Question

Explain the fraud in the Beazer Homes scheme.

Answer 1

ANSWER:

Beazer's Homes scheme conducted a multi-year fraudulent earnings management scheme and misleading Beazer's internal Beazer accountants and outside auditors for concealing their wrongdoing. Beazer's Homes scheme reported net income by recording improper accounting reserves during specific periods between 2000 and 2005 for meeting or exceeding the expectations of analysts' for Beazer's diluted earnings per share (EPS) and maximize officer and senior employee yearly bonuses. In the first quarter of fiscal year 2006 Rand began reversing these improper reserves with a target to offset Beazer's declining financial performance. In first two quarters of fiscal year 2007, Rand recognized revenue improperly from the leaseback and sale of specific model homes on the financial statements of Beazer and used secret side agreements for hiding the misconduct from outside auditors of the company. These actions caused Beazer to understate its income during fiscal years 2000 to 2005 in SEC filings by nearly $63 million, representing nearly 7 percent of Beazer's cumulative actual restated net income of $955 million for the period. Thus overstate its income and understate its loss during fiscal 2006 by a total of $47 million and the first two quarters of fiscal 2007, indicating 20 percent of Beazer's cumulative actual restated net income of $232 million for the period. Rand was convicted of directing a fraud in accounting conspiracy by lying to Beazer’s auditors to falsify reported profits at Beazer, falsifying Beazer’s books and records, fraudulently achieving earnings targets, and deceiving people by boosting and lowering earnings at Beazer