Editing MiniScribe (section)

==Fraud and failure==
In January 1987, the company officers conducted a quick inventory to estimate their accounts prior to an independent review by third party accounting firm [[Coopers & Lybrand]]. Their internal inventory count showed that there was a shortfall of between $2 and $4 million. This implied the cost to produce those drives that did sell was higher than initially thought, which, if properly booked against sales, would mean their [[operating margin]]s would be unimpressive. Instead of reporting this, a number of the managers decided to cover it up by various means. They produced an inflated inventory count, and then broke into the accountants' lock boxes and replaced their independent count to match their newly inflated numbers. The team continued to roll these numbers forward through the quarters, compounding the problem.<ref name=court>{{cite court| litigants=United States v. Wiles| vol=102| reporter=F.3d| opinion=1043| court=10th Cir.| date=1996 |url=https://casetext.com/case/united-states-v-wiles-2}}</ref>

In July 1987, Jesse Parker, director of far east operations, told Wiles that something was amiss.  In August, Wiles travelled to Hong Kong and Singapore where he found a complete loss of control. The inventory count from that autumn showed that the numbers had grown to $15 million, mostly in Colorado. A report was prepared to consider various solutions, but Wiles suggested that they continue hiding the problem, ordering all copies of the report be destroyed. This led to the company's most infamous cover-up. The managers rented a second warehouse in Colorado, where they personally packed 26,000 bricks into hard drive boxes and shipped them to Singapore to bolster the inventory count.  After the count was complete, they recalled those serial numbers as defective units. Instead of writing them off, they checked them into inventory, along with other failed drives that had been returned.<ref name=court/>
[[File:MiniScribe-Model-8425-1.jpg|thumb|A MiniScribe Model 8425, manufactured on December 15, 1988, nearly a year before MiniScribe's bankruptcy and Maxtor's acquisition]]
The company continued to post impressive numbers, but there were troubling signs. Among them the company continued to post improving [[operating margin]]s while the rest of the hard drive industry was suffering from rapidly falling margins due to ongoing downward price pressure. In 1988 the [[board of directors]] became concerned when the company's reported [[Accounts receivable|receivables]] grew dramatically, indicating a large amount of unpaid billables, while at the same time inventories were also growing, indicating unsold product. Those two numbers are normally at odds. Increased receivables should indicate increased sales, which would normally result in decreased inventory. The directors began an internal investigation in October, while the company reported another record-setting quarter for that period in spite of failing to win either the Apple or DEC contracts.<ref name=cook>{{cite news |title=Cooking The Books: How Pressure To Raise Sales Led Miniscribe to Falsify Numbers |newspaper=Wall Street Journal |date=11 September 1989}}</ref>

The investigation revealed that Wiles set iron-clad sales forecasts and pushed these requirements down into the sales team, leaving no room for failure and setting bonuses on beating those figures. The sales team responded by "touching up" reporting documents as they moved up the reporting chain. Wiles responded to these positive reports by setting even higher sales targets, leading to ever-increasing fraud to meet them.<ref name="fraud"/> Wiles left the company in February 1989, followed by most of the company's officers over the next months. The directors report was released in the summer, stating that Wiles and his management team had "perpetrated a massive fraud" in a "company run amok".<ref name=IW-1989/><ref>{{cite web | title = Fraud Is Cited at Miniscribe | url = https://query.nytimes.com/gst/fullpage.html?res=950DE3DE1130F930A2575AC0A96F948260 | work = AP | publisher = [[New York Times]] | date = 1989-09-13 | accessdate = 2007-10-12 }}</ref>

Among the other techniques used to improve the numbers were classic accounting tricks. Failing to write off [[bad debt]]s, shipping drives to warehouses and booking them as sales ("[[channel stuffing]]"), back-dating shipments to allow them to be booked in earlier reporting periods to meet goals, and deliberately shipping defective products repeatedly to different customers so one drive could be booked as multiple sales (leading employees to joke that the only thing being repaired were the worn-out cardboard boxes). When the company embarked on a round of [[layoff]]s just before the 1989 Christmas shutdown, including several of the employees who were involved in the brick scheme, they immediately called the Denver area newspapers, who broke the story. Following immediate investigations in Singapore and Colorado the fraud was confirmed.<ref name="fraud">[https://web.archive.org/web/20170202002451/https://mnasran.files.wordpress.com/2015/05/fraud-examination-4th-edition.pdf "Fraud Examination"], Southwestern University, 2012</ref>