How senior managers perpetuate accounting fraud? Lessons for fraud examiners from an instructional case
| Published date | 30 September 2014 |
| Date | 30 September 2014 |
| DOI | https://doi.org/10.1108/JFC-03-2013-0016 |
| Pages | 411-423 |
| Author | Mark E. Lokanan |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
How senior managers perpetuate
accounting fraud? Lessons for
fraud examiners from an
instructional case
Mark E. Lokanan
Newcastle Business School, Northumbria University, Newcastle, UK
Abstract
Purpose – The purpose of this paper is to examine the risk factors that led to the Livent fraud, and the
procedures that need to be taken by responsible parties to carefully investigate and address the
incidents of misconduct.
Design/methodology/approach – The paper combs through the chronology of events that led to the
Livent fraud by looking at both primary and secondary sources. These sources made it possible to
examine how the fraud was discovered, and the investigative steps that should have been taken to
uncover the fraud.
Findings – The ndings indicate that a corporate culture which focuses on the bottom line coupled
with weak to non-existent internal controls were the key elements that led to the Livent fraud. The
ndings also illustrate that when faced with declining prots, senior managers will go to any length
possible to manipulate and falsify their company’s records.
Practical implications – The paper is useful to management personnel and fraud examiners in that
it used an actual accounting fraud case to highlight areas more susceptible to fraud and the approach
that can be taken to investigate similar cases of misconduct. The paper also highlighted the practical
implications for internal and external auditors in detecting and addressing fraud.
Originality/value – The study used an accounting fraud case to examine the techniques used by
management personnel to produce fraudulent nancial statement.
Keywords Fraud, Auditors, Investigation, Forensic accounting, Contingency plan, Livent
Paper type Case study
1. Introduction
The Live Entertainment Corporation of Canada Inc. (“Livent”) was a company that most
North Americans relied on to experience contemporary arts and issues in theater form.
However, this all came to a close in 1998 when the Royal Canadian Mounted Police
(RCMP) and securities regulators in the USA and Canada began a criminal investigation
into the Company’s nancial records. As we are approaching the 15th anniversary of the
now infamous Livent fraud, it is an opportune time to revisit what some have classied
to be the “worst case of nancial statement fraud” in Canada’s history (Brennan and
McGrath, 2010, p. 55). The Livent fraud bilked investors of “approximately $500 million
dollars”; a crime that saw the Company’s owners, Garth Drabinsky (“Drabinsky”) and
Myron Gottlieb (“Gottlieb”), being found guilty and convicted on “fraud and forgery
charges” (Canadian Broadcasting Corporation, 2009: paragraphs1&3).
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-0790.htm
Lessons for
fraud examiners
411
Journal of Financial Crime
Vol. 21 No. 4, 2014
pp. 411-423
© Emerald Group Publishing Limited
1359-0790
DOI 10.1108/JFC-03-2013-0016
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