...beginning of an odyssey that would lead to prison. Meet Barry Minkow who in 1982, when he was only16, founded ZZZZ Best Carpet Cleaning. Over the next several years, he franchised the chain and took it public. "In the three-year period from 1984 to 1987, the com¬pany’s net income surged from less than $200,000 to more than $5 million on reve¬nues of $50 million. When ZZZZ Best went public in 1986, Minkow and several of his close associ¬ates became multimillionaires overnight. By the late spring of 1987, Minkow’s stock in the company had a market value exceeding $100 million, and the total market value of ZZZZ Best surpassed $200 million." (Knapp) Less than two years later, Minkow had been exposed as a fast talking con artist who bilked his closest friends and Wall Street out of millions of dollars. Barry Minkow began serving a twenty-five-year prison sentence after being tried and convicted on fifty-seven counts of securities fraud. ZZZZ Best differed in part from a typical Ponzi scheme in that Minkow’s carpet-cleaning business was very real. "Indeed, the carpet-cleaning division won high marks for its quality." (Miller) However, its insurance restoration division, which eventually accounted for 86 percent of company revenues, was nonexistent. Minkow raised money by factoring his account receivables for work under contract, as well as floating funds through several banks in an elaborate check kiting scheme. The story of Barry Minkow is hardly an isolated case. According to the Association...
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...operations in the fall of 1982 as a small, door-ta-door carpet cleaning operation. Under the direction of Barry Minkow, the extroverted 16-year-old who founded the company and initially operated it out of his parents' garage, ZZZZ Best experienced explosive growth in both revenues and profits during the first several years of its existence. In the three-year period from 1984 to 1987, the company's net income surged from less than $200,000 to more than $5 million on revenues of $50 million. When 72ZZ Best went public in 1986,Minkow and several of his close associates became multimillionaires overnight. By the late spring of 1987,the market value of Minkow's stock in the company exceeded $100 million, while the total market value of 72ZZ Best surpassed $200 million. The youngest chief executive officer in the nation enjoyed the "good life;which included an elegant home in an exclusive suburb of Los Angeles and a fire-engine red Ferrari. Minkow's charm and entrepreneurial genius made him a sought-after commodity on the television talk show circuit and caused the print and visual media to tout him as an example of what America's youth could attain if they would only apply themselves. During an appearance on The Oprah Winfrey Show in April 1987,Minkow exhorted his peers with evangelistic zeal to "Think big, be big" and encouraged them to adopt his personal motto, "The sky is the limit~ Less than two years after appearing on Oprah, Barry Minkow...
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...driven to be successful regardless of the costs. His name is Barry Minkow. Minkow had high hopes to make it big – to be a millionaire very early in life. He started a carpet cleaning business in the garage of his home. Minkow realized early on that he was not going to become a millionaire cleaning other people’s carpets. He had bigger plans than that. Minkow was going to make it big in the insurance restoration business. In other words, ZZZZ Best would contract to do carpet and drapery cleaning jobs after a fire or flood. Since the damage from the fire or flood probably would be covered by insurance, the customer would be eager to have the work done. The only problem with Minkow’s insurance restoration idea was that it was all a fiction. There were no insurance restoration jobs, at least for ZZZZ Best. In the process of creating the fraud, Minkow was able to dupe the auditors, Ernst & Whinney into thinking the insurance restoration business was real. In fact, over 80 percent of his revenue was allegedly from this work. The auditors never caught on until it was too late. How Barry Became a Fraudster Minkow wrote a book, Clean Sweep: A Story of Compromise, Corruption, Collapse, and Comeback** that provides some insights into the mind of a 15-year old kid __________________ * The facts are derived from a video by the ACFE, Cooking the Books: What Every Accountant Should Know about Fraud. **Barry Minkow, Clean Sweep: A Story of Compromise, Corruption, Collapse...
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...MEMO To: Andrey Simonov From: Caitlin Doonan Subject: ZZZZ Best ------------------------------------------------- Date: October 10, 2013 ZZZZ Best Company, Inc., a carpet cleaning and restoration company became the illegitimate business front for one of the largest investment frauds in American history. Barry Minkow started working in the cutthroat carpet cleaning industry at a young age. A risky Minkow began perpetrating frauds on a small scale and eventually took his Ponzi scheme public. Red flags went unnoticed from banks, investors, and auditors. Crucial auditor mistakes postponed the uncovering of Minkow’s scam. ZZZZ Best, Inc. significantly impacted both the accounting and auditing industry both in practice and standards. Barry Minkow founded ZZZZ Best Company at the age of sixteen. Minkow’s exposure to the carpet cleaning industry came from his mother. She answered phones and conducted clerical work for a carpet cleaning company in the San Fernando Valley of California (Knapp). The carpet cleaning industry required very little start-up capital, even less experience, and no licensing requirements. These attributes enticed Minkow, a young entrepreneur, to start his own company.. However, the competition in the carpet cleaning industry made it difficult for Minkow to make profitable sales. Vendors wanted money from Minkow and sales were not enough to cover his costs. Banks refused to loan him money because his company barely made a profit (Knapp). These financial...
