Misappropriation of Assets

Throughout history and in our own time, legitimate accounting methods have been utilized to fraudulently engage in manipulating activities that results in illicit gains to the perpetrators and losses to individuals and financial institutions.

* Jerry, President/CEO, started with 180,000 investment, lost half a million before selling company to UroHealth

On this project, we did different calculations on John Barton’s net cash flow and net worth. We were able to analyze John’s current financial position and current cash flow situation. Looking at both of those documents, it is obvious that John is spending money that he does not have.

There existed a rule that ACC could only remove a maximum amount of money from Lincoln equivalent to Lincoln’s income, so ACC constructed a scheme to create fictitious income and paper profits in the form of real estate transactions among ACC, Lincoln, and third party entities. Henry Gonzalez and Kenneth Leventhal & Co. investigated these deals such as the Hidden Valley transaction involving a web of nonrecourse notes that allowed Lincoln to book multimillion-dollar paper gains. Dozens of similar deals would allow ACC to withdraw huge sums of cash ultimately funded by the FDIC. The withdrawals would count as losses on Lincoln’s books and simply be resolved with more profits from additional deals. This endless cycle would lead to the downfall of Lincoln, an inevitable event in which ACC had little

Of the $600 million that was stolen, Kozlowski and Swartz used the money for personal purchases, such as paying for an expensive apartment located on Park Avenue, houses in Boca Raton, Florida, which is a very wealthy location, and high-end jewelry (Sorkin, 2002). There was also an occurrence of Kozlowski hosting a birthday party for his wife that cost millions, and even having Tyco pay for half of the tab (Sorkin, 2002). The party was located on an island in Italy called Sardinia (Sorkin, 2002). It’s not surprising that the two men used the money they stole to buy luxurious items, but if it’s apparent to others that the cost of all the purchases don’t exactly match their salary people are going to become suspicious (Sorkin, 2002). Kozlowski

Internal fraud can also be classified into two categories misappropriation of funds and fraudulent financial statement. Assets misappropriation appears to be the most common fraud in non profit organization such as:

The Association of Certified Fraud Examiners classifies occupational fraud to occur in one of the following three types: asset misappropriation, corruption, and financial statement fraud. It is possible that the fraud being committed at Wayland Manufacturing Company is asset misappropriation. Asset misappropriation occurs when “an employee steals or misuses the employing organization’s resources” which include its cash and non-cash assets (The Fraud Tree n.d.). Cash asset misappropriation includes theft of cash on hand and cash receipts and fraudulent disbursements while non-asset misappropriation occurs with misuse and larceny. Further review of the provided information suggests that a Wayland Manufacturing Company employee is involved

On September 12, 2002, national television showcased Tyco International’s former chief executive officer (CEO) L. Dennis Kozlowski and former chief financial officer (CFO) Mark H. Swartz in handcuffs after being arrested and charged with misappropriating more than $170 million from the company. They were also accused of stealing more than $430 million through fraudulent sales of Tyco stock and concealing the information from shareholders. The two executives were charged with more than thirty counts of misconduct, including grand larceny, enterprise corruption, and falsifying business records. Another executive, former general counsel Mark A. Belnick, was charged

He created fake insurance restoration contracts for ZZZZ Best. This scheme was undetected by Greenspan, the company’s auditor, prior to going public. Greenspan believes that had performed his due diligent as an auditor, however Minkow had covered his tracks. Greenspan had reviewed the backup documents of the jobs, which Minkow had counterfeited. Greenspan had also contacted Tom Padgett, principal officer of Interstate Appraisal Services. Little did he know, Padgett is part of Minkow’s scheme. Minkow had created Minkow had created fake companies; he had his friend Padgett as a principal officer of them. Greenspan also missed the red flags because there were money coming in as payments to the jobs. Later it was revealed that the deposits were just an internal

The major conspiracy was uncovered by Manhattan District Attorney, Robert Morgenthau, who was investigating Kozlowski for income tax evasion for some fine art work that he had purchased. As Morgenthau kept digging into the record keeping of Tyco and Kozlowski, it was determined that there were other situations that had occurred, such as a 10 million dollar loan that was totally forgiven by Tyco, and all interest was billed to the corporation. It became apparent on January

Minkow’s phony financial statements enabled him to borrow more and more money and expand the number of

143). Nearly all individuals and organizations are subject to pressure and rationalization of actions, the risk of fraud is great if internal controls are non-existent or can be overridden. It is vital to look-out for indicators that signal weakness in internal control environment. Opportunities exist for fraud due to role of process owners in the structure of internal control and the ability to avoid or override the existing controls (Golden, Skalak & Clayton, 2006 p. 134). Lack of sound corporate governance functions such as inadequacy in the extent and effectiveness of supervision by independent functions are al signals of fraud as it’s a demonstration of weak control environment. The control environment includes the continuity and effectiveness of internal audit, information technology, and accounting personnel as well as the effectiveness of accounting and reporting systems (Golden, Skalak & Clayton, 2006 p. 134). When such deficiencies are not managed or disciplinary actions put in place to check such weaknesses or override of controls, it may signal potential red

In June 2002, Kozlowski was accused by the Manhattan district attorney Robert Morgenthau, of evading $1 million in sales tax on the purchase of rare artwork (Timeline of the Tyco International scandal, 2005). This investigation opened up a can of worms indicting Kozlowski along with Tyco’s former chief financial officer (CFO) Mark H. Swartz of looting millions of dollars from the company, misconstruing financial records and doctoring business records (Brickey, 2008). In September 2002, Kozlowski and Swartz were accused of stealing more than $170 million dollars from Tyco and swindling $430 million in the sale of company shares.

Ironically, he was the only analyst who used Enron’s cash flow chicanery to correctly identify the scam. Using cash flow analysis, he determined the firm had few tangible assets and generated sham profits spawned by contrived financial flimflam produced with hundreds of off-balance sheet entities.

Kozlowski became scandalous for his lavish lifestyle, and he was summoned for tax fraud with respect to purchases of fine art. Mr. Kozlowski was convicted of fraud and grand larceny for misappropriating more than $400 million of Tyco’s money for his personal use, including buying a $6,000 shower curtain and throwing a lavish birthday party for his wife on the island of Sardinia (Dealbook, 2008).