Jamaica Water Properties

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Jamaica Water Properties
A Case Study

The case is about an accounting fraud that involves the Jamaica Water Properties, Inc. The fraud was characterized by misapplication of purchase method of accounting for acquisitions, recording fictitious assets, improper accounting for NOLCO, non-recording of appropriate allowances for uncollectible receivables, and misapplication of the percentage-of-completion method of accounting for long-term contracts. Ernest Grendi made the fraud possible, company CFO as helped by three senior accountants. These were aimed to inflate the price of the company stocks because of overstated earnings that caused them to receive sizable bonuses. However, JWP internal auditors just tolerated all of these because of their fear of being fired. In addition, Ernst & Young, the company’s external auditor, knowing the fraudulent activities, have been issuing an unqualified opinion for six consecutive years. This has been seen as a product of the close relationship between Grendi and his co-conspirators with E&Y.

2011

JAMAICA WATER PROPERTIES: A Case Study
Jamaica Water Properties
A Case Study

The case is about an accounting fraud that involves the Jamaica Water Properties, Inc. The fraud was characterized by misapplication of purchase method of accounting for acquisitions, recording fictitious assets, improper accounting for NOLCO, non-recording of appropriate allowances for uncollectible receivables, and misapplication of the percentage-of-completion method of accounting for long-term contracts. Ernest Grendi made the fraud possible, company CFO as helped by three senior accountants. These were aimed to inflate the price of the company stocks because of overstated earnings that caused them to receive sizable bonuses. However, JWP internal auditors just tolerated all of these because of their fear of being fired. In addition, Ernst & Young, the company’s external auditor, knowing the fraudulent activities, have been issuing an unqualified opinion for six consecutive years. This has been seen as a product of the close relationship between Grendi and his co-conspirators with E&Y.

2011

JAMAICA WATER PROPERTIES: A Case Study

Ararao
Campecino
Idong
Ararao
Campecino
Idong

Table of Contents
List of figures4
CASE BRIEF5
Case Abstract5
Auditors’ Dilemma5
Auditors’ Questions5
Research Questions6
case context7
I.Understanding The Entity7
A. Jamaica Water Properties Inc.7
Origins7
Instability in the 1960s and 1970s8
Success in the 1980s8
Restructuring and Bankruptcy in the Early to Mid-1990s9
Renewed Success in the Mid-1990s and Beyond10
B. The Entity and Its Environment12
Financing12
Investing16
Regulatory Factors18
II. Understanding the Industry23
A. The Utilities Industry23
B. Utilities Industry and JWP Inc.24
The Water Utilities Industry24
Facilities Management Industry26
Information Systems Industry29
Energy Industry31
CASE RESOLUTION36
RESEARCH QUESTIONS AND CORRESPONDING ARGUMENTS AND SOLUTIONS36
General Responsibilities of Internal Auditor37
Additional Higher Level of Responsibilities:38
Duties of Internal Auditor in the Detection of Fraud39
Reasons for the Internal Auditors Tolerance to Grendi’s Malpractices40
Argument 140
Grendi being the CFO of JWP must be obeyed.40
Counter Argument 141
Confronted with this situation, the internal audit function should not be intimidated so since the authority being granted to these key officials are not absolute.41
Argument 241
The employees are bound by their Duty of Confidentiality41
Counter Arguments 242
Argument 342
Whistle blowing will result to the loss of job.42
Counter Argument 343
Actions to be done to solve the ethical dilemma of whether to conceal the fraud or disclose it.43
Responsibility of the Management in Fraud Detection44
Measures to Protect the Internal Auditors from...
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