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World Health Alternatives, Inc. Fraud Essay

2938 words - 12 pages

ACC 655 – Advanced Auditing
Term Paper: World Health Alternatives, INC – Fraud
Brian O’Rourke, Katharina Ryska
10/14/2013

Introduction
Scandals like Enron, Worldcom and Tyco have taught society about CEO’s fudging financial statements in order to make some extra money. With millions of dollars lost for the shareholders, members of the management engaging in fraudulent activity face high penalties. However, these penalties do not stop executives from trying to scam the system. World Health Alternatives, Inc got negative press following a big fraud investigation. The company with its number of wholly owned subsidiaries provides “medical, professional, and administrative staffing ...view middle of the document...

McDonald signed the filings although he knew of the misstatements. Furthermore, former CEO Marc Roup allegedly signed and certified public filings during his tenure without checking the veracity of the information. On December, 23, 2009 a civil suit was filed against employees of World Health Alternatives, Inc. The first person sued was former President, CEO and Chairman of World Health Richard E. McDonald Alternatives, Inc. The SEC alleged that he misappropriated about $6.4 million for this private benefit. He was sentenced to 130 months in prison followed by three years of supervised release for wire fraud, securities fraud, willful certification of false statements to SEC, failure to pay over payroll taxes and income tax evasion. The SEC also charged others who assisted in the cover up. Those charged include the companies’ former controller and CPA Deanna Seruga, Marc D. Roup, a former CEO as well as a former outside securities counsel, Joseph I. Emas. All defendants agreed to settle with the SEC
Auditor’s Responsibility
The auditor of World Health, Daszkal Bolton LLP, had the responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements were free of material misstatement, whether caused by error or fraud. Daszkal Bolton LLP issued an unqualified opinion in each of World Health’s reporting periods. They were also named as a co-defendant in a class action lawsuit by persons whom purchased securities between August 23, 2004 and August 18, 2005. The above statement from AU Section 316 states the auditor is only to provide ‘reasonable assurance’ about whether the financial statements are free of material misstatement. The AICPA and the auditor themselves do not act as a guarantor of the financial statements. Many may ask, what is the auditor’s responsibility in consideration with fraud? If the auditor missed fraud, but the fraud was material, what are their responsibilities or liabilities to investors? Who can an investor trust; and what is the purpose of the auditor if they can only provide a misleading reasonable assurance?
To obtain an understanding of what ‘assurance’ an auditor provides in consideration of fraud one must understand the process in which an auditor performs its’ work. An auditor must always practice using the concept of professional skepticism when considering the possibility of misstatement due to fraud could be present. Professional skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence. The auditor should conduct the engagement with a mindset that recognizes the possibility that a material misstatement due to fraud could be present, regardless of any past experience with the entity and regardless of the belief about management’s honesty and integrity. The auditor should not be satisfied with less than persuasive evidence because of a belief that management is honest and should question evidence and information...

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