ABSTRACT
Samuel George Greenspan issued a clean opinion on ZZZZ Best’s 1986 financial statements without ever suspecting that nearly 50 percent of the company’s reported revenues were entirely fictitious. In Greenspan’s mind, he had fulfilled his professional responsibilities by confirming ZZZZ Best’s building restoration contracts with Tom Padgett at Interstate Appraisal Services (IAS) and by reviewing scores of documents supporting ZZZZ Best’s payments to Marbil Marketing. How was he to know that IAS and Marbil were shell companies controlled by Barry Minkow’s accomplices? Greenspan saw his role as verifying that the restoration jobs were accounted for properly-not verifying that the restoration work had been performed in the first place. ZZZZ Best and Crazy Eddie were only two of the most outrageous
accounting frauds discovered during the 1980s. The ESM Government Securities fraud, discovered in March 1985, received extensive news coverage because of its effect on the Ohio thrift industry. Two years later, Wedtech founder John Mariotta, whom President Ronald Reagan had described as a “hero for the eighties,” was discovered to have used bribery and fraudulent financial statements to build his $100 million company.2 With each new scandal, investors and creditors demanded to know why the auditors had not uncovered the wrongdoing. Auditors’ attempts to disclaim responsibility for fraud only enraged their critics. Pressure mounted for auditors to play a more active role in preventing fraudulent financial reporting.
