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Accountability
The key to good ethics
Do you want to have a good ethical environment in
your business? If yes, devise a plan of accountability. Yes, accountability
and accounting are very much related. Basically, what this means is that
every action or lack of action in your company needs to be accounted for.
Things like who went to the bank, who did what online, who arrived late, who
arrived early. Well, you get the drift.
Business ethics is under strict crutiny nowadays.
Who do we thank for that? Well, that phrase may sound a little sarcastic or
in a way it sound very negative, but lets give it some good light. Yes, we
really meant - who do we thank for that? We need to thank them, the big
players in the business world that used to be - Andersen, Waste Management,
Enron, WorldCom, Tyco, Healthsouth, Freedie Mac, American Insurance Group,
Lehman Brothers, Bernie Madoff, Saytan and even Martin Shkreli. Yes, we did
mention this greedy, excuse for a human individual - Martin Shkreli. Okay,
so we need to thank these individuals for setting the stage in the businesw
world and the science of right and wrong - ethics.
Because of these individuals and their scandals, we
are now holding organizations more accountable for the choices they make and
their responses to ethical issues. With this also comes more corporate
social responsibility which includes environmental responsibility.
Honesty and Integrity
With accountability comes honesty and integrity. A
person maintains his or her accoutable status by being honest and exercising
integrity. By maintaining, we mean, he or she continues to work here in our
firm.
Take a look at Robert Moment's "The 7 Principles of
Business Integrity" to get an idea of what we are trying to get at.
1. Customers only want to do business with whom
they trust.
2. The leader of an organization must always be
open for ideas of improvement.
3. Gain the trust of customers and make mends if
anything goes wrong.
4. Make sure your written material does what it
states.
5. Stay involved with and contribute to the
community in which you do business.
6. Gain complete control of your accounting for
possible questionable activities.
7. Treat others with utmost respect - your
employees, customers, family and friends.
Transparency
Transparency means truth. Right? It also
means that you will disclose to your stakeholders and the public you do
business with important information that may affect them. Transparency
should probably always be in writing in order to avoid any miscommunication
or wrongful interpretation of what you trully are meaning. In accounting,
all the changes that have been made, yes, because of the scandals, has to do
with transparency, telling the truth and disclosing it. What happens if you
are not telling the truth, well guess what, the law want you to disclose
that you are not telling the truth. Yes, in the accounting and finance world
it is all about disclosures. We owe it to the stakeholders to present
fact-based and accurate accounting of business activities.
Before we go on and forget to tell you,
before you go and be transparent, you probably should make sure that things
are transparentable. To avoid problems, you should make a goal of yours from
the start to make sure that your business dealing can always be
transparentable.
Social Responsibility
The comunity expects you to be socially
responsible. What this means is that you need to give back to the community
in which you do business. Corporate social responsibility (CSR) has become
of extreme importance recently. You don't just go out there and do business
without taking into consideration that your output may harm the community.
Think about this when you think about the National Rifle Association (NRA).
Are these people in it for the money? How are they socially responsible when
they are selling assault rifles to teenagers?
There are other items too such as the environment.
Listen, if you are going to make stuff to sell, you need to clean up after
yourself. That should be very simple. However, companies settle up shop by
the rivers and dump their trash and toxic was in the river. That is not
being socially responsible. At the end we end up eating contaminated fish if
the fish don't die before we try to catch it, that is.
Environmental Responsibility
The company and the individuals operating it must
always consider the environment and how their operations
may affect all of us. Environmental responsibility is a
top priority for many companies, but not to Trump. That is really sad the we
have a president who only takes into consideration profit and nothing else.
He has the power to introduce laws that don't take the best interest of the
environment into consideration.
Business decisions that only consider profit
are likely to lead a company to do things that negative impact the
environment, thus drawing the ire of leading environmental protection
agencies and groups.
Ethics and Self-Accountability
Not all ethical miconduct is as clear as daylight
and not all ethical wrongdoing is a gross violation of conduct. Ethical
conduct can be very complex and oftentimes the wrongdoer is face with a
dilemma. It is probably extremely difficult for an individual do the right
thing when doing the right thing would mean that he or she cannot put food
on the table for his or her family. All we can do is provide ethical
principles to follow and the reasons why individuals act unethically in
hopes of curving certain unethical behaviour. You cannot be ethical
instantly just by knowing or following ethical codes, laws and regulations.
