
2,1,4,5,
Delphi Corporation
4
Diatect International
Corporation
Doral Financial
Corporation
5
ECO2 Plastics, Inc.
3
Entrade, Inc.
3,2
Escala Group, Inc.
General Re Corporation
4,1
1,2
GlobalSantaFe
Corporation
GSI Group, Inc
2,4,
Hain Celestial Group,
Inc.
1,5,7,
2,1
1,2,
Description
It made material misrepresentations in 2009 in public filings.
It improperly recognized revenue or income on several transactions and delayed
recording expenses in the appropriate period from 2004 and mid-2005.
It filed materially false and misleading periodic reports with SEC.
It understated steel surcharge costs.
Its deficient system of internal controls contributed to the restatement of its financial
statements for the first two quarters of fiscal year 2005, fiscal year 2004 and prior
years.
It filed materially false and misleading financial statements in the company's 2001
Form 10-K.
It improperly recorded a $20 million payment from an IT company in December 2001,
made in connection with a new contract between the IT company and Delphi.
It filed materially false and misleading financial statements.
It overstated income by approximately $921 million or 100 percent on a pre-tax,
cumulative basis between 2000 and 2004 by improperly accounting for the purported
sale of non-conforming mortgage loans.
$ 123 million to its investors harmed by accounting fraud.
It has never registered a class of securities under the Exchange Act but has registered
offerings of securities under the Securities Act of 1933.
It did not maintain adequate books and records of liabilities arising from acquisition.
It lacked a system of internal accounting controls designed to assure accurate
transactions.
It overstated $80 million to its revenues to boost its stock price in 2003.
Its foreign subsidiary made sham transactions with AIG in 2000.
It improperly recognized more than $200 million in revenues from 2000 to 2002.
It made illegal payments to its customers brokers from January 2002 through July
2007.
It improperly recognized revenue $7.8 million from 2004 to 2008.
It has numerous deficiencies of internal controls that were attributable to its fraud.
It backdated stock options granted to Company officers, directors, and employees,
concealing millions of dollars in expenses from the Company's shareholders.
25
Amt of
Fraud ($)
N/A
43,000,000
Penalty
($)
N/A
N/A
20,000,000
30,000
N/A
216,281
921,000,000
123,000,00
0
N/A
N/A
N/A
N/A
80,000,000
200,000,000
164,584
8,100,000
N/A
5,900,000
7,800,000
N/A
20.500,000
N/A
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
Company Name
Types of
Violation
Halliburton Company
2,6
Helmerich & Payne,
Inc.
Ingram Micro Inc.
2,4,5,
International Business
Machines Corporation
2,4,6,
Isilon Systems, Inc.
1
ITT Corporation
1,2,4
Kentucky Energy, Inc.
Krispy Kreme
Doughnuts, Inc.
LaBarge, Inc,
1,4,
1,2
LocatePlus Holdings
Corporation
LSB Industries, Inc.
1
Maxwell Technologies
Inc.
4,1,2,6
MedQuist Inc.
1,2
1,4,5,2,8
5,1,2
1,5,8
Description
It materially understated expenses and overstated its income in disclosures to the
Commission and the investing public, and falsely represented in filings that Hain had
incurred no expenses for option grants.
It paid bribes to official within the Nigerian Government in to obtain the construction
contracts.
Its internal control failed to detect bribery.
It made improper payment to its subsidiaries.
It overstated revenues by $622 million from 1998 to 2000.
It made illegal payments to its suppliers and take extraordinary sales discounts.
It improperly recorded excess inventory fees.
It subsidiaries paid cash bribes and provided improper gifts and payments of travel and
entertainment expenses to various government officials in South Korea in order to
secure the sale of IBM products.
It cut secret side deals with Isilon customers to allow the company to report inflated
sales to its shareholders.
It misreported $4.8 million in improper revenue during 2006 and 2007.
Its subsidiaries made illicit payments to generated sales and realized improper profits
of more than $1 million.
