ACCOUNTING CONTROL FRAUD – 2008 BANKSTER HEIST

Accounting Control Fraud Disappears from Regulatory Lexicon By WlLLlAM K. BIack

“BEST WAY TO R0B A BANK IS TO 0WN ONE!”  —  WK BIack

Corporate Accounting Control Fraud:

1. Deliberately making bad loans or investments.  No sound underwriting.

2. Exceptionally High Growth (improperly accounted profits are being booked today).

3. Use of extraordinary leverage to maximize artificial immediate.

4. Providing grossly inadequate reserve allowances for loan and lease losses (ALLL).

Accounting control fraud (a “SURE THING”) causes greater financial losses than all other forms of property crime – combined — reason control fraud produces catastrophic losses is the seeming legitimacy and status of the firm, respectability of the CEO leading the fraud, and ability for the fraud to persist for years – magnifying losses.

THE PARADOX:  The Best way for a fraudulent CEO to loot “his” bank is to make exceptionally bad loans – Used in S&L debacle and Enron-Scandal where CE0s looted their own firms – many felony CE0 convictions.  The CEO does not looting himself BUT loots the FIRM using insider fraud.  Every accounting trick available is used to “milk” the organization.”

Making enormous numbers of bad loans requires fraudulent banks to ignore internal controls and underwriting to report superb, albeit fictional, income and the controlling officers will, promptly, be made wealthy. 

 

#1 Fraudulent Government Agency that allowed all this fraud was Office of Thrift Supervision (OTS) having authored a manual 30 Years ago on how to do Accounting Fraud and trained its staff, the FBI and the Justice on the recipe for the accounting control fraud.

1. Management uses gains to further leverage the balance sheet based on optimistic assumptions.

2. Management payouts are excessive and dependent on OVERSTATED earnings and  payouts dissipate Firm’s assets and capital.

3. Management ignores credit quality, but go after short term gain-on sale accounting incentives to produce massive numbers of LlARS L0ANS to MAXIMIZE CE0 PAYOUTS!. 

They have known the above for a very long time.