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Essay Benjamin Franklin and Henry David Thoreaus Religions

Benjamin Franklin and Henry David Thoreaus Religions Benjamin Franklin and Henry David Thoreau are by no means religious in any traditional sense of the word. If, however, â€Å"religious† is taken to mean the â€Å"belief in any sort of supreme being...that obliges ethical or moral conduct†, then both Franklin and Thoreau fall into this category. Though the two are strikingly opposite in their manner and social interaction, they are both held to a religious and personal standard. Their individual spiritual beliefs, ethical codes, and their â€Å"quality of life†show that all of their actions and thoughts are held by themselves to a higher standard. Both men have specific beliefs about the existence of God and†¦show more content†¦He also believed in the joys of nature; he believed them to be gifts that life should be â€Å"earnestly lived from beginning to end†, true to one’s beliefs (Thoreau 34). Their beliefs also led to them possessing specific moral codes about how to live in the world. Franklin was more traditional in this sense; most of his influences came from Christianity and the Ten Commandments. He has very specific beliefs about right and wrong and this is shown in his determination to achieve perfection. He believed that God gave humans the common sense to know what was bad for them and that the reason certain things were bad was that they were detrimental to the individual or to society which can be seen in his attitude towards idle behavior like lust and drinking. Thoreau’s attitudes also reflect common sense. He highly disapproved of falsity, materialism, commercialism, capitalism, and greed. He said that the â€Å"mainspring of humanity is vanity† and that â€Å"the devil finds employment for the idle (Thoreau 39, 49) . All of these coincide with religious views, even if he was not a â€Å"religious† person. He prides himself on the fact that he is able to survive on a small amount of money and that he getting back to nature. Both men’s beliefs can be seen in their quality of life and in their interaction with the world. Franklin was a revolutionary; always seeking change for the better, whether in himself orShow MoreRelatedThe Emergence Of Self Concept1489 Words   |  6 PagesThe Emergence of Self Throughout our history the idea of self has developed and proved to be a dominant concept that Americans have come to understand. Not defined or found in lineage, religion, or history, the concept of self is defined by a collection of values. These values and principles are rooted in individualism, self-actualization, and self-reliance where people are able to fulfill their own destiny and believe in the promise that through ward work and determination life can be differentRead MoreThe Long History Of Summer Camp1901 Words   |  8 Pagestradition. Their new ideas in regards to religion, personal growth, and the natural world becoming increasingly accepted in society created a foundation for this establishment. From the 17th century scientific revolution in England, and later the Enlightenment that spread and emphasis on logic to America, came a new religious philosophy called Deism. In reaction to the Calvinist practices of the Puritans, Deism denied the legitimacy of organized religion and instead emphasized the idea that God

NURS 60271 Social Work Intervention and Service Users Free Essays

string(78) " in giving the local authority parental responsibility \(Children Act 1989\)\." Introduction This essay is based around a children and families case study and will first set out the significant issues for the individuals involved before outlining the policy and legislative mandates and frameworks that would provide the basis for informed assessment and intervention. It will then highlight the most effective interventions, designed to improve the situation, using practice theories and approaches. Finally it will detail the interdisciplinary and multi-agency context and provide the framework and guidance to ensure it was completed in an anti-discriminatory and anti-oppressive way. We will write a custom essay sample on NURS 60271 Social Work Intervention and Service Users or any similar topic only for you Order Now A significant issue, common to many families dealing with social services departments, is that they often feel a lack of control and autonomy (Harwath, 2002). As social work professionals it is essential that we engage with Josie and her family, establishing their views and opinions, (Thompson, 2002). An initial assessment of Josie’s situation has taken place and this has progressed through enquires under Section 47 of the 1989 Children Act, to the decision to hold a child protection conference. At this conference a recommendation was made to speak to legal services about initiating Care Proceedings in relation to both Michael and baby Perdita. One must consider that the family and professionals may have different perceptions of the current situation and this becomes problematic when assessments focus on family weaknesses and disadvantages (Milner O’Byrne, 1998). There are contradictory reports about Josie’s parenting skills, which could have a significant impact on any decisions taken. Mary, her foster mother, reports that Josie is trying hard with Perdita, demonstrating good levels of affection, whilst staff at the family centre state they have, â€Å"grave doubts† about her ability to parent. Josie is considered to have learning disabilities, however a key issue is the fact that no adequate assessment has taken place to assess the level, if any, of her learning difficulties. Adult services state that they consider Josie to have ‘only has mild to moderate, not severe learning difficulties,’ and if this is the case, then there could very limited impact on her potential parental capacity, however, it must be noted that single parents that have learning difficulties often face prejudice, (Thomas Woods, 2003). Josie’s first child, Michael, has lived with his grandparents since he was just a few months old, but returned to live with her, as a result of his grandmother’s recent death. It must be confusing and disorientating for him to be temporarily placed back with his mother, and then almost immediately removed again into foster care. Equally it must have placed an additional strain and burden on Josie when Michael was first returned, but then removed, affecting her ability to cope during Perdita’s birth and immediate aftercare. At birth, Perdita’s father was registered on the birth certificate, and through this action he has parental responsibility. However, when he last visited the police had to be called, after he struck Josie, and therefore extreme sensitivity and care will need to be taken in decisions and agreements made over his future involvement with the family due to the potential problem of domestic violence. The legal position over Emma, Josie’s middle child, who was adopted at age two, needs to be fully established. It is possible that it was agreed as a condition for Josie to have some form of limited contact visits and agreed letterbox contact, and if so then the possibility of restoring this contact should be investigated. The family’s economic status is not clear. The nature of Josie’s potential work and the effect of any employment on the family as a whole is currently unknown but could be viewed as a risk factor by some. The core key issues become whether Josie is currently able to provide best care for Perdita and Michael, whether this can be achieved with further support or whether Perdita and Michael need to be removed from Josie’s care and placed elsewhere. There are a wide number of policy and legislative mandates that would provide guidance and inform the assessment process and potential interventions in this case study, however, due to the limits of the word count they will be listed and their relevance outlined in brief. The four principal pieces of legislation relevant to this case study are the Children Act 1989, the Protection of Children Act 1999, the Adoption and Children Act 2002 and the Children Act 2004. The Children Act 1989 sought to carry into legislation the belief that where possible: ‘children are generally best looked after within the family, with both parents playing a full part and without resort to legal proceedings. The welfare of the children is the paramount consideration,’ (Children Act, 1989). Thus the Children Act sought, where possible, to protect children within a family environment. Sections 27 and 47 of the Act – significantly titled ‘Co-operation Between Authorities’ and ‘Local Authority’s Duty to Investigate‘ – sets out the Governments demands for closer agency communication. The main themes of the Children Act 2004 were an emphasis upon ‘integrated planning’, ‘delivery of services’, ‘multi-disciplinary working’, ‘increased accountability’ and, especially, more provision for those children with ‘special needs.’ The core legislation relating to children and their families in England and Wales is the Children Act 1989, (Warman,2003). Section 17 states that it is a duty of every local authority to â€Å"safeguard and promote the welfare of children within their area who are in need†. Whilst Section 47 lays a specific duty to â€Å"make enquires or cause enquiries to be made and to take action in response to reported concerns of significant harm†. Being placed with a foster mother indicates that the family is currently subject to an interim care and supervision order under Section 38, which provides the court with the power to make interim care and supervision orders, which place the children in the care of the local authority on an interim basis, whilst the family is assessed, and until the court can make a final decision. The interim care order has the same effect as a final care order in giving the local authority parental responsibility (Children Act 1989). You read "NURS 6027 1 Social Work Intervention and Service Users" in category "Essay examples" In fulfilling these duties agencies are assisted by guidance published by the Department of Health . Working Together to Safeguard Families (DoH,1999), directs inter-professional practice where children may be experiencing risk of significant harm, whilst Framework for the Assessment of Children in Need and Their Families (DoH, 2000), provides broad guidance on the conduct of various types of assessment, including the level and nature of the need, the type of appropriate services to meet the assessed need, and how, when, and by whom, such services will be delivered,(Harwarth,2002). To date such interim assessments have seen Josie and Perdita placed with a specialist Mother and baby foster carer, however, it is questionable as to whether the local authority have fully complied with the Children and Young Person Act 2008, as it is possible to argue that suitable accommodation for Michael to reside with his mother and sister, should have been sought and provided. In addition, in circumstances where the authority intends to accommodate a child with a parent or someone with parental responsibility, the authority must first review the proposed arrangements according to regulations made under Section 26 of the Children Act 1989, that is a review by an Independent Reviewing Officer. A sensitive balance needs to be struck by reviewing the placement whilst also promoting a sense of permanence and stability for the child and carers, (Warman, 2003). Looked after children’s reviews are meetings were identified needs are tailored in light of the care plan and status of the placement. Integral to the review is the Every Child Matters ethos, whereby the government seeks to guarantee equal opportunities for all children. Adding further weight, Article 8 of The Humans Rights Act 1998 outlines a persons right to respect for their private life and family, whilst the Mental Capacity Act 2005, provides a statutory framework to empower and protect people who may lack capacity to make some decisions for themselves (HMG, 2005). In Josie’s case this would include people recognised as having some learning difficulties which may affect their capacity to make some decisions. The act makes it clear who can make the decisions, and in which situations, and how they should go about this. The Adoption and Children Act 2002, introduced a completely new court order, Special Guardianship, which provides another option for legal permanence for children who cannot grow up with their birth families. Under the Act Special Guardianship is an order made by the court that places a child or a young person to live with someone permanently, and gives legal status for non parents who wish to care for that child or young person in a long term secure placement. A residence order is an order from the court to say who the child should live with. Adoption places a child or young person in a permanent home but upon adoption the birth parents lose parental responsibility, and links with the birth parents are lost in most cases, (Lowe Murch, 2002). Long term fostering offers a similar approach, but it does not always allow the child or young person to feel a sense of security and belonging (Rushton,2003). Also, the long term foster parent would not obtain parental responsibility and there fore not have a legal right to have a say in the decisions involving the child/young person. The role of a family court in child protection cases is to make rulings about the rights to custody of the children involved, (Shepard, 2004). A family court can be convened where the state, on the advice of care agencies, seek custody of a child or children. The family court hears evidence and recommendations from social service workers, doctors, mental health workers and other professionals. This evidence is intended to highlight the potential risk that the children are exposed to, (Bentovim Miller, 2001). If the family court finds that the potential risk to children is too high then it may rule that custody should be removed from the parents and given, either temporarily or permanently, to the State (Schepard, 2004). Such children are referred to as ‘looked after’ children. The case of Michael and Perdita has reached the point where it has been recommended that Care proceedings in a family court take place and a decision over placement be made. The physical smacking and shouting reported by staff at the family centre may become evidential of the view of care services that it is necessary to recommend that custody of Perdita be removed from Josie. With effect from 6th April 2011 The Family Procedure Rule 2010 came into force for all family proceedings, including adoption proceedings. Regarded as the most significant development in the procedure of the family courts for 20 years, (HMCS, 2010), ‘Family Procedure Rules 201,‘ replaces all existing procedural rules for family proceedings, creating a comprehensive and accessible source for all who come into contact with the family justice system. Covering all family proceedings in the High Court, the County Court and the Family Proceedings Court, the Rules were developed by Her Majesty’s Courts Service (HMCS) and the Family Procedure Rules Committee as a result of requirements set out in the Courts Act 2003. The Rules specify the need to secure that â€Å"the family justice system is accessible, fair and efficient and the rules are simple and simply expressed.†(HMCS, 2010) In seeking solutions about how to intervene most effectively, using practice theories and approaches, there is a need for a holistic approach seeking to utilise any strengths in Josie’s case, before identifying where assistance may be required, (Gibbs, 2003). As a profession we are committed to the pursuit of social justice for the poor, disadvantaged, disenfranchised and oppressed people, (Finn Jocobson 2003), however, prior awareness of the possibility of conflicting opinions, as to how to achieve this commitment, will enable the social worker to react thoughtfully and mediate effectively, (Dalrymple Burke, 1995). My recommendation would be for the Child Protection Conference to take place as required under the legislation. A main purpose of the conference is then to convene, in one place and at one time, all the relevant people interested in the care of Michael and Perdita, to include care professionals, medical practitioners, and if possible, subject to all necessary agreements and consents, Michael’s grandfather and Perdita’s father. Care professionals would then have the opportunity to decide whether legal proceedings ought to be brought on behalf of the children. This conference is a legal requirement and events have transpired to the point that this now cannot be avoided or delayed, however I would advocate that the outcome should, for now, include Perdita staying under the supervision of Josie, with the continued support of the foster mother Mary, whilst a more robust plan of support was investigated and recommendations made for additional support and education to aid impr ovements in her parenting capacity. I would further advocate for Michael to be placed with his grandfather under a special guardianship arrangement. Michael’s paternal attachment to date has been to his grandparents, as an older child Michael might struggle to deal with the status of being adopted and where there is evidence of a good relationship with members of the family, special guardian ship has the advantage of being less disruptive than either fostering or adoption, (Lowe Murch,2003). In the short term, Perdita remains a potential safeguarding issue. The staff have concerns over her being smacked and if this was viewed as a regular occurrence then most professionals would agree that Perdita was at least subject to inadequate parenting, whereas others would go further, and describe this as physical maltreatment, (Harwarth,2002). However, it must be born in mind that Josie may believe that she is attempting to be a good mother and merely modelling her own behaviour on her own experiences (Bandura 1977). The reason for Josie taking an excessive disciplinary approach to Perdita may be linked to her own experience of childrearing. If Josie was herself physically or emotionally maltreated, she may have developed ambivalent or disorganised attachment behaviours which apply to her own parenting relationship with Perdita, (Ainsworth 1989, Dominelli, 2002). The evidence base for proving that child maltreatment is passed form one generation to another is not conclusive (Macd onald, 2001), however it would need to be considered that Josie’s experiences of being raised in care could have an impact her own parenting skills which could be improved with education and support. The following legislation provides for the recommended solutions for this case study. The Children Act 1989 states that, where possible, the welfare of the children must be attempted inside the family environment. Thus the Children Act allows for social work professionals and other carers to monitor the current home situation before formulating their final recommendations. The Child Protection Act 1999 makes provision for Child Protection Conferences and such a conference regarding both Perdita and Michael would be an important short term measure to assess the risk to the children and to co-ordinate a Child Protection Plan for them. Legislation under the Child Protection Act 1999 would allow social workers to place either child on the Child Protection Register which would then require the design of a Child Protection Plan, to control future proceedings towards ensuring the safety of the children. These plans would clearly define what duties each care agency has for the protection of the children, and ensure that there is coherent and productive communication between these individual agencies, (Harwarth,2002). After the initial conference a further meeting can be convened after three months and then further six monthly conferences if felt