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CASE 4: ACCOUNTING FRAUD AT WORLDCOM

Betty Vinson: victim or villain? Should criminal fraud charges have been brought to her?
How should employees react when ordered by their employer to do something they do not
believe in or feel uncomfortable doing?
In discussing whether Vinson should been charged with criminal fraud, it can be analyzed
from ethical perspective which can truly judge whether she was morally responsible for the
wrong or not. In order to determine whether Vinson was morally responsible for the fraud,
these three criteria should be fulfilled first: causality, knowledge and freedom. The causality
criteria can be referred as whether that individual caused or helped cause the wrong, or failed
to prevent it when she could and should have. The knowledge criteria then requires the
individual to did so knowing what she is doing while freedom criteria requires the individual
did so own her free will before being morally responsible for causing the wrong.
Examining the cause of the fraudulent activities, Vinson initially been pressured by
Yates, Myers and Sullivan to aid in painting the financial result of the company only one time
and assured by Sullivan that he would take full responsibility for the action. Being a senior
manager worked under them and believing in Sullivans words, Vinson did as told
accordingly. However, she decided against quitting when been asked to continually carry out
the wrong as she justified herself as the main supporter of her family. Moreover, being an
accountant for a long time, Vinson supposed to know the methods used to boast the
companys revenue were illegal but she still continued the acts at her own free will. This
matter hence proved that she was morally responsible for the fraud as she did the wrong
knowingly it as a wrong at her own free will even though she did not contribute to the initial
cause of the fraud.
On the other hand, moral responsibility can be mitigated by minimal contribution,
uncertainty and difficulty factors, depending on how serious the wrong is. Vinson can be
considered as one of major players in WorldComs fraudulent activities as she was one of
those who made the entries for the accrual releases and expense capitalization. Moreover, she
also participated in obtaining the account number for the international fixed costs in order to
release $370 million accruals when the director of the division, Schneberger himself refused
to make the adjustment. In addition, Vinson did all the fraudulent activities without any
feeling of uncertainty that the actions were wrong even though she herself had difficulty and
personal dilemma to refuse such actions.
Despite those factors, the wrongdoing had inflicted a significant financial and
psychological impact on the company and its stakeholders. Her involvement in cooking the
books had resulted in hundred millions differences between reported and actual line-cost
expenses as well as between reported and actual income/loss before taxes and minority
interests. The action consequently led the company to bankruptcy and other stakeholders such
as the employees, the retail customers and the public were significantly affected. These
matters hence proved the seriousness of the wrongdoing thus denies all factors argued for the
mitigation of the responsibility.
In summary, Vinson can be considered as a villain as she morally responsible for the
wrong and hence should be charged on the criminal fraud.
* * *
Employees are subject to abide the orders from superiors as long as the actions are legal and
ethical. Receiving orders to do something they do not believe in or feel uncomfortable doing
may indicate that the action is not ethical despite it being legal or not.
The first step that can be taken by employees in resolving such dilemma is consult
with the code of ethics for formal guidance. In the WorldCom case however, there were no
written policies for the management practices itself yet the code of ethics. Therefore, the
employees in WorldCom had no formal guidance to lead them to ethical decision in abiding
or disobeying their superiors such as Sullivan, Myers and Yates.
Apart from that, the employees might determine themselves the alternative actions are
available to them in that situation. After that, they should weigh up the benefits and costs of
the alternatives to themselves as well as to others who might be affected by the action taken.
The alternative that produces the greatest benefits then should be chosen. Taking Vinson as
example in WorldCom case, she should not only consider about her personal matters besides
the companys sake, but she also should consider the consequences towards the companys
stakeholders before performing the fraud. However, there is underlying problem in this
approach where employees might overweigh or underweigh some factors.
In conclusion, employees might refer to the code of ethics provided by the company
so as to guide them to make an ethical decision. In the case there is no such code, employees
might make a judgment themselves by weighing up few alternative courses of action
available and choose the most beneficial one.
* * *
CASE 5: FLAT CARGO BERHAD
Using the Fraud Triangle Model, which has the three elements of pressure, opportunity and
rationalization, analyze the situation in FCB.






The first element in the Fraud Triangle Model is pressure where this element becomes the
motivation for individuals and companies to commit fraud. The pressure that can be
identified in FCBs situation is related to the financial aspect of the company. The analysts
expectation on increment of revenue and the steady payment of dividend despite of the low
profit margin business in highly competitive market and the increase in oil prices that
significantly affect the business might had become FCBs motivation to smooth its earnings
using any means even though it might be illegal.
The second element in the model is opportunity which is commonly associated with
weak internal control of a company. Internal control of a company is closely related to the
companys corporate governance as good corporate governance may lead to the difficulty to
perform any misconduct and high risk detection hence a strong internal control. The
corporate governance in FCB that might be lacking was a member of FCBs Audit
Committee, Ali Bin Ahmad is non-independent executive director which violated the Code of
Opportunity Rationalization


Pressure
Fraud Triangle Model
Corporate Governance applied during that time where all the members supposedly consists
only non-executive directors. This violation hence might be affecting the independence of the
Audit Committee whose function is to oversee the internal control of the company. In
addition, whilst there was a good composition between executive and non-executive directors
in FCBs board, the composition between independent and non-independent directors seems
to be not in balance as specified by the Code thus the objective to maintain independence
might have not been achieved.
The third element of the model is rationalization which can be defined as the mindset
of fraudsters in justifying themselves. The individuals that involved in cooking the books in
FCB might had justified themselves so as to maintain the companys reputation and meeting
the analysts as well as other stakeholders expectation.
In summary, the three elements of the Fraud Triangle Model might had been existed
but not been realized thus led to the late detection on the possibility of fraud committed in
FCB.