Navistar v Deloitte: Blame the Auditors for Fraud Committed and Concealed By Employees

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In cases of corporate fraud, including embezzlement, financial statement fraud, earnings management, bribery, and the like, it’s easy to blame the auditors. After all, they have very deep pockets, often with large malpractice policies.

Even though the task of auditors is usually well-defined and agreed-to by shareholders, management, and the board of directors, it doesn’t seem to matter to them that the financial statement auditors aren’t responsible to find fraud during their audits. People quickly forget that the auditors disclaim responsibility for finding fraud multiple times before, during, and after the audits, and that management is ultimately responsible for preventing and detecting fraud in their own companies.

Last week Navistar sued their former auditors, Deloitte & Touche, for fraud, fraudulent concealment, breach of contract, and malpractice.  The lawyers say Deloitte lied about its competency in performing audits, and the company ultimately restated its financial statements for 2002 through 2005.  Whose fault is it that Navistar overstated its pre-tax income by $137 during those years? According to them, Deloitte. Continue reading

More Evidence of Fraud at China MediaExpress Holdings

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UPDATE: In March 2011, CFO Jacky Lam of China Media Express and the auditors (Deloitte) resigned. Deloitte said they could no longer rely on the representations of management, and they suggested an investigation was in order. Ping Luo, the analyst from Global Hunter who gave CCME rave reviews resigned. Maurice Greenberg’s Starr Investments sued CCME for fraudulently inducing it to invest $13.5 million. The stock was delisted from the NASDAQ in May 2011.

Deloitte raised the following issues: questionable authenticity of bank statements, supicioius bank confirmation procedures, existence of advertisers/customers, undisclosed bank accounts and bank loans, financial filings with the State Administration of Industry and Commerce differing from information provided to auditors, questionable authenticity of tax filing documents, cash payments to employees, and double counting of buses.

Last month, I wrote a piece on China MediaExpress Holdings (NASDAQ: CCME) and the allegations of fraud by researchers at Citron Research and Muddy Waters. The story grew quickly with the reaction of the company and its supporters. China Media Express Holdings responded to the allegations with a letter posted on their website, but the letter failed to definitively address several of the issues. The supporters of CCME were rabid, attacking anyone who would question the company.

Citron and Muddy Waters made many accusations, but the most concerning items included: Continue reading