Forensic AccountingBy Mary-Jo Kranacher, CPA/CFF, CFE Chapter 3 Who Commits Fraud and Why: Criminology and Ethics LEARNING OBJECTIVES 3-1 Describe occupational fraud and abuse. 3-2 Compare and contrast theories of crime causation. 3-3 Identify the six situational categories that cause nonshareable problems from Cressey’s research. 3-4 Discuss the essence of organizational crime. 3-5 Give examples of behavioral or other environmental indications of fraud. 3-6 Explain the relationship between an employee’s position and the level of theft (according to Hollinger and Clark’s research). 3-7 Analyze the role of corporate governance mechanisms in fraud prevention. 3-8 Describe corporate governance breakdowns in the facilitation of historical fraudulent acts. 3-9 Identify ethical issues, conflicts of interest, and noncompliance with corporate policies and procedures in the context of a specific case. 3-10 Discuss alternative courses of action in a given scenario within the framework of appropriate ethical conduct. True/False Answer: 1-T/F #1. Without visually representing the crime scene, very different conclusions are reached about who committed a crime. T Answer: 1-T/F #2. Conspiracy is a means of prosecuting the individuals involved in illegal organized activity. T Answer: 1-T/F #3. Negligence applies when a person acts in a reasonable and prudent manner. F Answer: 1-T/F #4. Cressey called embezzlers “temptation violators.” F Page 1 of 24 Answer: 1-T/F #5. According to Albrecht, personal integrity refers to the personal code of ethical behavior that each person adopts. T Answer: 1-T/F #6. White-collar crime is not used interchangeably with occupational fraud and economic crime. F Answer: 1-T/F #7. For purposes of defining occupational fraud and abuse, employees include only top or middle managers. F Answer: 1-T/F #8. The term white-collar crime captures the essence of the type of perpetrator that one finds at the heart of occupational fraud and abuse. T Answer: 1-T/F #9. Organizational crimes occur when entities, companies, corporations, notfor-profits, nonprofits, and government bodies, otherwise legitimate and lawabiding organizations, are involved in a criminal offense. T Answer: 1-T/F #10. The element of proximate cause for negligence means the plaintiff must establish that damages resulted from the defendant’s breach of duty. F Answer: 1-T/F #11. In order to win an award for damages for negligence, the injured party must prove liability and damages. T Answer: 1-T/F #12. The amount of damages proven under negligence may be relatively uncertain. F Answer: 1-T/F #13. The nonshareable problems, Cressey investigated, threatened the status of the subjects, or threatened to prevent them from achieving a higher status than the one they occupied at the time of their violation. T Page 2 of 24 F Answer: 1-T/F #16. F Answer: 1-T/F #20. F Answer: 1-T/F #17. In general. According to Albrecht. opportunities to commit fraud may be created by individuals. or by deficient or missing internal controls.Answer: 1-T/F #14. T Answer: 1-T/F #18. Formal controls can be best described as the way an employee internalizes group norms of the organization. T Answer: 1-T/F #15. T Page 3 of 24 . Ethics involves questions requiring reflective choice and their consequences to the individual and others (decision problems). T Answer: 1-T/F #19. Violations of ascribed obligations have historically proved to be strong motivators of financial crimes. while increasing the sanctions that are imposed on occupational fraudsters will have a limited effect. Cressey’s classic fraud triangle helps explain the nature of all occupational offenders. increasing the perception of detection may be the best way to deter employee theft. Perceived opportunity is necessary so that the perpetrator of a fraud can make his illegal behavior intelligible to him and maintain his concept of himself as a trusted person. D. The activity is clandestine. D Page 4 of 24 . B. revenues. breach. A Answer: 1-M/C #4. C. or reserves. Due to a duty to act Answer: D Portions of the RICO Act outlaw all of the following except: investing illegal funds in another business. Answer: 1-M/C #2. the conduct of business affairs with funds derived from illegal acts.Multiple Choice 1-M/C #1. Which of the following is not one of the four common elements of occupational fraud and abuse first identified by the Association of Certified Fraud Examiners in 1996? A. a private or civil wrong or injury other than breach of contract. C The legal standard for negligence has all of the following elements except: wire fraud duty. D. D. B. people obey laws for all of the following reasons except: A. D. The activity is restricted to corporate executives. The desire for rewards C. C. cause in fact. acquisition of a business