An individual must convince him or herself that he or she is going to be
accountable to others and to him or herself even when others are not
watching.
Self-Accountability
Self-accountability is
is who you are and what you do when no one
is watching. Self-accountability would also mean that you always have
the consequences in mind. You know that even no one is watching right now or
that no one will even find out, that everything is know eventually. We seem
to think that no one will even find out. Well guess what? Your future self
will find out. Ten years down the road, you will remember what you have done
(and hopefully regret it). That, my friend, is someone who down the road
found out of what you did. Your future self knows everything your past-self
did and oftentimes this is reason for not being able to sleep at night. This
is a reality - it is not fiction, believe it. It is so true that
invidividuals end up turning themselves in to the authorities for illegal
actions they committed or even worst - they end comitting suicide.
That right there is your well developed sense of self-accountability that
will eventually kick in.
Before you can have professional ethics, you must have personal ethics.
You can operate your business as a sole proprietorship, an LLC or even a
corporation, but everything comes down to the individual. If there is no
individual, there is no corporation. The same with ethics, you cannot have
business ethics if first you don't have personal ethics. Being ethical is
everything. An ethical individual for example, would not divulge secrets
trusted to them by their friends. Likewise, an ethical professional will not
divulge their client's confidentiality.
Accountability Efforts
You really cannot be accountable is you don't have plan to be
accountable. This plan would include establishing certain rules, laws and
codes of conduct. You will make sure your regulation will be known by others
by integrating these into documents and distributing them to your targets or
the individuals who are part of your organizaton. In other words, you need a
framework to follow. For many individuals this framework is called a Bible,
Torah or the Koran. Just like these exist in our lives, a similar book
should exist in the operations of a business or organization.
There you go, we have solved ethics for you. If it only was that simple.
However, you need to start somewhere. You could develop strategies that may
include printed manuals of what is considered correct conduct in the
business or what is considered correct business practices, you can hold
meetings to discuss any possible issues and try to find a solution before
any issues or wrongdoing develops. In these meetings you can discuss how
everyone in your company is held to certain standards of accountability.
Transparency
We have mentioned transparency with accountability because it seems that
these two go hand and hand. We can think that trasparency is those reports
we provide our stakeholders and even the tax returns we file at tax season.
However, maybe it is more than just that.
Yes, transparency is about information. It is about information we
disclose with certain transactions. Credit card companies are so transparent
with every single aspect of their business dealings. You can call them when
trouble arises only to have them tell you that it is disclosed in the terms
and conditions. Then you go back to the terms and conditions that you knew
existed but you never even looked at and to find out that sure enough it is
disclosed. You find what they are saying is disclosed in the tiniest print
you never know could exist. The law obligates these people to disclose and
they have satisfied the law with their tiny script. Are these people being
ethical with their tiny print? We don't think so. What is ethical to one, is
is very unethical to another.
Transparency is also the company being upfront and visible about the
actions it takes, and whether those actions are consistent with what their
mission statement. In this case the company can be transparent, but that
does not necessarily means the company is exercising correct conduct. You
need to be transparent, but make you transparency has been worked out before
hand. You want to make sure your transparency coincides with correct
conduct.
A good example of this would be with product recalls. Look up recalls
online and you will find a site and it states "Ford vehicles have been
recalled 3,213 times. A company is forced to be transparent about their
product defects and if they are not, this could more problems. Imagine if
companies like Ford don't recall their products. Imagine if they just kept
the problem secret. Eventually people will find out the hard way that the
product is defective and by that time it will probably be to late. More
people would get into accidents and there will be more lawsuits for the car
company to deal with. Definitely, the car companies must be transparent
about issues that may affect the public.
What would cause a company not to be transparent about their product
defects that would detrimental to public safety? It would just not make
sense since the public will eventually find out the hard way that the
products are defective. However, if the product causes cancer and it would
very hard to prove that it does and the company knows about this and keeps
producing the product, then the company should immediately stop producing
the product. However, that is not always the case. Money takes precedent in
their decision making process and public safety goes out the window.