necessary. I do not feel that Josie’s actions have reached the threshold for removing Perdita, at this time, and instead advocate further education and support should be indentified and provided to help improve her parenting capacity, of Perdita, in the short term, with the potential longer term aim of being placed in suitable supported accommodation to receive Michael also. However, I must also accept that if such short term support measures prove unsuccessful, and improved parental capacity is not observed, then it may be necessary to bring a public law case (family court) against Josie as set out in the Children Act 1989. If the court thinks it necessary to remove custody of Michael and Perdita from Josie, then the Ad option of Children Act 2002 would be utilised to make provisions for the long term care of the children under the status of ‘looked after’ children. After the child protection conference there would be clear summaries, which identify from the information gathered, the child’s developmental needs, parenting capacity and family and environmental factors. In each of these domains, both strengths and difficulties would then be identified, (Booth Keegan, 1996). Children’s needs do not exist in a vacuum, (Hugman, 1991), therefore the inter-relationships between the child, family and environment must be understood. Michael and Perdita are not yet ‘looked after’ children, since Jodie is their biological mother and as such, the provisions for ‘looked after’ children are not part of my recommendations, at this time, however, this could become a possibility. If this happened, then Perdita’s father, by virtue of having parental responsibility, would need to be consulted and his viewpoint sought before any final placement decision was made, hence my recommendation he be present, if agreement is possible, at the child protection conference. Fundamental to the recommended plan, from the beginning, is the commitment of all the parties involved, and the signatures to the plan of those who have lead responsibility, for ensuring it is carried forward. There should also be a clear recorded statement, on the plan, about when and how it will be reviewed, as reviewing the child’s progress, and the effectiveness of services, and other interventions is a continuous part, (Booth Kegan, 1996). Some of the information for these recommendations would have been gathered at the initial and core assessments and could have been complimented through the use of questionnaires and scales, (Department of Health, Cox and Bentovim, 2000). The Home Inventory (Caldwell and Bradley, 1984) and the Assessment of Family Competence, Strengths and Difficulties (Bentovim Bingley Miller, 2000), also provide important information about the child’s world and family functioning respectively. Service users, such as Josie, know little about the servicers available to them therefore social workers must act as the brokers to resources through referring them, (Payne, 2005). Just as the problems facing families are often interlinked, so the service providers for children and their families need to work closely together to be most effective, (Schneider Lester, 2001). It is important that all those concerned with services to children and families, statutory and voluntary bodies, community groups and families, contribute to the development of these plans, (Payne,1996). Everyone benefits if services are properly co-ordinated and integrated, (Rushton,2003). The structure and organisation of services to safeguard children are dictated by core legislation, guidance and policy, (Dalrymple J. and Burke B (1995). Government key objectives for improvements in outcomes, for children in need, can only be achieved by close collaboration between professionals and agencies working with child ren and families, (Harwarth, 2002). In particular Working together to Safeguard Children (DOH, 1999) and the Framework for the Assessment for Children in Need and Their Families, (DoH, 2000), provide comphrehensive guidance. The Framework for Assessment, (DoH,2000) provides guidance on the initial assessments and core assessments of a child in need including time frames that need to be met. Section 11 of The Children Act 2004 establishes the duty of different service providers to co-operate. â€Å"The support and protection of children cannot be achieved by a single agency†¦ Every Service has to play its part. All staff must have placed upon them the clear expectation that their primary responsibility is to the child and his or her family.† Lord Laming in the Victoria Climbie Inquiry Report, Paragraphs 17.92 and 17.93. Securing the wellbeing of children, by protecting them from all forms of harm, and ensuring their developmental needs are responded to appropriately, are primary aims of social work (Milner O’Byrne, 1998). The effectiveness with which a child’s needs are assessed will be key to the effectiveness of subsequent actions and services and, ultimately, to the outcomes for the child and this can only happen within an interdisciplinary and multiagency context. Many social workers practice in settings where they complete dual roles, protecting vulnerable individuals, and the community at large, in addition to playing other supportive roles, (Payne, 1996). In order to demonstrate adherence to working in an anti- discriminatory and anti-oppressive way it would be important to record the specific views and opinions and feelings of all concerned and attempt to build these, (sometimes contradictory) views into the recommended solutions where possible. At times it would be important to advocate on the family’s behalf with other agencies, taking time to reassure Josie that her views will be sought and listened to in this process, whilst also listening to and integrating the potentially different needs of Michael, the grandfather and Perdita’s father, (Sinclair et al, 2007). Only by working in partnership with the family could you begin to empower them to enable to seek the correct support and assistance. No matter where they are employed, social workers are influenced by the social work value of self determination for their client, (Thompson 2002). In defending this value you can begin to ensure that there has been an adherence to anti-discriminatory and anti-oppressive practice. Further to these general aims, policy guidelines and codes of practice provide the framework for such casework, and are there to enable professionals maintain the standards expected of them, (Payne, 2005). Using the Department of Health Framework for Assessment, as the initial assessment tool, would provide the opportunity to highlight and record the clients involvement in the solutions recommended. The aim of the practice guidance is to make transparent the evidence base for the assessment framework, thereby assisting professionals in their tasks of analysis, judgement and dec ision making and working together to promote anti-discriminatory and anti-oppressive practice. If we are not attuned to recognising and challenging discrimination we run the risk of condoning it, or even exacerbating it, through our own actions, (Thompson, 1998). We need to be sensitive to discrimination and oppression to avoid the pitfall of becoming oblivious to their existence, (Tomlinson Trew, 2002). Giddons (1977) argues that power is intrinsic to all social interaction, we therefore cannot escape the significance of power in our dealings with other people. Assessments and subsequent care plans are more effective if the child and family feel empowered and involved throughout the process (Department for Education and Skills, 2001), to demonstrate that for Josie and her family you had worked in an anti-discriminatory and anti-oppressive way it would be important to establish and document their individual contributions to the process, and ensure they felt involvement in the solutions and recommendations made. One of the hallmarks of good practice in traditional approaches t o social work has been a sensitivity to feelings, (Dominelli, 2002), this aim should run through all aspects of the recommendations. REFERENCES Adoption and Children Act (2002), London: HMSO Ainsworth,M.D.S., (1989) Attatchment Beyond Infancy, American Psychologist, 44, 709-716. In: Cassidy, J. Shaver,P., (2008) Handbook of Attachment: Theory Research and Clinical Application (2nd Ed). New York: Guildford. Bentovim, A. Bingley Miller, L. (2001) The Family Assessment: Assessment of Family Competence, Strengths and Difficulties. Brighton: Pavillion Publishing Booth, M. Kegan, P. (1996). Avoiding Delay in Children Act Cases. Routledge, London. Children Act (1989), London: HMSO Children Act (2004), London: HMSO. www.dfes.gov.uk/publications/childrenreport Cox, A. Bentovin, A. (2002) The Family Assessment Pack of Questionnaires and Scales. London: HMSO. Cox, A Walker, S. (2002) The HOME Inventory- Home Observation and Measurement of the Environment. Brighton: Pavillion Publishing Dalrymple J. and Burke B (1995) Anti Oppressive Practice – Social Care and the Law Buckingham Open University Press DDA – Disability Discrimination Act, 2005 from www.disability.gov.uk/Department of Health, Department of Health (2000) Framework for the Assessment of Children in Need and Their Families. London: HMSO. Dominelli, L.