Essay on Week 3 Assignment 1

Submitted By niesha25
Words: 1244
Pages: 5

Madoff Securities Case
Taniesha Maxwell
Professor Anthony Matias
Advanced Auditing
October 27, 2014

Overview
Bernie Madoff began his brokerage firm in 1960, and it wasand was known as one of the largest on Wall Street. He started off investing money as a favor for family and friends, all though he was not licensed to do so. Over a period of fifty years, many people grew to know him and described him as one of the masters of the New York Stock Exchange. His firm grew into a very highly profitable securities firm, known as Bernard L. Madoff Investment Securities. It was stated that Madoff’s firm couldan execute trades so quickly and cheaply that it actually paidpay s other brokerage firms a penny a share to execute their customers’ orders, profiting from the spread between bid and asking ed prices that most stocks trade for( (Madoff investment scandal, n.d.) ).. However, unknown too many Bernie Madoff was conducting one of the largest Ponzi schemes in history.
The Main reasons why they did not discover the scheme.

The Madoff investment scandal broke in December 2008, when former NASDAQ Chairman Bernard Madoff admitted that the wealth management arm of his business was a complex Ponzi scheme (Madoff investment scandal, n.d.). Thousands of wealthy clients and middle-class people whose pension funds found their way into Bernie’s investment fund lost all of their life savings. The question that many began to ask was how come The U.S Securities and Exchange Commission (SEC) missed the signs of such a largest fraud operation. Well Tthe SEC receives over 10,000 complaints against brokers annually. The understaffed SEC assigned cases to investigators who had little experience with Ponzi schemes. So Tthey focused on what was more familiar “front running,” which Madoff was not doing (Madoff investment scandal, n.d.). Note that, the SEC made numbers of visits to the Madoff offices. But, because he lied to them on multiple occasions to keep them off track, the SEC had difficulty understanding the complexity of Madoff’s operations. So Tthey made assumptions and took Madoff’s word on many occasions. They failed to evaluate even the most basic custodial statements, which would have easily exposed the fund’s actual value (Collins) (). Even if a sample was conducted of trading history should have raised some red flags. Unfortunately, the upside of such a major scam is to draw attention to standards and enforce investors to be more proactive in the future. A fact tThe SEC gave Madoff the benefit of the doubt due to his impressive track record with NASDAQ and the fact that he assisted the SEC on complex issues.
1. The fundamental audit procedures. As an auditor for a firm that had 10 million dollars invested in Madoff Securities, it would ill be safe to say that I would have nothave not relyrelied on third-party opinions about investments in the Madoff funds. For the simple fact that third parties participated in the profits with commission and finder’s fees. However, as an auditor for a firm I would asked for audit reports. Also, II also would have question want to know why is that the CPA firm that Madoff employed only consisted of one employee and the fact that no real audit was ever performed for his company. Most importantly, as an auditor it is important my first object would have been to trace cash flows through the books. Nevertheless, mMany of the investors in this case wereas very lenient. They trusted Bernie Madoff by letting down their guard and not asking typical due diligence information (Schmit). But can one’s blame them, Madoff himself was well-respected in the community withand his returns seeming impossible to duplicate. Also, with the opinions and supports of the third parties who provide a level of security for investors, they thought frequent due diligence was been conducted. However, these parties failed at noticingto the clues and signs of the Madoff’s scam. It is i’s important that investors…