ACC691_Final_Project_Crisis_at_the_Mill.docx

ACC691_Final_Project_Crisis_at_the_Mill.docx - Crisis at...

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Crisis at the Mill 1 ACC691 – Final Project Crisis at the Mill: Cash Flow Forecasting Exercise Antonio Testa Southern New Hampshire University
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Crisis at the Mill 2 TABLE OF CONTENTS Crisis at the Mill: Cash Flow Forecasting Exercise 1 Abstract 4 Keywords 4 Introduction 5 Main Participants in WoolEx Mills Fraud 5 Foundations of Fraud Theory 6 Fraud Triangle 7 The Triangle of Fraud Action 7 Fraud Motivation 8 The Fraud Diamond 8 Analysis of Financial Statement Fraud 9 How Financial Statement Fraud is Committed 9 Procedures & Methods 10 Risk Factors11 Internal Control Weaknesses 12 Internal Controls 13 Red Flags 14 Fraud Discovery 15 Impact and Auditor Responsibility 15
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Crisis at the Mill 3 Evidence16 Professional Responsibilities 17 Professional Standards 18 Legal 19 Social 20 Economic 21 Financial Statements 22 Current Ratio 23 Quick Ratio 23 Collection Ratio 23 Non-Financial Measures 24 Fraud Case Outcome 25 Works Cited 27
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Crisis at the Mill 4 Abstract This case study explores the financial statement fraud that occurred at WoolEx Mills, a textile manufacturer located in India. The perpetrated fraud by executives at the company were made aware to Sapphire Capital (SC), a private equity firm, who manages WoolEx Mills as a portfolio company, by a former employee. Once Sapphire Capital was made aware of the alleged financial statement fraud, they contacted a professional service firm, Alvarez & Marshal (A&M), to investigate WoolEx Mills of the alleged acts. The investigation lead to the evidence of financial statement fraud throughout the company as a result of poor internal controls. The management team of A&M subsequently took over the day-day operations of WoolEx Mills when SC let go the executives indicted in the financial statement fraud. The new executives are tasked to improve the financial and non-financial aspects of WoolEx Mills while improving internal controls, ethical standards, and a failing infrastructure. Keywords. WoolEx Mills, internal control, financial statement fraud, foundations of fraud theory, auditor responsibility, Sarbanes-Oxley
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Crisis at the Mill 5 Introduction The company discussed in the case study is WoolEx Mills, a “leading woolen textile manufacturer and exporter” with operations in Northern India (Alvarez & Marsal, 2015, p. 1). WoolEx Mills is an Indian portfolio company, which is managed by Sapphire Capital (SC), a large U.S. based distress private equity firm. The situation; potential fraudulent acts by management at WoolEx Mills, was brought to the attention of Alvarez & Marsal (A&M), a global professional services firm who has SC as a client (Alvarez et al., 2015, p. 1). The alleged fraudulent acts were first brought to the attention of SC by a former employee who had claimed he had “witnessed irregular activities during his time at the company” (Alvarez et al., 2015, p. 1). To determine if any fraudulent acts were being committed, SC hired investigators to assess the claims made by the former employee. Once the initial
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  • Spring '16
  • Dr. Germaine F. Brewington
  • WoolEx Mills

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