TABLE OF CONTENTS
|Introduction |3 | |How the Fraud was Perpetrated and Concealed |4 | |Start Up Costs |4 | |Estimated Warranty Expense |4 | |Rebates |5 | |Tooling Buyback Arrangements |6 | |Auditor Misconduct & NFC Overstatement |7 | |Pressures and Opportunities |8 | |Preventative Measures |10 | |Consequences |11 | |Conclusion |13 |
FINANCIAL STATEMENT FRAUD: NAVISTAR
This report summarizes the fraud committed by Navistar International Corporation, which specializes in manufacturing large vehicles such as commercial trucks and busses and offers related products including engines, parts, electronics, and financing through its various brands. The report also contains recommendations for preventive measures in cases such as the Navistar fraud. According to AAER -3165, due to a deficiency in resources dedicated to Navistar's accounting department and control environment, the corporation lacked the internal controls necessary to mitigate opportunities for committing financial statement fraud. More specifically, Navistar lacked trained accounting professionals and written policies and procedures and possessed a problematic organizational structure. With insufficient controls and pressures to reach financial targets, Navistar participated in inappropriate accounting procedures during 2001 to 2004 at its foundry located in Waukesha, Wisconsin. Navistar's financial statements contained a $136 million misstatement in pre-tax income. $79 million of this total stemmed from warranty reserves and deferred expenses while $58 million of the total misstatement came from vendor rebates and buyback agreements.  Several individuals are considered responsible for this overstatement in pre-tax income.
The parties who participated in the fraud include Navistar employees (current and former), James W. McIntosh, Thomas M. Akres Jr., James J. Stanway, Ernest A. Stinsa, Michael J. Lanner, Dancial C. Schultz, and Rovery C. Ustian. The PCABO has also blamed , Navistar's auditor for 98 years, Deloitte & Touche for failing to have Navistar restate its 2003 financial results. A closer look at the...