Corporate Crime in APA Style Accounting Crimes

Corporate Crime

In APA Style

Accounting crimes in a Corporation are committed by either the employees within the firm or by other external forces and the result is that large Corporations are affected and so are the large numbers of stockholders, etc. Of late there has been legislation that is trying to push for more severe penalties for these perpetrators of accounting crimes in a Corporation, though it is a fact that these crimes are now so highly technical that it is difficult to detect and apprehend the criminal.

Corporate Crime

What is a 'Corporate Crime'? Corporate Crime in essence is that type of crime that is indulged in by large Corporations for the benefit of the entire Corporation and for the detriment of others who do not belong to the corporation. A corporation may, for example, indulge in wrong marketing practices, and this would bring utmost benefit for the corporation. However, this is considered to be a crime. In the same way, a corporation can resale price maintenance, or indulge in the practice of exclusive dealing, or participate in deceptive manners of conduct, or create different business practices that are not acceptable by the general business population. These are all the different types of corrupt market practices and crimes that can be committed by large corporations.

There is another term that is used for such crimes; in fact, these terms are often interchangeable. This type of crime is known as 'white collar crime', and is conducted by an individual within the corporation, for the purpose of obtaining more personal gains. The senior officials of the corporation usually carry these out, and some of these crimes are that of embezzlement of sums of money, theft, frauds, and also the misuse of the property that belongs to the corporation. Why are all these crimes perpetrated? It is because of the large number of opportunities that are present within this type of set up that these crimes are carried out with ease, even though the perpetrators are very well aware of the fact that, if caught, the penalties would be extremely severe: they could be imprisoned or disqualified from their jobs, and in some cases, even disbarred from their chosen profession. (Corporate Crime Studies)

Sometimes, Corporate Crime is defined as the crimes that are committed by the corporation in the areas of environmental damage that causes loss of life or limb to the employees of the corporation and to any others who have been involved in its workings. When the corporation provides unsafe and unhealthy and unhygienic workplaces, then too it is committing a crime, because it is endangering the lives and the well being of its employees. Another crime committed by corporation is that of tax evasion, and this is a very serious crime indeed. This is a crime by which the accounts of the corporation are manipulated and covered up in such a way that all the benefit goes towards the corporation and somebody else is cheated out of the money that is rightfully theirs, like, for example, the government, which is cheated out of large sums of money every year by the crime of tax evasion that is committed by these corporations. Some corporations produce defective or dangerous merchandise and this is considered to be a crime, some corporations carry out frauds, and these include the crimes of price fixing, embezzlement, and of bribing. These are all bad and wrongful market practices, and can be severely penalized. (Corporate Crime, what is it?)

One particular Report on Corporate Crimes states that if the corporations had to pay their own way forward, they would have been instantly out of business. This is because of the fact that all large Corporations rely to a great extent on 'subsidies' from society. This way, these corporations manage to off load the costs of operation onto the society, and this means that though it may be profitable for a large number of stockholders of the company, as well as for some senor executives of the corporation, it would not be of any great benefit for the common man. This is because the varied costs incurred by the corporation, like for example, workplace injuries, pollution, certain corporate white collar crimes, and their costs, the employee discrimination factor, and so on, will have to be borne by Corporate America. Certain 'creative accounting' crimes are also part of this list of costs being borne by the others for the costs incurred by the corporations. (The Stakeholder Alliance)

An individual, who happens to belong to the business community, like for example, a public official, or an entrepreneur, or a professional businessman, on the other hand, commits a 'White Collar Crime'. Of late, this type of crime has been on the rise because of the changes in the stock market. Some of the most publicized white-collar crimes that have occurred in recent times are those of Enron, Adelphia, Kmart, and WorldCom, and the very infamous Xerox. Generally, a white-collar crime can be prosecuted in the state in which it was committed, and also in federal courts. It is a fact that white-collar crimes have changed over time; the more technically advanced we become; the more technically advanced these crimes are, and the more difficult it is to catch the criminals who are perpetrating them. Another factor that has contributed towards the improvement in the carrying out of the crime is the fact that the perpetrators are better educated today than they were even a few decades earlier. (White Collar Crime)

Therefore, the crimes committed are becoming extremely complex and difficult to apprehend, especially in the cases of accounting crimes, especially in certain areas like in telecommunications and in the software businesses. The Justice Department is of the opinion that the increase in the white collar crimes of accounting is because of the stress and the pressure that is put on the various companies to achieve their goals and their projections for the year which may be very high, and in order to meet the expectations of the seniors and the higher ups in the company, these crimes are committed. Security frauds and financial violations have in fact been increasing steadily over the years, and it is the truth that these crimes show an increase of more than double form the year 1997 to the year 2001. Some of the other and most commonly perpetrated white-collar crimes include the crimes of credit card frauds, insurance frauds, mail frauds and deceptions, government frauds, tax evasion, money laundering, receiving kickbacks, insider trading, public corruption, trade secret thefts, and so on.