through illegal acts. The fear of punishment B. In order to act in a just and moral manner according to society’s standards. B. Based on a number of theories. The activity violates the employee’s fiduciary duties to the organization. C. The activity costs the employing organization assets. A. A. Answer: 1-M/C #3. Answer: 1-M/C #6. A. Any person who receives regular and periodic compensation from an organization for his or her labor. D. C Page 5 of 24 . B. revenge for unfair treatment in the workplace. enforcement of sanctions. Hollinger and Clark asserted that management must pay attention to all of the following aspects of policy development except:: A. B. publicizing the sanctions. C. “keeping up with the Joneses” syndrome. C. D. In terms of the definition of occupational fraud and abuse. Respectable business and professional men.Answer: 1-M/C #5. A. D. C. no one to share a problem with. B. Any trust violator. substantially increasing the internal security presence. A Status gaining is most typically associated with which of the following? perceived economic pay inequities. Only rank and file workers. who is an employee? A. C. D Answer: 1-M/C #8. have strong social ties. D. B. D All of the following are characteristics of absconders except: low occupational and socioeconomic status typically single or separated from their spouse. few group associations. Answer: 1-M/C #7. continuous dissemination of positive information reflective of the company’s policies. Select the most correct statement from those below regarding the legal standards for negligence. D. D. A Page 6 of 24 . The Responsibility Principle. Reasonableness—a determination that the defendant failed to use ordinary or reasonable care in the exercise of that duty. one who is willing to settle for low status. Hollinger and Clark found that the same kinds of employees who engage in workplace deviance also engage in employee theft. fictious collateral. a trust violator is best described as A. takes long coffee breaks. a satisfied employee. Answer: A Answer: 1-M/C #11. an embezzler. A. The Imperative Principle. B. B. B Which principle of ethical problems was championed by John Stuart The Generalization Principle. C. 1-M/C #10. Breach—an actual connection between the defendant’s breach of duty and the plaintiff’s harm can be established D. C. Cause in Fact – the defendant must have been the proximate cause or contributed to the injury to the plaintiff. C. According to their research. has slow workmanship. arrives early at work. The Utilitarian Principle. B.Answer: 1-M/C #9. D. According to Cressey. which of the following is not a characteristic evidence of the employeethief? A. C. abuses sick leave policy. Breach—a determination that the defendant failed to use ordinary or reasonable care in the exercise of that duty. B. Mills? A. B Answer: 1-M/C #12. asset misappropriation. Only if they are the party with the deep pockets in the case. All of these are common violations. Steve Albrecht. do Federal law allows organizations to be prosecuted in a manner similar to individuals? A. B. B. C. anti-trust actions. RICO typically addresses which of the following activities? A. but international law does. The term “white collar crime” was coined by: A. RICO activities. D. pilferage. The pending lawsuits in the notes to the financial statements of 10Ks of most corporations are most likely all of the following except: A. Donald Cressey. Regarding crimes like fraud. environmental issues B. B. D Answer: 1-M/C #15. false overtime. money laundering. D. D. tax claims.Answer: 1-M/C #13. D. The Association for Certified Fraud Examiners. D Answer: 1-M/C #14. D. No. Edwin Sutherland. C. C. Yes. D Page 7 of 24 . No. C. disability. Common violations pertaining to occupational fraud and abuse include all of the following except: A. costs and lost profits associated with construction delays. C. intellectual property infringements. workplace issues such as lost wages. and wrongful death. D Answer: 1-M/C #17. B. B Answer: 1-M/C #16. Page 8 of 24 . perpetrator characteristics and organizational environment. In order to win an award for damages. Placing undeserved trust in key employees. the party who was injured is entitled to collect damage compensation. D. D. liability and damages. C. All of the following are characteristic of torts except: A. Variables from Albrecht’s study of “red flag” variables pertaining to occupational fraud fell into which of the following two categories? A. B. C. the injured party under a negligence claim must generally prove A. Working with management to set realistic goals D Answer: 1-M/C #22. reasonableness and prudence.Answer: 1-M/C #18. B. remedy is in the form of an action for damages. Large frauds are typically associated with all of the following except: