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Index of articles > Business > Business publications > Corporate Cashflow Magazine articles > September 1993 articles

Cooked books: how to detect financial shenanigans.

Corporate Cashflow Magazine | September 01, 1993 | Schilit, Howard M. | Copyright

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Scams in financial reporting seem to have reached new heights starting in 1992. Details of the collapse of Cascade International and Maxwell Communications were followed in April with news of College Bound's financial misrepresentations. By summer, we learned about the massive inventory fraud at Phar-Mor.

And Thanksgiving brought word that top executives at Comptronix had cooked the books for at least three years.

Two mega scams from previous years were settled in 1992: MiniScribe and Lincoln Savings & Loan. A record $128 million in damages was paid to settle numerous lawsuits against MiniScribe, only to be eclipsed by the $400 million paid to settle lawsuits related to Lincoln Savings and several other S&Ls.

In none of these cases did the outside auditor warn investors or lenders.

Clearly investors, lenders and trade creditors need to develop their own warning systems and learn how to detect quickly accounting gimmicks and fraud. From the Comptronix example, we can identify a number of techniques that would have tipped off investors, creditors and others of the presence of financial deception and enabled them to avoid staggering losses.

Shenanigans at Comptronix

Founded in 1984, Comptronix provides contract manufacturing services to makers of electronic equipment. Buoyed by rapidly expanding business, the company went public in 1989. Sales and profits...