While a credit card fraud entails the use of a credit card to purchase unauthorized merchandise, insurance fraud involves the crimes committed by the applicants of the insurance or by the claimants, or by the policy holders who inflate or 'pad' the amount of money to be claimed as insurance, and also fraudulently quote policies to obtain a higher rate of insurance, wrongfully. Money laundering is a crime by which the original and actual illegal income of an individual is hidden or concealed by illegal means so that detection would be impossible. The money is 'laundered' to make it appear to be legitimate and within legal bounds, and the criminal is able to enjoy the extra income thus generated, happily. Kickbacks are the sums of money that are paid to the buyer by the seller as a result of a previously made illegal agreement. Insider trading is that trading that takes place when those individuals who have been given special and confidential information about certain important events within the corporation sell this information to a buyer who would utilize this information for his own personal gain, and to the detriment of the company. The trading in a trade secret or the theft of a trade secret is another white-collar crime that involves corrupt market and business practices by a corporation. This type of crime is also known as 'economic espionage', and it involves the theft or seizure of an important economic or a trade secret from an individual who belongs to the company, or from a business, or from an industry. (White Collar Crime)

What is 'accounting' and what are the crimes that can be committed in this area? Accounting is basically the systematic recording and the reporting and the analysis of the various financial transactions of any business. (ADVFN Financial Glossary) Accounting is also known as a function, that in both private sectors as well as in public sectors allows the owners or the managers or whoever is concerned to view the financial transactions of the company as and when they desire to do so. (Accounting definition) It has been stated that there is at present a spate in the number of accounting crimes and crimes in corporations, like for example, in Enron, WorldCom, and in Adelphia. Tried and tested methods of perpetrating the crimes were used, and the rest of the world came to know what exactly a financial fraud is, and how it can be detected, or prevented, or punished. The method of 'cooking the books' was what these corporations used, wherein the company was actually victimized within its own four walls, by the actions of certain loyal and trustworthy workers and employees who saw it fit to cheat and steal form the company that had employed them so trustingly.

Learning how to detect such fraudulent deeds and how these deeds affect the accounting books of a firm would help in the detection and the penalization of the executives and managers and various other employees of the corporation. The 'Black's Law Directory' states that fraud essentially constitutes all those nefarious and devious activities that a human brain can devise in order to obtain a good advantage over the others in the same firm or elsewhere, so that he may be bale to enjoy the fruits of his illegal behavior. The perpetrator can achieve this by using any of the means of suppressing the truth, or by offering false suggestions and ideas to his colleagues and peers. Fraud also includes all the unfair and cunning methods that he may use, like trickery, theft, and the element of surprise, to cheat another person and gain unfair advantage over them. In an occupational setting, like for example, within a corporation, a fraud is the various methods and means by which the very organization is actually victimized by the fraudulent individual who works within its four walls, and cheats and commits other frauds. (The Institute of Internal auditors Research Foundation)

The three principles that are generally used by this fraudulent person are: asset misappropriations, issuing fraudulent statements, and corruption. Whatever be the method, however, the result is still the same: the numbers that are generated by the frauds cannot match or equal the numbers that are generated by the accounting machines within the corporation that are based on an unfailing system of logic and mathematics. For example, when the perpetrator adds falsified sales accounts to the supposed revenues of the company, when the time comes for the company to check the cash derived out of these profits, it will show a serious imbalance; the sum will be out of kilter with the sum shown by the falsified accounts of the cheater. If, for example, the cheater were to take bribes or steal merchandize, or embezzle money from within the company, then when the accounts are checked, there will be a definite imbalance in the expenses shown.

These are all the clues that the management or the auditors must use in order to anticipate or apprehend a criminal who perpetrates an accounting fraud. The crux of the problem is this: it is indeed very difficult for the auditor to detect these crimes and point a finger at a particular person after the detection has been carried out successfully. Why should it be so? It is because it is very difficult for the detective to detect the less than unique crime; the fraud is so very commonplace that it will be a time consuming process to detect it. Another reason is that the lower profits or higher expenses that are revealed in the auditing books may actually be due to legitimate causes; it may be due to a temporary loss in production, market downturns, or due to inefficiency on the part of a few employees, or any other reason. This makes it difficult to even know that a crime has actually been committed. (The Institute of Internal auditors Research Foundation)

Therefore, the accountant or the detective may not know if he has been faced with the details of a crime that has been perpetrated, or if the losses or extra expenses that are shown in the books are real. Another reason for the lack of the detection of crimes being committed in the accounts of corporations is that it is basic human nature to trust a person, and believe that he will not be able to commit any crime or do any harm to the company that has employed him. Therefore, any clue that virtually stares at him in the face would be easily explained away, and the fraud would be left uncovered and undetected. Most auditors often lose their skepticism when they are faced with a person that they know well, and this leads them to take everything at face value, and the cheater is left scot-free and undiscovered. It is even stated that such auditors are not actually doing their best at their jobs; when the truth is looking at them directly, they must be able to recognize it for what it is, rather than believing that this particular fraud will not happen, and it will not be committed by this particular individual.