A. motivation characteristics and education. Donald Cressey B. attitudes and habits. C. socioeconomic group and education. B. Steve Albrecht C. intentional violation beyond a reasonable doubt. Which of the following individuals theorized that the learning of criminal activity usually occurred within intimate personal groups? A. B Answer: 1-M/C #20. a private or civil wrong or injury. Richard Hollinger and John Clark C Answer: 1-M/C #21. B Answer: 1-M/C #19. Edwin Sutherland D. D. Operating on a crisis basis D. B. a high threshold of historic violations. a breach of contract. A Page 9 of 24 . Lack of segregation of duties and responsibilities. C. Page 10 of 24 . D. B. With respect to security controls. C. C. substantially increasing the internal security presence may reduce employee theft. None of these were confirmed as a direct relationship. part of increasing morale. B. increased management sensitivity to its employees would reduce all forms of workplace deviance. computerized inventory control and sick leave policy. dissatisfied workers. younger workers. part of organizational trust communication. which of the following are least likely to engage in illegal behavior in the workplace? A. C. D. B Answer: 1-M/C #24. lower levels of income and higher levels of theft. D. Which of the following is a significant conclusion based on the research of Hollinger and Clark? A. According to Hollinger and Clark’s research. an employee’s position and the level of theft. older workers. Answer: D Page 11 of 24 . A 1-M/C #26. B. Regarding theft. B. since they have lower levels of financial authority and are more likely to steal for their retirement. Hollinger and Clark discovered that most employees regarded these measures to be A. B Answer: 1-M/C #25. Hollinger and Clark were able to confirm a direct relationship between: A. special attention should be afforded to older employees. tightening controls over property deviance may create less detrimental acts affecting the productivity of the organization.Answer: 1-M/C #23. employees that feel they are exploited. C. targeted toward internal security. targeted toward external security. D. All of the above. problems arising from inflation. because they worry that someone else will want part of the money they steal. According to Cressey. problems arising from economic downturns. because they are afraid of getting arrested. D Page 12 of 24 . C. They viewed them as essentially noncriminal. because they are afraid they will have to go back to college. Which of the following is the most likely reason that Cressey believes an employee tries to solve a financial problem in secret? A. they explained it as: A.Answer: 1-M/C #27. borrowing. B. D. the embezzlers that he studied generally rationalized their crimes by viewing them as all of the following except: A. They viewed them as justified. because they are afraid of losing the approval of those around them. Answer: D Answer: 1-M/C #30. C. problems arising from high interest rates. D. problems arising from having no one to turn to. everyone does it. B. A 1-M/C #29. When independent businessmen in Cressey’s study converted deposits that had been entrusted to them. They viewed them as part of skills set. B. the funds were really theirs. B. C. D. C. They viewed them as part of a general irresponsibility for which they were not completely accountable. Which of the following would be classified as a business reversal that leads to the perception of non-shareable financial problems? A. D. so you can’t steal from yourself. D Answer: 1-M/C #28. situational pressures. B. D Page 13 of 24 . high personal debt. employees are friends with customers. perceived non-shareable financial problem. or poverty. B Answer: 1-M/C #33. C. Rationalizations of long-term violators in Cressey’s study included all of the following except: A. the offender lacks a conscience. personal integrity. perceived opportunity. Albrecht developed the fraud scale which includes the following components: A. and criminal record. C. Large fraud perpetrators are more likely to use the money for all of the following except: A. situational pressures. A Answer: 1-M/C #34. and the ability to rationalize. None of the above are the components for the fraud scale.1-M/C #31. and personal integrity. and the individual has a gambling problem. no fraud prevention program is available. D. to purchase new homes. they were embezzling because theirs was a case of necessity. B. Cressey’s conjuncture of events basically says that all three elements must be present for the trust violation to occur. is a male. Answer: C Answer: 1-M/C #32. D. the perpetrator is not married. C. and needs to buy a car or other large asset. living beyond one’s means. to pay for expensive vacations. perceived opportunity. they were embezzling to keep their families from shame. the individual has a strong challenge to beat the system. to support extramarital affairs. C. there are no witnesses to the crime. D. to pay taxes. their co-workers encouraged them to do it. B. they were embezzling because their employers were dishonest and needed to be fleeced. disgrace. D. drug or alcohol problems. B. These events are: A. Answer: 1-M/C #35. C. Which is considered the lowest threshold for ethical decision making? A. Codes of conduct or directives about what is best for society. D. A professional code of ethics of an accounting organization. The law. C Page 14 of 24 . B. Codes of conduct guided by trust in the underlying values that guide society. 