An example of this imporance of transparency are the challenges that
plagued Johnson & Johnson. In the 1982 Tylenol crisis, Johnson and Johnson
immediately pulled the product from the shelves without taking into account
the cost or public embassment and with no regrets over lost profits. Johnson
& Johnson's mission statement states that they have a public responsibility
to be transparent and also put people before profits. Johnson & Johson did
not just see their transparency obligation as a disclosure requirement but
as a requirements to put people first before profits.
In order for a business to be
transparent, its people need to be transparent. Leaders of the orgnization
must manifest their transparency and encourage it on employees. Companies
need to be transparent about every process of its operations that can be
about price, about guarantees, and even transparent about the products
effectiveness.
A company can be transparent about
change. Change is the perfect opportunity to exercise transparency. Be
upfront about how you’re changing your business model, your prices, your
leadership, your products, or anything else. The fact that you’re declaring
the changes openly is just as significant as the change itself. A business
needs to have a culture of transparency and that is the way business should
be done.
Corporate Culture
Strong
Culture
A business needs to have an ethical and compliant culture, otherwise the
business will be at risk. Management should encourage an ethical culture
that encourages ethical conduct and compliance with the law at all times. It
is of utmost imporatance for an organization to have a strong culture that
follows ethical standards of conduct. Don't just view your compliance and
ethical program as a set of check-the-box activites. In other words, don't
just view ethics as something you say you have, but actually exercise ethics
and make it known to others in the organization that ethics is of extreme
importance.
Getting to a Strong Culture of
Integrity
Emphasize your strong ethical culture with others in your firm and don't
stand for even a hint of misconduct. If you do this from the start, then the
stage will have been set and better believe it that everyone, even your
customers will eventually know about your ethcial standards.
Strong cultures
have two elements: A high level of agreement about what is valued and a high
level of intensity with regard to those values. When
a strong culture is properly embedded into an
organization, it can create a competitive advantage and
serve as a valuable organizational asset.
Internal controls
Internal Controls are
Important
Your business is
interconnected with every aspect of its operations. This is extremely
imporatant to realize because every action or lack of action influences all
other aspects of your business and even your ethics and ethical standards.
Internal controls are the
business processess that provide reasonable assurance regarding several key
business objective such as the business operating successfully, reporting
and compliance is in good standing with goverment agencies. Your internal
controls are the rules of operation you set for your business. Your internal
control processes indicate to others how things are to be done. Sounds very
much like a business plan where you write every single detail about your
operations in such a way that if someone else were to take over, they know
exactly what to do, just like if you were there. This plan for your business
can even deter employee fraud. Think about it. If someone is doing something
wrong and another employees sees this, the first question in that employees
mind would be: "Are you supposed to be doing that?" If you have established
procedures that must be followed for your business to operate smoothly, then
you can benefit from a well-run business.
Define ethics
What is ethics
By now you must have a very
good idea of what ethics is. You probably already know, hopefully, that
ethics is not law and that not everyone who follows the law is ethical. We
can find a very good definition of ethics and based our knowledge on that.
According to Manuel Velasques, et al at Santa Clara University, "Ethics is
based on well-founded standards of right and wrong that prescribe what
humans ought to do, usually in terms of rights, obligations, benefits to
society, fairness, or specific virtues." In a perfect world this is ethics.
You want to live by that rules, sure, go ahead, if you can.
Ethics is the study of what
is right and wrong. It is not too clear if the study of ethics is a science
or an art. People are trying so hard to make it a science, but for so many
ethics is an art. It seems that the ones who try to make ethics out to be a
science think that being ethical is the same as following the law. However,
be serious, and seriously think about this. If being ethical was the same as
following the law, what about all those dark history in many countries that
involve slavery, the holocaust and many others such as the Armenia genecide.
These were all done legally or there was a law that dictated these actions.
It is difficult to say what
is to be ethical. However, there are certain standards that all humans stand
for. These are refraining from rape, stealing, murder, assault, slander, and
fraud. These also include standards of honesty, compassion, and loyalty.
Furthermore, we have to stand for certain things such as the right to life,
right to freedom from injury, and the right to privacy. We have consistent
and well-founded reason to believe these standards are right, so therefore
they can be adequate standard that we can apply to deternmine what it is to
be ethical.
