Group of companies and inter-company fraud: a case from Turkey

Cenap Ilter

Journal of Financial Crime, 2016, vol. 23, issue 2, 427-440

Abstract: Purpose - This paper aims to present a real case of inter-company fraud where the Group’s Bank lent money to a Group company and was never repaid. The company generates its own cash, but instead of repaying its debt to the Bank, it funds other Group companies. Considering the Bank as being a public depository institution and its illiquid situation, the case presents a fraud within the Group. In this regard, the paper is considered to be an exemplary case for the accounting literature. Design/methodology/approach - The paper analyses one of the Group Company’s audit reports for the years 2003 and 2004 and explains the type of frauds committed by the Company’s management. The study approximates the total US dollar figures that were inappropriately transferred to the other Group’s companies in 2003. Findings - The study examines the real case and discusses the reasons that led to the Group’s bankruptcy. Lack of governmental controls may lead to bankruptcy of banks that have been abused by its owners by transferring loans to other group companies exceeding the legal limits observable by the banks. Practical implications - Auditors, accountants and accounting lecturers, as well as professors, talk about fraudulent accounting practices. The study explains a specific accounting fraud case in a group of companies. It explores the type of inter-company money transfers without a valid base. The author is of the opinion that readers with an accounting background will benefit from reading the case. Social implications - Economics is the study of allocation of scarce resources to the best use. Public’s savings must be directed to the companies that produce the value added to the society. On the other hand fraudulent money transfers within the group companies involving bank(s) may distort this allocation. Public money-deposits might be wasted by dishonest business owners. The study is aimed to disseminate this information to public in general. Originality/value - The case study has been built on a real audit report from Turkey. The names and the locations of the companies have been changed, and the figures have been approximated in US dollar terms. The events and findings on the audit reports have not been changed, and each fraudulent event has been individually discussed.

Keywords: Accounting fraud; Arms’ length transactions; Fraudulent money transfers between the group companies; Inter-company transfers (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfcpps:jfc-12-2014-0064

DOI: 10.1108/JFC-12-2014-0064

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