In this paper, we are going to be examining the Tyco fraud. This will be accomplished by summarizing the case, explaining the motivations of the main players, discussing the comingling of corporate / personal funds and examining the role of the board of directors. Together, these elements will highlight what factors allowed for the fraud to become so large.
Business Ethics
Introduction (Summarize the overall viewpoint of the author, and discuss the major issues presented in the case.)
In the case, the author is showing how Dennis Kozlowski and Mark Schwartz were at the top of an elaborate scheme to defraud Tyco. This was accomplished by talking about how their troubles began based upon Kozlowski's desire to avoid paying taxes on artwork in New York State. As the investigation expanded, the overall scope of the fraud became much larger. ("Tyco I'm Sure that's a really Nice Shower Curtain," n.d.)
This is when the different programs were discovered that allowed for rampant abuses to occur. Most notably: the payment of employee expenses, the key employee loan, relocation and bonus programs. The combination of these factors allowed for Tyco executives to take large payouts from anyone of these initiatives and hide it from investors. This is how both men were able to engage in such rampant abuses that enabled them to use $179 million in company funds as their own. ("Tyco I'm Sure that's a really Nice Shower Curtain," n.d.)
At the same time, the author provides a timeline of events, how the Tyco scandal unfolded and who were the key players. This provides a background of what happened and the way the fraud was uncovered. When this is used in correlation with the different programs that allowed these abuses to occur; the reader has a good understanding of what took place and the major issues with the case. These factors are illustrating how corporate executives can engage in unethical activities. ("Tyco I'm Sure that's a really Nice Shower Curtain," n.d.)
What do you think Kozlowski's motivation for trying to avoid sales taxes on his art purchases was? Explain.
The primary motivation was to reduce the amount in taxes that he is paying for the artwork. This is based upon a philosophy that was adopted by Kozlowski. It was focused on reducing the total tax liabilities as much as possible. This meant that he would often engage in practices that were questionable in achieving these objectives. ("Tyco I'm Sure that's a really Nice Shower Curtain," n.d.)
After he was able to get away with these tactics for many years, is when Kozlowski became more brazen. This is when he had the art dealer ship empty crates to New Hampshire. While Kozlowski, took the paintings and hung them in his New York apartment (up the street). The problem was that the New York State tax authorities caught the invoice and questioned its legitimacy. This is what started the whole investigation into Kozlowski's activities and the practices of the firm. ("Tyco I'm Sure that's a really Nice Shower Curtain," n.d.)
As a result, Kozlowski was trying to avoid paying sales taxes on his art. This is because he was able to engage in similar activities in the past and was never caught. The artwork was no different, as he had become arrogant and believed that he was above the law. It is at this point that his behavior and past transactions were brought into question. ("Tyco I'm Sure that's a really Nice Shower Curtain," n.d.)
Explain the concept of commingling assets with respect to the Tyco case.
The commingling of company assets is when executives will seek out loans and will have other programs in place that will benefit them personally. This is above and beyond traditional compensation plans, as these initiatives allowed everyone to steal company funds for their own use. Kozlowski and Schwartz used these programs to offer themselves lucrative rewards, bonuses, reimbursements and loans. ("Tyco I'm Sure that's a really Nice Shower Curtain," n.d.)
They utilized the money that was received to purchase real estate, throw elaborate parties, buy professional sports teams and luxury merchandise. These programs made it possible for executives to comingle company assets with their own. Over the course of time, this enabled these abuses to occur by disguising them as legitimate company expenses. When in reality, they are programs that are designed for the sole benefit of select executives at the firm. ("Tyco I'm Sure that's a really Nice Shower Curtain," n.d.)
Would it have been possible for the board of directors to see the adjustments taking place in the many different programs at Tyco? Explain.
Yes, the board of directors could have seen the adjustments taking place. This is because the amounts of spending were so large. That it was difficult to hide from actuaries who are actively monitoring the firm's finances. If the board of directors had been more independent, they could have seen and investigated the different items that were being purchased. This would have raised red flags about fraudulent activities occurring. ("Tyco I'm Sure that's a really Nice Shower Curtain," n.d.)
You’re 82% through this paper. Sign up to read the full paper.
Sign Up Now — Instant Access Already a member? Log inAlways verify citation format against your institution’s current style guide requirements.