Best Club Fraud Case

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After graduating from California State University, James Watkins started an entertainment business called Best Club. Initially, the business failed because James ignored day-to-day operations and cost controls. Best Club was heavily in debt and as expenses increased, James could not meet the debts. However, he wanted success and money, which lead him to commit fraud.

James committed insurance fraud and obtained loan by falsifying financial statement to save his business. During whole this fraud mechanism, it seems that there may have also been fraud in the insurance companies and/or bankers also who are granting credit without verifying document because they have also received bribe from James. James also decided to make his club a public corporation in an attempt to save his floundering business. He again falsified financial statements in an attempt to improve the reported financial position of Best Club. Hoping to avoid the SEC’s
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These three points represent the factors that are present in fraud schemes. The first incentive/pressure could be the need to meet a target sales or a financial need. Rationalization is when the person/ people who commit the fraud try to rationalize it by saying, “I will pay the money back” or “ I deserve the money. Opportunity is when there is a situation that is conducive to fraud; for example a week internal control or management override that makes it easier for a fraud to take place. In addition to the fraud triangle many specialist now look at the “fraud diamond” which includes capability as a fourth element. A person with the capability to commit a fraud will be able to recognize the opportunity for fraud to take place and be able to rationalize it. A person capable of committing a fraud must have the proper skill set and personality to be

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