(2002). Anti-oppressive Social Work Theory and Practice. London: Palgrave MacMillan Family Procedure Rules (2010) www.legislation.gov.uk Finn,J.L, Jacobson, M. (2003) Just Practice: Steps Towards a New Social Work Paradigm. In: Journal of Social Work Education Vol 39 2003. Gibbs, L. (2003) Evidence-based practice for the helping professions. Monterey C.A.: Brooks Cole. Harwarth, J. (2002). Maintaining a Focus on the ChildFirst Impressions of The Framework for The Assessment of Children In Need and Their Families In Cases of Child Neglect. Child Abuse Review Voll11 Issue 4 Pages 195-213. Her Majesty’s Court Service (2010). Courts Act 2003. Direct Gov website. Direct.gov.uk Her Majesty’s Government (2005) Understanding the Mental Capacity Act. Direct Gov website. Direct.gov.uk Holder, W Corey, M. (1986) Child Protective Services Risk Management: A Decision Making Handbook. Action for Child Protection, Charlotte, N.C. Hugman, R., (1991) Power in the caring professions. London: Boyers. Lowe N, Murch M, (2002) The Plan for the Child: Adoption or long-term fostering, BAAF. Macdonald, G.M., (2001). Interventions for Child Abuse and Neglect: An Evidence Based Approach to Planning and Evaluating Interventions. London: Wiley. Milner,J O’Byrne,P. (1998), Assessment in Social Work, Basingstoke: MacMillan. Payne, M. (1996) What is Professional Social WorkBirmingham:Venture Payne, M. (2005) Modern Social Work Theory. New York: Palgrave Macmillan Protection of Children Act (1999), London: HMSO www.dfes.gov.uk/publications/protectionofchildrenact Rushton, A. (2003). The Adoption of Looked After Children. Social Care Institute for Excellence, London. Schepard, A. I. (2004) Children,Courts and Custody. Hofstra University, New York. Schneider, R.L. and Lester,L.,( 2001) Social Work Advocacy: A new framework for action. Belmont C.A: Brooks/Cole. Sinclair I, Baker C, Lee J, Gibbs I, (2007) The Pursuit of Permanence Jessica Kingsley Publishing. www.dfes.gov.uk/publications/adoptionofchildrenact Thomas,D. Woods, H., (2003) Working with People with Learning Difficulties: Theory and Practice. Philadelphia: Jessica Kinglsey. Thompson, N. (2001) Anti-Discriminatory practice 3rd Ed. London,Palgrave Thompson,N. (1998) Promoting Equality London Macmillan Press Limited. In : Learning disability: A handbook for integrated care / edited by Michael Brown. Salisbury : APS, 2003. Tomlinson, D.R. Trew, W., (2002), Equalising Opportunities, Minimising Oppression: A Critical Review of Anti-discriminatory Policies in Health and Social Welfare. London: Routledge. Warman, A.(2003) Adoption and Looked After Children: International Comparisons. Family Policies Study Centre, Oxford. How to cite NURS 60271 Social Work Intervention and Service Users, Essay examples

Livent, Inc an Instructional Case free essay sample

An Instructional Case Michael C. Knapp Professor University of Oklahoma Price College of Business 307 W. Brooks Norman, Oklahoma 73019 Office phone: 405-325-5784 [emailprotected] edu Carol A. Knapp Visiting Associate Professor University of Oklahoma Price College of Business 307 W. Brooks Norman, Oklahoma 73019 ABSTRACT: Like many financial frauds, the Livent, Inc. fraud was masterminded by a few individuals, primarily Garth Drabinsky, a Broadway â€Å"impresario† who had received several Tony Awards for Livent’s theatrical productions. However, numerous individuals were eventually drawn into Livent’s fraudulent schemes by Drabinsky. The Livent fraud unraveled following the takeover of the company by an investment group headed by former Hollywood power broker and Disney executive, Michael Ovitz. Shortly after assuming control of Livent, Ovitz’s new management team reported â€Å"massive, systematic, accounting irregularities that permeated the company. † Subsequent investigations by various regulatory authorities, including the SEC, resulted in numerous civil lawsuits and criminal indictments being filed against Drabinsky and his former associates. Two features of the Livent fraud were particularly disturbing to SEC officials. First, the company’s accounting staff developed computer software to allow senior management to track both Livent’s â€Å"real† numbers and the fraudulent manipulations of those numbers. Once the manipulations were created, the so-called accounting â€Å"adjustments† appeared in Livent’s accounting records as if they were the original transactions, thus eliminating a paper trail. The second troubling feature of the Livent fraud was the matter-of-fact manner in which the company’s management team and accountants organized and carried out the fraud. The Livent scandal had several features shared with other major financial frauds. These common features included an extremely aggressive, growth-oriented management team, a history of prior financial reporting indiscretions by top management, a constant and growing need for additional capital, and the existence of related-party transactions. The presence of these â€Å"red flags† should cause auditors to recognize that there is a higher than normal risk that the given client’s financial statements may contain material misstatements. Key Words: Auditing, Fraud, Audit Failure, Litigation. LIVENT, INC. : An Instructional Case The structure of a play is always the story of how the birds came home to roost. Arthur Miller In May of 1996, Canadian native Maria Messina stood at an important crossroads in her professional career. Just one year earlier, the 34-year-old Chartered Accountant had achieved one of the most sought after career goals in the public accounting profession when she was promoted to partner with Deloitte Touche, Chartered Accountants, the Canadian affiliate of the U.S. -based Deloitte Touche, LLP. Messina’s promotion had earned her the respect and admiration of her family, her friends, and her colleagues in the profession. Her new position also came with a sizable increase in take-home pay that catapulted her to a much higher tax bracket and a more comfortable standard of living. But, another opportunity had just arisen, an opportunity that promised even more intrinsic and extrinsic rewards f or Messina. 1 Throughout the 1990s, Livent, Inc. was the only publicly owned company whose primary line of business was live theatrical productions. Livent’s co-founder and the individual recognized as the creative genius responsible for the company’s impressive string of Tony Award-winning shows was Garth Drabinsky. Livent’s audit firm was Deloitte Touche, Chartered Accountants. Maria Messina served as the engagement partner for the 1996 audit, after having been the audit manager on prior audits of the company. Following the completion of the 1996 Livent audit, Drabinsky asked Messina to leave Deloitte Touche and become Livent’s chief financial officer (CFO). After carefully weighing the challenges, opportunities, and potential drawbacks of making the job change, Messina gave up the partnership position with Deloitte Touche that she had coveted for years in exchange for a â€Å"back office† but high-paying and high-profile position in the glitzy and glamorous world of show business. Within a few weeks of signing on with Livent, Maria Messina was questioning the wisdom of her decision. Time budgets, out-of-town travel, inexperienced subordinates, and an array of other common â€Å"stressors† faced by partners of major accounting firms had complicated Messina’s professional and personal life while at Deloitte. But, at Livent, the pressures she faced were much more intense, much more difficult to manage and control, even physically debilitating at times. Each passing month imposed a heavier emotional burden on Messina. By the late summer of 1998, Messina’s life was in complete disarray. A few months later, in January 1999, Messina pleaded guilty to a federal felony charge for her role in a massive financial fraud orchestrated by Livent’s top executives. Following that plea, the single mother of a ten-year-old daughter faced up to five years in prison and a $250,000 fine. There Is No Business Like Show Business The entertainment industry had fascinated Garth Drabinsky from an early age. Unlike many of his colleagues in the industry, Drabinsky did not benefit from a network of family members and friends in show business. Instead, Drabinsky relied on his own drive, inspiration, and indomitable work ethic to claw his way to the top of the volatile and fickle entertainment industry. Born in Toronto in 1947, Drabinsky was struck down by polio at age three, leaving him with a severe limp for the remainder of his life. The young Canadian refused to allow his physical limitations to prevent him from reaching his goals. In fact, Drabinsky freely admits that his physical problems and his modest upbringing—his father sold air conditioners—were key factors that motivated him to â€Å"aim for the stars. During his college years, Drabinsky made his first foray into show business by publishing a free magazine that provided critiques of movies appearing in local theaters. After graduating from law school where he concentrated his studies on the entertainment industry, Drabinsky became involved in real estate development. The young attorney hoped to accumulate a nest egg that he could use to begin pro ducing movies and live plays. A successful condominium project provided him with the funds he needed to begin dabbling in motion pictures and Broadway productions. By age 30, Drabinsky had produced three feature-length movies and one Broadway musical, none of which were particularly well received by critics or the ticket-buying public. In 1979, Drabinsky and a close friend, Myron Gottlieb, decided to enter the show business world via the â€Å"back door. † The two young entrepreneurs persuaded a prominent Toronto businessman to invest nearly $1 million in a â€Å"cinema complex† project they had conceived. 