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Corporate Fraud
Principles of Fraud Examination and Financial Forensics
Corporate Fraud
The term corporate, in many instances, refers to any form of a business or establishment that stands counted as a legal entity. Some forms of corporate fraud include taking advantage of confidential information for personal gain, misrepresentation of offered services, and other forms of deceptive accounting and business practices among others (Wortley & Townsley, 2016). During their operations, members of the corporations can choose to go against set laws with the intention of satisfying various self-interests. In committing corporate fraud, the perpetrators obtain their motivation depending on the type of criminology influencing their behavior. In writing this paper, the essence is to come up with different instances of corporate fraud and analyze them based on the underlying criminology theories. Besides this, it will enable the formulation of various policies that will enable the prevention and control of such crimes for a smooth running and trustable business environment.
When considering the case of Barry Minko in Cooking the Books, the video reveals various instances of corporate fraud that affected the general performance of the company. While undertaking his duties, he created false accounts receivable and sales. This he managed to do by falsifying documents based on the photocopies he generated from the original documents (Gaapquest, 2010). Besides this, Minko kited various cheques by using three different ones to cater for one amount. For him to hide his acts, he compromised the independence of the internal auditors by being extremely nice to them. Once he pulled them to his side, it would eventually become difficult to deal strictly with him on any identified errors. The actions of Barry Minko made it a difficult task to identify the exact performance of institution at the end of every accounting period.
For this case, the criminology theories largely exhibited include the rational choice theory and the social learning theory. The rational choice theory explains that an individual agrees to commit fraud when largely aware of the consequences that may arise. When choosing to engage in these crimes, the white collar criminal Minko was aware of the aftermath of his actions once arrested (Wortley & Townsley, 2016). He made the choice while of sound mind, hence his cause is considered motivated by a rational selection. The second theory applies because of the company’s auditors who were his accomplices out of their association. In social learning theory, people become fraudsters because of associating themselves with others of that kind. Had Minko not been a fraud, the internal would have escaped the trap. In essence, it is notable that in playing such a role at the company, Minko made it possible for any individual associating with the accounts department to become a part of the plan he neatly schemed. Such behaviour should be shunned in the business environment for better and more efficient modes of operations.
The second case for consideration is the fraud committed by Walt Pavlov while working at the communications company MCI. Pavlov, in the course of his growth, was renowned for his Christian background that insisted on honesty as an outstanding human principle. Due to the amounting pressure at work, Pavlov remained frightened at the possibility of becoming a failure on the job. On consulting with a colleague, he realized that none was frank based on their performances (Bashir, 2006). Alongside his workmates, Walt Pavlov collected bribes from poorly performing clients and stashed it away in a private account. When discovered, the courts ordered for his arrest and he was imprisoned for three years and five months while making a recompense.
The social disorganization theory states that the ability of an individual to commit a given crime is dependent on the environment. Had the working environment been friendly, Pavlov would not seek advice from his misleading colleagues. MCI, as a top-performing company, should try hard and create a friendly working environment it would assist greatly in reducing the number of employees who cheat to obtain good results. One of the considerable changes is engaging enough employees to cater for their many clients (Wortley & Townsley, 2016). In doing this, the company makes it possible for its employees to perform to the optimum. Secondly, social learning theory plays a role in shaping the events of the mentioned case. Pavlov, throughout his life, seemed properly groomed and could not engage in any form of fraud. He became an expert at cheating due to his constant association with the negative exuded by his workmates. The case is the best example of bad company corrupting good morals. Once done with this form of living, Walt Pavlov resorted to educating others on the importance of honesty, something that had he obeyed, would have saved his career life.
Seventeen individuals were indicted in Chicago for committing crimes of ATM skimming and running money laundering schemes. By using electronic systems, the criminals imitate debit cards enabling them to steal money from different ATM machines across the country. The defendants, two of which were arrested in Bulgaria, engaged in activities of identity theft of many debit cards internationally (DepartmentofJustice, 2014). The investigation, which exposed the chain of illegal activities, indicated that majority of the victims’ identification material were obtained from Europe and the crime eventually taking place in Chicago. In the money-laundering scheme, the seventeen reportedly stole millions from unsuspecting people without an idea of the fraud in place.
When studying this case, the theory in play is the strain theory. In this, the people committing the crime are motivated by given circumstances that make their survival extremely difficult. With such, individuals are ever ambitious and seek success but there are limitations in the available opportunities to fuel these desires. In return, people seek comfort in committing fraud, as it is the most convenient method of obtaining faster returns (Wortley & Townsley, 2016). The seventeen, which includes a man and his wife, had no other better way of making money; thus, resorted to stealing from other unsuspecting individuals. Additionally, every person participating in this crime knew the consequences that would befall him or her if the government should catch up with them. Thus, it is notable that these people made a choice whatsoever the circumstance (Wortley & Townsley, 2016). One can thus conclude that the rational choice theory also applies in this case. Knowing the trouble that awaits them, the defendants chose to engage in the crimes because they lacked a different option. Creating numerous job opportunities to assist the suffering population is one mode the government can use to curb criminal acts of this nature.
From the reviewed information, it is notable that corporate fraud is one of the major challenges bringing down the country’s economy. As a result, it is vital to come up with simple but effective methods of curbing such crimes for efficient performance. Some of the solutions include conducting background checks on every employee during the hiring process. Understanding whether the employee has previous criminal records or other challenges makes it possible for the organization to anticipate such occurrences; hence, easier to control (Wortley & Townsley, 2016). In some cases, the management should consider proper delegation of duties to ascertain that not every responsibility or authorization comes only from a single individual. With such, it becomes easier for the responsible individual to commit crimes and go unnoticed. The same should apply in handling authorization of different transactions. When informed of the bank transactions and other exchanges occurring within the company, the whole corporation remains informed of the expected outcomes in terms of revenue and the expenditure.
Much as the organization can deduce every method as a means to curtail the existing issue, the most important thing is to educate all the staff on the significance of staying true to ethical considerations while in business. Organizing workshops and seminars for this purpose gives every member a chance to soul search and make a decision to flee every temptation of corporate fraud. On making this decision, every principled member of the organization vows to protect both the interests of the organization and those of every customer, which is the key to a stable business environment with fewer or no cases of corporate fraud.
References
Bashir, M. (2006, January 30). Walt Pavlov: The Visiting Fellow of Fraud. Retrieved February 11, 2018, from abc NEWS: http://abcnews.go.com/Nightline/Business/story?id=1557957
Department of Justice. (2014, March 26). Seventeen Defendants Indicted in Chicago in International ATM Skimming and Money Laundering Scheme: Two Arrested in Bulgaria. Retrieved February 11, 2018, from Federal Bureau of Investigation Chicago Division: https://archives.fbi.gov/archives/chicago/press-releases/2014/seventeen-defendants-indicted-in-chicago-in-international-atm-skimming-and-money-laundering-scheme
Gaapquest. (2010, November 10). ZZZBest 10 min. Retrieved February 11, 2018, from Youtube: https://www.youtube.com/watch?v=7fZVyyWvWE8
Wortley, R., & Townsley, M. (2016). Environmental Criminology and Crime Analysis. New York: Taylor and Francis.
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