FAR EASTERN UNIVERSITY

Institute of Accounts Business and Finance

CORPORATE GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT

AND INTERNAL CONTROL (ACT1110)

ACTIVITY B – Twenty (20) Points

Instructions:

Watch ENRON SCANDAL using the youtube link below and answer the following
questions.
https://www.youtube.com/watch?v=e5qC1YGRMKI

1. Name four (4) personalities involved in Enron Scandal and describe their
participation in perpetrating the fraud. (10 points)
The Enron scandal was an accounting scandal involving Enron
Corporation. Arthur Andersen, then one of the world's five largest audit
and accounting firms, was essentially dissolved after the collapse of
Enron. It was considered as the largest audit failure and bankruptcy
reorganization in US history at the time. Among the fraudsters
implicated in the Enron crisis were four individuals: Kenneth Lay,
a.k.a. "Kenny Boy," the founder of the Enron Business, Jeffrey
Skilling, the CEO of Enron, Andrew Fastow, the former CFO of the
company, and Kenneth Rice, the former broadband section CEO.
Kenneth Lay formed Enron in 1985 as a merger of Houston
Natural Gas Company and Omaha-based Inter North Inc. The Valhalla
Scandal, which Kenny Boy was behind, was the first indicator of
danger in 1987. When there are two oil traders who bet a lot of money
on the firm and put a lot of money in the false accounts. Lay made no
adjustments, and he did not terminate those two traitors because he
claimed they were doing it for the firm and generating money for it.
Furthermore, when the two traitors were convicted, Ken Lay feigned
astonished, claiming that he was unaware of their irresponsible
gambling and theft. Following the event, Lay appointed Jeffery
Skilling as Enron's new CEO, while Lay assumed the post of
Chairman. Jeffrey Skilling was Lay biggest asset. He introduced the
company to Mark-to-Market Accounting, which resulted in the
company fraudulently reaping billions. It is when he devised a
mechanism for concealing the financial losses of the company's trading
enterprises and other operations. The MTM was created to conceal
losses and make the corporation appear more lucrative to the public.
With the assistance of Andrew Fastow, the company's former CFO, he
collaborated with other top officials to conceal Enron's failing finances,
particularly when he assisted in the formation of the intricate off-the-
books partnerships that Enron utilized to avoid revealing losses. He
also exploited partnerships to steal millions of dollars from Enron for
his own gain. Finally, Kenneth Rice, who had colluded with others to
 make misleading assertions regarding the company's software
development. Finally, the fraudsters who caused the company's demise
were convicted and pled guilty to securities, conspiracy, bank, insider
trading, and wire fraud.

2. What ethical issues in business were involved in the Enron case? Explain your
answer. (5 points)
The employees face ethical difficulties in the Enron case. When they
had a rating system among the employees, it was required to rate 20%
of the employees as falling short of the criteria, and those individuals
were fired. Although these grading systems will aid and inspire people
to work hard, the approach has really harmed Enron. With this type of
system, competition and stringent performance evaluation
requirements will be introduced. Employees are concerned about
losing their employment as a result. Some employees began cheating
on their job to outperform their coworkers, and they abandoned the
company's ethical ideals to attain their financial goals.

3. How do you think could the fraud have been prevented? Explain your answer.
(5 points)
Fraud may do significant harm to an organization's reputation. It may
be avoided by forming an effective internal audit committee that will
supervise and monitor what is going on in the organization on a regular
basis. Internal auditors are critical in every firm because they execute
the processes and methods to prevent and identify fraud and
corruption. Another thing to do is to put in place internal controls to
secure your company's assets and data. Finally, having a pleasant work
atmosphere will help to avoid fraud in a firm. Having clear rules and
regulations in a firm, as well as fair employment, will provide better
results and help to prevent fraud.