QUESTION 4 (20 MARKS) Enron Scandal (2001) Enron Corporation was a US energy, commodities, and services company based out of Houston, Texas. In one of the most controversial accounting scandals in the past decade, it was discovered in 2001 that the company had been using accounting loopholes to hide billions of dollars of bad debt, while simultaneously in?ating the company's earnings. The scandal resulted in shareholders losing over $74 billion as Enron's share price collapsed from around $90 to under $1 within a year. An SEC investigation revealed that the company's CEO, Jeff Skillings, and former CEO, Ken Lay, had kept billions of dollars of debt off the company's balance sheet. In addition, they had pressured the company's auditing ?rm, Arthur Andersen, to ignore the issue.

The two were convicted, largely based on the testimony of former Enron employee, Sherron Watkins. However, Lay died before serving time in prison. Jeff Skillings was sentenced to 24 years in prison. The scandal led to the bankruptcy of Enron and dissolution of Arthur Andersen. After the fact, the convictions were as controversial as the company's collapse had been shocking, as prosecutor Andrew Weissman indicted not just individuals, but the entire accounting ?rm of Arthur Andersen, effectively putting the company out of business. It was little consolation to the 20,000 employees who had lost their jobs when the conviction was later overturned. a. Management fraud is regarded as more serious than employee fraud. Explain the THREE (3) characteristics of management fraud may be exist in Enron Corporation. (6 marks) b. Discuss FOUR (4) principal types of corruption may be happen in Enron Corporation. (8 marks) c. Describe THREE (3) factors that contributed to computer crime in employee fraud. Give suggestions on how to reduce such risks. (6 marks)

A. Up to this point, the Securities and Exchange Commission has discovered multiple instances of financial fraud committed by high-ranking executives at Enron. Many of the executives have been charged with wire fraud, money laundering, securities fraud, mail fraud, and conspiracy, among other offenses, according to the authorities.

B. Following the use of "mark-to-market" accounting to fabricate profits and the improper use of special purpose organizations, or SPEs, Enron was embroiled in an ethical accounting crisis in 2001. Enron worked hard to make their losses appear smaller than they actually were, and they "cooked the books" to make their income appear significantly larger than it actually was.

The stock of Enron fell once the news broke, and the Securities and Exchange Commission launched an inquiry.

Because of the ethical inquiry, numerous Enron executives were sentenced to prison time, and their accounting company Arthur Anderson lost all of its clients and was finally forced to close down. Enron filed for bankruptcy, and new regulations were enacted as a result of the Enron incident to avoid similar circumstances from occurring in the future. In this instance, corporate ethics dictates that companies and consumers should expect honesty and complete openness from all parties involved.

C

Opportunity
There must be an object to steal, as well as a way to get it. Anything of value can be taken as a target of theft. Any weakness in the system, such as a lack of supervision, opens the door to theft. One of the triangle's three components, the Fraud Triangle, can be restricted through organizational or procedural modifications.

Pressure
A synonym for "pressure" "motivation." is used in this situation. In what way are we compelled to cheat others in the course of our daily lives? Drug or gambling use, or the loss of a job by a loved one, can put a strain on a person's finances. There may be a link between a person's decision to commit fraud and work-related concerns, such as unrealistic performance expectations.

Rationalization
There are two aspects to rationalization: A fraudster must first decide that the benefit outweighs the danger before committing an act of dishonesty. Second, the perpetrator of the fraud must be able to articulate the motivation behind their actions. In addition to stating a wish to one day make someone else complete, many people rationalize their behavior by pointing to reasons such as a lack of job fulfillment or a sense of entitlement they feel. Observing the fraudster's comments or manner can reveal his or her justification.

Step-by-step explanation

A number of Enron executives have been charged with a variety of crimes including wire fraud, money laundering, and securities fraud. When Enron used "mark-to-market" accounting to create profits, the company found itself in a moral bind. Enron's debacle led to the creation of new restrictions to prevent a repeat of the tragedy. When it comes to dishonesty, a fraudster must first assess whether or not the reward outweighs the risk. Unrealistic performance expectations at the workplace may be a factor in a person's decision to commit fraud. A lack of job satisfaction, for example, is a common justification cited by those who aspire to one day complete someone else.

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