The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoff’s Ponzi scheme, frauds in the subprime mortgage market, the AIG bailout, and Goldman Sachs’ failure to disclose. However, our 18-year crime spree conducted in the light of day serves as a fascinating case study of the multiple methods of deceit that white collar criminals routinely engage in. The evolution of the Crazy Eddie crime drama illustrates how petty, easily rationalized criminal infractions can escalate into serious and complex frauds and conspiracies, without so much as a thought given to concepts such as morality, ethics and justice. Morality, ethics and justice are for the other guys – the victims.

Requirements:
You are to assume the role of “the Internal Auditor” responsible for assessing the adequacy and failures of internal control systems for the Crazy Eddie electronics business that led to a massive fraud. Remember that fraud is the “intentional” misrepresentation of material events, such as accounting transactions that cause financial statement users to make damaging business decisions.

As such, you are responsible for reporting the findings of your investigation to such regulatory authorities as the Securities and Exchange Commission, the US Internal Revenue Service, and the US Department of Justice. Each “finding” that you identify should include the following elements:

1). The Condition – What is the substance of the failure in internal control that you identified?
2). The Cause – What is the “root” cause of the failure of the internal control that led to the condition that you identified?
3). The Impact – What is the significance of the finding that you identified? In other words, what is the major “business exposure” that led to the demise of Crazy Eddie’s as a going concern?
4). The Recommendation – What is your recommendation for avoiding this failure of internal control? Please note that your recommendation should “loop back to” and address the “Cause” of the internal control failure (the Condition).
You should identify as many findings as possible based on the following information presented in the case study concerning Crazy Eddie’s electronics business.

Answer rating: 100% (QA)

Fraud is an act of deceitful behavior perpetrated by someone for the purpose of making money which i... View the full answer