Question

When it comes to the CEO or CFO doing the embezzlement, do you think the company as a whole should be held responsible for those funds and punished as well. If so, how? If not please explain why not, list all the parties affected and how you think it should be handled.

Answer 1

Embezzlement basically refers to the misappropriation of funds assigned in the responsibility of a person (read the CEO or CFO in the context of above question). These funds are the assets of the organization and are entrusted with resposnibilty to specific persons.

In such a case the company as a whole suffers from the consequences of few people. However the company as a whole should not be held responsible for those funds in terms of punishment. But it is the responsibility of the company to ensure that they have proper mechanisms in place to ensure that all cash related transactions are recorded in an orderly manner, to keep a check on the big ticket transactions taking place within the organization, to have regular audits that ascertain best practices in the organization. In the absence of these practices, the company is responsible for misappropriation of these funds and the persons assigned with the responsibilty to ensure these checks shoud be punished as well.

However, most companies follow these good practices and so, the punishment ideally holds for the people with fiduciary authorities and who use their authority for illegal use of the company assets. The punishment shall vary depending on the intensity of the fraud, ranging from monetary fine to imprisonment as well.

In case of any such event occuring, there are a lot of paries affected namely the shareholders of the company since they have their money invested in the company, the banks(as they provide the company with long term and short term debt) and any such event might trigger the possibility of the company not being able to fulfil its liabilities, the employees of the company. Also, as a direct consequence the entire market suffers a downfall due to these activities.

To handle these activities, as already mentioned in the paragraphs above, there should be proper reporting. Companies should adopt the principle of record to report. Timely and mandatory audits to keep a check on the activities in the organization.