3. Can a law permit an action that is prohibited by a profession’s code of ethics? Discuss and give an example. (Text page 76) 1-SAE #2. (These ethical frameworks are discussed in more detail below). The government forced the profession to eliminate its rules against advertising. The U. however. Ethics is concerned with outcomes. Ethics often relies on moral principles to guide choices of right and wrong. Federal Trade Commission and the U. They decided that the prohibitions against advertising violated the laws barring restraint of trade. 4. Ethics involves questions requiring reflective choice and their consequences to the individual and others (decision problems). This example illustrates the triumph of one set of values (the government’s belief that competition through advertising would benefit consumers) over another set (the profession’s belief that dignity should be preserved). Ethics considers the rules and regulations that are in place to guide behavior as well as the consequences for breaking those rules and regulations. The definition of ethics has certain key elements.Short Answer Essay Answer: 1-SAE #1. Department of Justice. for years the American Institute of Certified Public Accountants (AICPA) had rules of ethics that prohibited advertising by its members. disagreed. 2.S. (Text page 77) Page 15 of 24 . As an example. What are these four key elements? 1.S. Answer: It may happen that a law might permit an action that is prohibited by a profession’s code of ethics. The profession believed that dignity and objectivity were enhanced by keeping practitioners out of this aspect of the commercial world. the assigned impact associated with making a decision where the impact reflects the underlying values of individuals and organizations. and (3) the generalization principle. and at some level economics. The generalization principle is an attempt to marry imperatives with utilitarianism. There are two forms of utilitarianism. The Kantian imperative is very strict but provides an easy to understand framework for ethical decision making. nationality. It is. Generalization provides the flexibility needed to address the shortcomings of Kant and the specific direction that seems to be missing from utilitarianism. but it alerts persons that they are faced with an ethical problem where they must seek out additional consideration for weighing the consequences. The correct course of action is that which provides the most good or minimizes the bad. social goals.” Act utilitarianism suggests that it is the consequences of the act that matter. The utilitarian principle suggests that ethical problems should be solved by weighing the good consequences and the bad consequences. This unconditional obligation assumes that all people are aware of the rule and all agree to follow the rule. it is difficult for everyone to agree on universal principles. They are “act” and “rule. Rule utilitarianism requires that society as a whole be able to determine which rules are important and ought to be followed. The imperative principle ignores outcomes by providing directives and rules without exception that are in the best interest of society as a whole. If the outcome is considered undesirable.Answer: 1-SAE #3. Rule utilitarianism emphasizes the benefits to society of general rules (similar to a Kantian imperative) and suggests that the decision to break a rule is one that requires very careful consideration. (Text page 77) Page 16 of 24 . culture. however. The three ethical principles that provide a framework for ethical decision making include: (1) the imperative principle. (2) the utilitarian principle. Rules then are also influenced by history. What are they? Briefly summarize their assumptions. almost impossible to follow all of the time. However. in practice. when a person is faced with violating an imperative. Three ethical principles provide a framework for ethical decision making. then that conduct ought to be avoided unless the person has a very good reason. executives. What are these five characteristics? Answer: 1. A specialized body of