Revealed: Here's How Admitted White Collar Thieves Hid Their Crimes

madoff bernie bernard ponzi fraud crookNotorious financial fraudster Bernie Madoff was not part of the survey

The American Institute of CPAs recently tracked down a half-dozen accounting fraudsters, interviewing them about their schemes as a way to help accountants root out white collar crime.While the fraudsters didn’t reveal their names or their companies, their responses outlined in the Journal of Accountancy are illuminating.

Several of the fraudsters said they found creative ways to dupe their external auditors.

One fraud involved owners of a family business who lied about the company’s sales when it was going public and then overstated its earnings to artificially boost its stock price, according to the article in the Journal of Accountancy.

The man behind that scheme – who had previously worked at an audit firm himself – went out of his way to hire firms that sent inexperienced young men to audit his company.

Then the fraudster assigned an attractive female employee to help gather information, instructing her to flirt with the auditors and interrupt them constantly to throw them off.

The fraudster who AICPA interviewed “said the ploy worked ‘like magic,’ with the auditors being led to believe the books contained items that actually didn’t exist,” according to the AICPA report. “People are naturally good natured and gullible, with most not understanding the art of lying, he said.”

His scheme was ultimately discovered when ex-lovers, ex-business associates and ex-employees reported it to the authorities.

Here’s how some of the other criminals hid their schemes, according to AICPA:

  • Another fraudster responsible for a multi-billion dollar loss had previously worked at the auditing firm that conducted his audits, so he knew how to engineer the fraud to escape auditors’ attention.
  • A general manager at a recreational resort bought time with his auditors by handing them free passes to the resort.
  • Another fraudster managed to perpetrate his scheme by relying on “extensive internal collusion” and providing bogus invoices and contracts to outside CPAs.

Read the entire article in the Journal of Accountancy >
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