Exploring illegal guarantees between group companies: a case from Turkey
| Date | 11 May 2010 |
| DOI | https://doi.org/10.1108/13685201011034096 |
| Published date | 11 May 2010 |
| Pages | 155-166 |
| Author | Cenap Ilter |
| Subject Matter | Accounting & finance |
Exploring illegal guarantees
between group companies:
a case from Turkey
Cenap Ilter
Grant MacEwan College, MacEwan University, Edmonton, Canada
Abstract
Purpose – The purpose of this paper is to discuss that in an uncontrolled business environment
public companies’ resources may be abused to fund other group companies by their management.
Design/methodology/approach – The paper has been designed on fraud theory. The theory has
been developed on interviews with key management personnel, financial analysis, audit tests and
gathering the facts on each step.
Findings – The paper concludes that in an uncontrolled financial market, owners, executives and
statutory company auditors acting in harmony may break the financial rules, statutory obligations
and convert a healthy public company into bankruptcy by means of milking its resources to other
group companies on unfeasible projects or on individual pleasures.
Practical implications – Auditors both internal and external should pay attention to intragroup
transactions. Companies, partially or wholly owned by the public might be under the influence of
owner/executives. Here, it is not only the government interests as tax or social insurance, but also the
shareholders’ interests are at stake.
Social implications – Resources are scarce, especially in developing countries. The public’s savings
must be sourced to feasible projects in trustworthy hands, otherwise public’s trust is shaken which
will deter potential shareholders to invest in capital markets, and consequently these negative
repercussions will affect the whole community.
Originality/value – The case that the paper covers reflects the author’s own audit experiences as an
ex-auditor. The names of the companies have been changed but not the essence of events. It is believed
that the paper will shed light onto the path of the reader who might be an external or an internal or a
statutory auditor or a manager of a company who might be involved in similar situations.
Keywords Fraud, Public sectororganizations, Turkey
Paper type Case study
1. Conditions for fraud
Three conditions of fraud arising from fraudulent financial reporting and
misappropriations of assets are described in Section 5135.012 of the Canadian Institute
of Chartered Accountants Assurance Handbook titled The Auditor’s Responsibility to
Consider Fraudand Error. As shown in Figure 1, these three conditionsare referred to as
the fraud triangle:
(1) Incentives/pressures.Management or other employeeshave incentivesor pressures
to commit fraud.
(2) Opportunities. Circumstances provideopportunities formanagement or employees
to commit fraud.
(3) Attitudes/rationalization. An attitude, character, or set of ethical values exists
that allows management or employees to intentionally commit a dishonest act, or
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1368-5201.htm
Exploring illegal
guarantees
155
Journal of Money Laundering Control
Vol. 13 No. 2, 2010
pp. 155-166
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/13685201011034096
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