Crazy Eddie’s Fraud Schemes The following list provides a brief introduction to the various fraud schemes committed by Eddie Antar: • 1.Phony Insurance Claims Crazy Eddie frequently incurred fire and flood losses. These losses were willfully created and the damaged inventory was vastly overstated. • Phony Warranty Claims Eddie submitted warranty claims to manufacturers for repairs Crazy Eddie did not perform. Thus, manufacturers paid for phony warranty claims, resulting in overstatement of revenue for Crazy Eddie. • Skimming Before Crazy Eddie was a stock-listed company, the Antars underreported Crazy Eddie’s earnings to evade sales tax payments. Part of the cash sales were not entered into the company books, and the cash was secretly transferred …show more content…
When delivery of the merchandise occurred, all shipping documents and packing slips were intercepted and hidden from auditors. • Poor Disclosure (and again understating accounts payable) In 1987, Crazy Eddie changed its accounting method for purchase discounts and trade allowances. Prior to 1987, purchase discounts and trade allowances were recognized when received. Starting in 1987, purchase discounts and trade allowances were recognized when earned. This change added more subjectivity to the recognition of purchase discounts and trade allowances and was then misused to record numerous fabricated discounts and to aggressively understate accounts payable. While the new accounting policy was included in the financial statements, the fact that the policy had changed was not disclosed and no prior year comparison of its impact was provided. • Misleading Auditors The auditors of Crazy Eddie routinely left their documents overnight in a locked file cabinet at Crazy Eddie’s offices. The Antars observed that the auditors would hide the key to the cabinet in a paper clip box on their work desk at Crazy Eddie. Every night after the auditors had left, Eddie and his cousin Sam E. accessed the auditor’s cabinet and altered audit records, specifically inventory