The Most Common Methods Companies Use to “Cook the Books”

Whistleblowers often are workers at companies who become aware of their company’s inappropriate or fraudulent practices. They might attempt to report their concerns internally only to be rebuffed and be forced to make their reports at a higher level.

Here are a few examples of some of the behaviors by companies that are most likely to become the subjects of whistleblower complaints.

• Improper revenue recognition: More than 60 percent of enforcement actions by the SEC relate to revenue recognition and improper timing of it. Revenue should only be recognized after it is earned and realized. Companies might attempt to accelerate revenue recognition so they meet earnings goals, or delay revenue recognition if they have met their revenue goals for a period.

• Fictitious revenue: In such a scheme, companies falsely inflate their earnings for a certain period by recognizing revenue that did not actually occur. They might make up fake contracts or report sales that never happened. This happens at all scales of business, even amid some of the largest companies in the world.

• Third-party transactions: Companies may improperly recognize revenue through fraudulent or improper third-party transactions. These are most likely to include consignment sales, bill and hold sales and various types of contingency sales.

• Fraudulent management estimates: Management at a company may inappropriately adjust and then inaccurately report accounting estimates for the company to more favorably impact certain financial statements.

• Improper expense capitalization: Companies must properly classify the costs of expenditures as assets or expenses. Improper capitalization involves misclassification for fraudulent purposes.

Aware of any of these or other examples of financial impropriety in your organization? Contact an experienced whistleblower attorney at Kardell Law Group to discuss your potential legal case.