Independent certified public accountant (CPA) firm Ernst & Whinney (now Ernst & Young) audited ZZZZ Best’s financials to provide an opinion as to whether the financial statements were free of material misstatement. The Times reported in May that ZZZZ Best had rung up $72,000 in false credit card charges from November, 1984, to March, 1985. The company laid the blame on a half-dozen subcontractors and six of their employees. ZZZZ Best said the subcontractors were fired and the charges repaid.
- ZZZZ Best was an industrial carpet cleaning company started in 1982 by a 16 year old American high school student named Barry Minkow.
- The Asian financial crisis of 1997 was a global phenomenon that acted as a fundamental learning curve for nation-states, graphic regions and ultimately the global economy.
- Why should the company
recognize rent expense on two premises while it was only physically
occupying and using one? - Banks canceled their credit lines and investment bankers immediately postponed the acquisition.
- The company laid the blame on a half-dozen subcontractors and six of their employees.
- Barry Minkow claimed his fraudulent actions were driven by a need to repay organized crime.
According to the video, ZZZZ Best was founded by Barry Minkow in 1982; when he was sixteen years old, it started as a carpet cleaning company. But, due to high competition in the industry, low entry barriers, and bad internal control, this young entrepreneur started to have cash flow problems, thus creating a shortage of working capital. There are, however, glaring similarities among the three recent cases
reviewed here, and prior management fraud cases. By realizing this and
by exercising due care in discharging their duties, auditors can reduce
their exposure to risk and liability. The question arises in practice as to what constitutes physical usage
of the leased property.
For example, Lincoln bought $11.8
million in Circus Circus junk bonds and, on another occasion, they
invested $132 million in the stock of Gulf Broadcasting Co. which was
involved in a takeover fight. Regulators also reported that Lincoln had
made $600 million more in direct investments than regulatory limits
allowed. Lincoln was also sending millions of dollars to its parent
company, Phoenix-based American Continental Corp., supposedly to cover
federal income taxes. He
assembled a small, high-performance management team and took Regina
public in November 1985. He often
expressed his resentment that his sister was highly successful in the
business world and he swore he would “not be last in a foot race with
her.” During his quick advancements and successes he always let people
know that he was in charg.
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There are several lessons that can be learned from ZZZZ Best, Regina,
and Lincoln Savings that should help accountants exercise more care in
the future. The first and most discouraging of these lessons is that a
well-orchestrated fraud will often succeed (at least for a time) even
against well-intentioned, hard-working individuals. To launch an IPO, the Securities and Exchange Commission (SEC) requires a firm to compile a prospectus, which must include a set of audited financial statements.
Under FTB 85-3, companies were maintaining that
during the period that the premises were unoccupied or being renovated
to a condition suitable for use by the company, there was effectively no
“use benefit” derived from the property. Why should the company
recognize rent expense on two premises while it was only physically
occupying and using one? The FASB recognized that confusion still
existed in this area and, therefore, issued FTB 88-1.
ZZZZ Best Internal Probe Turns Up ‘Questions’ on Financial Statements
Regina also began
booking sales when an order was received rather than when the company
shipped the goods. In addition, Regina’s computer system was modified to
generate approximately 200 fictitious invoices worth $5.4 million on the
last three business days of the fiscal year ended June 30, 1988. Before the initial disclosure of false credit card charges, ZZZZ Best’s stock had traded as high as $18.375 zzzz best financial statements a share in the over-the-counter market. It closed at $3.50 Thursday, as about 2 million of its 11.6 million shares were traded. ZZZZ Best, a fast-growing Reseda carpet-cleaning firm, said Friday that an internal probe had turned up “significant additional questions” about the accuracy of its financial statements. In 2011, he was again convicted for fraud and sentenced to five years in prison.
Why now is a crucial time to pay off credit card debt
It should be noted that Regina and ZZZZ Best are proven frauds, but
Lincoln Savings is only an alleged fraud. Minkow has been involved in a number of lawsuits, including one filed against him by Jack M. Catain Jr., a reputed Los Angeles organized crime figure who died earlier this year. In 1985, according to court papers, when Minkow was short of cash, Catain arranged loans for Minkow–but at interest rates of 2% to 5% per week. By comparison, Blackmon said, when his company did the cleanup after the fire at the Las Vegas Hilton several years ago, the contract amounted to $2.1 million. The company said Bruce T. Andersen, ZZZZ Best’s chief financial officer, was named interim president.
Minkow After ZZZZ Best
Before he could IPO, the auditors wanted proof of their work though. So, Minkow had a friend who he’d appointed his head of a firm that supposedly provided his company with referrals, rent a building and make it look like a work site. While their carpet cleaning services were legit, ZZZZ Best didn’t actually have any restoration contracts with insurance companies, which was supposed to account for the vast majority of their revenues. The company was poised to take over its biggest competitor in May of 1987 when the Los Angeles Times broke the news about extensive credit card fraud allegations against Minkow. Banks canceled their credit lines and investment bankers immediately postponed the acquisition. At the same time, it was revealed that a number of the major restoration contracts were completely bogus.
Public accountants continually find themselves in liability disputes
involving the quality of services provided by their firms. During the past month several class-action suits have been filed against Minkow and ZZZZ Best alleging that the company made misleading statements in its stock prospectus last December. In recent years, Minkow has been considered a “whiz kid” and has generated much favorable publicity. He started ZZZZ Best in his parents’ Reseda garage when he was 15. As the company grew, he appeared on various television programs, made anti-drug commercials, launched a major TV ad campaign for ZZZZ Best and won a commendation from Mayor Tom Bradley. Restoration work previously announced by ZZZZ Best include contracts in Tempe, Ariz., Oakland, and Dallas.
Separately, Minkow was also indicted on counts of credit card fraud. Approximately a year later, Minkow was found guilty on all charges, was sentenced to 25 years in prison, and was ordered to pay over $26 million in restitution. Those that do rarely undergo
a complete change of direction as did ZZZZ Best and Lincoln. How could
these firms grow so rapidly when other firms in the same industries
could not? Auditors must be aware of the fraud possibilities in fast-
growing companies. Many major financial statement frauds have involved
fast-growing companies, including Allied Crude Vegetable Oil Refining
Corporation, Westec, National Student Marketing, and ESM Government.
The company also confirmed that 21-year-old founder and chief executive Barry Minkow had resigned because of unspecified “severe medical problems.” Minkow could not be reached for comment Friday. Barry Minkow claimed his fraudulent actions were driven by a need to repay organized crime.
ZZZZ Best failed because it was a Ponzi scheme so, in essence, the company followed almost no proper accounting procedures. However, it took the company going public before the fraud was discovered so there is an argument that exists that Minkow was quite skilled with his accounting. As the Ponzi scheme continued, ZZZZ Best experienced significant cash flow problems. As a solution, Minkow planned to acquire KeyServ, Sears’ authorized carpet cleaner, for $25 million. According to Minkow, the revenues from KeyServ would provide enough cash flow to end the Ponzi scheme. Before the deal was closed, the jilted homemaker sparked a campaign against ZZZZ Best that would expose more than the fraud committed against her.
He reportedly owes $612 million in restitution payment to a company whose stock he manipulated and the myriad individual victims of his many scams. The assets of ZZZZ Best, a few trucks and some cleaning equipment, were eventually sold for https://1investing.in/ a poultry total of $64,000. And his Ponzi scheme went on to become one of “zee” best case studies in accounting fraud. Best case of fraud, it tells how and why fraud was perpetrated by Barry Minkow and why it was undetected for so long.
