Corporate fraud schemes: Cendant
Assignment 1: Corporate Fraud Schemes Due Week 2 and worth 240 points Identify an organization that was involved in corporate fraud. Explain how fraud can be detected and evaluate the importance of teamwork and leadership in a fraud investigation. For this assignment, research the Internet or Strayer databases and identify an organization that was involved in corporate fraud. Write a three to four (3-4) page paper in which you: Based on your research, identify and assess the fraud that occurred in the organization and the impact it has had on the corporation’s investors and creditors. Provide support for your rationale. Suggest how a financial forensic investigation could have detected fraud in the organization that you researched. Consider the risk factors, the elements of fraud, and the analysis of competing hypotheses. Evaluate how teamwork and leadership is an effective tool for financial forensic investigations. Provide support for your evaluation. Assess the role of research in fraud examinations and financial forensics professions. Give your opinion on whether or not fraud examinations and financial forensics professions can have long-term success without continuous research in the field. Provide support for your rationale. Use at least three (3) quality resources in this assignment. Note: Wikipedia and similar Websites do not qualify as quality resources. Your assignment must follow these formatting requirements: Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions. Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length. The specific course learning outcomes associated with this assignment are: Examine the basic concepts related to fraud, including environment, impact, and the methodologies related to fraud examination. Use technology and information resources to research issues in forensic accounting. Write clearly and concisely about forensic accounting issues using proper writing mechanics. Click here to view the grading rubric for this assignment. I do not want companies: enron and webcom
Corporate fraud schemes: Cendant
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Background
Forensic accounting now plays a more prominent role in forensic investigations as there is increased scrutiny of fraudulent activities. Thus, forensic investigators need to integrate technology as there are other emerging fraud cases, besides funds embezzlement. Nonetheless, all the forms of fraud involve misrepresentation of facts in financial statements, and forensic accountants have the knowledge to retrieve, protect and report about their forensic investigations. Forensic accounting integrates both investigation and auditing skills, and complimented by legal matters to determine whether organizations are engaged in illegal activities. In order to carry out fraud investigations it is necessary to have Information Technology skills, and seek support from specialists on matters related to computer related fraud (Pierce & Singleton, 2008)
Fraud in organizations
Towards the end of the 1990’s, Cendant Corporation was rocked with allegations of accounting fraud related to the inflation of profits. Cendant came into being after the merger of CUC International and HFS in 1997. The fraud also related to making false statements and wire charges among employees of the organization (Davis & Silverman, 2000). HFS was in the franchising business while CUC international Inc, was a discount members club for shopping, travel and dining. Of particular concern, was that CUC overstated revenue and pretax profit for close to three years up to 1998, and used improper accounting to hide this, but Ernst and Young did not uncover this fraud despite huge differences between the actual cash in earnings before interest, taxes, depreciation and amortization (EBITDA) and what was reported.
For creditors, disclosure of the accounting fraud did not affect their claims especially for fixed claimants, where contractual terms determine risk of default. Nonetheless, they were also affected because this meant that Cendant’s performance was not as impressive as stated by statements of accounts. Internal weaknesses are the main concerns for creditors who worried about the company’s credit worthiness. For investors, fraud led to fall in investor confidence and their wealth reduced costing investors more than $ 3 billion (New York Times, 2007). There were elements of fraud, because Cendant gave false representations of fact on earnings and revenue. The executives knowingly presented this false representation intent on deceiving users of financial statements culminating in the loss of wealth by investors after reliably relying on the information. For the case, analyzing alternative hypothesis would have led to more evidence gathering on cash held in financial institutions to verify the amount of revenue reported. Changes in cash balances for purchases and investments would have helped eliminated alternatives hypotheses on the amount held.
Teamwork and leadership
Leadership and working in teams is an effective tool for forensic i...