2 This project involved converting the basement of a large shopping mall into a multi-screen theater. The design for the â€Å"cineplex† included plush interiors for each theater, luxurious seats, and cappuccino bars in the lobby. Drabinsky intended to make a trip to the local movie theater the captivating experience it had been several decades earlier in the halcyon days of Hollywood. Most industry insiders predicted that Drabinsky’s blueprint for his cineplex concept would fail, principally because the large overhead for his theaters forced his company to charge much higher ticket prices than competitors. But, the critics were wrong. Toronto’s moviegoers were more than willing to pay a few extra dollars to watch a film in Drabinsky’s upscale theaters. Over the next several years, Drabinsky and Gottlieb expanded their company with the help of well-heeled investors who they convinced to pony up large sums to finance the development of multi-screen theater complexes throughout Canada and the United States. By the mid-1980s, their company, Cineplex Odeon, controlled nearly two thousand theaters, making it the second-largest theater chain in North America. Several major investors in Cineplex Odeon eventually began complaining of Drabinsky’s lavish, if not unrestrained, spending practices. The company’s rapid expansion and the increasingly sumptuous designs Drabinsky developed for new theaters forced Cineplex Odeon to borrow enormous amounts from banks and other lenders. An internal investigation in 1989 uncovered irregularities in the company’s accounting records that wiped out a large profit for the year, forcing Cineplex Odeon to report a significant loss instead. The controversy sparked by the discovery of the accounting irregularities gave Cineplex Odeon’s major investors the leverage they needed to force Drabinsky and Gottlieb to resign. During the negotiations that led to their departure from the company, Drabinsky and Gottlieb acquired the Pantages Theatre, a large live production theater in Toronto, as well as the Canadian rights to certain Broadway plays. Within a few weeks after severing their ties with Cineplex Odeon, Drabinsky and Gottlieb had organized Live Entertainment Corporation to produce Broadway-type shows in their hometown of Toronto. Drabinsky’s concept for this new company, which he coaxed several large investors and lenders to bankroll, was to bring â€Å"corporate management† to the notoriously freewheeling and undisciplined show business industry. Following a series of widely acclaimed productions, the company—renamed Livent, Inc. —went public in 1993. 3 In May 1995, Livent filed an application with the Securities and Exchange Commission (SEC) to sell its stock in the United States. The SEC approved that application and Livent’s stock began trading on the NASDAQ stock exchange. Within two years, U. S. nvestors controlled the majority of Livent’s outstanding stock. By early 1998, Livent owned five large live production theaters in Canada and the United States, including a major Broadway theater in New York. The company’s productions, among them Fosse, Kiss of the Spider Woman, Ragtime, Show Boat, and The Phantom of the Opera—had garnered a total of more t han twenty Tony Awards. Show business insiders attributed Livent’s rapid rise to prominence to Garth Drabinsky. After organizing Livent, Drabinsky quickly developed a keen sense of what types of shows would appeal to the public. Even more important, he was able to identify and recruit talented directors, actors, set designers, and the array of other skilled artisans needed to produce successful Broadway shows. The single-minded and dominant Drabinsky micro-managed not only the creative realm of Livent’s operations but every other major facet of the company’s operations as well, although he relied heavily on his friend and confidant, Myron Gottlieb-who had an accounting background, to help him oversee the company’s accounting and financial reporting functions. Despite the artistic success enjoyed by several Livent productions and the company’s growing prominence in the entertainment industry, Garth Drabinsky was dogged by critics throughout the 1990s. The enigmatic Drabinsky had a well-deserved reputation as flamboyant and charming with Wall Street analysts, metropolitan bankers, and fellow corporate executives. But, critics were prone to point out that Drabinsky also had a darker side to his personality. â€Å"He is—by his own admission—complex and difficult, cranky and litigious, breathtakingly ambitious, singled-minded and self-centered. 4 According to company insiders, Drabinsky could be â€Å"tyrannical and abusive†5 to his subordinates, berating them when they failed to live up to his perfectionist standards or questioned his decisions. Maria Messina subsequently revealed that Livent’s accountants were common targets of verbal abuse by Drabinsky and other Livent executives. â€Å"They [Livent†™s accountants] were told on a very regular basis that they are paid to keep their [expletive] mouths shut and do as they are [expletive] told. They are not paid to think. 6 Critics also charged that Drabinsky failed to live up to his pledge of bringing a disciplined style of corporate management to Broadway. In reality, Drabinsky was anything but disciplined in managing Livent’s finances. Because he demanded that the company’s live productions be â€Å"motion-picture perfect,† most of Livent’s shows, particularly those that were box-office successes, incurred huge cost overruns. By 1998, Livent was buckling under the huge load of debt Drabinsky had incurred to finance the company’s lavish productions. In early 1998, Roy Furman, a Wall Street investment banker and close friend, persuaded Drabinsky to accept a $20 million investment from former Disney executive Michael Ovitz to alleviate Livent’s financial problems. A condition of Ovitz’s proposed investment was that he be granted sufficient common stock voting rights to allow him to control the company’s board of directors. During the 1980s, Ovitz had reigned as Hollywood’s top talent agent. When he became chairman of the Creative Artists Agency, show business periodicals tagged him with the title of â€Å"Hollywood’s most powerful man. In late 1995, Disney CEO Michael Eisner chose Ovitz to serve as his top lieutenant and gave him the title of company president. A little more than one year later, repeated personality clashes between the two Hollywood heavyweights resulted in Eisner dismissing Ovitz. No doubt, Ovitz hoped that Livent would provide him with an opportunity to refurbish his reputatio n in the entertainment industry, a reputation that had been tarnished during his brief and turbulent stint with Disney. Just as important, taking control of Livent would allow Ovitz to compete head-to-head with his former boss. At the time, Disney’s The Lion King was a colossal hit on Broadway. Before agreeing to invest in Livent, the cautious Ovitz retained the Big Five accounting firm KPMG to scrutinize the company’s accounting records. When KPMG’s â€Å"due diligence† investigation yielded a clean bill of health for Livent’s accounting records, Ovitz became the company’s largest stockholder in early June of 1998 and took over effective control of the company. Ovitz accepted a seat on the company’s board and became chairman of the board’s executive committee, while Furman assumed Drabinsky’s former titles of chairman of the board and CEO. Drabinsky was given the titles of vice-chairman and chief creative director. In the latter role, Drabinsky continued to oversee the all-important creative facets of Livent’s operations. To provide a second opinion on artistic matters, Ovitz appointed the noted producer and songwriter Quincy Jones to Livent’s board. Ovitz also demoted Myron Gottlieb to a vice-president position. A former Disney executive who left that company along with Ovitz assumed Gottlieb’s former position as Livent’s president. Among other changes that Ovitz made in Livent’s corporate management structure was hiring former KPMG audit partner Robert Webster to serve as an executive vice-president of the company. Webster, who had supervised KPMG’s due diligence investigation of Livent’s accounting records, was given a broad range of responsibilities but his principal role was apparently to monitor Livent’s accounting and finance functions for Ovitz’s new management team. Webster’s Summer of Discontent Similar to Maria Messina, Robert Webster quickly discovered that the work environment within Livent was much less than ideal. After joining Livent in the early summer of 1998, Webster found that the accounting staff, including Messina, who remained Livent’s CFO, was reluctant to discuss accounting matters with him. Webster later testified that some of the Livent accountants â€Å"told him that Mr. Drabinsky had warned them not to provide certain financial information until [Drabinsky] had reviewed and approved it. 7 Even more troubling to Webster was Drabinsky’s management style. Webster testified that, â€Å"I had never before experienced anyone with Drabinsky’s abusive and profane management style. †8 He was shocked to find that Livent’s executives often screamed and swore at the company’s accountants. Webster reported that the accountants sometimes left meetings with Drabinsky in tears or even nauseou s. Following one such meeting, Webster recalled Messina â€Å"shaking like a leaf. 9 When Webster demanded that Livent’s accountants provide him with unrestricted access to the company’s accounting records, the former KPMG partner became the target of Drabinsky’s wrath. Drabinsky accused Webster of attempting to â€Å"tear the company† apart with his persistent inquiries and told him that he was there to â€Å"service his [Drabinsky’s] requirements. 10 Webster refused to be deterred by Drabinsky’s bullying tactics. In early August 1988, after Webster began asking questions regarding a suspicious transaction he had uncovered, Messina and four of her subordinates secretly met with him. The five accountants admitted to Webster that Livent’s accounting records had been distorted by a series of fraudulent schemes initiated and coordinated by Drabinsky and other top Livent executives. Webster relayed the disturbing revelations to Livent’s board. On August 11, 1998, Roy Furman issued a press release announcing that â€Å"significant financial irregularities† adversely affecting Livent’s financial statements for the past three years had been discovered. The press release also indicated that Drabinsky and Gottlieb had been indefinitely suspended pending the outcome of a forensic investigation by KPMG. During the fall of 1998, company officials issued successive press releases suggesting that the impact of the accounting irregularities would be more severe than initially thought. Adding to Livent’s problems was the suspension of all trading in the company’s stock and a series of large class-action lawsuits filed against the company and its officers. In August 1998 alone, twelve such lawsuits were filed. On November 18, 1998, Livent’s board announced that KPMG’s forensic investigation had revealed â€Å"massive, systematic, accounting irregularities that permeated the company. 