Fraud Analysis

a.) The Fraudulent Behaviour and The Parties Involved:

The major fraudulent behaviours that are evident in this article are the conspiracy to commit bank, wire, and securities fraud. There are numerous parties that are involved in these fraudulent acts, and it would be appropriate to look at each party's involvement in the fraud. Desiree Brown, a former treasurer of Taylor Bean & Whitaker (TBW), a mortgage lending company, pleaded guilty to three counts of fraud; conspiracy to commit bank, wire, and securities fraud. She played a role in the $1.9 billion that led to the collapse of TBW and Colonial Bank (Bedard, 2011).

Lee Farkas, a former chairman of TB&W and Brown's conspirator was detained and indicted in 16 counts. He was charged conspiracy, bank, wire, and securities fraud. Furthermore, the court documents reveal that Farkas was personally involved in the misappropriation of over $20 billion from Colonial Bank and TBW (Bedard, 2011).

b.) The Discovery of the Embezzlement:

The embezzlement was discovered as a result of the Federal Housing Administration's investigations. Federal Housing Administration suspended TB&W from issuing loans that were issued by the federal agency. Furthermore, it raised questions about TB&W's business activities and financial disclosures. The Department of Housing and Urban Development, which is responsible for overseeing the activities of FHA, initiated investigations against TB&W due to its failure to submit the required annual financial reports and to disclose some irregular transactions that had the potential to be fraudulent.

The embezzlement of the funds was also discovered through Brown's testimony. Brown pleaded guilty of a conspiracy to commit various frauds, and for her role in the $1.6 billion fraud scheme, which resulted in the crumpling of Colonial Bank and TB&W. Brown admitted that he was a conspirator in a scheme that was developed to defraud various organizations and individuals. She undertook additional risk by acquiring funding for TB&W; the funds were aimed at helping TB&W in concealing expenses that related to the company's operations and making payments that the company owned third-party loan purchasers.


c.) Controls That Would Have Prevented the Fraud from Occurring:

The major control on the prevention of crime entails adopting an organizational attitude that fraud can occur in the organization. This would have been critical in preventing the fraud in TB&W. Furthermore, the following measures would have prevented the fraud: identifying the assets under the company's control; identifying the risks that are linked to safeguarding the identified assets; establishing a positive control environment; establishing adequate systems of internal controls; and ensuring all the staff members are familiar with the company's policies. Furthermore, it would have been critical for the company to understand how its assets could have been misappropriated, measures that would identify misappropriation, and the additional costs of controls to prevent misappropriation. These measures would have been valuable in preventing the TB&W fraud.

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d.) Controls to Prevent the Crime from Happening:

The Financial Fraud Enforcement Task Force was established to initiate an aggressive, coordinated, and proactive effort in the investigations and prosecution of financial crimes. The task force is comprised of members from a broad range of federal bodies, regulatory authorities, inspector, state and local law enforcers. They work together in consolidating an assortment of civil and criminal resources. The task force works to improve the efforts initiated by the federal executive branch, and works in conjunction with the state and local players to undertake investigations and prosecutions for significant financial crimes, promote just and effective punishment for the perpetrators of financial crime, eliminate any form of discrimination in lending activities, in the financial markets, and recover the earnings for the financial crime victims.

e.) The role of auditors in the discovery:

TB&W had an issue with its auditors; the company resorted to misrepresenting an audit report that had raised concerns over fraudulent activities. Thus, the auditors had raised their concerns over the prevalence of potentially fraudulent activities by TB&W, a fact that led to the discovery of fraud and the subsequent suspension of TB&W by FHA. The auditor's note prioritized TB&W among the incompetent fraudsters for selling mortgages together with the servicing rights, probably to an entity that was owned by TB&W, and then taking the servicing back. The auditor concluded that the entire TB&W activities were wrecked with inconsistency and fraud. The auditors concluded that the allegations levelled against TB&W were correct. The allegations included appraisal fraud, predatory and deceptive loan practices, and fraud.

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