What Do Accountants Need to Know About the Bernie Madoff Scandal?

Bernard L. Madoff, more commonly referred to among the public as Bernie Madoff, perpetrated the largest Ponzi scheme in world history. On paper, the Madoff fraud was a $65 million affair. This grand total presented the amount of money people and institutions thought they earned by investing with Madoff. Ultimately, it was determined that investors who lost money in the Madoff scheme were out about $20 billion. As of the end of 2019, about $17 million had been paid back to some of the Madoff investors. One of the significant aftereffects of the Madoff affairs is what accountants need to know and do in the aftermath of this incomparable Ponzi scheme.

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False Account Statements can be Created on a Massive Scale

Perhaps the most important lesson that accountants need to take away from the Madoff scandal is that false and yet completely authentic-looking account statements can be created and generated on a massive scale. Over the course of many years, investors sucked into the Madoff Ponzi scheme received what by all accounts appeared to be authentic, accurate account statements month in and month out, according to CNN Business. This represented thousands of false account statements monthly sent to people who “invested” with Madoff.

Accountants have an understandable habit of not questioning account statements received from financial advisors, financiers, and investors. Accountants typically receive such statements on behalf of their clients in order to keep track of their earnings and other financial information during the course of the year.

In the post-Madoff era, accountants need to be far more vigilant to ensure that their clients’ interests fully are protected. They even need to be skeptical about account statements received for their clients’ investments. Long gone are the days when account statements received by an accountant could just be filed away. At this juncture in time, accountants need to thoroughly examine account statements to be proactive when it comes to even the most minuscule irregularity detected in these documents.

Due Diligence Cannot be Cursory

In the same way that monthly account reports can no longer be rubberstamped by accountants, pre-investment due diligence now means something significantly different in the post-Madoff Ponzi scheme era. Historically, a typical accountant might doublecheck a set of numbers provided regarding an investment, oftentimes provided by those with a robust interest in the investment itself.

An accountant assisting a client in making investment decisions must participate more deeply, significantly, and broadly in the pre-purchase investment process. Some larger-scale investors are creating due diligence teams, of which a trusted accountant is now a part.

The Reputation of an Investment Advisor or Financier can be a Sham

One of the most stunning aspects of the Madoff scandal was the fact that Bernie Madoff maintained for years one of the best reputations in the investment arena, even when he was deep into what would become the most extensive Ponzi scheme in history. When consideration is made about what an accountant needs to know in the post-Madoff universe, an important fact is that reputations truly can be fanciful.

The manner in which accountants and other members of the financial world do business did change following the Madoff scandal. The Madoff Ponzi scheme truly opened the eyes of financial professionals, including accountants, who may have become somewhat lackadaisical.