Fraud Case

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In 1996, a city manager in California's Contra Costa County became suspicious when a local disposal service company asked for help keeping itself afloat. Orinda-Moraga Disposal Services wanted to raise rates on its customers and needed the Contra Costa Sanitation District's approval. However, the company had recently stated its desire to lower rates. The wary city manager hired forensic accountant Dan Ray to uncover the truth. After examining Orinda-Moraga's records, Ray discovered that the company sent checks to non-existent people at several companies that had fake addresses. The disposal company's owner deposited the checks into an account. He had created these companies to illegally siphon money from Orinda-Moraga, and inflated its business costs to justify the rate increase. Ultimately, Orinda-Moraga's owner and his partner were found guilty in civil and criminal suits. In 1997, Sunbeam, a company that manufactures small appliances, followed a practice called bill and hold. This is when a company records sales of its products as profits for the current quarter, while waiting to deliver the product (typically they wouldn't be recorded as sales until they were actually shipped). Sunbeam sold huge amounts of its products to other companies at a discount, but kept the items in warehouses. On paper, the company appeared to have had high sales; however, Sunbeam's warehouses were full of unsold product. This practice was uncovered by a financial analyst at investment firm Paine Webber, who downgraded the value of Sunbeam's stock. Bill and hold isn't illegal, but Sunbeam's shareholders felt deceived and filed lawsuits. Sunbeam's accounting firm, Arthur Andersen (later ruined by its involvement with Enron), performed an audit and reported that Sunbeam's books were accurate and in accordance with federal guidelines. However, the board was unsatisfied and hired Deloitte & Touche to review Arthur Andersen's audit. This follow-up uncovered proof that the numbers had...
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