Basic Questions 1. Rigas Entities were entities that shared a common cash management system with Adelphia and Adelphia subsidiaries, which Adelphia controlled and operated. Since the scandal broke, it is commonly referred as off-the-book entities. 2. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is essentially net income with interest, taxes, depreciation, and amortization added back to it, and can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions.-from Investopedia 3. Self-dealing basically refers to when directors of a company improperly uses company finances or resource for personal gain. This can include directors taking company loans that the directors do not intend to repay, using company money for extraordinary personal use, or using company property for personal gain.
Advanced Questions 1. Both Adelphia scandal and WorldCom scandal were not prevented by company’s external auditor, though Deloitte and Touche and Arthur Andersen both rated their client as high risk. As for the differences, Adelphia did not have an independent internal auditor. However, WorldCom had an independent internal auditor and blows the whistle. 2. I will say Deloitte and Touche is most responsible for not detecting and stopping. As an external auditor, they should pay attention to organization’s financial records and examine on any mistakes or fraud. At least, Deloitte and Touche should have stopped Timothy Rigas from serving as CFO and Director of Adelphia’s Accounting Committee. After all, it was obviously against the rules. 3. Timothy Rigas received a reasonable prison sentence as we can see from the WorldCom case; Bernard Ebbers was sentenced to 25 years. As for John Rigas, a former CEO who was guilty of more than 15 counts of fraud. Rationally speaking, it seems to be a fair judgment. However, it sounds too rough to keep an old man who has been suffered from cancer in jail.