Home Solutions of America, Inc., a hurricane restoration company, is charged by the SEC with recording millions of dollars in bogus revenues and issuing misinformation to fraudulently inflate its stock price. The scheme was compounded by transactions that occurred between Home Solutions and Fireline Restoration Inc., its largest subsidiary. All of this alleged activity happened after Hurricane Katrina and other weather-related disasters.
- Explain the expense-deferral scheme that Home Solutions used to commit fraud and why it violates GAAP.
- Explain the related-party violations that are alleged.
- From 2004 to 2007, this multi-million dollar fraud continued at the direction of various Home Solutions and Fireline executives. How does the magnitude and timeline of this fraud compare with the average fraud mentioned in the Association for Certified Fraud Examiners Report to the Nation? (Hint: Go to www.acfe.com)
- Speculate on what factors and/or lack of controls allowed for the perpetration of this fraud.
WebCPA Staff. (2009). Hurricane Company Charged in Katrina Accounting Fraud. WebCPA (Retrievable online at http://www.webcpa.com/news/Hurricane-Company-Charged-Katrina-Accounting-Fraud-52563-1.html)