ZZZZ Best's Story 
ZZZZ Best, Inc.
The start of ZZZZ Best:
ZZZZ Best started as a carpet cleaning company. Barry Minkow founded ZZZZ Best in his parents’ garage in 1982 when he was only sixteen years old. Due to high competition in the industry, low enter barriers, and bad internal control, this young entrepreneur started to have cash flow problems, and a shortage of working capital.
Pressure Leads to Fraud:
Under financial pressure, Minkow started to commit fraud. He forged credit card applications, staged theft, used bogus financial statements, and used his networking skills to entice wealthy investors. The most serious fraud he made was inflating the value of the company’s insurance restoration contracts (Knapp, 2006).
Inflated Insurance Restoration Contract
Minkow created two property management companies, the Interstate Appraisal Service and Assured Property Management. He also hired a well-known insurance agent, Tom Padgett, to be the principal officer of Interstate Appraisal Service and used these two companies to generate paper profit. The falsified paper profit accounted for almost 90% of ZZZZ Best’s revenue.
Deception of Auditors:
1. False confirmations
Since most of revenue came from insurance restoration contracts, George Greenspan, the first auditor of ZZZZ Best, contacted Tom Padgett to confirm the existence of the insurance restoration contracts. Padgett, being in on the fraud, lied and gave Greenspan a positive answer.
2. Misleading auditors:
Barry Minkow dismissed Greenspan after his audit of 1986 financials and hired Larry Gray from Ernst & Whinney. Because the amount of insurance restoration contracts was material, Gray informed ZZZZ Best of his wish to observe the restoration sites to confirm their existence. Since the sites were nonexistent, Minkow temporarily rented an office to pass off as one of the sites. He informed the auditors that the water storage broke in the other offices which were being restored, and the area was inaccessible due to
The start of ZZZZ Best:
ZZZZ Best started as a carpet cleaning company. Barry Minkow founded ZZZZ Best in his parents’ garage in 1982 when he was only sixteen years old. Due to high competition in the industry, low enter barriers, and bad internal control, this young entrepreneur started to have cash flow problems, and a shortage of working capital.
Pressure Leads to Fraud:
Under financial pressure, Minkow started to commit fraud. He forged credit card applications, staged theft, used bogus financial statements, and used his networking skills to entice wealthy investors. The most serious fraud he made was inflating the value of the company’s insurance restoration contracts (Knapp, 2006).
Inflated Insurance Restoration Contract
Minkow created two property management companies, the Interstate Appraisal Service and Assured Property Management. He also hired a well-known insurance agent, Tom Padgett, to be the principal officer of Interstate Appraisal Service and used these two companies to generate paper profit. The falsified paper profit accounted for almost 90% of ZZZZ Best’s revenue.
Deception of Auditors:
1. False confirmations
Since most of revenue came from insurance restoration contracts, George Greenspan, the first auditor of ZZZZ Best, contacted Tom Padgett to confirm the existence of the insurance restoration contracts. Padgett, being in on the fraud, lied and gave Greenspan a positive answer.
2. Misleading auditors:
Barry Minkow dismissed Greenspan after his audit of 1986 financials and hired Larry Gray from Ernst & Whinney. Because the amount of insurance restoration contracts was material, Gray informed ZZZZ Best of his wish to observe the restoration sites to confirm their existence. Since the sites were nonexistent, Minkow temporarily rented an office to pass off as one of the sites. He informed the auditors that the water storage broke in the other offices which were being restored, and the area was inaccessible due to
Bibliography: Bruce G. Dubinsky. “Financial Statement Fraud Case Studies.” Dubinsky & Company, P.C. 2008. http://www.nacm.org/creditcongress/CC08/handouts/16054_16079%20-Bruce%20Dubinsky-updated%20PP%20with%20new%20company.pdf. Accessed 1st Oct, 2008. Colbert, Janet L 1993. SAS 67: Guidance on confirmations. The CPA Journal 63, no. 4 (April 1): 64. http://www.proquest.com/ (accessed October 12, 2008). “How Con Artists Get Caught by Accountants.” UTICA College. http://www.onlineuticacollege.com/articles/accountants-catch-con-artists.asp. (Accessed 1st Oct, 2008). Jayanthi Krishnan 2002. The timing and information content of auditors ' exhibit letters relating to auditor changes. Auditing 21, no. 1 (March 1): 29-46. http://www.proquest.com/ (accessed October 12, 2008). Lynn E Turner 2006. Learning from Accounting History: Will We Get It Right This Time? Issues in Accounting Education 21, no. 4 (November 1): 383-407. http://www.proquest.com/ (accessed October 12, 2008). Michael c. Knapp. Contemporary Auditing, Real issues & cases, 6 edition. South-Western College Pub; 6 edition (January 19, 2006). Naff, Kevin C 1994. Z scam of Z century: An interview with ZZZZ Best 's Mark Morze. Business Credit, October 1, 33. http://www.proquest.com/ (accessed October 12, 2008). Rankin, Ken 1992. ZZZZ Best Auditor Barred by SEC. Accounting Today, October 19, 2. <http://www.proquest.com/>. (accessed October 12, 2008). Rescigno, Richard 1990. Balancing the Books. Review of Wonder Boy: Barry Minkow—The Kid Who Swindled Wall Street. Barron 's National Business and Financial Weekly, April 16, 32. http://www.proquest.com/ (accessed October 12, 2008). James D. Stice, W. Steve Albrecht, and Leslie M. Brown, Jr. "Lessons to be learned - ZZZZ Best, Regina, and Lincoln Savings. (Lincoln Savings and Loan) (Auditing)." The CPA Journal (April 1991), <http://www.nysscpa.org/cpajournal/old/10691661.htm.> Accessed 1st Oct, 2008.