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This case details an inventory accounting fraud orchestrated by two top executives of Health Management, Inc. (HMI), a New York-based pharmaceuticals distributor. The HMI fraud
This case details an inventory accounting fraud orchestrated by two top executives of Health Management, Inc. (HMI), a New York-based pharmaceuticals distributor. The HMI fraud and following lawsuit against HMI's auditors was the first major test of an important federal statute the Private Securities Litigation Reform Act of 1995 (PSLRA). The PLSRA made it less likely that auditors are sued and plaintiffs recover damages, under the Securities Exchange Act of 1934 The Act was heavily lobbied for by accounting firms who argued that they were subject to a growing environment for auditors. burden of unnecessary class-action lawsuits and was a major shift in the litigation QUESTION: Internal controls are generally grouped into preventative and detective. What, if any, controls could have prevented the fraud? What, if any, controls could have detected the fraud
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