11 The press release issued by Livent’s board also disclosed that Deloitte Touche had withdrawn its audit opinions on the company’s 1995-1997 financial statements. Finally, the press release reported that Drabinsky and Gottlieb had been dismissed and that Livent had simultaneously filed for bankruptcy in Canada and the United States. A few weeks later, a federal gran d jury in New York issued a 16-count fraud indictment against Drabinsky and Gottlieb. When the former Livent executives failed to appear for a preliminary court hearing, a U. S. ederal judge issued arrest warrants for the two Canadian citizens and initiated extradition proceedings. A â€Å"Pervasive and Multi-faceted† Fraud Details of the massive fraud allegedly conceived by Garth Drabinsky and Myron Gottlieb were eventually revealed to the public by the SEC, the Ontario Securities Commission—a Canadian agency comparable to the SEC, and publicly available records of various court proceedings in civil lawsuits. In numerous enforcement and litigation releases, SEC officials repeatedly used the descriptive phrase â€Å"pervasive and multi-faceted† when referring to the Livent fraud. One of the earliest elements of the fraud was a large kickback scheme. â€Å"As early as 1990, and continuing through 1994, Drabinsky and Gottlieb operated a kickback scheme with two Livent vendors designed to siphon millions of dollars from the company directly into their own pockets. †12 Gottlieb reportedly instructed the two vendors to include in the invoices they submitted to Livent charges for services not rendered to the company. After Livent paid the inflated invoice amounts, Drabinsky and Gottlieb received kickbacks equal to the payments for the bogus services. According to the SEC, over a fouryear period in the 1990s, Drabinsky and Gottlieb received approximately $7 million in kickbacks from the two Livent vendors. The illicit charges billed to Livent by the vendors were capitalized in â€Å"preproduction† cost accounts for the various shows being developed by the company. Legitimate costs charged to those accounts included expenditures to produce sets and costumes for new shows, costs that were amortized over a maximum period of five years. By the mid-1990s, the kickback scheme and large losses being registered by several of Livent’s plays made it increasingly difficult for the company to achieve quarterly earnings targets that Drabinsky and Gottlieb had communicated to Wall Street analysts. The two conspirators realized that if Livent failed to reach those earnings targets, the company’s credit rating and stock price would fall, jeopardizing the company’s ability to raise the additional capital needed to sustain its operations. Faced with these circumstances, the SEC reported that beginning in 1994, Drabinsky and Gottlieb directed Livent’s accounting staff to engage in an array of â€Å"accounting manipulations† to obscure the company’s financial problems. These manipulations included such blatant subterfuges as simply â€Å"erasing† from the accounting records previously recorded expenses and liabilities at the end of each quarter. A particularly popular accounting scam within Livent was to transfer preproduction costs from a currently running show to a show still in production. Such transfers allowed the company to defer, sometimes indefinitely, the amortization of those major cost items. To further reduce the periodic amortization charges for preproduction costs, Livent’s accountants began charging such costs to various fixed asset accounts. These assets were typically depreciated over forty years, compared to the five-year amortization period for preproduction costs. Eventually, the company’s accountants began debiting salary expenses and other common operating expenses to long-term fixed asset accounts. The SEC estimated that the so-called accounting manipulations understated Livent’s expenses by more than $30 million in the mid-1990s. Despite the resulting favorable impact on Livent’s financial statements, Drabinsky and Gottlieb eventually realized that additional efforts were needed to embellish the company’s financial data. So, beginning in 1996, Drabinsky and Gottlieb organized and carried out what the SEC referred to as a â€Å"fraudulent revenue-generating† scheme. This new scam involved several multimillion-dollar transactions arranged by Drabinsky and Gottlieb. The specific details of these transactions varied somewhat but most of them involved the sale of production rights owned by Livent to third parties. For example, Livent sold the rights to produce Ragtime and Show Boat in various U. S. theaters to a Texasbased company. The contract for this transaction indicated that the $11. 2 million fee paid to Livent by the Texas company was not refundable under in any circumstances. However, a secret side agreement arranged by Livent’s executives shielded the Texas company from any loss on this deal and, in fact, guaranteed it a reasonable rate of return on its large investment. Despite the considerable uncertainty regarding the actual profit, if any, that Livent would ultimately earn on this and similar transactions, the company’s accounting staff included at least $34 million of revenues on those transactions in its 1996 and 1997 income statements. A final Livent scam documented by the SEC involved inflating reported box-office results for key productions. In late 1997, Livent opened Ragtime in a Los Angeles theater. The agreement with that theater allowed it to close the show if weekly ticket sales fell below $500,000. Livent’s executives planned to open Ragtime on Broadway in January 1998. Those executives realized that if the show fared poorly in Los Angeles, its Broadway opening could be jeopardized. To inflate Ragtime’s ticket sales during its Los Angeles run, Livent executives arranged to have two of the company’s vendors—the same individuals involved in the fraudulent kickback scheme alluded to previously—purchase several hundred thousand dollars of tickets to the show. Livent reimbursed the vendors for these ticket purchases and charged the payments to various fixed asset accounts. The fraudulent schemes engineered by Livent’s executives caused the company’s periodic financial statements to be grossly misrepresented. For example, in 1992, the company reported a pre-tax profit of $2. 9 million when the actual figure was approximately $100,000. Four years later, Livent reported a pre-tax profit of $14. 2 million, when it actually incurred a loss of more than $20 million. By 1997, the company’s total fixed assets of $200. million were overstated by nearly $24 million due to the various accounting schemes. SEC officials found two features of the Livent fraud particularly disturbing. As the scope of the fraud steadily grew throughout the 1990s, the company’s accounting staff found it increasingly difficult to provide meaningful financial data to top management. â€Å"Because of the sheer magnitude and dollar amount of the ma nipulations, it became necessary for senior management to be able to track both the real and the phony numbers. 13 Gordon Eckstein, the company’s Senior Vice-President of Finance and Administration and Maria Messina’s immediate superior, allegedly instructed a subordinate to develop computer software that would solve this problem. This software effectively filtered the bogus data out of the company’s accounting records. The secret software also served a second purpose, namely, allowing Livent’s accountants to record fraudulent transactions â€Å"without leaving a paper trail that Livent’s outside auditors might stumble across. †14 The accountants processed in a batch mode illicit changes in the accounting records demanded by Livent’s executives. When these so-called â€Å"adjustments† were processed, they replaced the initial journal entries for the given transactions, making the adjustments appear as if they were the original transactions, thus duping the company’s Deloitte auditors. The second extremely troubling feature of the Livent fraud, according to the SEC, was the matter-of-fact manner in which the company’s management team organized and carried out the fraud. Reportedly, Drabinsky, Gottlieb, and Robert Topol, Livent’s Chief Operating Officer, regularly met with Eckstein, Messina, and other members of the company’s ccounting staff to discuss the details of the fraud. At these meetings, the three top executives reviewed preliminary financial reports prepared by the accounting staff and instructed the accountants on the â€Å"adjustments† needed to improve or embellish those reports. As suggested earlier, Livent’s top executives relied on coercion and intimidation to br owbeat their accountants, including Messina, into accepting these illicit changes. Once the adjustments were processed, â€Å"the bogus numbers were presented to Livent’s audit committee, the auditors, investors, and eventually filed with the Commission [SEC]. 15 Keeping the Auditors in the Dark Press reports of a large accounting fraud involving a public company nearly always prompt scathing criticism of the company’s independent audit firm. The disclosure of the Livent fraud in the late summer and fall of 1998 caused Deloitte Touche to become a target of such criticism. A Canadian financial analyst observed that investors depend on auditors to clamp down on their clients and force them to prepare reliable financial reports. â€Å"They [auditors] are the only ones in a position to question the policies, to question the numbers, to make sure they’re right. 