How senior managers perpetuate accounting fraud? Lessons for fraud examiners from an instructional case

• Published in: Journal of financial crime Vol. 21; no. 4; pp. 411 - 423
• Main Author: Lokanan, Mark E.
• Format: Journal Article
• Language: English
• Published: London Journal of Financial Crime 30.09.2014; Emerald Group Publishing Limited
• Subjects: Accounting; Accounting records; Chairman of the board; Conspiracy; Due diligence; Executives; Financial statements; Forgery; Fraud; Heaven; Indictments; Investments; Mounted police; Revenue recognition; Scandals; Theater; Canada; United States > US
• ISSN: 1359-0790; 1359-0790; 1758-7239
• DOI: 10.1108/JFC-03-2013-0016

Purpose The purpose of this paper is to examine the risk factors that led to the Livent fraud, and the procedures that need to be taken by responsible parties to carefully investigate and address the incidents of misconduct. Design/methodology/approach The paper combs through the chronology of events that led to the Livent fraud by looking at both primary and secondary sources. These sources made it possible to examine how the fraud was discovered, and the investigative steps that should have been taken to uncover the fraud. Findings The findings indicate that a corporate culture which focuses on the bottom line coupled with weak to non-existent internal controls, were the key elements that led to the Livent Fraud. They findings also illustrate that when faced with declining profits, senior managers will go to any length possible to manipulate and falsify their company’s records. Practical implications The paper is useful to management personnel and fraud examiners in that it used an actual accounting fraud case to highlight areas more susceptible to fraud and the approach that can be taken to investigate similar cases of misconduct. The paper also highlighted the practical implications for internal and external auditors in detecting and addressing fraud. Originality/value The study used an accounting fraud case to examine the techniques used by management personnel to produce fraudulent financial statement.