knowledge. and executives from their interaction with board members. Page 17 of 24 . the Audit Committee. clerical support. Employees will take their cues from their managers. Audit Committee. managers from executives. It is important that individuals in leadership positions not only communicate the value of ethical actions. The Board of Directors. the company’s position on ethics should be posted in visible places. individuals at the top must be willing to listen to those operating at lower levels of the organization. Recognition and acceptance by society (a characteristic that inflicts social responsibility back on the profession). leaders lead by example. and corporate officers set the “tone at the top. The first step in developing an ethical culture is a code of ethics signed by all personnel. breathing embodiment of ethics within the organization.1-SAE #4. and communicates the values of the organization to persons at all levels. What is tone at the top and why is it an important part of ethical behavior in an organization? Answer: Ethics at the organizational level starts with corporate governance. Employee awareness programs such as periodic ethics training are effective tools. honest. and communicated across the organization.” Tone at the top refers to a culture that is open. and line personnel are the living. Furthermore. 2. 5. other professionals. Admission governed by standards and qualifications. and clients. important financial. 3. and compliance information should be disseminated to individuals who need it and can act on it. both internal and external to the organization. they must also practice what they preach. and auditors. audit committee members. In addition. professionals must have characteristics that set them apart as a profession. (Text page 79) 1-SAE #5. The Board of Directors. 4. In addition. To be successful in any specialized field like forensic accounting or fraud examination. of course. such as lunchrooms. managers. operational. Standards of conduct for dealing with the public. An organizational body devoted to the advancement and responsibilities of the profession. and. The manager suddenly remembers that the room rate is $25 and gives $5 to the bellboy to return to the people. the bellboy reasons that $5 would be difficult to share among three people so he pockets $2 and gives $1 to each person. organizations should consider background checks on prospective employees. and detection? Answer: planning) 1. prospective employers need to complete such checks in a consistent manner and in compliance with corporate policy. and staff. Translate exposure into likely symptoms 3. The bellboy has $2. so prospective employers should seek out prior supervisors. Finally. once employees are hired. While most organizations attempt to contact prior employers and resume references. audit 2. What is the five-step approach to fraud prevention. managers. Where is the missing $1?" Page 18 of 24 . To avoid charges of discrimination. On the way to the room. Know the exposures (brainstorming. totaling $27. organizations may want to restrict the positions for which background checks are completed. References provided by prospective employees are typically friends and professional acquaintances. Always be on the lookout for symptoms 4. totaling $29. (Text page 80) 1-SAE #6.Second. They pay $30 to the manager and go to their room. Due to cost constraints. deterrence. While costly. they need to be supervised and trained with controls and ethical behavior in mind. Now each person paid $10 and got back $1. So they paid $9 each. the organization should be committed to hiring honest executives. risk assessment. many organizations provide only minimal information about former employees and are remiss to provide any negative feedback for fear of legal retribution. Build audit and data-mining programs to look for symptoms 5. Pursue these issues to their logical conclusion and ground decisions in the evidence (evidence-based decision-making) Critical Thinking Exercise Three people check into a hotel. and sick time abuses. Page 19 of 24 . Of this $27. thus they now have only paid $27. they paid $30.Answer: Be careful of what you are adding together. corruption. Answer: Occupational fraud and abuse is defined as “the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets. using company property for personal benefit. managers. petty theft. ranging from sophisticated investment swindles to petty theft. Common violations include asset misappropriation. employees. fictitious payroll. fraudulent statements. Describe occupational fraud and abuse. Originally. and principals of organizations. pilferage. they each received back $1.” Occupational fraud and abuse involves a wide variety of conduct by executives. false overtime. Text Review