Essay, 3 pages (550 words)

Fraud : tyco international ltd

Fraud Case: Tyco International Ltd
Question 1:
a) Assessment of environment on factors that allowed fraudulent events
As a multinational corporation, Tyco International realized immense growth and expansion that it acquired many other firms. The large scale level of operation provided various factors that promoted fraudulent activities in the firm. To begin with, the management awarded the top management with large bonuses and benefits for managing the large corporation. The company allowed the management to set aggressive targets with the managers being able to receive substantial bonuses for providing reports that have results that exceed the set EBIT targets. The bonuses acted as incentives for providing reports that exceed aggressively set targets. The top management that was made up of Dennis Kozlowski, the executive officer and Mark H. Swartz, the chief financial officer had the power and authority to influence decisions in the organization. Their decisions to inflate reports were implemented with immediate effect (Albrecht et al 78).
Given the power of the top management, junior managers and officers in the firm were compromised and could not execute their internal control duties effectively. Working under pressure from the top management (fraudsters), they provided a poor financial management oversight to the entire company. They observed orders as they came such that formulation of schemes to inflate income for the company’s security subsidiary and its suppliers. Given that junior managers were presented with an opportunity to steal, they altered the income statements not only for the fraudsters, but also for their benefits as they also received incentives for doing so. Lastly, they had the rationalization that if the top management is fraudulent, they could also become fraudulent (Deloitte Development LLC 3).
b) Categories of fraud that occurred at Tyco International Ltd
There are various types of fraud cases that could be reported in various organizations. However, the type of fraud that was common at Tyco International was in all categories of fraud. To begin with was asset misappropriation whereby the management through its chief financial officer and managers altered payroll while inflating bonuses and benefits of the top management. The fraud of financial statements occurred in the organization as the fraudsters altered income statements such as those of their security subsidiaries. Financial reports were inflated to include the bonuses that the managers were getting while painting false picture of the firm to the public. Corruption was also rampant in the organization as the funds of the company were embezzled through inflated payrolls and using reserves to pay non-existent employees (Albrecht et al 89).
Question 2: Most heinous schemes in terms of harming the investors and analysts and other stakeholders
The fraudulent scheme that harmed investors so much was the overstatement of income statements while the managers embezzled the money of the company. Misstatement of income statements affects investors and other stakeholders as the firm provides a picture of good performance yet it is performing poorly while accumulating debts. Moreover, investors end up having high expectations of the firm contrary to what the firm truly is. The money embezzled by the fraudsters as bonuses could have been earned by investors as return on investment. In addition to denying investors returns on their rightly invested capital, investors suffer psychologically and emotionally on learning that the income on their investments is being embezzled by the people they entrusted with the funds.
Works Cited
Albrecht, Steve. et al. Fraud Examination. 4th ed. New York, NY: Cengage Learning.
Deloitte Development LLC. Fraud in Complex Transactions. Deloitte Financial Advisory Services LLP. 2011.

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