We’ve put together a collection of some of the most frightful financial scandals of the century so far, with tales of phantom profits, buried losses, and cruel conspiracies.
Tesco: eerie anomalies
Earlier this year, Tesco overstated profits by a whopping £250 million, about 30% more than actual profits.
While the exact causes behind the major misreporting are somewhat of a mystery, Tesco explained the discrepancy as being down to “accelerated recognition of commercial income and delayed accrual of costs.” Payments to suppliers were pushed back, while expected profits were counted too soon.
After suspending senior staff, Tesco called in independent accountants to look into the situation, before the Financial Conduct Authority became involved. Tesco’s accounting irregularities are now the subject of a criminal investigation by the Serious Fraud Office, and there are sure to be further twists and turns to this terrible tale.
The scandal has set in motion internal investigations among other large corporations, who have witnessed the devastating consequences of financial misreporting.
Enron: skeletons in the closet
A Texas energy giant spun a web of lies to conceal its daunting deficits.
To hide losses, Enron recognised projected profits from newly built assets before any had been made. If a loss resulted, assets were then transferred to an off-the-books subsidiary, and remained unreported.
After a whistleblower triggered the unravelling of the elaborate scam, investors began to retreat, forcing the firm into bankruptcy. The company had accumulated $628 million in debt between 1997 and 2000.
HealthSouth: financial apparitions
Some people just can’t come to terms with loss. But rather than drinking too much or having counselling, HealthSouth CEO Richard Scrushy let his imagination run riot… to the tune of $1.4 billion in revenues.
Scrushy instructed employees to falsify earnings reports, inflating revenues and overstating net income.
Suspicions were triggered when $75 million worth of stocks were sold, just a day before announcing a huge loss, a heavy blow for investors.
While the imaginative CEO escaped 36 counts of fraud, he was sentenced to seven years in prison for bribing the governor of Alabama.
Tyco: mysterious disappearances
When a CFO’s salary just isn’t enough, some well-planned financial hocus pocus can do the trick.
The manufacturer of electrical components, safety equipment and health care products was considered a safe blue-chip investment for decades, until those at the top devised a scheme for deceiving shareholders, and siphoning massive amounts of money from the company.
Three corporate managers took money out of the company in the form of unapproved no interest loans, disguised as bonuses.
The scandal emerged when stock plummeted by 80% over a six week period, and the executives involved were sentenced to 25 years in jail.
Bernie Madoff: trick or treat
The founder of Benie L. Madoff Investment Securities did some major recycling when he paid investors with the funds of other investors.
Rather than generating new profits, Madoff adopted a Ponzi scheme, acquiring new investors to yield returns for old investors, who would in turn be paid with newer investments.
After this scheme had tricked investors out of $50 billion, Madoff’s sons reported him to the U.S Securities and Exchange Commission, and he was sentenced to a superhuman 150 years in prison.
So, what’s the moral of this horror story? Keep financial closets wide open, and don’t be tempted by phantom funds.
If, after reading this, you’re aching to go in and sort out financial conundrums like these, take a look at how you can qualify as an accountant.