Review The Written Case Study From The Link ✓ Solved

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Review the written case study from the link

Please see attached. Please answer each numbered question. Deliverable # 2 – Assignment – Week 5 Review the written case study from the link (also located in the class files) and review the following scenes that reenact conversations among LDC key players.

SCENE 3. LDC EXECUTIVE TEAM MEETING - PAGE 7 In an executive team meeting, CEO Shep LeDuc offers insight into the culture he has set at LDC. He has high expectations for himself and the staff, and is not concerned that everyone is working long hours. Respond to the following questions ensuring you provide examples and concepts from our lessons.

1) What role has the CEO played in setting the "tone at the top?" What pressures has this put on the following departments: legal, accounting, sales, and internal audit? 2) Looking at the fraud triangle from deliverable #1, what additional components should be added or modified?

SCENE 4: CONVERSATION BETWEEN ROSS TRELA AND BEVERLY SHEEL - PAGE 8 In this conversation, Beverly Sheel is updating Ross Trela on her investigation. She has uncovered a payment of $20,000 to a consulting firm that is controlled by the family of a government official, and as such, the payment may be perceived as a bribe for building permits in LDC's Asian operations. Respond to the following questions ensuring you provide examples and concepts from our lessons.

1) Comment on the components of the fraud triangle that led to these events: (a) the operations manager in Asia was delayed in opening on time, so he opted to make a facilitation payment (a bribe). (b) The information in the email and the email attachment uncovered during the bribery investigation suggests that some of the accounting estimates were questionable and could result in a restatement of the financial statements.

2) Why did Sheel wait three months to bring the email to the attention of her boss? 3) Why didn't the internal controls catch the bribery payment? What procedures could LDC put in place to detect this kind of payment? 4) What is the significance of the information in the email that Sheel is now bringing to Trela's attention? What about the information contained in the attachment marked "For Accounting Eyes Only"?

Paper For Above Instructions

The case study of LDC provides critical insights into corporate governance and ethical conduct, particularly through the lens of the actions and decisions made by key players in the organization. Analyzing the situations presented in Scenes 3 and 4, we can better understand the dynamics at play, particularly the role of leadership, the implications of unethical practices, and the importance of robust internal controls.

CEO's Role in Setting "Tone at the Top"

CEO Shep LeDuc's approach to leadership significantly shapes the corporate culture at LDC. By establishing high performance expectations and prioritizing long work hours, LeDuc sends a clear message about the value he places on productivity and commitment. This "tone at the top" has far-reaching effects on various departments. For instance, in the legal department, an atmosphere focusing on expedience could lead to overlooked compliance issues. Legal professionals may feel pressured to overlook legal requirements to maintain operational momentum.

In accounting, the pressure for performance may lead to questionable financial reporting practices, creating an environment where ethical dilemmas can arise. Similarly, the sales department could prioritize closing deals over adhering to ethical standards, potentially leading to fraudulent activities. Finally, internal audit functions, intended to provide oversight and accountability, might struggle to fulfill their role if they operate within a culture that rewards ends over means. This overall environment fosters an increased risk of corporate malfeasance, including fraud.

Modifications to the Fraud Triangle

The fraud triangle comprises three elements: opportunity, pressure, and rationalization. While these are core components that explain why fraud occurs, additional elements should be considered to enhance this model. First, the role of technology in creating new opportunities for fraud amidst an increasingly digital landscape is significant. The integration of sophisticated software systems could create new vulnerabilities, necessitating vigilance in cybersecurity measures.

Secondly, the notion of ethical leadership should be integrated into the fraud triangle. Leaders such as LeDuc must foster a culture of integrity and accountability, which can reduce the rationalization aspect of fraud. By reinforcing ethical behavior, companies can curb the justifications employees might make when engaging in unethical activities. Lastly, the lack of training on ethics and compliance within organizations should be considered; effective training programs are necessary to equip employees with the knowledge to recognize and report unethical actions.

Components of the Fraud Triangle in Scene 4

Scene 4 presents a complex web of events stemming from the operations manager's decision to make a facilitation payment, driven by both pressure and opportunity. The delay in opening the Asian operations illustrates the pressure that led to a decision that could be rationalized as a necessary evil to ensure business success. The option to make a bribe demonstrates the opportunity present within lax regulatory frameworks and a culture that condones such actions.

Furthermore, the questionable accounting estimates identified by Beverly Sheel suggest a culture of financial manipulation, where results may be strategically massaged to meet expectations. This compromises the integrity of financial statements and raises serious concerns about corporate governance.

Timing of the Report

A critical question arises regarding why Sheel delayed bringing the email and attachment to her boss's attention. Three months of silence can be indicative of various issues ranging from fear of repercussions to uncertainty about how to approach a sensitive topic. Additionally, it may suggest a lack of established channels for reporting unethical activities or an internal culture that punishes whistleblowers. It is essential that companies create safe environments for employees to report misconduct without fear of retaliation.

Failures in Internal Controls

The internal controls at LDC evidently failed to mitigate the risk of the bribery payment. Such failures can arise from a lack of proper oversight, insufficient training on compliance protocols, or unclear lines of authority regarding financial transactions. For LDC to better detect and prevent similar payments, they must enhance their review processes for all transactions involving consulting firms, particularly when linked to government officials.

Implementing robust anti-bribery policies and conducting regular audits focused on identifying suspicious transactions are two essential steps forward. Additionally, every employee should be trained to recognize red flags associated with bribery and corruption, ensuring they understand not just the risks but also their ethical obligations.

Significance of Information in Emails

The significance of the information Sheel brings to Trela cannot be understated. The implications of the $20,000 payment raise critical questions about the ethical practices within LDC's Asian operations. The attachment marked "For Accounting Eyes Only" likely holds sensitive information that could impact financial statements, revealing discrepancies that would necessitate restatement and potentially damage LDC’s reputation. Engaging in unethical practices not only jeopardizes financial integrity but also affects stakeholder trust and corporate sustainability.

Conclusion

The case of LDC offers valuable lessons in leadership, ethics, and the necessity for robust internal controls. By addressing the "tone at the top" set by the CEO and re-evaluating the fraud triangle, organizations can prevent ethical violations and foster a culture of accountability. It is imperative for companies to implement effective compliance mechanisms and training to encourage employees to uphold the highest ethical standards.

References

  • AICPA. (2021). Ethics and independence in private companies.
  • Cressey, D. R. (1953). Factors in the motivation of financial fraud.
  • Deloitte. (2020). Understanding the fraud triangle.
  • Friedman, A. (2020). Corporate governance and ethical issues.
  • Hope, O. K., & Thomas, W. B. (2010). Management accounting and the agency theory.
  • Internal Revenue Service. (2022). Bribery and corruption-related offenses.
  • Shapiro, E. (2013). Corporate culture and compliance programs.
  • Sweeney, R. (2019). Enhancing internal controls to deter fraud.
  • Turner, A. (2011). The importance of corporate ethics in business today.
  • Wells, J. T. (2017). Principles of fraud examination.

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