It accounted for warrants it had issued before and overstated its assets by 43%.
It fraudulently inflated earnings in 2003.
Its internal controls lapses and inaccurate records misstatement in fillings in 2006 and
2007.
It fraudulently inflated revenue as well as a scheme to manipulate the stock of another
company.
It failed to comply with GAAP in connection with LSB’s change in inventory pricing
methodology from LIFO to FIFO.
Its subsidiary paid over $2.5 million in bribes to officials at several Chinese stateowned entities through a third-party sales agent for contracts that generated more than
$15 million in revenues for Maxwell
It inflated customer bills to increase revenues and profit margins
26
Amt of
Fraud ($)
Penalty
($)
6,000,000
177,000,00
0
185,673
375,681
622,000,000
15,000,000
N/A
2,000,000
4,800,000
N/A
4,000,000
1,678,650
13,000,000
528,323
N/A
N/A
437,000
200,000
2,000,000
N/A
250,000
N/A
15,000,000
8,000,000
6,600,000
75,000
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
Company Name
Merge Healthcare Inc.
Types of
Violation
1,2,4
Monster Worldwide,
Inc.
NATCO Group Inc.
7
Navistar International
Corporation
NIC Inc.
5,1,2, ,
Noble Corporation
2,4,
Office Depot, Inc.
2
Pediatrix Medical
Group, Inc.
7,5
Pride International, Inc.
1,6
Quest Software, Inc.
1, 7
Rockwell Automation,
Inc.
1,4
5,2,3,7
4
Description
Its misstatements to the public, Merge’s stock price dropped from $24.50 to $7.30 per
share, reflecting a $500 million loss in market capitalization.
Its multi-year scheme to secretly backdate stock options granted to thousands of
Monster officers, directors and employees.
Its subsidiaries created and accepted false documents in filings.
Its subsidiaries bribed Kazakstan’s officials to get contract interest.
It overstated its pre-tax income by a total of approximately $137 million as the result of
various instances of misconduct.
It failed to disclose more than $1.18 million in perquisites to Fraser from at least 2002
to 2007.
It failed to disclose its payment of $1 million to fly and operate planes.
It made improper payments through its custom agents to officials of the Nigeria
Customs Service to obtain permits and permit extensions necessary for operating
offshore oil rigs in Nigeria.
It violated fair disclosure regulations when selectively conveying to analysts and
institutional investors that the company would not meet analysts' earnings estimates.
It recognized approximately $30 million in funds received from vendors in exchange
for the company's merchandising and marketing efforts.
It backdated stock options grants to executives and employees and with reporting false
financial information to shareholders.
It illegally avoided expense for in-the-money options.
It and its subsidiaries bribed government officials in Venezuela, India, Mexico,
Kazakhstan, Nigeria, Saudi Arabia, the Republic of the Congo, and Libya. The bribery
schemes allowed Pride and its subsidiaries to extend drilling contracts, obtain the
release of drilling rigs and other equipment from customs officials, reduce customs
duties, extend the temporary importation status of drilling rigs, lower various tax
assessments, and obtain other improper benefits.
It improperly granted undisclosed in-the-money stock options to executives and
employees by backdating millions of options from 1999 through 2002.
Its subsidiary made payment not directly related to business purposes for employees
and customers.
27
Amt of
Fraud ($)
500,000,000
Penalty
($)
870,000
399,500,000
2,500,000
80,000
N/A
137,000,000
1,049,503
1,800,000
500,000
N/A
5,576,998
30,000,000
1,000,000
8,800,000
N/A
2,500,000
23,529,718
113,600,000
150,584
1,700,000
400,000
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
Company Name
SafeNet, Inc.
Types of
Violation
7
Stratum Holdings, Inc.
3
Sunopta, Inc.
8, 5,1,2
Sunrise Senior Living,
Inc.
Symbol Technologies,
Inc.
1
1
Tenet Healthcare
Corporation
1
Terex Corporation
1
Thor Industries, Inc.
2,5,8
Tidewater, Inc.
