**REPLY TO THE POST BELOW WITH A WELL THOUGHTOUT ANSWER, do not just restate facts of the case unless it furthers the dialogue
Bring the Madoff story up to date with events that occurred after the case book went to print.
Madoff’s case was so massive that even in 2020, payments are still being made to victims of the scheme. On April 20, 2020, the DOJ announced a fifth distribution of $378.5 million to more than 26,000 victims, adding the total amount paid to $2.7 billion, 74% of the losses caused by this Ponzi scheme. A month ago, Madoff and his team asked for a compassionate release because Madoff suffers from kidney failure and has a life expectancy of fewer than 18 months. Federal prosecutors rejected this request.
Discuss your thoughts on Madoff’s auditor and the lack of awareness any regulators had that such a large company was audited by a sole-practitioner firm. Why did that happen? Could it happen again?
It is hard to think that Big 4 firm auditors, regulators, and investors never thought to corroborate who audited Madoff. The fact that a single employee audits a billion-dollar company should be an automatic red flag. Aksia LLC spoke out against this, meaning it was not like the information was a secret. Based on all these scandals that the course covers, I very much doubt that situations like this will reoccur. There are now more people battling fraud daily.
Consider that Madoff was a “service provider” to various companies that outsourced investment activities to Madoff. If the auditors of “feeder firms” had adequately investigated Madoff as a third party service provider (formerly covered under SAS 70, now under the attest standards), would the Madoff fraud have been uncovered?
Quickly, the Big 4 firms involved would have found this fraud if they had done some testing on the investments. I was curious about the comment made by Cindy Fornelli, executive director of the Center for Audit Quality, where she says that it is not the auditors’ responsibility to audit investments made by firms like Madoff’s. I cannot entirely agree with this comment. I do not see merely taking the word of somebody else, no matter how respected they are, as responsible when millions of dollars are involved. An auditor must do due diligence and ensure that these securities truly exist, avoiding this type of fraud.
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