Barry Minkow (ZZZZ Best)
Tell the story

Barry Minkow is a con-man, who at the sage of 16 years established an outwardly fruitful carpet cleaning and restoration company by the name ZZZZ Best. Four years in after founding the company, Minkow took the company public. Notably, the shared he owned at the company had a valuation of $100,000. In a span of five years, the company had a market capitalization of $200 million. However, when the company collapsed in 1987, financial investigators came to the realization that most of the corporation’s purported revenues were fictitious. Regrettably, the financial statements of the company together with their associated source documents were all counterfeit. This was ascertained after a newspaper investigated into the activities of th company. Eventually, discovery of fraud took place and Minkow was given a jail sentence of 25 years in a federal prison. In addition, the court made an order for Minkow to pay reimbursement of $26 million.

Analyze a major fraud and Identify the nature of the fraud

One of the major frauds in the business realm is financial fraud. Fraud is a deliberately deceptive action that is intended to provide the culprit with an illegal gain, or to deny a right to a victim. A fraudulent act can be undertaken by one person, numerous persons, or a business entity as a whole. Fraud encompasses false representation of fact, whether by deliberately withholding significant data and information or providing false statements to a different party for the specific objective of attaining something that might not have been rendered devoid of the deception. In a broad sense, financial fraud can be delineated as an intentional action of deception encompassing financial transactions for the main objective of personal gain. Numerous fraud cases encompass intricate financial transactions that are undertaken by business professionals with expert knowledge and criminal intent. The nature of the financial fraud is that it operates outside the field of vision of the authorities, destabilizing the normal checks and balances in order for there to be changes taking place while at the same time the picture remains the same (Rezaee and Riley, 2009).

Categorize the fraud

Frauds can be separated into four groups including financial frauds, asset misappropriation, misappropriation of services and lastly fraudulent announcements that are linked to assets, performance, and reputation. In this case, the fraud that took place at ZZZZ Best was financial frauds. This can be further classified into corruption, falsification of financial accounts, misappropriation of asset value, and money laundering (Clikeman, 2013). This particular company participated in extensive financial fraud ranging from falsifying its financial statements, overcharging amounts to consumers, making fraudulent announcements of assets, asset misappropriation and their value.

Determine the red flags, the breakdown in internal control and/or the accounting oversight that should have been brought the fraud to light

There are several different red flags in addition to the breakdown in both internal control and oversight that ought to have brought the fraud to light. To begin with, there was no internal...…to have been the credit card scheme undertaken by the company. Notably, when ZZZZ Best started accepting payments from consumers through credit cards, Barry began making overcharges to consumers. He changed the amounts on the credit card receipts or made submissions of duplicate receipts for the similar service. Owing to numerous complaints the company was forced to refund such overcharges (Clikeman, 2013).

What was the response from the accounting profession, SEC, other governmental policing bodies

Subsequent to several months of investigation, Barry Minkow, Tom Padgett, Mark Morze, Mark Roddy, and other seven individuals were charged with a range of criminal offenses associated with being involved with ZZZZ Best. Notably, Roddy, Morze, and Padgett pleaded guilty on account of these charges and made an agreement of cooperating with the authorities (Clikeman, 2013). Furthermore, owing to the undertaking of auditing activities that were deficient, George Greenspan was permanently proscribed from practicing as an accountant before the Securities Exchange Commission. A major bank in California also filed a lawsuit against Ernst and Whinney in an endeavor to recover numerous millions of dollars that the financial institution had given out as loans to ZZZZ Best. However, the courts failed to hold the auditing firm liable for the bank’s losses owing to the reason that they did not give any opinion on ZZZZ Best’s financial statements. However, some shareholders of ZZZZ Best sued Ernst and Whinney, and the case ended up being settled out of court for $35 million (Clikeman, 2013).