SUMMARY: Arthur Andersen LLP has been sued by various Arizona state
government agencies for allegedly turning a blind eye to warning signs of fraud
at one o f its clients, the Baptist Foundation o f Arizona (BFA).
QUESTIONS:
1) Which Arizona agencies are suing Arthur Andersen? What is the principal
allegation in the lawsuit against Arthur Andersen? What is the firm’s response?
What other actions are state agencies taking against Arthur Andersen?
2) What was the nature of the alleged fraud at the Baptist Foundation of
Arizona? What is a Ponzi scheme? How does a Ponzi scheme operate? What is the
typical result of such schemes? How did BFA market itself to investors?
3) How did BFA fare in its investments? How did it cover up its real estate
losses during the 1980s? How did it convince Arthur Andersen that it was making
gains on these investments? Why should auditors be especially careful in
reviewing related party transactions?
4) According to the lawsuit, what warning signs did Arthur Andersen ignore?
What evidence is cited in support of the allegation? Did Arthur Andersen do
anything to suggest that they did heed the warning signs?
5) According to the article, “The suit says the auditor routinely gave BFA
unlimited copies of audited financials, which were subsequently distributed to
investors.” Should this behavior be grounds for a lawsuit? Should investors be
denied access to audited financial statements of companies that solicit
investments? Would BFA have been unable to photocopy and distribute its audited
financial statements to investors if it wanted to do so?

Baptist Foundation Accounting Fraud