16 Critics could readily point to several red flags or fraud risk factors present during Deloitteâ€℠¢s tenure with Livent that should have placed the accounting firm on high alert regarding the possible existence of financial statement misrepresentations. Among those factors were an extremely aggressive, growth-oriented management team; a history of prior financial reporting indiscretions by Drabinsky and Gottlieb; a constant and growing need for additional capital; and the existence of related-party transactions. Some of the fraudulent â€Å"revenue-generating transactions† discussed in the SEC’s enforcement releases focusing on the Livent fraud involved companies or corporate executives affiliated with Livent or its management team. In Deloitte’s defense, a massive collusive fraud that involves a client’s top executives and the active participation of its accountants is extremely difficult to detect. Making matters worse for Deloitte was that Livent’s executives had a contemptuous attitude toward independent auditors. At one point, a top Livent officer told a subordinate that independent auditors were a necessary evil and that it was no one’s business how they [Livent’s executives] ran their company. †17 Finally, the Deloitte auditors’ objectivity, no doubt, was impaired by their reliance on two former colleagues who had been assigned to earlier Livent audits before accepting key accounting positions with the company. Christopher Craib replaced Maria Messina as the audit manager assigned to the Livent audit engagement team following Messina’s promotion to partner in 1995. After the 1996 audit was completed, Drabinsky hired Craib to serve as Livent’s Senior Controller for Budgeting in June 1997. Not long after joining Livent, Craib, a Chartered Accountant, became involved in the ongoing effort to segregate Livent’s â€Å"real† accounting data from its bogus data. In subsequent testimony, Craib recalled meeting with Eckstein to discuss Livent’s schizoid accounting system. Eckstein explained to Craib why it was imperative to track both the real and bogus accounting data. â€Å"I have to keep all the lies straight. I have to know what lies I’m telling these people [outside auditors]. I’ve told so many lies to different people I have to make sure they all make sense. 18 Similar to Craib, Maria Messina realized that concealing the Livent fraud from the Deloitte auditors was among her primary responsibilities. During a meeting shortly after Messina joined Livent, she became aware of the adversarial attitude that Livent’s top executives had toward the company’s independent auditors. During this meeting, Topol became angry when Messi na raised an issue involving what documents to turn over to Deloitte. Topol responded with an angry outburst. â€Å"[expletive] you and your auditors . . . I don’t care what they see or don’t see. 19 Despite the efforts of Livent officials to sabotage their independent audits, the company’s Deloitte auditors focused considerable attention on several suspicious transactions that they uncovered. The Deloitte auditors became increasingly skeptical of Livent’s accounting records in 1996 and 1997 when Drabinsky and his colleagues were scrambling to conceal the deteriorating financial condition of their company while, at the same time, attempting to raise much needed debt and equity capital. Near the end of the 1996 audit, Deloitte Touche, LLP, the U. S. -based branch of the firm, initially refused to allow its Canadian affiliate to issue an unqualified audit opinion on Livent’s financial statements filed with the SEC. Deloitte’s top technical partners in the United States believed that Livent had been much too aggressive in recognizing revenue on a few large transactions—transactions that, unknown to partners of both the Canadian and U. S. affiliates, included fraudulent elements. After a series of meetings between Livent officials and representatives of Deloitte Touche, LLP, a compromise was reached. Livent agreed to defer the recognition of revenue on one of the two large transactions in question until 1997. In return, Deloitte allowed the company to record the full amount of the revenue produced by the other disputed transaction. During 1997, a major transaction with a real estate firm triggered another conflict between Deloitte and Livent management. In the second quarter of that year, the real estate firm purchased for $7. 4 million the development rights to a valuable parcel of land owned by Livent. The contract between the two companies included a stipulation or â€Å"put agreement† allowing the real estate firm to cancel the transaction prior to the date that it began developing the property. When the Deloitte audit engagement partner learned of the put agreement, he insisted that no revenue could be recorded for the transaction. Complicating matters was the fact that the transaction involved a related party since Myron Gottlieb served on the board of directors of the real estate firm’s parent company. To quell the audit partner’s concern, Gottlieb arranged to have an executive of the real estate firm send the partner a letter indicating that the put agreement had been cancelled— which it had not. After receiving the letter, the Deloitte partner told Gottlieb that the revenue resulting from the transaction could be recorded during Livent’s third quarter when the put agreement had allegedly been cancelled. At this point, a frustrated Gottlieb ignored the partner’s decision and included the disputed revenue in Livent’s earnings report for the second quarter of 1997. When Deloitte officials learned of the earnings press release, they demanded a meeting with Livent’s board of directors. At this meeting, Deloitte threatened to resign. After considerable discussion, Livent’s board and the Deloitte representatives reached a compromise. According to a subsequent legal transcript, the board agreed to reverse the journal entry for the $7. 4 million transaction in the second quarter, recording it instead during the third quarter. The board also agreed to issue an amended earnings release for the second quarter. In xchange for these concessions, Deloitte officials purportedly agreed to allow Livent to reverse certain accrued liabilities that had been recorded at the end of the second quarter. The reversal of those accrued liabilities and the corresponding expenses reduced by approximately 20 percent the profit â€Å"correction† reported by Livent in the amended earnings press release for the second quarter. 20 Another serious disagree ment arose between Livent executives and Deloitte auditors shortly after the dispute just described was resolved. During the third quarter of 1997, Livent’s management arranged to sell for $12. million the naming rights for one of its existing theaters and a new theater that the company was planning to build. Neither Maria Messina or the Deloitte auditors assigned to the Livent engagement believed that the $12. 5 million payment should be recorded immediately as revenue since the contract between Livent and the other party, ATT, was strictly an oral agreement at the time and since one of the theaters was yet to be built. Gottlieb retained Ernst Young to review the matter. The report EY submitted to Gottlieb did not take a firm position on the revenue recognition issue. Instead, EY’s report simply suggested that the $12. 5 million payment for the naming rights could be â€Å"considered† for recording during the third quarter. After receiving a copy of EY’s report, Deloitte hired Price Waterhouse to review the transaction. When Price Waterhouse reached the same conclusion as EY, Deloitte allowed Livent to book the $12. 5 million figure as revenue during the third quarter. Don’t Blame Me, Blame . . . Resolving the legal implications of a major accounting and financial reporting fraud can require years. However, one Canadian journalist suggested that in the Livent case the legal wrangling may continue even longer, possibly even for decades. 21 A key factor complicating the resolution of this case is its â€Å"cross-border† nature. Beginning in late 1998, officials from several federal agencies in Canada and the United States became embroiled in a tedious and often unfriendly struggle to determine which agency would be the first to prosecute the key parties involved in the Livent fraud. Those agencies include the Royal Canadian Mounted Police, the Ontario Securities Commission, the SEC, and the U. S. Department of Justice, among others. Law enforcement authorities in the United States failed to win the cooperation of their Canadian counterparts in attempting to extradite Garth Drabinsky and Myron Gottlieb to face a litany of federal fraud charges filed in U. S. courts. Even more frustrating to U. S. authorities was the snail’s pace at which Canadian authorities moved in pursuing legal action against the two key alleged fraudsters. While Canadian and U. S. law enforcement authorities tangled over jurisdictional matters, the leading actors in the final Livent â€Å"production† waged a public relations war against each other in major metropolitan newspapers and in the courts. Drabinsky and Gottlieb were the most vocal of these individuals. They repeatedly insisted that they were not responsible for the various fraudulent schemes that had been uncovered within Livent. At a press conference held in early 1999, Drabinsky suggested that he had been too busy overseeing Livent’s creative operations to become involved in any creative bookkeeping. 22 In his typical Shakespearean manner, Drabinsky declared that, â€Å"The final act of this tragedy has yet to be played out and, when it is, Myron Gottlieb and I have complete confidence that we will be vindicated. †23 In January 1999, Myron Gottlieb filed a civil lawsuit against Maria Messina, Christopher Craib, Gordon Eckstein, and three other former Livent accountants, charging them with responsibility for the Livent accounting fraud. In court documents filed in this lawsuit, Gottlieb alleged that he was not â€Å"an expert on accounting practices† and that he relied on Livent’s accounting staff to ensure that the company’s financial statements were accurate. 