Certain auditors have even been accused of not making full use of all the various analytical tools that are available to them today. It is true that in the past, auditing was an extremely time consuming job, and crime detection was virtually impossible. But today, when there are a great many options for the auditor to choose from, the entire process is less tedious, and there are plenty of software packages that would help the auditor in detecting the various clues that signal a fraud, and he can use these tools to the best of his advantage. Not only would the company fare better, but the auditor's job would also be easier and more efficient. The 'anti-fraud' weapon that has been created by Richard B. Lanza, entitled ' Proactively Detecting Occupational Fraud Using Computer Audit Reports' not only details the analytical tools that an auditor must use during the course of carrying out his duty, but also details the various kinds of specific audit tests that he can utilize for the apprehension of more than 15 fraudulent accounting crimes in large corporations. The various fraudulent schemes are explained, and the auditor would find the details to be of immense benefit to him while auditing a firm's accounts. (The Institute of Internal auditors Research Foundation)

All the material has been obtained from the uniform occupational fraud classification system that is followed by the ACFE. Though it is true that there is no foolproof way in which accounting frauds can be detected with great accuracy, and no amount of computer analysis and other methods would be able to satisfactorily provide the auditor with a sufficient number of clues with which he would be able to detect a fraud with ease and speed, there is eventually no guarantee that the crime would in fact be detected on time, or even at any time at all. This may be because of the very nature of the business where trust and faith between the various parties is of paramount importance, and both business and fraud depend on this trust for the continuance of the business. It is the auditors' primary responsibility to see to it that they must be able to train themselves in a manner that would enable them to detect such crimes, whether with the analytical tools that are at their disposal, or with any other methods available to them today, and enable the management to apprehend the criminal before it is too late. (The Institute of Internal auditors Research Foundation)

There are a few people who believe that there is an intangible link between the compensation of an executive and the accounting frauds that are committed within the corporation. Research is being conducted on this issue, and it is a debatable question whether the compensation and the frauds committed have any sort of inter-relationship. A study conducted by the 'Securities and Exchange Commission' on about 46 firms that had been accused of having committed accounting frauds by the Commission details that there is a link between the executive compensation and the accounting frauds. The study revealed that the accounting frauds were on a definite increase, and the increase is in direct co-relation to the stock-based compensation given to the executives of the corporation. Some of the largest accounting frauds in history, states the study, have been committed in recent history. These crimes had in fact resulted in a wave of legislative as well as regulatory changes in the industry. The auditors and the management and academics and legislators alike researched the causes for these crimes, and there were no easy answers to the question.

However, the solution provided within the well-researched study is that an innate understanding of all the various underlying causes behind the perpetration of the crimes must be undertaken with immediate effect so that such crimes can be prevented in the future. There are some who suggest that the prospect of personal gains of the executives of the corporation was what in fact led to this spate in accounting frauds, and this is true to a certain extent. The managers and executives of the company are generally offered stock-based incentives, as a part of their compensation, a type of compensation that saw a meteoric rise in the early years of the 1990's. It was at the same time that various other forms of pay packages like the 'pay-for-performance plans' that included the granting of certain restricted stocks to the executives, and the granting of certain 'bonus plans' according to the levels of performance achieved by the executive, and others of the same type that linked performance to the eventual compensation amounts came into being. (Is there a link between Executive Compensation and Accounting Fraud?)

It was the general opinion at the time that when these plans were implemented, the incentives of the manager and the executive would become aligned with those of the shareholders. It was also the opinion that offering and granting certain options to the executives of a firm would ensure that the company would see more profits and the value of the company would become maximized. Stock options were also thought of as being beneficial because they were in effect good at generating better payoffs for the firm with relation to the future accounting earnings of the company. As always, there were dissenters to this point-of-view, and these people were of the opinion that offering stock options is a totally ineffective way with which to offer compensation to the managers and the executives of the firm. They feel that this is because of the fact that the managers would consider the stock options to be for their own benefit and for none other. This may be because the stock options do not have the capacity to demonstrate clearly the pragmatic and the practical idea behind the granting of the options by the company.