Fraud is an intentional act to misappropriate (steal) assets or to misstate financial statements. There are many documented high-profile collapses of companies due to fraud. As the Enron and WorldCom scandals unfolded, many people asked, How can these things happen? If such large companies that we have trusted commit such acts, how can we trust any company to be telling the truth in its financial statements? Where were the auditors? These scandals caused the creation of the Sarbanes-Oxley Act in the US (NI52-109 Canadian Equivalent) requiring companies to maintain adequate internal controls and for senior officers to sign-off on the company financial statements, among other things. Please discuss a famous corporate fraud case, tying in textbook knowledge where appropriate.

Within your discussion, please answer the following questions:

• How was the fraud perpetrated?
• Was it a financial statement fraud?
• What was the weakness in internal control or corporate governance that allowed the fraud to occur?
• Should a financial statement audit have detected the fraud? Would an internal control audit have detected this fraud?