Grossmont College Fraud Psychology Discussion and Responses

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Grossmont College

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Barry Minkow - All-American Con Man? 

Can the Perpetual Fraudster be Stopped?

In  our readings thus far, we have read about the role of auditors, both  internal and external. We have also seen some discussion about the  difference between a traditional financial audit and a fraud, or  forensic audit. In addition, we have had discussions from Chapters 2 and  3 about various fraud theories and the motivations behind fraud.  We  have explored evidence and identifying signs of deception.  

One  of the more "colorful" fraud perpetrators in recent years is Barry  Minkow, of ZZZZ Best infamy, among other things. Without going into  detail, Mr. Minkow has had a very colorful history stretching from the  1980's to today. To give you a good flavor of his history, I have  gathered the following list of resources that tell some of his story. 

Minkow movie trailer https://www.youtube.com/watch?v=SLi0Fp8tB6w (Links to an external site.)(Links to an external site.)

Barry Minkow Biography

Jan. 1988 - ZZZZ Best Founder Minkow Indicted on Racketeering and Fraud Charges

Feb. 1990 - Nothing But ZZZZ Best: Barry Minkow – The Kid Who Swindled Wall Street

Jan. 2012 - Barry Minkow : All-American Con Man

2006 -Barry Minkow ZZZZ Best CEO Profiled on 60 Minutes

March 2011 – Plea Deal Puts Minkow Redemption Movie in Limbo

Sept. 2013 – Ponzi Schemer Barry Minkow Facing Third Strike

Dec. 2013 – Barry Minkow Scam Leads to $1 Billion Verdict

Jan. 2014 – Former Teen Millionaire Guilty of Defrauding San Diego Church

Barry Minkow - Con Man Nonpareil

Once you have a good understanding of his story over the years, please post a one-page summary  exploring Barry and his colorful history, specifically focused on your  observations of his story and what you, as a potential forensic  accountant/fraud examiner, can most learn from his story.

Following your initial post, please interact, discuss, and debate freely with your classmates with at least three substantive responses to other posts. I am truly interested in getting your perspectives that explore the breadth of subject areas we have covered thus far. The content of our discussion is fairly wide open; however, consider any one or more of the following areas to discuss:

What are your most poignant observations?

What are lessons to learn from this story?

What conclusions can you derive about motivating factors?

How does this story impact your opinion of the role of auditors?

How well does the fraud triangle (or other fraud theories) apply to fraudsters like Barry Minkow? How might the application of these theories be different in this case?

What is your opinion of the punishment that Barry has experienced (sentences, jail time, fines, restitution)?

Is jail time an effective deterrent? Why/why not? If not, what might constitute a more effective deterrent?

How do we stop fraudsters like Barry? Why does this type of fraud story continue to repeat itself?

 

 