Questions 2-TRQ #1. $25 went to the manager for the room and $2 went to the bellboy. Answer: Although Cressey focused on embezzlement and Albrecht focused on occupational frauds. a way to secretly resolve the dishonest act or the lack of deterrence by management via a perceived opportunity. their elements were very similar. Answer: Cressey found that the nonshareable problems encountered by the people he interviewed arose from situations that could be divided into six basic categories: • violation of ascribed obligations • problems resulting from personal failure • business reversals • physical isolation • status gaining • employer-employee relations 2-TRQ #4.2-TRQ #2. Answer: Organizational crimes occur when entities. executives. Compare and contrast Cressey’s and Albrecht’s theories of crime causation. because the perpetrator does not see him or herself as a criminal.S. Federal law allows organizations to be prosecuted in a manner similar to individuals. are involved in a criminal offense. According to Albrecht. individual organizations can be trust violators when the illegal activities of the organization are reviewed and approved by persons with high standing in an organization such as board members. the organization was Page 20 of 24 . a perceived opportunity to commit and conceal the dishonest act. and some way to rationalize (verbalize) the act as either being inconsistent with one’s personal level of integrity or justifiable. Supreme Court. Discuss the essence of organizational crime. Identify from Cressey’s research the six situational categories that cause non-shareable problems. the three elements are perceived pressure or a nonshareable financial pressure. corporations. three elements must be present for a fraud to be committed: a situational pressure. According to Cressey. not-forprofits. and managers. companies. and finally some way to rationalize the act. For example. nonprofits. In addition. 2-TRQ #3. and government bodies. otherwise legitimate and law-abiding organizations. although the Arthur Andersen conviction was later overturned by the U. family Irritable and suspicious Defensive Argumentative Unusually belligerent in stating opinions Needs to see a counselor. Answer: 2-TRQ #5. psychiatrist. Explain the relationship between an employee’s position and the level of theft (according to Hollinger and Clark’s research). Behavioral symptoms of fraud can include such behavior as: Can’t look people in the eye Embarrassment with friends. such as noncompliance with agency. environmental infringements. Give examples of behavioral indications of fraud.convicted of obstruction of justice. fraud and financial crimes. with thefts being highest in jobs with greater access to the things of value in the organization. only a secondary factor that constrains the manner in which the deviance is manifested. Although they found obvious connections between opportunity and theft (for example. Corporate violations may include administrative breaches. the researchers believed opportunity to be “ . Complains of being unable to sleep Drinks too much Using illegal.” Their research indicated that job satisfaction was the primary motivator of employee theft. manufacturing infractions related to public safety and health. regulatory. the employee’s position only affects the method and amount of the theft after the decision to steal has already been made. such as bribery and illegal kickbacks. and unfair trade practices. retail cashiers with daily access to cash had the highest incidence). . . and court requirements. etc. labor abuses. Page 21 of 24 . a felony offense that prevented them from auditing public companies. illicit drugs Can’t relax 2-TRQ #6. Answer: Hollinger and Clark were able to confirm a direct relationship between an employee’s position and the level of the theft. 2-TRQ #8. Analyze the role of corporate governance mechanisms in fraud prevention. important financial. and executives from their interaction with board members. managers from executives. Describe corporate governance breakdowns in the facilitation of Enron’s fraudulent acts.” Tone at the top refers to a culture that is open. both internal and external to the organization. and line personnel are the living. Professor of Accounting at Stanford University Wendy Graham.2-TRQ #7. and. In addition. and communicated across the organization. they must also practice what they preach. It is important that individuals in leadership positions not only communicate the value of ethical actions. honest. operational. leaders lead by example. ASE. Furthermore. managers. CA and British Secy of State for Energy Paola Ferraz Pereira. Employee awareness programs such as periodic ethics training are effective tools. such as lunchrooms. PhD in Economics and former Chair of Commodity