Madoff Ponzi Schem

According to the case, Bernard Madoff was operating a Ponzi scheme to cheat investors. Ponzi scheme is defined by the SEC as an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors (2013). In the case, the returns generated by most Ponzi schemes on paper looks good that attracted unprofessional investors to invest the money in it. In other words, the information provided to the investors in this case is a misstatement. Therefore, there is a risk for investors and fund managers to make wrong decisions. According to an article published online by Business Insider, Madoff used “investing strategies” that are vague and secretive, which claimed to protect their business (2014). All they done back when the operations were active was telling the investors how much they were making periodically, without actually providing any real returns. Financial statements will need to be audited so that information is reliable for investors to overlook. This is because auditors are independent persons who are out of company’s business, and they can achieve enhanced credibility of information disclosed to increase reliability of the financial statements.

Investors and fund managers should find some companies that have an audit committee to invest to avoid losing money easily, and should not trust other’s oral statement that is unreliable. An audit committee is part of a tripartite with the external audit and internal audit. The audit committee facilitates the independence of the internal and external auditors. By doing that, it improves the credibility and objectivity of the accounting process. In this case, David G. Friehling was Madoff’s long time auditor and he didn’t question what he should have questioned, as he had never had any indication that anything was amiss at the firm (Goldstein 2015). This could have prevented if there are internal audits, who will ensure people are working properly, report to the...