Difference between revisions of "Accounting fraud"

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=='''Inadequate Internal Controls over Financial Reporting (ICFR)'''==
=='''Inadequate Internal Controls over Financial Reporting (ICFR)'''==


*'''<u>SEC v. Monsanto</u>'''
*'''[https://www.sec.gov/news/pressrelease/2016-25.html SEC v. Monsanto]'''


On February 9, 2016, the SEC announced that Monsanto agreed to pay an '''$80 million''' penalty for inadequate [[internal accounting controls]]. According to the SEC’s order, the company failed to properly account for millions of dollars in rebates offered to retailers and distributors of Roundup after generic competition had undercut its prices and caused the company to lose significant share in the market. Monsanto booked substantial amounts of revenue from sales incentivized by the rebate program, but failed to recognize all of the related program costs at the same time. A whistleblower received a more than '''$22 million award''' for disclosing this fraud to the SEC.
On February 9, 2016, the SEC announced that Monsanto agreed to pay an '''$80 million''' penalty for inadequate [https://www.zuckermanlaw.com/rewards-and-bounties-for-whistleblowers/internal-accounting-controls-whistleblower-rewards-bounties/ internal accounting controls]. According to the SEC’s order, the company failed to properly account for millions of dollars in rebates offered to retailers and distributors of Roundup after generic competition had undercut its prices and caused the company to lose significant share in the market. Monsanto booked substantial amounts of revenue from sales incentivized by the rebate program, but failed to recognize all of the related program costs at the same time. A whistleblower received a more than '''$22 million award''' for disclosing this fraud to the SEC.


'''<u>Improper Accounting of Expenses</u>'''
=='''Improper Accounting of Expenses'''==


*'''<u>SEC v. Penn West Petroleum</u>'''
*'''[https://www.sec.gov/litigation/complaints/2017/comp-pr2017-120.pdf SEC v. Penn West Petroleum]'''


Penn West, a Canadian-based oil and gas company has agreed to pay '''$8.5 million''' in civil penalties for fraudulently moving hundreds of millions of dollars in expenses from operating expense accounts to capital expenditure accounts. This accounting fraud artificially reduced the company’s operating costs by as much as 20 percent in certain periods.  The object of the scheme was to deceive investors about a key publicly reported metric concerning the cost of oil extraction and processing needed to sell a barrel of oil.
Penn West, a Canadian-based oil and gas company has agreed to pay '''$8.5 million''' in civil penalties for fraudulently moving hundreds of millions of dollars in expenses from operating expense accounts to capital expenditure accounts. This accounting fraud artificially reduced the company’s operating costs by as much as 20 percent in certain periods.  The object of the scheme was to deceive investors about a key publicly reported metric concerning the cost of oil extraction and processing needed to sell a barrel of oil.


As alleged in the SEC’s complaint, Defendants engaged in three principal types of improper accounting practices in furtherance of their scheme:
As alleged in the SEC’s [https://www.sec.gov/litigation/complaints/2017/comp-pr2017-120.pdf complaint], Defendants engaged in three principal types of improper accounting practices in furtherance of their scheme:


Defendants improperly moved certain expenses that had been recorded in Penn West’s operating expense accounts to its capital expenditure accounts, a reclassification practice known internally at Penn West as “reclass to capital.” This had the effect of moving the expenses from the company’s income statement, where they appeared as expenses, to the company’s balance sheet, where they appeared as assets, thus lowering the company’s reported operating expenses and making it appear that Penn West was investing capital in support of increased production.
* Defendants improperly moved certain expenses that had been recorded in Penn West’s operating expense accounts to its capital expenditure accounts, a reclassification practice known internally at Penn West as “reclass to capital.” This had the effect of moving the expenses from the company’s income statement, where they appeared as expenses, to the company’s balance sheet, where they appeared as assets, thus lowering the company’s reported operating expenses and making it appear that Penn West was investing capital in support of increased production.


Defendants improperly moved certain operating expenses to Penn West’s royalty account, a line item on the company’s income statement intended to show money expended paying royalties to the owners of land on which Penn West drilled. This practice was referred to internally as “reclass to royalty.”
* Defendants improperly moved certain operating expenses to Penn West’s royalty account, a line item on the company’s income statement intended to show money expended paying royalties to the owners of land on which Penn West drilled. This practice was referred to internally as “reclass to royalty.”


Defendants improperly took excess operating expense amounts that had been accrued in prior accounting periods, but not expended, which should have been written off, and instead reduced those accruals in subsequent periods to reduce Penn West’s operating expenses and make them appear more consistent over the course of the year. This practice was referred to internally as “accrual softening.”
* Defendants improperly took excess operating expense amounts that had been accrued in prior accounting periods, but not expended, which should have been written off, and instead reduced those accruals in subsequent periods to reduce Penn West’s operating expenses and make them appear more consistent over the course of the year. This practice was referred to internally as “accrual softening.”


'''<u>Channel-Stuffing</u>'''
'''<u>Channel-Stuffing</u>'''