Latest news with #accountingfraud
New York Times
27-05-2025
- Business
- New York Times
Remember Enron and WorldCom? Let's Not Do That Again.
More than two decades ago we blew the whistle at Enron and WorldCom, industry giants whose spectacular falls revealed two of the largest accounting fraud scandals in American history. We know the destruction that fraud causes. We lived through it. We witnessed how unchecked power, collusion at the highest levels and manipulated financial statements can bring down iconic companies, destabilize markets and vaporize billions of dollars and thousands of jobs overnight. That's why we are raising our voices now against a proposal by Republican lawmakers to eliminate the Public Company Accounting Oversight Board, a watchdog that Congress created in the wake of those scandals to protect against accounting fraud and audit failure. The rollback of this hard-won safeguard would unleash additional risk into this highly uncertain economic environment and make the next corporate disaster more likely. The collapse of Enron and WorldCom exposed a broken system for verifying financial honesty. Before the P.C.A.O.B., accounting firms essentially policed themselves. That system failed in part because they often earned far more money selling advice to the same clients than they did from auditing. As a result, firms were sometimes incentivized to go easy on the auditing side — by reducing testing, lowering standards or putting more junior staff members on complex audits, for example — to secure their more lucrative consulting business. This conflict of interest, combined with auditing methods of the time that weren't strong enough to uncover elaborate, high-level fraud schemes, created an environment that allowed enormous deceptions to go unnoticed. At their peak, Enron and WorldCom employed more than 100,000 people combined and operated in over 40 countries. Enron pioneered the trading of energy derivatives, reinvented the natural gas industry and earned Fortune magazine's title of America's Most Innovative Company for six consecutive years. WorldCom was the dominant player in internet infrastructure and a telecom leader that reshaped the industry, once boasting the largest acquisition in corporate history and the fifth most widely held stock. Both had powerful chief executives and celebrated chief financial officers who were beloved by Wall Street. The cost of their deceit was staggering. More than 50,000 employees lost their jobs and the companies entered bankruptcy, leaving investors and creditors with catastrophic losses. At the time, these were the largest bankruptcies and civil settlements in corporate history. In response to these and other failures, Congress came together in 2002 to pass the Sarbanes-Oxley Act, which created a strong framework to deter and detect fraud. The P.C.A.O.B. was a cornerstone of that reform: an independent, nonprofit, nongovernmental regulator charged with overseeing public company audits and restoring trust in financial reporting. The bill enjoyed overwhelming bipartisan support and passed almost unanimously in the House (423-3) and in the Senate (99-0). The accounting oversight board ushered in rigorous inspections, enhanced enforcement and an improvement in audit quality that the profession badly needed. Successive Securities and Exchange Commission chairs from both parties have affirmed the board's value as a vital post-crisis innovation: Thanks to its work, audits today are more consistent, more credible and more accountable, helping to uncover deficiencies that might otherwise fester. The board's continued vigilance is crucial, as many of the systemic risks that necessitated its creation — such as the inherently conflicted relationship between auditors and their clients and the temptation of fraud — still endure. Every organization has room to improve, but any needed changes can be addressed within the current framework. Instead, as part of its broader federal budget reconciliation bill, the House has advanced a measure to eliminate the board and shift its responsibilities to the S.E.C. That might sound like a bureaucratic tweak. It isn't. Independence from the S.E.C. is one of the board's greatest strengths. The S.E.C. does oversee it, approving its budget and appointing members, but the two work separately and in complementary ways to protect investors. While the S.E.C. has a sprawling agenda — regulating public companies that sell investments such as stocks or bonds — the board has one mission: ensuring high-quality audits. That laser focus is critical, and it's only possible because of the board's operational independence. One of the most concerning risks is losing audit oversight for overseas companies listed on U.S. exchanges. Under formal cooperative agreements with many foreign regulators, the P.C.A.O.B. has conducted inspections in over 50 international jurisdictions — including China, where in 2022 it secured unprecedented access. That may not survive a transfer to the S.E.C., a government agency, because Chinese regulators have historically rejected direct involvement from other governments. Without a nongovernmental alternative like the P.C.A.O.B., oversight would likely have to be renegotiated from scratch and might be lost entirely. The upshot would be a higher risk of frauds like that of Luckin Coffee, a Chinese company that fabricated approximately $310 million in sales and cost investors billions after listing on a U.S. exchange in 2019. Systemic risks metastasize in regulatory gaps. The United States learned this after the free-market fever of the late 1990s and early 2000s, when Congress deregulated the telecom, energy and financial sectors, including by repealing the Glass-Steagall Act and exempting derivatives from oversight. The rollback of these essential guardrails contributed to the downfall of WorldCom and Enron, as well as the 2008 financial crisis. Since then, technological risks and the complexity of financial markets and reporting