Self-serving biases
Self-serving biases
A self-serving bias is a bias
in which the individual makes excuses for what went wrong or comes up with
reasons for what went right. The individual will normally see their actions
favorably and interpret bad events in a way that would benefit him. A
person, for example, would attribute his successes to his or her own ability
but if he or she fails, will attribute the failure to external causes. For
example, if a student is taking a test and fails, he would blame his failed
score on temperature in the room or that fact that he did not have complete
quiet. In other words, the individual does not take responsibily.
It is important to know about
self-serving biases in ethics in order to understand how a person thinks
when he or she is doing something unethical. For example, if the person is
stealing their self-serving bias could be that the person or company he or
she is stealing from has too much money. This person could have this Robbin
Hood mentality where he or she thinks that is it correct condut to steal
from the rich to provide for the poor. The poor in this case would be the
person doing the stealing. Another example of a personal bias would be when
an employee uses the company car for personal use is to say something like
"That is the least they can do for all the work I put in".
Influence of ethical
principles
Ethical principles
Remember that monkey see
monkey do. If you want your employees to be ethical, you need to be ethical
yourself. That actually is true for every situation. For example, if you
want your children to be good, you must be good yourself. You cannot expect
your children to not do drugs if you are smoking pot in front of them. Can
you?
The ethical behavior of
leaders has come to assume global importance. With leaders being implicated
in high-profile ethical scandals and integrity violations, the world blames
the leaders of the organizations for employee ethical misconduct.
The leaders of the
organization have to set the standards for good ethical behavior and they
have to communicate these standards for others to follow. As they say,
actions speak louder than words. A leader must act in an ethical manner and
thus show with example for others to follow. Many times we hear people
jokingly telling us to do as they say not as they do. That's like say do as
I do and not as I say.
Processes of ethical
decision making
Ethical decision making
You need to evaluate and
choose among alternatives in a manner that is consistent with ethical
principles when you make an ethical decision. Make a list of the unethical
things to do and eliminate them. Then you select the best ethical
alternative. You can use the following to make your ethical decision.
1. Commit to do the right
thing regardless od the cost.
2. Be consistently aware of
your acts and apply moral convictions to your daily behavior.
3. Be competent in your
ability to collect and evaluate information about your issue, develop the
alternatives and then foresee potential consequences and risks of your
actions.
Always strive to take others
into consideration when you make your decisions. How is your decision going
to affect your community, your family or the world? Furthermore, when making
your decicions, think of your most important goals and how you will
accomplish them. You should probably have a list of your short-term goals
and long-term goals.
Use this formula or a formula
similar to this one as a check off list for making your decisions and always
keep in mind that you must act in an ethical manner.
The Scandal
Perpertrators
Companies that caused all
the changes
As previously stated, we
should thank the perpertrators in the scandals at the beginning of the
decade. They inadvertently caused changes that improved the accounting
profession. As a result of their unethical actions, new legislations came
into being that provides protection for consumers, investors and our
econonomy.
Andersen
The Fall of Andersen
Andersen started it all, so
that is the way it seems, anyways. Anthur Andersen was a prestigious Chicago
accounting firm. A few business decisions made by a few at the firm gave it
a reputation for being an outstanding, integral and ethical company. One of
the employees of the Andersen accounting inadvertently happened upon a
fraudulent scheme by one of his client's employee. This incident occurred in
1969 and because of this incident and discovery, the Andersen firm rose to
stardom. This incident and others such as their refusal to form an opinion
for a company because shady bookkeeping, made the firm a very respectable
firm and its reputation grew for standing up to certain standards in the
auditing world.
However, all this ended when
it was convicted with a felony for obstructing a federal investigation into
Enron Corp and this cost Andersen its practice. Even though the leaders
tried to portray the Andersen firm as a victim, the investigation revealed
many skeletons in the closet. It turns out Anderson put profit ahead of
honest reporting, diluted their standards and their auditors where more
salesmen than auditors. The emphasized the selling of services over audit
quality. Instead of putting consulting at the service of auditing, it was
consulting at who pays more, instead.
