Tuesday, March 22, 2011

Bit once, my fault

As some articles were published on follow up of the Madoff thing, I recalled reading of the 1937 scheme by some senor members of the venerable nationwide pharmaceutical supply firm McKesson Robbins.

Remaining profitable during the depths of the Great Depression a decision was made to expand into Canada.

Several million dollars was "spent" setting up warehouses and sales offices. An additional millions followed for inventory.

An accountant traveling in Canada decided he would visit one of the facilities. He found a rented office with a secretary whose job was to transfer paperwork she received by envelope to envelopes mailed from Canada.

The property, inventory, and $9,000,ooo in receivables were were all part of a scheme.

Following the startling revelation, two new "McKesson standards" were incorporated in accounting audits:

1. All inventory must be physically counted preferably by a disinterested party.

2. Accounts receivable must be documented by confirmations of the owing parties.

Imagine my surprise in refreshing my mind via Internet to find that McKesson was again stung in 1999 when they purchased a company called HBO (not the cable company).

An auditor with Deloitte and Touche made a random call to a customer to confirm a $20,000,000 order.

It was not active.

The auditors found that in anticipation of the sale customers were offered cancelable orders and future orders were booked as in the bank to the tune of millions of dollars.

Bit twice?

What was it our ex president said about trust but verify?



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