24 In filing a response to the lawsuit in Canadian courts, the named defendants, other than Eckstein, claimed that they had been coerced into participating in the fraud by its principal architects. 5 Those defendants also rejected Gottlieb’s assertion that he was unfamiliar with accounting practices. â€Å"Gottlieb was and remains an experienced businessman with a sophisticated and comprehensive grasp of accounting and auditing issues and intimate knowledge of the details of Livent’s accounting practices. †26 When Eckstein eventually responded to Gottlieb’s lawsuit, he charged the Livent cofounder with being a key architect of the accounting fraud. Gottlieb’s denial of responsibility or knowledge of the accounting irregularities at Livent is in complete disregard to the facts as they existed . . . [he] had the requisite expertise and business acumen to create and help foster the corporate culture at Livent, which ultimately resulted in the alteration of the books and records. †27 Eckstein also claimed that he was not involved in altering Livent’s accounting records, although he did admit to relaying the changes demanded by Drabinsky and Gottlieb in those records to Livent’s accounting staff. Finally, Eckstein maintained that Maria Messina had played an important role in the fraudulent scheme. â€Å"Messina relied on her former position as a partner at Deloitte in dealing with the field audit team once employed at Livent, to ensure that the financial statements of Livent, as presented to the auditors, were approved. †28 Messina answered Eckstein and other critics by revealing that she had attempted to dissuade Livent’s executives from using accounting gimmicks to boost the company’s revenues and profits. She insisted that she had â€Å"begged† her former colleagues at Deloitte to crack down on the aggressive revenue recognition policies being used by Livent’s management. 29 To support her claim that she had not been a willing member of the Livent conspiracy, Messina pointed out that she had refused to sign the letters of representations for the 1996 and 1997 audits, each of which indicated that there were no material inaccuracies in Livent’s financial statements. In fact, near the end of the 1997 audit, Messina redrafted Deloitte’s pre-formatted letter of representations to remove her name from it. 30 After firing Drabinsky and Gottlieb, Michael Ovitz and the members of the new management team he installed at Livent in June 1998 sued the company’s co-founders for $325 million for their alleged role in the fraudulent accounting schemes. That lawsuit prompted Drabinsky and Gottlieb to file a $200 million defamation-of-character lawsuit against Ovitz and his colleagues. In September 1998, Drabinsky sued KPMG, the accounting firm that Ovitz had retained to perform a due diligence investigation earlier in the year and the firm retained by Livent’s board of directors in August 1998 to investigate the charges of accounting irregularities revealed by Maria Messina and her subordinates. That lawsuit, which requested damages of more than $26 million, was predicated on the fact that Drabinsky had been a client of KPMG over the past two decades. Drabinksy charged that by agreeing o perform the forensic audit requested by Livent’s board in August 1998, KPMG placed itself in a conflict of interest between two clients. 31 Deloitte Touche was a primary target of the various plaintiffs attempting to hold someone responsible for the Livent debacle and the resulting financial losses. In December 1999, a U. S. federal judge dismissed Deloitte as a defendant in one of those lawsuits filed by Livent’s former stockholders. The judge concluded that the plaintiffs had not made a reasonable argument that Deloitte was at least â€Å"reckless† in auditing Livent. 2 For lawsuits filed under the Securities and Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act (PSLRA) of 1995, plaintiffs must allege or â€Å"plead† that the given defendant was at least â€Å"reckless. † In another class action lawsuit filed by Livent creditors, a federal judge ruled in June 2001 that the plaintiffs had met the pleading standard of recklessness, meaning that the lawsuit could proceed. This judge observed that Livent’s â€Å"accounting manipulations† were so flagrant that there was a reasonable likelihood Deloitte was reckless in failing to discover them. Deloitte Touche’s actions and omissions in connection with Livent’s manipulations of its books and records display acquiescence and passivity that, in this Court’s reading of the pleadings, cross over the boundary of ordinary breaches of reasonable care into the zone of recklessness. †33 Epilogue In July 1999, SFX Entertainment purchased the remaining assets of Livent, ending the company’s dramatic and turbulent existence after only ten years. In June 2000, the disciplinary committee of the Institute of Chartered Accountants of Ontario sanctioned the former Livent accountants who had publicly admitted some degree of involvement in the Livent fraud. Messina, who pleaded guilty to three charges of professional misconduct, was fined $7,500 and suspended from practicing as a chartered accountant for two years. Craib received a six-month suspension and a $1,000 fine. The SEC sanctioned Craib and three other Livent accountants who admitted participating in the various facets of Livent’s accounting fraud. Craib eceived a three-year suspension from practicing before the SEC. To date, the SEC has not formally sanctioned Maria Messina for her role in the Livent fraud. Likewise, federal prosecutors in the United States have yet to make a sentencing recommendation following Messina’s guilty plea to one felony count of violating U. S. federal securities laws. No doubt, a key factor that federal authorities in the United S tates will consider in punishing Messina will be whether she continues cooperating with Canadian and U. S. authorities prosecuting the key architects of the fraud. Footnotes 1. The facts and other information presented in this case were drawn from various legal transcripts, enforcement releases issued by the Securities and Exchange Commission, and numerous articles that have appeared in major metropolitan newspapers and other publications. 2. The key financial amounts reported in this case are expressed in Canadian dollars. 3. Drabinsky and Gottlieb’s company was not affiliated with the California-based firm Live Entertainment, Inc. Jose Menendez organized the latter company in 1988 but was murdered along with his wife, Kitty, in August 1989. In one of the many â€Å"trials of the century,† the Menendez’s sons, Lyle and Erik, were subsequently convicted of murdering their parents. 4. K. Noble, â€Å"The Comeback King: Garth Drabinsky Is Back, and Creating A Lot of Showbiz Buzz,† MacLean’s (online), 4 June 2001. 5. M. Potter and T. Van Alphen, â€Å"Livent Charges $7. 5 Million Kickback Scam,† The Toronto Star (online), 19 November 1998. 6. Profit, â€Å"Backstage at Livent,† May 1999, 29. 7. M. Petersen, â€Å"The Roar of the Accountants; The Strange Last Days of A Theater Impresario’s Reign,† The New York Times on the Web, 10 October 1998. . A. Clark, â€Å"An Epic from Livent: Executive Accuses Drabinsky of Bullying Tactics,† MacLean’s (online), 1 March 1999. 9. Ibid. 10. Ibid. 11. In re Livent, Inc. Noteholders Securities Litigation, 151 F. Supp. 2d 371 (2001). 12. Securities and Exchange Commission, Accounting and Auditing Enforcement Release No. 10 95, 19 May 1999. 13. Ibid. 14. M. A. Hiltzik and J. Bates, â€Å"U. S. Indicts Stage Producer Drabinsky,† Los Angeles Times (online), 14 January 1999. 15. Securities and Exchange Commission, Accounting and Auditing Enforcement Release No. 1095. 16. J. McCarten, â€Å"Auditors Taking the Heat After Financial Scandals,† The Toronto Star (online), 18 August 1998. 17. Securities and Exchange Commission, Accounting and Auditing Enforcement Release No. 1096, 19 May 1999. 18. Ibid. 19. Securities and Exchange Commission, Accounting and Auditing Enforcement Release No. 1097, 19 May 1999. 20. In re Livent, Inc. Noteholders Securities Litigation. As a point of information, this legal transcript did not include any commentary from Deloitte’s perspective regarding the nature and outcome of these negotiations. 21. Noble, â€Å"The Comeback King. † 22. M. Lewyckyj, â€Å"Livent’s Accounting Designed to Deceive,† Toronto Sun (online), 15 January 1999. 23. C. Brodesser and M. Peers, â€Å"U. S. Indicts Duo in Liventgate,† Variety, 18 January 1999, 137. The Gazette (online), â€Å"Livent Co-Founder Sues 6 Employees,† 19 February 1999. 24. 25. V. Menon, â€Å"Livent Whistle-Blowers File Defence,† The Toronto Star (online), 1 April 1999. 26. B. Bouw, â€Å"Livent Employees Fight Back: ‘Gottlieb to Blame,’† National Post (online), 1 April 1999. 27. B. Shecter, â€Å"Drabinsky’s Assertions Refuted,† National Post (online), 26 June 1999. 28. Ibid. 29. Profit, â€Å"Backstage at Livent. In a deposition filed in one of the many lawsuits triggered by Livent’s fraud, Messina described Deloitte’s audits of Livent as â€Å"inadequate. † See, D. Francis, â€Å"Livent: A Bean Counter Scandal,† National Post (online), 10 May 2001. 30. In a court document, Messina reported that she did not reveal the various Livent fraudulent schemes prior to August 1998 because she feared Drabinsky and Gottlieb and because she believed that she would be â€Å"implicated by association. † See, B. Bouw, â€Å"Livent Employees Fight Back: ‘Gottlieb to Blame,’† National Post (online), 1 April 1999. 1. Drabinsky and KPMG ultimately settled this lawsuit out of court. Although the settlement’s financial terms were not disclosed, KPMG acknowledged that it had breached its â€Å"fiduciary duty† to Drabinsky by agreeing to perform the forensic audit requested by Livent’s board. 32. See the Health Management, Inc. , case in this text for a discussion of the PSLRA and the recklessness â€Å"pleading standard† for civil lawsuits filed under the Securities and Exchange Act of 1934. 33. In re Livent, Inc. Noteholders Securities Litigation.