John Rigas, founder of Adelphia Communications, said that he was sorry for the problems at his company, but he didn’t think he deserved to be jailed. The judge rejected Rigas’ argument, indicating that he had engaged in a blatant fraud by using shareholder money for his personal use.
a. The phrase, “feeding at the corporate trough” has been used to describe Rigas’ actions at Adelphia. Explain what this phrase means. Is this a good thing? Discuss reasons for your opinion.
b. If you had owned stock at Adelphia, would you have been happy with Rigas’ expenditures? Explain your answer.
c. What fraud risk factor is present in a family-run business? How do the auditors gather evidence to determine whether the financial statements are misstated in such businesses?
d. Explain how industry knowledge would be useful to auditors in a situation similar to that at Adelphia. What role did industry pressure play in the fraud?