We’ve all been terrified of big banks and hackers, but accounting scandals are some of the most devastating monetary damages experienced by businesses far and wide. There have been several accounting scandals in U.S. which have shocked the financial markets and resulted in huge losses to investors.
These scams occur when complex accounting techniques are used to make investors believe that the company is in a very good financial situation, even if it is not. Let’s take a look into some of the biggest accounting scandals to date, so you can be wary of these processes used in your corporation or business.
One of the worst accounting scandals in the history of the United States occurred at Enron Corporation. Established in 1985, Enron Corporation was an extremely reputable company and was one of the leading service and energy corporations. In 2001, the company became bankrupt, surprising the world.
In the balance sheet, the accountants of Enron failed to mention the huge amount of debt that they had accumulated. As a result, the shareholders lost around $74 billion. Thousands of employees lost their jobs. The fraudulent accountants were finally caught by Sherron Watkins, who became suspicious of the high stock prices being offered by Enron.
Both CEOs of the company were arrested. One died before prior to his time in prison and the other will remain in prison until 2035.
WorldCom was one of the leading telecommunications company in U.S. prior to their scandal. However, they were caught of inflating the value of their assets by as much as $11 billion. The accountants at WorldCom failed to report their bottom line costs properly. To help raise their bottom line, accountants also increased their revenue by creating false entries in their books.
Because of this scam, 30,000 employees lost their jobs and investors suffered a loss of $180 billion. The CEO of the company was sentenced to 25 years in prison.
HealthSouth is one of the biggest companies in U.S. that provides healthcare services. The company was involved in fraudulent activities starting 1996, but was finally caught in 2003. In order to keep up to the shareholders expectation, accountants of HealthSouth inflated their earnings by as much as 4,700 percent.
In the year 2004, they sold stocks worth $75 million in one day, and still the accountants still posted a loss in their financial statements. The SEC suspicious of their actions and HealthSouth was eventually caught. The CEO of the company was never arrested based off the fraudulent activity, but he faced a 7 year prison sentence for bribing the Governor at the time.
American Insurance Group
The American Insurance Group was one of the biggest insurance companies in the U.S., but they also operated globally. The company was accused of manipulating their stock prices and bid-rigging. All of this was done through American Insurance Group traders who inflated the prices of their stock and considered loans as sources of revenue on their income statements.
Eventually they were caught during an investigation by SEC a whistleblower complained. The investors lost around $3.9 billion due to this fraudulent activity. The CEO spent a lot of money in paying fines and penalties, but no criminal charges were charged against him.
Lehman Brothers was a very well known financial service firm. However, they were involved in a scam worth around $50 billion. They reported their loans as sales prior to bankruptcy and they did so by selling assets to the Cayman Island Bank on the condition that they will buy them back later on.
This led to the impression that the company had around $50 billion in cash laying around. Lehman Brothers went bankrupt and the fraudulent activities were discovered after they declared bankruptcy. Even their auditors, Ernst and Young were involved in their scam. However, they didn’t face any charges from the SEC.
Why Did These Accounting Scandals Change the Industry?
Well, there are many reasons why accounting standards and measurements have improved over the years. You may ask why these people working within the company never batted any eye of suspicion, but it serves us all well to know that it can happen even to the most professional business people of the world.
Now that you know that a scandal can happen to anyone, big or small, don’t you feel like you need to do something to protect your business? You can call our office, Chad Garland CPA, today to set up ways to protect yourself against fraud and embezzlement to save your company before any scandal even begins.