Is this financial fraud?


anonymous

Guest
I know of a company that sells very expensive capital equipment. I know of a few instances where right before the end of quarterly reporting they shipped expensive equipment to some hospitals even if the hospitals had not requested the equipment or issued a purchase order.

In one case someone was driving around and around a city with the equipment while a rep was calling on the hospital desperately trying to get them to purchase the equipment. So even though it was not ordered the company counted it as a sale for reporting purposes.

I am not sure if the company is still doing this. Would this be illegal/fraud?
 


There are accounting standards that outline when a sales transaction is sufficiently complete that it can be counted as revenue. It is not necessary dot every "I" and cross every "T" before recording a sale, but what you have outlined here does not come close to meeting the standard. In general there must be an agreed contact, risk of loss must have been transferred (i.e. title to the goods actually passes to the hospital), the hospital must be fiscally sound enough that payment for the goods is reasonably assured, and others.

If salesmen are still driving around with goods in the car, or if goods have been delivered but the hospital has not ordered them, those are phantom transactions. Reporting those as closed sales violates a host of SEC regulations, the Sarbanes-Oxley Act, and other statutes. If the violation was intentional then it is fraud.
 


Hi,


Yes, the behavior you described could be considered financial fraud. This type of practice is sometimes known as channel stuffing which is used to improperly beef up quarterly reports so the stock price won’t be affected by a down quarter.
 


anonymous said:
I know of a company that sells very expensive capital equipment. I know of a few instances where right before the end of quarterly reporting they shipped expensive equipment to some hospitals even if the hospitals had not requested the equipment or issued a purchase order.

In one case someone was driving around and around a city with the equipment while a rep was calling on the hospital desperately trying to get them to purchase the equipment. So even though it was not ordered the company counted it as a sale for reporting purposes.

I am not sure if the company is still doing this. Would this be illegal/fraud?
Click to expand...


What kind of equipment? What happened when the hospitals received equipment they didn't order?
 


anonymous said:
What kind of equipment? What happened when the hospitals received equipment they didn't order?
Click to expand...

At this point I would rather not say the type of equipment. I know of at least one instance when the hospital sent the equipment back and one where the company had to offer a deep discount to get the hospital to take delivery.
 


anonymous said:
At this point I would rather not say the type of equipment. I know of at least one instance when the hospital sent the equipment back and one where the company had to offer a deep discount to get the hospital to take delivery.
Click to expand...

No pressure. If you decide to share at some point, I'd be interested in researching more.
 






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