Word: fraud
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Dates: during 1990-1999
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...paper, Miniscribe certainly looked like a highflyer. The Colorado-based company's financial statements in the mid-1980s painted it as a vigorous, healthy computer-parts maker with a bright future. But an internal investigation drew quite a different picture. The probe uncovered massive fraud by senior managers, who shipped boxes of bricks labeled as disk drives and counted them as sales. Investigators blamed executives for the company's cooked books, but bondholders also sued Miniscribe's auditors, Coopers & Lybrand, for conducting faulty audits. In February a jury stunned the accounting profession by ordering C&L to pay damages...
...damages. Last week Ernst & Young agreed to pay $63 million to settle claims that its negligence helped S&L honcho Charles Keating Jr. defraud some 23,000 investors in Lincoln Savings & Loan. The settlement came two weeks after the largest U.S. accounting firm, Arthur Andersen, paid $22 million for fraud claims arising from the same S&L collapse...
Responsibility for spotting outright fraud, though, is another matter. Says John Hill, assistant professor of accounting at Indiana University: "No audit is going to uncover cleverly disguised fraudulent schemes concocted by management." In the strictest sense, auditors are not required to look for fraud -- but controversy rages about what they should do when they stumble upon it. Rather than inform on clients, auditors usually prefer to drop the account quietly. When that happens, the client must file form 8-K with the Securities and Exchange Commission, explaining why the auditor resigned. But details of the disagreement are typically fudged...
Many lawmakers want to change that practice. Democratic Congressman Ron Wyden of Oregon wants to force accountants to blow the whistle on lawbreaking clients. In 1990 Wyden introduced legislation that would have required auditors to report to the SEC any client found engaging in fraud. Though it passed the House, the bill failed to clear the Senate. Says Wyden, who plans to try again this year: "They're called certified 'public' accountants because they're accountable to the public. But accountants are not living up to their public duty. If they find wrongdoing, they have an obligation to come forward...
Winks drew inspiration from an earlier Americanbook, J. Prince's Sketches of EminentShoemakers, published in Boston in 1848.Prince reports that Roger Sherman, Connecticutsigner of the Declaration of Independence andConstitution, began life as a shoemakers. Whileserving on an appropriations committee during theRevolutionary War, Sherman uncovered fraud in anarmy shoe contract and proved his case byspecifying the market price of the leather andworkmanship. Prince argues, "This incident willserve to illustrate the advantage which may oftenbe derived from the election of practicalmen to fill the office of legislators." (Hisitalics...