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...operations in the fall of 1982 as a small, door-ta-door carpet cleaning operation. Under the direction of Barry Minkow, the extroverted 16-year-old who founded the company and initially operated it out of his parents' garage, ZZZZ Best experienced explosive growth in both revenues and profits during the first several years of its existence. In the three-year period from 1984 to 1987, the company's net income surged from less than $200,000 to more than $5 million on revenues of $50 million. When 72ZZ Best went public in 1986,Minkow and several of his close associates became multimillionaires overnight. By the late spring of 1987,the market value of Minkow's stock in the company exceeded $100 million, while the total market value of 72ZZ Best surpassed $200 million. The youngest chief executive officer in the nation enjoyed the "good life;which included an elegant home in an exclusive suburb of Los Angeles and a fire-engine red Ferrari. Minkow's charm and entrepreneurial genius made him a sought-after commodity on the television talk show circuit and caused the print and visual media to tout him as an example of what America's youth could attain if they would only apply themselves. During an appearance on The Oprah Winfrey Show in April 1987,Minkow exhorted his peers with evangelistic zeal to "Think big, be big" and encouraged them to adopt his personal motto, "The sky is the limit~ Less than two years after appearing on Oprah, Barry Minkow...
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...Fraud of ZZZ Best Company The ZZZ Best was the carpet cleaning company that was started by 15 year old Barry Minkow in 1982. He was inspired to enter into this industry by his mother when he was 12 years old. His mother was working as a telephone solicitor for a small carpet cleaning firm. Though most of the companies in carpet cleaning industry were legitimate, the nature of this business attracts many seedy characters of the malpractice. There are no barriers for any entry even no license was required. It was too easy that a 16 year old boy can start this business with his new driver’s license. The boy started his business as “rug sucker”. Minkow started his business named ZZZZ Best Carpet Cleaning Company in Reseda, San Fernando Valley, California. In the beginning stage Minkow ran his home based business out of his parent’s garage. Minkow soon realized that a small carpet cleaning business grew rapidly in next five years, but Minkow realized that it was difficult to earn from this business. To make earning better he had to face the cutthroat competition. The young boy had to face customer complaints, bad checks, and nagging vendors also demanding payment. And within very short time phrase he faced the fact of shortage of working capital. And moreover because of Minkow’s young age and the fact that ZZZZ Best was only marginally profitable business. All the local banks refused to give him loan. So, this teenager was looking for some easy ways of earning. Like check kiting...
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...“ZZZZ Best company” was founded by 16-year old Barry Minkow. The core activity of company was carpet cleaning. As he began doing business, Minkow soon realized that carpet cleaning was a difficult way to earn money because customers always complained and vendors demanded payments. Soon Minkow started seeking for financing but realized that bank were not willing to lend him money due to his age and low profitability of his business. That’s why he came up with the idea of forgeries and thefts from his insurance company. Later on, making friends he asked the insurance claim adjuster - Tom Padgett to confirm from time to time that Minkow’s company received occasional insurance restoration contracts on remodeling works on properties damaged by fire, storms and other catastrophes. Soon he realized that there was no need in development of carpet business because the main “income” was obtained by restoration operations. Then, Minkow decided to go public and for that purpose he hired independent auditor – George Greenspan. By that time Minkow had established fake insurance company and Padgett had got the top position in it to confirm fraudulent restoration contracts, so Greenspan didn’t notice any problems with those sites. By the end of the year he was dismissed and Minkow retained “Ernst & Whinney” to enhance creditability of his operations on restoration contracts. “Ernst & Whinney” agreed to provide 4 types of services to “ZZZZ best company”: review the financial statement...
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...ZZZZ Best company Inc. Summary “ZZZZ Best company” was founded by 16-year old Barry Minkow. The core activity of company was carpet cleaning. As he began doing business, Minkow soon realized that carpet cleaning was a difficult way to earn money because customers always complained and vendors demanded payments. Soon Minkow started seeking for financing but realized that bank were not willing to lend him money due to his age and low profitability of his business. That’s why he came up with the idea of forgeries and thefts from his insurance company. Later on, making friends he asked the insurance claim adjuster - Tom Padgett to confirm from time to time that Minkow’s company received occasional insurance restoration contracts on remodeling works on properties damaged by fire, storms and other catastrophes. Soon he realized that there was no need in development of carpet business because the main “income” was obtained by restoration operations. Then, Minkow decided to go public and for that purpose he hired independent auditor – George Greenspan. By that time Minkow had established fake insurance company and Padgett had got the top position in it to confirm fraudulent restoration contracts, so Greenspan didn’t notice any problems with those sites. By the end of the year he was dismissed and Minkow retained “Ernst & Whinney” to enhance creditability of his operations on restoration contracts. “Ernst & Whinney” agreed to provide 4 types of services to “ZZZZ best company”:...
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...T.1.SAS No. 106 “Audit Evidence’, identifies the principal “managementassertions” that underlie a set of financial statements. The occurrenceassertion was particularly critical for ZZZZ Best’s insurance restorationcontracts. ZZZZ Best’s auditors obtained third-party confirmations tosupport the contracts, reviewed available documentation, performedanalytical procedures to evaluate the reasonableness of the revenuesrecorded on the contracts, and visited selected restoration sites.Comment on the limitations of the evidence that these proceduresprovide with regard to the management assertion of occurrence. Upon the performance of those procedures, the auditors of ZZZZBest Inc. had obtained evidence in order to draw reasonableconclusions on which to base the audit opinion. However, theseevidences are subject to limitations due to factors not controlled by theauditors. First limitation of the evidence is its insufficiency to supportthe occurrence, reliability and relevance of events and transactions.Mere paperwork is not enough to prove an event to have existed. Italso needs inquiries from people accountable in recording orrecognizing such events. Moreover, there’s a risk in being dependenton evidences provided by the management itself. Auditors should askcooperation from the third parties in order to verify all records. Secondlimitation is the rules implemented by the client which prohibit auditorsto further inspect or review the financial standing of the company.Some clients...
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