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Chapter 9. Goosing, Stuffing, and Faking... > Red Flag 3: Fabrication Is Possible ...

Red Flag 3: Fabrication Is Possible When a Company’s Top Customers Don’t Check Out

Sometimes, fraud goes beyond switching numbers between columns or using a misleading accounting policy—sometimes it consists of pure fabrication. Take, for example, the case of German technology company Comroad AG, which said it developed traffic information systems for operators of public transport. Well, it rode the technology stocks boom to reach a market value of more than $1 billion and received a positive reception from analysts and the media in 2000. Even after the boom turned to a bust in 2001, Comroad defied the gloom, reporting sharply stronger earnings and sales and talking up its own prospects. Then, suddenly, in February 2002, its auditor KPMG resigned after expressing some doubts about some of Comroad’s business relationships; KPMG refused to approve Comroad’s 2001 accounts. A special auditor was called in and found that a company through which the vast majority of Comroad’s sales were processed in 1998–2000, a Hong Kong company called VT Electronics, didn’t exist, and there was no evidence that it ever had. It turned out that 98.5 percent of Comroad’s 2001 reported sales of about $90 million could not be verified. Comroad’s then CEO Bodo Schnabel was convicted of fraud and faking accounts in November 2002—accusations that he had said were “objectively and subjectively” correct, according to the Associated Press.


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