2,4,5,6,
Transocean, Inc.
1, 4,
Trident Microsystems,
Inc.
5,1,7
Description
It engaged in a scheme to backdate option grants to senior executives and employees in
order to take advantage of low points in the company's stock price, without recording
the requisite compensation expense for these option grants.
It failed to comply with Item 307 and 308T of Regulation S-B in its 10-KSB report
filed in 2008.
It failed to identify necessary downward adjustments to account for such inventory at
its net realizable value and understated its cost.
It made improper adjustments to its reserve for self-insured health and dental benefits
and its accrual for corporate bonuses to meet public earnings forecasts.
It engaged in a fraudulent scheme to inflate revenue, earnings and other measures of
financial performance in order to create the false appearance that Symbol had met or
exceeded its financial projections.
It inflated its earnings by exploiting Medicare's outlier reimbursement regulations,
which provided for additional reimbursement to hospitals to cover the additional costs
for treating extraordinarily sick patients.
It aided and abetted the fraudulent accounting by URI for two year-end transactions
that were undertaken to allow URI to meet its earnings forecasts. These fraudulent
transactions also allowed Terex to prematurely recognize revenue from its sales to
URI.
Its subsidiaries engaged in a fraudulent accounting scheme to understate Dutchmen’s
cost of goods sold in order to avoid recognizing inventory costs that were not reflected
in Dutchmen’s financial accounting system.
It paid bribes to foreign government officials in Azerbaijan disguised as payments for
legitimate services.
It authorized improper payments to customs officials in Nigeria that were inaccurately
recorded as legitimate expenses in the Company's books and records.
It made illicit payments through its customs agents to Nigerian government officials to
extend the temporary importation status of its drilling rigs, to obtain false paperwork
associated with its drilling rigs, and obtain inward clearance authorizations for its rigs
and a bond registration.
It backdated stock option documentation to make it appear as if options had been
granted on earlier dates, resulting in disguised "in-the-money" option grants to
Company employees, officers, and on at least one occasion to directors.
28
Amt of
Fraud ($)
1,600,000
Penalty
($)
1,000,000
N/A
N/A
N/A
46,200
N/A
50,000
3,091,539
250,000
11,000,000
2,000,000
N/A
8,000,000
27,000,000
1,900,000
1,600,000
217,000
10,243,056
7,265,080
37,000,000
350,000
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
Company Name
Types of
Violation
True North Finance
Corporation
Ulticom, Inc.
1
UTStarcom, Inc.
4,6
VeriFone Holdings, Inc.
1
Verint Systems, Inc.
1,2
Vitesse Semiconductor
Corporation
1,5,7
Watts Water
Technologies, Inc
1,2,4
WellCare Health Plans,
Inc.
4,1
7
Description
It engaged in a fraudulent and deceptive scheme to provide undisclosed compensation
to executives and other employees, concealing millions of dollars in expenses from the
Company's shareholders.
It improperly recognized revenue on interest from borrowers which were not paying
True North and which were in poor financial condition.
It improperly recorded the grant dates of eight company-wide grants of employee stock
options.
It involved certain long-standing and improper accounting practices that were not in
conformity with GAAP.
It subsidiary paid nearly $7 million between 2002 and 2007 for hundreds of overseas
trips by employees of Chinese government-controlled telecommunications companies
that were customers of UTStarcom, purportedly to provide customer training.
It made unsupportable alterations to its records to compensate for an unexpected
decline in gross margins, overstating VeriFone’s operating income by a total of 129
percent.
Its books and records falsely and inaccurately reflected, among other things, the
Company's liabilities, expenses, net income, and general financial condition through at
least the fiscal year ended January 31, 2005.
It failed to maintain a system of internal accounting controls sufficient to provide
assurances that its reserve activity was recorded as necessary to permit the proper
preparation of financial statements in conformity with GAAP.
It manipulated grant dates in order to award in-the-money options and failed to ensure
that Vitesse properly recorded compensation expenses for the backdated grants.
