Question

Evaluation of Unethical Behavior Concerning Accounting Fraud

Write a 750-word evaluation of unethical behavior in the accounting profession. Choose an example of a single company such as Enron, WorldCom, Adelphia, Tyco International, and so on for your presentation. Once you have selected the company, provide the following items in your evaluation of the ethical failures at that company:

1.         Relevant facts of the fraud;

2.         Ethical issues involved;

3.         Primary stakeholders;

4.         Unethical actions taken;

5.         An evaluation of the ethical issues with respect to relevant ethical theories;

6.         An evaluation of the ethical issues with respect to a Christian worldview; and

7.         An explanation of the action you would have taken.

Your evaluation must cite at least 2 scholarly sources in addition to Internet sources. Be sure to include a reference list with your thread. The word count excludes references.

Answer 1

Evaluation of Unethical Behavior Concerning Accounting Fraud

Facts

                The Bernie Madoff scandal (2008) reveals one of the largest Ponzi scheme in the U.S whereby the company tricked investors out of $ 64.8 billion. The actual fraud was conducted through the company using the investor’s money to pay the investors as their profits. The accountants and auditors of the company including David Friehling have been blamed for contribution in the fraud (Lenzner, 2008). The accountants usually conducted annual financial reporting processes capable of identifying any forms of fraud. However, they did not report any fraud or irregularities until the son of Madoff reported of the alleged fraudulent activities in the company. Considering the influence of the Madoff’s fraud, it was expose just months after the U.S financial collapse in 2008 (Thibodeau& Freier, 2013). Therefore, the Madoff scandal involved the tricking of investors into empty investments and later stealing their investments with the help of accountants and auditors who approved the crooked financial statements of the company.

Ethical Concerns

There were various ethical concerns on the company financial and investment operations. Firstly, the lack of transparency and accountability of the hedge funds was a major concern. Even the company conducted his business operations honestly, but later in the 1990s, it started fabricating returns through the issuance of false financial statements (Lenzner, 2008). Secondly, the company sold his investors an investment of idea of integrated blue chip securities with derivates to hedge their risks. He also claimed that his strategies were complex for the clients to understand. However, this was just an illusion of exclusivity to the innocent investors. Therefore, Madoff only seduced the investors to alleged returns on their investments, which was unethical.

Primary stakeholders

The primary stakeholders involved in the fraud include Bernie Madoff, Frank DiPascalli, and his accountant, David Friehling. The family of Bernie Madoff is another stakeholder claimed to be involved in the fraud (Lenzner, 2008). Most of the senior executives of the company were involved in concealing information in order to steal the money of the innocent investors. Investments advisors are also part of stakeholders the fraud including J. Ezra who was a prominent investment advisor. He was involved in the running of a feeder fund for the company.

Unethical Actions Taken

The fabrication of the company’s returns formed the main unethical activity in the fraud. The discovery indicated how the company falsified its financial statements in order to attract more investments. Unlike the expected profits, the investors were only offered profits from their own money. The actions of the company were unethical as no investment plans or activities were conducted. Additionally, the operations of the investors’ hedge funds were secretive and did not comply with the SEC disclosure standards (Bayou, Reinstein & Williams, 2011). These include some of the unethical actions undertaken by the company in order to cheat the investors.

Relevant Ethical Theories

Some of the relevant ethical theories include deontology, utilitarianism, and virtue theory. Based on the Madoff fraud scandal, deontology is useful in preventing the company from engaging in illegal activities. The deontological ethical theory requires that the company should follow the set moral rule. Morally, Madoff Investment Company had broken the moral rules and regulations (Ferrell & Fraedrich, 2014). However, the ethical concerns of Madoff could be acceptable under the utilitarianism ethical theory. This is because the theory advocates for actions that will offer the greatest benefits to the people. If a large number of investors were happy with the company, the company would have gotten away with their fraud. In the case of virtue theory, Madoff Investment Company violated the overall cross-cultural virtues including faith, justice, and transparency.

Christian Worldview on the Ethical Issues

                From a Christian worldview, the biblical perspective encourages on doing the right thing while avoiding doing all sins. This perspective encourages investment firms including the former Madoff Investment firms to operate honestly with full disclosure and transparency. Romans 6: 23 say, “The wages of sin is death”. The Christian perspective calls for the investors to avoid all unethical and unacceptable business practices (Bayou et al., 2011). However, it allows the convicted fraudsters to ask for forgiveness after admitting their fault. In terms of the Christian worldview, the ethical concerns included the non disclosure of the hedge funds and fabrication of the financial statements in order to seduce the innocent investors.

Proposed Actions

Personally, I would have advocated for the transparency and accountability in the investment plans and portfolio. For instance, the company did not adopt technology in terms of allowing the investors to track their investments. Thus, I would also recommend for the technological adoption to allow the investors track their investments in real-time. Additionally, I would support the penalties accorded to the involved stakeholders including Madoff and other seniors as well as $170 billion restitution. The company’s hedge funds should have been operated in compliance with the disclosure norms and standards. Therefore, the fraud scandal by Bernie Madoff was unacceptable and unethical.