JAMAICA WATER PROPERTIES

Jamaica Water Properties



Abstract

The case is about an accounting fraud that involves the Jamaica Water Properties, Inc. The fraud was characterized by misapplication of purchase method of accounting for acquisitions, recording fictitious assets, improper accounting for NOLCO, non-recording of appropriate allowances for uncollectible receivables, and misapplication of the percentage-of-completion method of accounting for long-term contracts. Ernest Grendi made the fraud possible, company CFO as helped by three senior accountants. These were aimed to inflate the price of the company stocks because of overstated earnings that caused them to receive sizable bonuses. However, JWP internal auditors just tolerated all of these because of their fear of being fired. In addition, Ernst & Young, the company's external auditor, knowing the fraudulent activities, have been issuing an unqualified opinion for six consecutive years. This has been seen as a product of the close relationship between Grendi and his co-conspirators with E&Y.

Jamaica Water Properties

Background about the company

Jamaica Water Properties Inc. is a transnational technical services firm that specializes in the areas of systems engineering, facilities management, information systems, and environmental management systems. JWP is involved in the construction, installation, and maintenance of cost-control systems for Fortune 1000 companies, institutions, and governments. The firm has 220 offices worldwide on all continents except Australia. Jamaica Water Properties Inc. is classified as a public utility venturing into diversified nature of services and products. Such utilities cater different entities with different nature of operations. These services can be categorized into three broad classifications: water utilities, facilities management, and information systems.

Suspicious items in JWP'S accounting records

With the authority being granted by Andrew Dwyer, the Chief Executive Officer (CEO) of JWP is authorized and deserves to be followed by his subordinates. Grendi was granted with far-reaching authority that had bypassed the internal audit committee's challenging the improper accounting practices fabricated by Grendi and his co-conspirators who are also in the biggest posts in the firm. Grendi, being the key man of the fraud was assisted by his brother, Joseph, who was also an officer of JWP, and by John K. McQuade, the company's vice president for finance, and Phillip M. McGinn, the company's controller. All four men are certified public accountants.

An agent (employee) is to uphold confidentiality of information obtained or learned during employment, even if the employment is terminated. The JWP internal auditors might misconstrue to some extent the duty of confidentiality that had consequently undermined their professional competence of asserting that such improper accounting practices will eventually lead to the collapse of the firm (EMCOR 2011). Being bound with such duty of not disclosing sensitive information does not mean that concealment of fraudulent transactions is justified. Keeping things confidential does not include those that are unethical. Clearly, the JWP auditors were being caught in between disclosing such anomaly or not.

The Standards for the Professional Practice of Internal Auditing provided by the Institute of Internal Auditors, particularly under Attribute Standard 1300 - Quality Assurance and Improvement Program, more specifically in 1340 - Disclosure of Non-compliance states that, “although the ...