There was more. The Andersen
firm also turned out to be guilty of shredding documents, restating
earnings, and making shady loans and a financial sleight of hand at Enron,
WorldCom Inc., and Waste Management Inc., and all of these Andersen clients
were part of accounting scandals.
Enron
The Collapse of Enron
Enron was a Texas-based
energy-trading giant and it was the United State's seventh-biggest company.
It declared bankruptcy December 2, 2001. Enron went from being a new-economy
company to a bankrupt company. Enron used to buy and sell energy. It turned
energy supplies into financial instruments that could be traded online like
stokc and bonds and which in turn guaranteed customers a steady supply at a
predictable price. Enron basically deregulated the energy monopoly in Texas
and set a precedent for other monopoly deregulation. That is a good thing.
What Enron did that was wrong
was it started dealing in derivates in almost all trades like Newsprints,
Television advertising, insurance risk, high speed transmission etc., and
sold these to investors. Some of these ventures failed and Enron hid them
but eventually they were discovered.
Enron kept its stock prices
growing by setting up partnerships to bury its losses or it generated
imaginary revenue. For example, Enron invested in a joint venture wiht
Blockbuster to rent out movies online, and we all know that blockbuster did
not make it and do did this deal. The Blockbuster deal did not make a penny
but Enron still had a secret account with a Canadian bank who lent Enron
$115 million in exchange for the profits (the nonexistent profits) but Enron
kept the secret loan as a profit.
What crime did Enron commits
is quite unclear. There are numerous instances of accounting fraud, insider
trading and illegal destruction of documents. Enron cheated investors of
their money by promising a new era of investing. Enron basically smooth
talked people out of their money and then filed bankuptcy. Just like the
Canadian bank deal, the people trusted and believed Enron.
After many trials finally a
conviction was reached. Lay was found guilty of six counts of fraud and
conspiracy and was due to be sentenced but he died of a heart attack before
that at the age of 64. It was expected that Lay was going to spend the rest
of his life in prison. Before that, in 2002, Clifford Baxter was found dead
after shooting himself in Houston.
The trial found Lay and
Skilling guilty and the finance director Andy Fastow testified against his
bosses in exchange for a lighter sentence of 10 years.
That was not the end though.
After Enron stock shares collapsing from $95 a share to $1 a share, Enron
emerged from bankruptcy in 2004 with current operations to handle key assets
and to prepare the sale of its remaining businesses. It came down to this
after it became successful by exploiting opportunities at the time when
deregulation allowed users to buy gas or electricity from different
producers.
Why is this important and
what did it accomplish? Well, it allowed for harsher penalties for anyone
found guilty of corporate wrongdoing and the key to all this is the this
prompted the passing of the Sarbanes-Oxley legislation. The Sarbanes-Oxley
Act tightened compliance requirements for U.S. companies.
Arthur Andersen, Enron's
auditor, was convicted of obstructing justice by destroying documents
relating to the Enron case. Anderson is still fight to recover his CPA
license and is trying to return to business by finding flaws in the jury
instructions.
WorldCom
WorldCom largest bankrupcy
case
WorldCom created billions in
illusory earnings and ultimately had to file for bankuptcy. This is
considered the biggest bankruptcy case in United States history. In its
filing, WorldCom listed more than $107 billion in assets, which is far more
than that of Enron. The filing of bankruptcy was anticipated after a
disclosure by WorldCom that it had improperly accounted for more than $3.8
billion of expenses.
WorldCom accumulated $41
billion in debts. It was the nation's second-largest long-distance company
and number one handler of internet data.
Charges were filed against
WorldCom for violations of state securities laws by giving false information
to investors.
WorldCom was also known as
MCI. The largest bankruptcy case to ever be filed had grown to $11 billion.
The company and its employees were all charged because all profited from the
WorldCom scheme. Normally individual officers and employees of the company
are the only ones charged in criminal cases but the decision in the WorldCom
case was a company wide decision. The decisions to defraud were made for the
benefit of the company. The complaint alleged that the defendants schemed to
defraud investors in Oklahoma by understating the company expenses and
ovestating its income in 2000. False statements were filed with the SEC on
March 30, 2001. Journal entries were made by Myers crediting certain expense
accounts and as a result the false entries were made by Yates, Vinson and
Normand at the direction of Myers. Then they go really creative because they
had to make the entries balance and not be in violation of the accounting
principles. They were in violation of some principles alright, the ethics
principles, the the accounting had to balance. The thing is that they did
not have the supporting documents or any proper business rationale for the
entries, other than to make things balance out. WorldCom or MCI whichever
way you want to call it, reached a settlement of $750 millon to settle with
the SEC.
