Title

The Madoff Debacle: What are the Lessons?

Document Type

Article

Publication Date

2014

Keywords

Ponzi scheme; fraud risk factors; affinity fraud; control environment; utilitarian ethics; professional skepticism.

Disciplines

Accounting

Abstract

This paper describes the implementation of a ‘‘Ponzi scheme case study’’ in auditing classes at the undergraduate and the Master’s level. This instructional case is based on the much-publicized Madoff Ponzi scheme. The case exposes students to several auditing-related concepts, including: (1) fraud auditing; (2) ethical reasoning and utilitarian principles; (3) affinity fraud and Ponzi schemes; (4) internal control evaluation; (5) governance issues; (6) the Securities and Exchange Commission (SEC) investigations; (7) investment strategies and terminologies; and (8) regulation. The case provides students with an opportunity to assume the role of an external auditor and participate in some active learning exercises. About 170 accounting majors participated in this case project during a three-year period at a Midwestern university. Students who worked in groups were genuinely engaged in the learning process, and they came up with several red flags associated with the Madoff fraud and suggested many new internal controls. This case provides a hands-on learning experience to students that could be relevant for them in their future career in public accounting. Student opinion surveys conducted about the learning outcomes of this project indicate strong student engagement, active learning, and satisfaction.

Publication Title

Issues in Accounting Education

Volume

29

Issue

1

First Page

271

Last Page

285

ISSN

0739-3172

DOI

10.2308/iace-50597

Comments

This publication won the Innovative Teaching Award from the American Accounting Association (Forensic Accounting Section) in 2015.

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