have only grown. Yet Congress is now considering barring states from regulating artificial intelligence for 10 years despite knowing very little about how A.I. tools might be used. It is highly likely that A.I. will dominate audit procedures and public company financial statement preparation in the near future. Accounting oversight has never been more needed. The proposed bureaucratic consolidation purports to save taxpayer dollars. That is merely wishful thinking or creative accounting. The P.C.A.O.B. is funded by fees from public companies and registered brokers and dealers, not taxes; transferring its duties to the S.E.C. would only shift its costs to the public. And taking on yet another job couldn't come at a worse time for the S.E.C., which reportedly has lost 16 percent of its staff in the past year, mostly because of Department of Government Efficiency-related buyouts. To continue the board's work, the S.E.C. would effectively need to rebuild it, but it does not have the resources to do so. Representative Michael Oxley once said, 'We often think of money as the currency of a free market system, but in truth the system rises and falls on the confidence of its investors.' Trust is hard won and easily lost. The P.C.A.O.B. was built to protect it. But if it's allowed to erode, we will all pay the price from market volatility, higher borrowing costs and potentially taxpayer-funded cleanup efforts. The silent, immeasurable value of well-designed safeguards lies in the scandals they prevent from happening.
CNA
20-05-2025
- Business
- CNA
Malaysia says US$2.4 million fraud involving civil servants uncovered at government office in London
KUALA LUMPUR: A RM10.4 million (US$2.4 million) financial fraud case allegedly involving Malaysian civil servants was uncovered at a federal office in London on Monday (May 19), according to local media. This is among a series of cases, amounting to around RM18 million worth of public funds lost over the last five years, according to Malaysia's Finance Ministry. 'It occurred at a federal department (and) enforcement authorities have taken action,' said Accountant-General Nor Yati Ahmad from the Finance Ministry as quoted by local news outlet New Straits Times (NST). The fraud involved manipulation of financial systems and unauthorised changes to accounting procedures, she added, as quoted by local media platform Free Malaysia Today. She was speaking at the launch of accounting fraud task force, the Accounting Fraud Working Group, in Kuala Lumpur on Monday. In her speech, Yati also said that public sector agencies must adopt a collaborative approach to navigate an increasingly challenging and complex technological landscape and this can be achieved through the sharing of best practices among public and private sector agencies to enhance fraud prevention policies, regulations and methodologies. She also said that most accounting fraud cases involved manipulation of financial procedures, including tampering with accounting and financial management systems. At the same event, Malaysia's Auditor General Wan Suraya Wan Mohd Razi said that all federal and state agencies, statutory bodies, as well as 1,875 government-linked companies flagged in her annual report, must return the misappropriated funds. 'If there are any irregularities such as uncollected or unreceived revenue, follow-up action will be taken,' she was quoted as saying by The Edge. Besides taking firm action based on third-party reports and other sources, the Accountant General Department is also leveraging current digital technologies to analyse financial data and identify unusual or suspicious transactions as part of 'standard work processes' at the National Accounting Department nationwide, reported NST. ACCOUNTING FRAUD TASK FORCE LAUNCHED TO STRENGTHEN FUND RECOVERY EFFORTS The Accounting Fraud Task Force launched on Monday, according to Malay Mail, will serve as a cross-agency platform for strategic collaboration to comprehensively address accounting fraud. Malaysia's Anti-Corruption Commission (MACC), the Accountant General's Department and the Inland Revenue Board are among the agencies forming the task force, local media reported. At the event, MACC chief Azam Baki described the launch of the Accounting Fraud Task Force on Monday as a strategic move to strengthen the country's efforts in recovering funds and assets linked to corruption and misappropriation, especially those hidden overseas. He said that the MACC, which is the lead agency of the task force, will ensure that detection, analysis and enforcement actions are carried out in a more efficient, coordinated and impactful manner. 'Dealing with cases involving the loss of national funds through complex syndicates that involve multiple parties is not an easy task. However, (through the task force), we can plug further leakages and recover stolen assets,' MACC's Azam was quoted as saying by Malay Mail. 'On the 1Malaysia Development Berhad (1MDB) case, it became clear that there is still much to be done, it's a challenging process that requires specialised expertise,' he added, describing the scandal as one of the most complex cases as many of the assets involved are located overseas. The task force's expertise will thus be 'vital in tracing assets via international collaboration,' Azam said. He also added that positive outcomes can be expected within the next six months from the task force, which will focus on asset recovery. Detailing on the economic impact of corruption in Malaysia, the anti-graft chief said that Malaysia had lost an estimated RM277 billion to corruption between 2018 and 2023, which is around RM55 billion annually based on GDP estimates. '(These figures) clearly show how corruption and related offences, such as document forgery, manipulation of financial statements and misappropriation of company funds, have undermined government policies, processes and service delivery as well as operations in the private sector,' Azam was quoted as saying by Malay Mail.
