In the recent years Redlands Manufacturing, Inc. has been audited and subjected to constant fiscal penalties due to fraudulent financial reporting on the companies part. Due to the following incorrect procedure the company has had to paid a tremendous amount fines: Channel Stuffing: Incorrect Practice: For financial gain, Redlands Manufacturing, Inc. shipped equipment to vendors with out a full merchant agreement and agreed to except returned merchandise back if it was not sold by yearend. This can inflates the sales figures which will increase your assets.
By Redlands not recognizing the allowance for the merchandise when the products are returned, this results in false reporting of assets and cash flow. If accounting records of the company are reporting false monetary, then the company may over extend themselves. This is poor management and can be detrimental to the company. Vendor Dinging: Incorrect Practice: Redlands made a false claim to some of their suppliers. Stating the merchandise supplied by the supplier was damaged and in exchanged for customer satisfaction the supplier gave Redlands a discount on the merchandise order.
In reality the merchandise was not damage but was used for regular company production. Redlands received merchandise at discounted rates, which will alter accounting records because it is not an accurate account of supplies being used for manufacturing and sold at the cost of production. Again, this will show an increase in cash flow which is not accurate. Capitalizing Revenue Expenditures: Incorrect Practice: Redlands reported multiple expenses as 1-time expense on balance sheets as long-term assets instead of an expense for the current fiscal year. Some items were recognized a current expenses, which was refer to as depreciation.
If the company continues to file documentation in this fashion then the company is allowing depreciation for incorrect expenses showing a higher capital gain. Special Purpose Entities (SPEs): Incorrect Practice: Redlands deliberately did not record liabilities to its balance sheet because the debt was financed through a third party (SPE), which, consisted of businesses established by Redlands executives. When setting up a SPE, there are certain standards that need to be applied. If standards are not meet, Redlands could hide losses and fabricate earnings like the Enron scandal.
Redlands should report any liabilities on their balance sheet especially since Redlands executives new what was going on. Round Tripping: Incorrect Practice: Improperly documentation of revenue and expense. In exchange for company expenses (internet, television, etc. ), Redlands would provide company products to these companies. Redlands reported the financial revenue saved by not paying for the expenses but did not report company expenses. This portrayed a facade for the company as having more money then original possessed. Also, you will not be able to determine which type of advertisement was beneficial to the company.
If you don’t document your expenses it will give a false calculation for your profit and loss for the year. The revenue recognition principle dictates when revenue is recognized and reported as income. My purpose of this correspondence is to inform and educate Mr. Bacon about these inappropriate transactions and how specific practices of accounting that are set forth by the federal government to properly comply with all business in the US need to be followed. The accounting department provides organizational stakeholders with financial data about it’s operations, investments, and financing activities.
Financial accounting provides information about the company to investors, creditors, and the public, if improper practices such as these acts stated above are reflected in company history then the Redlands can jeopardize the reputation of the company and lose potential and current investors. Redlands has altered financial statements, which monitor the company’s cash flow, if information such as round tripping and vendor dinning occur then, the tracking of inflow and outflow of cash is incorrectly being monitor eaving huge room for error and fraudulent transactions by the company. My recommendation is that the following fraudulent financial transaction be corrected immediately and update records so that they comply with all federal regulation and state laws. Also, I would fire each management that let these types of transaction continue. Each one of theses arrangements are inexcusable, you don’t have to be an accountant to know that they are wrong.