Waste Management, Inc.
Waste Management
Waste management went public
in 1971 and it offered environmental services to almost 20 million customers
in the United States, Canada, and Puerto Rico. IN 1980 after acquiring
Service Corporation of America, Waste Management became the largest waste
management and environmental services company in the United States.
Waste Management's officers
and employees began to engage in fraudulent activities from 1992 to 1997 and
eventually in 1998 the huge scandal. One of the fraud activities had to do
with avoiding depreciation expenses by avoiding salvage value and extending
the useful life of the garbage trucks. Another fraud was that the offiers
were not recording expenses of the decreases of value of the landfills and
thus state less expenses for the company. The officers also did not record
necessary expenses of costs of unsuccessful and discarded landfill
development projects and thus would show less expenses on the company's
financial statements. These are just a few the many financial crimes
committed. Ultimately, the company had false profits moving into retained
earnings, false assets, and no increase in liabilities of their financial
statements. These people completely cooked the books.
When in 1998 Waste Management
restated its 1992-1997 earnings by $1.7 billion, this made many to turn
heads. It was the largest restatement in history and this was the source of
the Waste Management fraud scandal.
Waste Management was trying
to fix its errors or better said, they were trying to hide their fraud.
However, since it was a public company, it was required to hire an auditor
and audit their books. You guest it - they hired the Arthur Andersen Firm.
Andersen recommended a few fixes but either the officers refused or were not
able to make those adjustments. However, they did want to cover their tracks
and thus bribed Arthur Andersen by offering additional fees outside the
normal fees. Andersen issue unqualified opinions in the audit report for
Waste Management, Inc. and helped conceal the fraud. BTW, offering an
unqualified opinion is a good thing for the company being graded. So now it
was no only fraud but also a felony for bribing the auditors. As it turned
out, most of the officers of Waste Management were very close to Arthur
Andersen. You know, close, like one was an uncle, the other was a son-in-law
and and even a brother (Lol). However, it is doubtful if this was the reason
Arthur Andersen accepted to be bribed being that the Andersen firm was also
involved in other fraudulent activities with companies which had no relation
to Waste Management.
Lol? We are not trying to be
hip here or trying to show you that we know some of the texting jardon, but
it is a laughing matter when someone thinks they can audit a firm in which
they have relatives and love ones, etc. The invididual should separate
himself or herself from the firm which it provides accounting services,
specially if these services as in the field of auditing. Show independence
in your work be it accounting, tax consulting or auditing. An accounting
professional should separate him or herself from the firm for who he or she
is providing services. Use a framework such as the framework by the ISB's
model and its three steps. First, identify threats to independence and
consider their significance. Second, evaluate the effectiveness of potential
safeguards and restrictions. Thirly, determine an acceptable level of
independence risk. (McGrath et al 2000 para 3). Arthur Andersen's error was
that he thought he could befriend just about everyone in the firm and still
provide a clear, unbiased decision as to how the firm was performing. He
owed it to the investors to be independent of firm's personnel, but instead
he considered them family and treated them like family and did favor for
them like family. Arthur Andersen was an enemy to the investors or
stakeholders of the public firm and a very close friends to the people
involved in managing the Waste Management company.
The goal at Waste Management
was to make a profit at whatever cost. Ultimately, they did not care or
showed that they cared too much about their newly acquired family member
Anthur Andersen. Arthur Andersen took bribes and this shows that he too was
in it solely for the money. Many, many people were
involved in these fraudulent schemes. However, there was a point in time
that these people got so comfortable with Andersen that they asked him to
break the rules. If Arthur Andersen show any sense of independence, these
people would not have approached him with such undecorative propositions.
Seriously, the person in an accounting possition such as when he or she
prepares tax returns for client must hold a position of an unbiased attestor
and at the same time must be an advocate for his or her client. It starts
with one client and then another and then what will follow is total chaos
with posible prison time.