The National
19-05-2025
- Business
- The National
Auditor EY sued for $2.6 billion in damages by UAE hospital operator NMC
Auditors at EY failed to notice accounting fraud at NMC in the seven years they were working for the UAE-based healthcare company, an English court has been told. NMC collapsed in 2020 as a result of $4bn of hidden debt and its administrators Alvarez & Marsal said EY was negligent in failing to assure proper access to the company's books, thus missing billions in unreported borrowing as part of a 'massive fraud'. Creditors are seeking to recover about $2.6 billion from EY in damages for their losses as a result of the collapse, which led to NMC being placed in administration. EY, one of the world's Big Four auditors, denies the negligence allegation. The firm said that NMC's senior personnel were responsible for the fraud and manipulated its accounts, which was hidden from auditors. The Commercial Court in London has now begun hearing the case and legal submissions by NMC allege the company was the victim of a large scale fraud carried out by its principal shareholders, BR Shetty, Saeed bin Butti Al Qebaisi and Khalifa bin Butti Almuhairi. NMC said that EY is guilty of 'negligence of the most fundamental order, repeated for seven audit years' and its work 'fell very far below the standards expected of a reasonably competent auditor'. Simon Salzedo KC told the court that EY's conduct is 'the most fundamentally flawed example of Big Four auditing that has disgraced a court in this jurisdiction'. He accepted that auditors giving a wrong opinion did not amount to negligence but said: 'Two wrong opinions looks very much like carelessness and to give seven in a row is rather harder to explain away.' The fraud carried out on NMC 'was not a particularly exotic one and was first and foremost an accounting fraud' which involved undisclosed borrowing, said its submission to the court. The transactions were detailed in NMC's general ledgers, which were held on an IT system called FAS but were not included in the company's published financial statements. The undisclosed borrowing and dissipations of funds were obscured from the published financial statements by the fraudsters manipulating the FAS system, which EY knew was a risk, NMC alleges. But EY were warned off looking at FAS with the excuse that this could result in the system crashing, which they 'supinely accepted'. NMC told the court that documents show even when EY 'suspected that management may have been deliberately suppressing access' it 'continued with the audits nonetheless'. 'However many individuals were involved in the fraud, it would have been brought to a swift end by EY taking the simple step of insisting on access to the group's general ledgers, under threat of refusing to issue an unqualified audit opinion,' said NMC. But NMC alleges 'EY never got that far over the course of seven audit years' and 'never even opened the books of the company'. Eventually, the fraud was uncovered when an activist investor business named Muddy Waters 'with no access to the company's financial records, perceived from a distance that NMC's financial statements were dishonestly misstated'. In its legal submission, EY argues NMC had been completely captured by those either committing or facilitating the fraud and was 'itself a principal target and victim of the fraud'. Everyone to whom it 'might realistically have turned for information about the finances of NMC was actually engaged in practising the wholesale deception of EY'. NMC Health was founded by Dr Shetty as New Medical Centre in Abu Dhabi in 1975. The company had grown to become a major enterprise, treating more than 8.5 million patients annually through its chain of hospitals, clinics and pharmacies. The business, which has operations in 18 countries, employs more than 2,000 doctors, 20,000 other staff members and has more than 2,200 hospital beds.
