Nyamweya is an award winning journalist attached with a leading media firm in Kenya
The famous and most recent corporate fraud case I am going to discuss here is the Crowd1 pyramid. As found out by BBC investigation, Crowd1 was a fraudulent financial scheme that was designed to swindle gullible investors. Through trickery, they intentionally falsified the records to indicate that the company was secure and profitable yet this was a way of luring investors. Through attractive compensation plans and advertised returns, investors were lured to invest a certain amount which will enable them to obtain owner rights shares. They also fell gullible to videos and marketing gimmicks showing other investors buying expensive cars, having holidays at expensive places, boarding plains etc. However, all these turned out to be a hoax, and ploy to hoodwink potential investors.
In essence, Crowd1 case represents was a financial statement fraud since the figures and returns promised by the company were falsified to give impressive results. Again, the company’s financial statement and possible returns to customers were manipulated to portray a positive side while this was never a case in point. Of course this fraud was a financial statement kind of fraud owing to falsification of the reports and use of trickery. Essence, an external financial statement could have unearthed the anomalies in the company’s accounts. The auditors could have wanted to understand the outflows and inflows and why some aspect such as the debts and losses were missing in the fillings.
Although an internal control audit is necessary for any business to control fraudulent conduct, such a system could not be effective for a company such as Enron where the management were the one behind the scheme. They could have still controlled the unit and even commandeered on how it operated, what it needs to include and what it should leave out. Therefore, in this scenario, an external control audit could be effective in controlling fraudulent activities.