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O Yesterday After listening to Barry Minkow speak of the fraud he committed I can understand why the auditors and others were so obviously deceived. Minkow seems to be well-calculated and knowledgeable of the ways in which he can brush red flags under the carpet. His prime objective to create a facade in order to deceive his customers, auditors and peers worked through having fake projects, fake supporting documents, and fake customers in order to look successful. His story provides many lessons for auditors or evaluators providing due diligence of business' and investments. This case points to the importance of assessing risk, positive tone at the top, completing proper background checks on investment and vendor relationships, and understanding the importance of trusting your gut when feeling an itch of deception. Minkow's main motivation was the fact that he needed to pay off all his debts. Money is a common motivation and incentive for why most business people commit fraud in the first place so this comes as no surprise. By needing to make his company look like it was more lucrative than it was he found that faking documents in order to show that he was making money and in need of more money was easy to do. Thus, the opportunity came forth by banks that supplied him with the fuel to keep going. Minkow seems to be proud of the crimes he committed. He is able to rationalize what he did easily as he was on top enjoying the money and publicity he received as an outcome of pulling off the scheme. Minkow very easily fits into this fraud triangle in every way. Minkow is an ultimate con-man moving from one scheme to another. Although he has served sentences it's obvious he has learned nothing besides how to become more cunning when pulling these crimes. I do feel that jail time is an effective deterrent because for most people they don't seem to want to waste their life in a jail cell. Especially for crimes that seem minuscule when compared to more violent crimes. However, in the case of Minkow, he is a desperate and pompous man seeking an easy and publicized life no matter the consequences. For fraudsters like Minkow it is certainly not as easy to detect or deter because of the efforts put in place by both parties. When it comes down to the first people to initially detect fraud we have the banks. The banks detection is not as advanced because their foundation is supplying the right amount of risk in exchange for business. The second party to come in are the auditors. Auditors should be capable of understanding and detecting risk once they have a feeling that something is off. Of course, auditors can skim or look over things just as others might do at any job. They can also have too many clients, lack of understanding for the business they are auditing, or trust in their client. There are a multitude of things that can go wrong when detecting fraud. The reason fraudsters like Minkow are so good at what they do is because they know the ins and outs of their business and what they're supplying. Their sole motivation is to keep their business running therefore they have more of an incentive to keep the eyes of auditors off the fraud. Auditors are given less of an incentive to look out for this fraud in return. Auditors need to understand that deceptions don't only come from numbers (although they are usually there) but also in things like the types of documents sent. As an auditor it is important to understand that the client is separate from their books and financial statements. They are paying them to evaluate and find any wrongdoings amongst their financials. In order to keep fraud from repeating, it is important to have foundational steps to eliminate the opportunity for fraud to occur. Simple detection such as a background check can stop the scheme before it continues. ReplyO 5:24am ⠀ The most interesting thing about the Barry Minkow case to me is that he started ZZZZ Best as a sophomore in high school. What makes it interesting is that starting a business at that age, even one relying on fraud, requires knowledge that I wouldn't expect a teenager to have. In turn, that made me realize that if I were an auditor working the early years of ZZZZ Best, I might have an implicit bias, leading towards me underestimating Minkow's capability to commit fraud, especially at the magnitude that it was committed. Additionally, he had no formal education in accounting, which when combined with the age factor, would likely lead to me underestimating him even further. Why is that important? One of the tactics Minkow used was hedging his legitimacy on the opinions of financial industry experts, which presented through the company's stock price. He used the stock price to downplay concerns when they arose, under the premise that if so many financial analyst, stock brokers, investors, etc. are willing to risk their money on ZZZZ Best, they would have found any wrongdoing. This scenario brings up two lessons to be learned for auditors and fraud examiners/forensic accountants: due diligence and professional skepticism on two fronts. Reply The first front when considering professional skepticism and due diligence is when dealing with the client when conducting an audit or a fraud examination. Accountants in these roles must not simply trust what the client is saying regarding reliability of financial information. It should always be "show me, don't tell me." When dealing with confident and charismatic fraudster, an auditors trust is simply a tool used to further conceal and continue the fraud taking place. Taking the time to actually examine documents, accounts, and transactions would be doing due diligence, and might have allowed auditors to detect the fraud a lot sooner in this scenario. Additionally, professional skepticism could have helped detect the fraud sooner in this case. For example, the million-dollar contracts written on a single sheet of paper should have raised suspicion on the legitimacy of the contract. Therefore, maintaining strong foundations in professional skepticism and due diligence when dealing with clients is an important lesson from this case. The second front when considering professional skepticism and due diligence is when dealing with other accountants. As a fraud examiner, it would be easy to say "XXX firm's accountants have always done good, reliable work. If they didn't find any anomalies in their audit, I can be reasonably sure that their aren't any." The problem with this method would be if any of those auditors were knowingly or unknowingly compromised. The effect would trickle down to the fraud examiner. The more-time consuming and difficult route would be to to maintain professional skepticism and due diligence, even when dealing with reputable accountants. It is the only way that an examiner can provide reasonable assurance that fraud isn't occurring, and would have been beneficial in detecting Minkow's fraud a lot sooner.O Yesterday ⠀ Barry Minkow's story seems so unreal and straight out of a crime movie. As the stakes got higher, so was his desperation to keep up with his lifestyle and image. The book was spot on when mentioning that fraudsters would usually live a lifestyle that they cannot afford. Minkow is a good example of this. One thing that resonated to me while watching the documentary was that he seemed as if he was so proud of what he did. As he explained how he swindled and committed crimes, his attitude towards it seems like he did not do anything wrong. He even goes as far as blaming the three banks when explaining how he kited checks. To him, it was never his fault. It was the bank's fault for having weak controls and no accountability. He also talks a lot about how he was able to manipulate auditors by putting their careers on the line and through fake customers. He would make auditors second guess their work by stating that other professionals from Wall Street are agreeing with his company valuations. Barry Minkow's story is very important to the advancement in not only the fraud examination industry, but also the audit service line in the public accounting industry. After getting out of his initial prison sentence, helping the FBI with potential fraudsters, serving as a pastor, and starring about a movie of himself; he still comes back to being a fraudster every time. Punishments like his jail time and fines seem to be the least of his concerns as he keeps committing the same crimes. Getting out after 8 years out his 25 years of prison sentence seems like an oversight as others have done more for less. Besides a few burglaries, his crimes were nonviolent. Although nonviolent, the severity of his crimes had a huge impact in businesses, industries, and individuals. Perhaps, a heavier sentence might be a good deterrent as he does not seem to have any remorse over his actions. Mandatory community service after his prison sentence may also be a fitting deterrent since Barry Minkow seems to be a narcissistic and opportunistic person. It would be a fitting and ironic "punishment" to now serve people and the community. Reply
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Running Head: RESPONSE TO STUDENTS POSTS-FRAUD PSYCHOLOGY

Response to Student’s Posts –Fraud Psychology
Student Name
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1

RESPONSE TO STUDENTS POSTS-FRAUD PSYCHOLOGY

2

Response 1
I concur with the claim made by the student in post one that Barry's motivation was his
desire to pay off his debts and live a prosperous life. It is, however, quite evident that he was able
to defraud millions of dollars for a very long time without detection. Minkow does not seem to be
remorseful for his crimes since he shifts the blame to the audit teams and the banks. To ensure
fraudsters like Barry do not thrive in the business environment for a long time, auditors need to
ensure they do not blindly trust what their clients say without due diligence and asking hard
questions. Again, businesses should also collaborate with the criminal justice system since most
fraudsters tend to be perpetual criminals-meaning that they revert to the same crimes several times.
Response 2
While I agree with the...


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