Tyco
Tyco
Tyco grew through numerous
acquisitions. A number of Tyco's top executives business practices were
highly unethical. CEO Kozlowski was involved in a number of financial
transactions which were not included in the financial statements of the
company. The scheme with CEO Kozlowski involved other lower ranking officers
and employees in order for him to cover up his illicit financial tranactions.
He also diverted money into his second wife's account. Needless to say,
Kozlowski was put away for a very long time for his financial crime against
a public company, a company that lost its investors because of the illegal
decisions of a very greedy individual.
We could look into the fact
that this individual was unethical, yes for sure, but his acts were criminal
acts that earned him a prison term. According to Romero (Tyco Corporate
Scandal March 2017) there were ethical issues involved. That is very true
and the issues were
1. Unethical Leadership
2. Unethical business
practice of subordinates
3. Unethical auidting
practice on Tyco's business.
Yes, these started and paved
CEO Kozlowski's road to federal prison, but what really got him there were
the financial frauds he committed. Therefore, it must be understood that
breaking ethical standards are not illegal in itself, but this act is the
start of something greater - greater problems. It is like yelling at your
child and you do that for a long time without controlling your anger.
Eventually, will come a time when you scalate the issue to not only yelling
but also beating him up - an the beating up of your child is what will land
you in jail for child abuse.
So Mr. Kozlowski told his
subordinates to sign and they did. Could that have been their defense? It
also seems that the audit firm turn the other way at the posibilities of
fraud, did not care or got compensated for keeping silent. It is doubtful
that an audit firm like PricewaterhouseCoopers with the entensive experience
in financials would just simply not catch obvious deviations of Tyco. The
audit firm failed to maintain its independence as dictated in the auditors
ethical procedures and obligations that auditor must be independent of the
people they audit.
Tyco's CEO was also guilty of
avoiding sales taxes on art purchases and commingling assets when Kozlowski
did not care to set boundaries and respect the assets of another person. If
Tyco was a natural person, this would considered stealing. Untimately,
Kozlowski received punishment for actually stealing from a person - a legal
person Tyco.
Kozlowski was not the only
one who received punishment in the Tyco scandal case. Two executives, the
former CEO Kozlowski, yes former because by the time he was charge he was no
longer CEO of Tyco, and and the former chief financial officer of Tyco wer
indicted on charges of reaping $600 million through a racketeering scheme
involving stock fraud, fraudulent bonuses and falsified expense accounts,
amongs other charges.
There charges against the
Tyco officers are one of the collection of companeis which decided to
defraud their investors and filed bankruptcy as a result of such fraudulent
activities.
These company are in the
group of perpertrators such as Enron, WorldCom, Adelphia and other public
companies. One thing to notice though is that if some of these companies
would not have filed bankruptcy, they probably never have gotten caught in
their fraudulent activities. There are probably many others that still need
to get caught.
HealthSouth
HealthSouth
CFOs from HealthSouth are
trying to make good of their prison term. They are trying to teach others
how they went wrong in their dealings with HealthSouth. They are trying to
make something good from their crimes by telling finance executives how they
went wrong.
The $2.8 billion accounting
scandal at HealthSouth which occurred for about six years from 1996 though
2002 which caused the incarceration of CEO Richard Scrushy and several other
HealthSouth CFOs and some other company officials.
Mr. Beam was one of the
people encarcerated for his crime and now is holding talks of how he did his
crime. How he defrauded the company HealthSouth of millions, $4.6 billion in
fraud to be exact. How can someone who commits such a crime still have any
nerve left to start presentations on how he did it. It is fine, we can learn
from a convict too. So one question. Is he teaching us to learn how to do
what he did, so that we can do it too, and not get caught? Or is he trying
to teach us not to do what he did because it was wrong?
HealthSouth started out by
offering outpatient medical-care facilities and eventually ventured out into
owning and operating rehab hospitals and the company is still doing this
same business today. HealthSouth went public in 1986. Beam was living the
lavish life, bought homes, condos, new mercedes, Porsches and Lexuses. Every
year he would be a new car of the luxury type.
All these luxuries were
acquired legally. Then something went wrong, both Scrushy and Beam became
greedy and wanted to be the richest people in Alabama.
