Business accountants help you run your business by keeping track of many things. That list includes income and expenses, helping you avoid accounting fraud, providing financial information to aid in making decisions, and ensuring that your business is in compliance through financial reporting to the United States Security and Exchange Commission (SEC).
Those who want their businesses to run smoothly must keep their financial records up to date and clean, or their companies could end up on the wrong side of an accounting fraud lawsuit.
The financial statements generated by your records — including income statements, balance sheets, and cash flow statements — give you and others a snapshot of how your business is doing. That is, unless your accountant is involved in accounting fraud. You might wonder how or why an accountant could be involved in tax fraud, but it does happen.
Here’s a look at some of the most famous accounting scandals to date.
1. The Enron Scandal
Enron was a commodity, service, and energy corporation based in Houston, Texas, but became infamous when former CEO and COO Jeff Skilling and former CEO and chairman Ken Lay kept big debts off their balance sheets. The culmination occured in 2001, when shareholders lost $74 billion and thousands of investors and employees lost retirement accounts and jobs.
Sherron Watkins, an internal whistleblower, suspected accounting fraud and turned the CEOs in. High stock prices had caused others not in the company to become suspicious as well, and a court found that Arthur Andersen LLP, once one of the big five accounting firms, had helped fudge Enron’s accounts.
2. Bernie Madoff
3. Freddie Mac and Fannie Mae
In 2003, Freddie Mac, a mortgage finance giant backed by the Federal Reserve, misstated $5 billion in earnings in an accounting fraud case by understating and misstating its earnings. The SEC found this accounting fraud during an IRS investigation. The scandal resulted in the firing of COO David Glenn, ex-CFO Vaughn Clarke, and Chairman/CEO Leland Brendsel, plus $125 million in fines. A year later, Fannie Mae, another huge federally backed mortgage finance company, was caught in a similar scandal..
4. American International Group (AIG)
In 2005, multinational insurance corporation AIG was found to have bid rigged and manipulated stock prices in one of the most famous accounting fraud cases. The company’s CEO, Hank Greenberg, bilked $3.9 billion by counting loans as sales revenue, telling traders to inflate the company’s stock price, and sending clients to other insurers who had payoff agreements with AIG. Greenburg was caught because of an SEC regulator investigation, and the company had to pay the SEC $10 million in fines in 2003, $1.64 billion in 2006, and set up pension funds for $115 million in Louisiana and $725 million in Ohio.
5. Waste Management Scandal
6. HealthSouth Scandal
7. The Lehman Brothers
Work with Trusted Professionals Who Care
Those who perpetrate accounting fraud are always eventually caught, whether because a whistleblower tells someone or the SEC notices suspicious activity. An honest accountant or tax professional can check the books for you, and will be able to tell you whether your suspicions of fraud or negligence are warranted.
If you suspect accounting fraud at your company, or have any questions at all about corporate taxes and other tax concerns, contact Silver Tax Group today! We’ll be happy to set you up with a tax accountant or other tax professional who can help you address any fraud-related or other questions you might have.