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.