When there was a shortfall in
the company, they would have not choice but to report it. However, Beam told
the finance managers that he would not cause any negative reporting becaue
the stock would plumage and that there would be lawsuits. Then Beam ordered
everyone to cook the books. The fraud went undetected for a while and for
years actually. Beam was already retired by the time the HealthSouth fraud
was detected.
In one of the presentations
that Mr. Beam participates in, Mr. Beam stated "It might almost go to the
nature of someone in accounting...An accountant doesn't want to be in sales.
He doesn't want to be out front. He's content being the back room. But he
learns over time that if he can make the numbers sing, he can advance."
Surprisingly, after the convictions and still being a felon, he can still
talk like this. If accountants want to be something other than an
accountant, they would simply just study something else that is not
accounting. It is not like an accountant starts a job at a grocery store
counting vegetables and then advances to clerk and then to accountant. An
accountant choose his or her career because there is something in accounting
which he or she loves.
It later turned out that the
fraud committed against HealthSouth was not $2.8 billion as first it was
thought to be, later it was raided to $3.8 billion to later new evidence
forensic accounting findings that the fraud was actually $4.6 billion. The
victims of this fraud were the security holders, the equity holders. This
means that items in the company were artificially made to appear good in a
manner that investor would take the bait and bite. In what good mind would
officers of a company want to report more than they really made? To look
good to the investors and entice them to fork out the cash. Mr Beam and the
others crooks have no business giving presentations about their crime.
Instead their head should be lowered in shame for defrauding so many
innocent hard working individuals. He used to buy luxury cars, one every
year he says. He should be crying in shame when he says this in his
presentations. Just the thought of this individual giving presentations and
boasting about his actions would anger anyone!
It sounds very much like El
Chapo boasting about selling drugs and escaping from prison - this creep
does not think about the fact that he endangers childrens' lives with his
distribution of poison to the world.
Freddie Mac
Freddie Mac scandal
Freddie Mac undestanted its
earnings by nearly $5 billion over more than three years. This was
discovered with an 11-month review of the company's accounting records.
Freddie Mac is the nation's second-largest buyer of home mortgages with
Fannie Mae being number one.
The excutives, who by the
way, quit their job in the period of the accounting review, manipulated the
books to show earnings in order to meet investor's expectations.
Although this action was
wrongdoing in the hands of Freddie Mac administrators, Freddie Mac has
continued without any legal reprecussions. All Freddie Mac has done is
restate its earnings to bring its numbers current and has corrected improper
accounting for the previous years. Not much was done to charge anyone for
the actions, except that Freddie Mac's executives agreed to pay money for
fines and to assist in the investigation. Additionally, four of the former
executives settled to SEC for negligent conduct charges a total of $515,000
in civil fines and to make restitution totalling $275,548. The CEO Gregory
J. Parseghian had to step down because it is believe that he played a role
in the wrongdoing, but no charges have been filed against him either.
This all sounds very fishy
and they people are paying these fines and restitutions from money that they
probably misappropriated from the company in the first place. It would be
fair that if they broke the law they would be tried for their serious
violations of the securities laws. Others have received punishment other
that fines and orders for restitutions. Why then are these people immune?
The Mortage finance company
Freddie Mac will pay $50 million to settle federal charges that it
fraudulently misstated its earnings. They paid $50 million for its
violations of securities laws.
Sound very much like these
company officer are being defended for their wrongful actions instead of
being reprimanded. Their actions are being excused with the difficult issues
which executive face when confronted wiht complex reporting requirements and
pressed to meet goals of earnings growth. Therefore it looks like no one did
anything wrong in the Freddie Mac scandal. Only some decisons were made.
Freddie Mac seems to be having certain privileges which the other companies
in these scandals didn't seem to have, since they only got a slap on the
wrist. Here you have a company who committed a crime against its investors
and everyone is acting like nothing happened. The only thing is that it was
a scandal.
American Insurance Group
The American Insurance
Group Scandal
Rampant fraud against not
only the investors but also the individual customers. There are some
insurance AIG paperwork in our office that we can show you to show you how
this company was stealing from everyone left to right. Then, they were lucky
enough to be saved the federal government. Indeed, they were in desperate
need of money. Totally not fair.
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