Deliverable 2 - Assignment - Week 5 ACCT 573 - Course Projec ✓ Solved
Deliverable # 2 - Assignment - Week 5 ACCT 573 - Course Proje
With a plot centered on a bribery allegation and questionable accounting oversight within the company, LDC Cloud Systems provides the reader a better appreciation of how fraud situations can unfold and then addressed, including the importance of strong board oversight. The case study explores actions of management and the board, along with the timeline of decisions after they uncover potential problems within the company. It also illustrates how complex accounting practices common in today's fast-changing business environment can make a company susceptible to fraud.
Review the written case study and analyze the scenes that re-enact conversations among LDC key players. Respond to the following questions ensuring you provide examples and concepts from our lessons.
Analyzing the Role of CEO in Tone Setting
The CEO of a company plays a pivotal role in establishing the "tone at the top," which significantly influences the organizational culture and ethical framework. In the case of LDC Cloud Systems, CEO Shep LeDuc's high expectations for himself and his staff illustrate a strong performance-driven culture where long working hours are normalized. This environment creates distinct pressures across various departments including legal, accounting, sales, and internal audit.
Firstly, the legal department might feel pressured to overlook potential legal issues or bend regulations to align with the aggressive business pursuits endorsed by LeDuc. The accounting department, under the weight of these expectations, may be tempted to manipulate financial figures to present a more favorable company image, leading to ethical compromises in reporting practices. Sales teams, striving to meet demanding goals, might resort to dubious practices, such as the facilitation payments discussed in the case. Finally, the internal audit team may be dissuaded from raising red flags on questionable practices due to fear of backlash from management, leading to inadequate oversight and accountability.
Fraud Triangle Modifications
Examining the fraud triangle from deliverable #1 is essential in understanding the dynamics of fraud occurrence at LDC. The primary components of the fraud triangle include pressure, opportunity, and rationalization. However, in the context of this case, additional components can be considered for a more comprehensive analysis. One vital addition is the aspect of "organizational culture," which encompasses the overall ethical climate established by leadership and management that can create either an environment conducive to fraud or one that prioritizes integrity and transparency.
Furthermore, the "external influences" component should also be addressed, as outside pressures, such as competitive market conditions and economic downturns, can exacerbate fraudulent actions. Revising the fraud triangle to include these elements would provide a robust framework for analyzing the underlying motivations for the bribery incident within LDC Cloud Systems.
Fraud Triangle Components and Events
The conversation between Beverly Sheel and Ross Trela highlights critical aspects of the fraud triangle that contributed to the bribery incident involving the $20,000 payment to a consulting firm associated with a government official. The operational manager in Asia faced significant pressure to meet a project deadline which pushed him to engage in an unethical act—making a facilitation payment to expedite the acquisition of building permits. This action exemplifies the "pressure" component of the triangle.
Moreover, the questionable accounting estimates mentioned during the investigation signal a breakdown in numerical integrity, aligning with the "opportunity" aspect of the triangle. As financial oversight becomes lax under pressure, the potential for unethical behavior increases. Sheel's discovery of the email and the attachment also indicates a significant rationalization process occurring amongst those involved, where individuals might justify their actions due to organizational goals and deadlines.
Delay in Reporting Concerns
Sheel's decision to wait three months before informing her superior about the email raises important questions regarding transparency and accountability within LDC. The delay could be attributed to several factors, including fear of repercussions, uncertainties regarding the implications of the information, or a desire to gather more evidence before escalating the issue. This behavior can also reflect a concerning culture where employees feel they cannot voice their concerns promptly without facing negative consequences.
Internal Control Failures and Recommendations
The lack of internal controls to catch the bribery payment signifies loopholes within LDC's auditing and operational procedures. Many companies fail to implement robust mechanisms to track financial transactions that could potentially lead to fraudulent acts. In this case, a failure in the segregation of duties, insufficient transaction scrutiny, and an absence of whistleblower protections contributed to the oversight.
To counter such vulnerabilities, LDC could adopt several procedures, including enhancing transaction oversight protocols, establishing a dedicated ethics committee to review unusual payments, and implementing continuous employee training on ethical standards. Moreover, utilizing technology such as data analytics could significantly aid in monitoring transactions for anomalies that could suggest corrupt practices.
Significance of Email Information
The information contained within Sheel's email and the attachment labeled "For Accounting Eyes Only" is critical, as it indicates potential misstatements in financial reporting that could mislead stakeholders. Ensuring transparency in financial records is essential for regulatory compliance and maintaining the trust of investors. The fact that the attachment is labelled for exclusive accounting use also raises concerns about information segregation, suggesting that sensitive financial insights may not be adequately shared across departments, resulting in a lack of holistic oversight.
Ultimately, the implications of Sheel's findings demand urgent attention from leadership to rectify not only the immediate issues surrounding the bribery but also to revamp LDC's internal controls and create a culture of ethical accountability, which is essential in preventing future fraud situations.