It compounded their fraudulent revenue recognition practices by failing to timely
record credits related to the invalid accounts receivable that were generated by the
distributor's return of product.
Its subsidiary made improper payment to its employees in order to facilitate its sales.
It fraudulently retained over $40 million it was required to return to Florida state
agencies under programs that provided mental health services to Medicaid recipients
and health care services to uninsured children.
29
Amt of
Fraud ($)
Penalty
($)
74,000,000
N/A
2,677,000
25,000
7,000,000
3,000,000
37,000,000
25,000
6,500,000
N/A
184,000,000
162,320
2,700,000
3,776,606
40,000,000
10,000,000
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
Company Name
West Marine, Inc.
Note:
Types of
Violation
1,8
1-Overstate Revenue;
2-Insufficient Internal Controls
3-Regulation Violation
4-Improper Payment
Description
It filed numerous false financial statements from 2004 to 2006 after making
undisclosed accounting changes designed to offset an unexpected earnings shortfall.
It improperly increased its pre-tax income for the year, offsetting the undisclosed
reduction in earnings caused by the change in inventory valuation.
5-Undserstate Expense
6-Bribery
7-Backdated Stock Option
8-Inventory Misconduct
30
Amt of
Fraud ($)
13,200,000
Penalty
($)
N/A
AN EMPIRICAL STUDY ON ACCOUNTING AND AUDITING ENFORCEMENT RELEASES CASES
Table 3: Exhibit Penalty Percentage Impact on Dollar Amount of Fraud
Name
VeriFone Holdings, Inc.
Vitesse Semiconductor Corporation
Dollar Amount of
Fraud ($)
37,000,000
184,000,000
Penalty
($)
25,000
162,320
Penalty as Percent of
Fraud Amount
0.07%
0.09%
Quest Software, Inc.
113,600,000
150,584
0.13%
Delphi Corporation
20,000,000
30,000
0.15%
500,000,000
870,000
0.17%
80,000,000
164,584
0.21%
Monster Worldwide, Inc.
399,500,000
2,500,000
0.63%
Navistar International Corporation
137,000,000
1,049,503
0.77%
Merge Healthcare Incorporated
Escala Group, Inc.
Ulticom, Inc.
Trident Microsystems, Inc.
MedQuist Inc.
Ingram Micro Inc.
Bancinsurance Corporation
Office Depot, Inc.
General Re Corporation
Thor Industries, Inc.
Symbol Technologies, Inc.
Doral Financial Corporation
Tidewater Inc.
2,677,000
25,000
0.93%
37,000,000
350,000
0.95%
6,600,000
75,000
1.14%
622,000,000
15,000,000
2.41%
2,000,000
60,000
3.00%
30,000,000
1,000,000
3.33%
200,000,000
8,100,000
4.05%
27,000,000
1,900,000
7.04%
3,091,539
250,000
8.09%
921,000,000
123,000,000
13.36%
1,600,000
217,000
13.56%
200,000
35,000
17.50%
Apogee Technology, Inc.,
Tenet Healthcare Corporation
11,000,000
2,000,000
18.18%
Rockwell Automation, Inc.
1,700,000
400,000
23.53%
WellCare Health Plans, Inc.
40,000,000
10,000,000
25.00%
Assurant, Inc.
10,000,000
3,500,000
35.00%
ITT Corporation
4,000,000
1,678,650
41.97%
NIC Inc.
1,180,000
500,000
42.37%
UTStarcom, Inc.
7,000,000
3,000,000
42.86%
437,000
200,000
45.77%
15,000,000
8,000,000
53.33%
1,600,000
1,000,000
62.50%
10,243,056
7,265,080
70.93%
2,700,000
3,776,606
139.87%
185,673
375,681
202.33%
81,000
318,470
393.17%
LaBarge, Inc,
Maxwell Technologies Inc.
SafeNet, Inc.
Transocean Inc.
Watts Water Technologies, Inc
Helmerich & Payne, Inc.
Avery Dennison Corporation
31
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