Futures Trading Commission Lord John Wakeham. In addition. of course. SEC requires that exchanges (NYSE. The Board of Directors. Employees will take their cues from their managers. President of State Bank of Rio de Janerio Page 22 of 24 . breathing embodiment of ethics within the organization. Audit Committee. audit committee members. individuals at the top must be willing to listen to those operating at lower levels of the organization. The Board of Directors. clerical support. Answer: Ethics and fraud prevention at the organizational level starts with corporate governance. At least 4 of 6 members had financial expertise: Robert Jaedicke. and NASDAQ) require financial literacy for all audit committee members and financial expertise for at least one member. and auditors. Answer: Many related party transactions were brought to attention of Enron‘s BOD and were discussed in some detail with members of Audit and Compliance Committee. and communicates the values of the organization to persons at all levels. The first step in developing an ethical culture is a code of ethics signed by all personnel. executives. and corporate officers set the “tone at the top. the company’s position on ethics should be posted in visible places. and compliance information should be disseminated to individuals who need it and can act on it. the Audit Committee. top Enron managers abandoned the basic standards of integrity and created a noncompliance reality that was much different than GAAP or SEC reporting standards had ever imagined. which constituted a conflict of interest and while the managers and executives had a fiduciary duty to act in the best interest of the company and its shareholders. Though doing the right thing can be difficult. Enron had a code of ethics that prohibited managers and executives from being involved in another business entity that did business with their own company. the Page 23 of 24 . conflicts of interest. and monitor SPEs and Enron‘s accounting and reporting practices. as members of society. By succumbing to greed and dishonesty by secretly exercising stock options and falsely reporting the performance reality of the firm to other stakeholders. Audit Committee failed to adequately understand. and noncompliance with corporate policies and procedures in the Enron case. BOD waived company’s code of ethics for SPE transactions. and Kantian imperatives to identify ethical situations (ethical dilemmas) that require more in-depth evaluation. and the range of possible outcomes suggests that the right choice is not always obvious. Once the ethical problems have been identified. we have a responsibility to reach for that goal every day. review. The legal structure allowed managers to enter these arrangements. Answer: 2-TRQ #9. rules. the task is a difficult one and the choice must be left to individuals. Therefore. Discuss alternative courses of action in the Enron case within the framework of appropriate ethical conduct. The bottom line is that civilized societies are based on trust with underlying values and implicit codes of conduct that guide our behavior. It is impossible to provide a blueprint for every situation with laws. In practice. there was considerable discretion for them to exercise their own business judgment about what was in the best interest of the company. without exception. 2-TRQ #10. laws. Identify ethical issues. fraud and forensic professionals can start with rules. and exceptions. Answer: Alternative decisions may result in variations of good and bad consequences. But these codes of ethics were voluntary and were essentially set aside by the board of directors.Enron‘s BOD reviewed and approved creation of SPEs and assigned Audit Committee duty to review transactions. The decision process is difficult. Strengthen board oversight 2. including using personal rules and processes for decision making. Essentially. In some cases. The fraud and forensic professional is not alone and should solicit the input and opinions of other practicing professionals. This process will help to ensure that the anticipated goals are realized while also attempting to mitigate any negative consequences. the professional can then move forward to implement that decision. if Enron had a chance at redemption. it would be a good idea to: 1. Instill ethical discipline throughout the business organization Page 24 of 24 . After careful consideration of the alternative outcomes and the decision is made. guidance and advice from professional organizations and associations can assist the individual in making the best decision. Avoiding perverse financial incentives for executives 3.evaluation process begins and professionals can use their own framework for ethical problem solving.
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