http://www.youtube.com/watch?v=gkyLIzq5nvo
http://www.youtube.com/watch?v=uiI9hLKRImk
QUESTION 1
Apply the fraud triangle to Beam.
Motivation – His initial motive was to keep his job under the pressure of Scrushy. Later on with the sucess of the company, He was motivated to keep both his reputation and compensation.
Opportunity – He was the CFO, so he had the knowledge and authority to make changes to the books. Since Scrushy was the mastermind, there was an opportunity for Beam to just follow orders while Scrushy pulls the strings.
Rationalization – Initially he rationalizes that the changes to the books were minor, and may be classified as aggressive accounting rather than a fraud, such as changes to bad debt. Although the accounting was not reflective of the current state of the company, he rationalizes that changes promised by Scrushy could drive the company to meet market expectations without cooking the books. Also because the orders were from Scrushy, there was a certain degree to rationalizing that he was only taking orders.
QUESTION 2
What verbal and nonverbal clues did you observe from the Beam talk that might indicate how trustful he is? Did you notice any evasive tactics? Any qualifiers?
Beam maintained eye contact, and overall spoke without broken or illogical speech. Both his speech and body language showed confidence and conviction.
I did not notice any evasive tactics.
When talking about Scrushy he would use wording like ‘you can’t imagine’. He also says that the SEC ‘didn’t’ really’ cut him a deal.
QUESTION 3
How did Scrushy pull Beam into the fraud?
Scrushy started by getting Beam to lie on his first day on the job about staying up all night the day before. This smaller ethical problem allowed Scrushy to see Beam’s reaction. Since Beam played along with the lie, Scrushy got his foot in the door. Scrushy would also motivate Beam with monetary gains, such as selling him shares at a nickel rather than a dollar for his company. Then Scrushy pressued Beam to makes changes to the books under the premises that Beams accounting was overly conservative rather than Scrushy being overly aggressive. Eventually when accounting discretion was not enough, Scrushy would convince Beam that he changed the books before, and should do anything necessary to change it again this time.
QUESTION 4
How would you compare the attitude of Scrushy and Beam.
Scrushy’s attitude seems to be that others accusing him of the fraud are in the wrong. He tries to play the victim and can be evasive of details to questions.
Beam on the other hand is the opposite. While he sees Scrushy as the mastermind, he admits his own failures to refuse taking part in the fraud, and seems open to details regarding his thoughts and actions to the situation.
QUESTION 5
After watching the Beam talk, indicate how truthful you think Beam was about his role in the Healthsouth Fraud.
1.
Truthful
2.
Somewhat truthful
3.
Somewhat untruthful
4.
Not truthful
5.
Not Applicable
QUESTION 6
How does the Healthsouth fraud demonstrate how seemingly small ethical problems can lead to larger ones (be specific)?
Originally the fraud started with smaller ethical problems such as capitalizing startup costs rather than expensing, and changes to bad debt. This drives the market expectation higher and higher, and because accounting methods eventually correct itself, the accounting has to get more and more aggressive. When choice of accounting can no longer deliver financials up to market expecations, minor changes to the general ledger were made in a way that auditors would not catch it, which is straight out fraud. Also as the market expectations gets higher, there are more stakeholders, so every ethical problem starts to affect more and more people.
QUESTION 7
How would you deal with situations like Mr. Beam faced? What should you do if you suspect others are unethical? How does this apply to educational situations (cheating in class/copying the work of others without proper attribution taking it on as your own work)? How much are you willing to sacrifice by not being ethical?
Even when intimidated, rather than saying ‘yes’ to the fraud, I would either stand up and say ‘no’, or at the very least seek for better advice. In educational situations this would translate to, refusing to let others copy your own work, and seeking advice from the professor when you learn of others cheating. I wouldn’t ever want to be unethical if the matter only affects myself. When there are both ‘pros’ and ‘cons’ to a situation and it relates to others, I feel discussion and advice from others are necessary.
Assignment 2
.youtube.com/watch?v=Ds-BL8lzXuk”>https://www.youtube.com/watch?v=Ds-BL8lzXuk
http://www.acfe.com/fraud-triangle.aspx
QUESTION 1
1. Apply each aspect of the fraud triangle to Richard Scrushy – be specific.
1.Motivation – His stock options, salaries, bonuses benefit directly when the company is meeting or beating earnings expectations in the stock market. As the CEO of the company, he benefits more than anyone else from the fraud. He was also living ‘high’, so he needed the stock price to be high to continue with his lifestyle. The fraud was not a one time deal, but happened over many years. Later when the company had the potentially struggle with bankruptcy, he had the motive to sell high.
Opportunity – As the CEO of the company, he is in the best position to commit the fraud due to his authority and power. Once the CFOs cooked the books for him once, he had the opportunity to ask them again and again in subsequent quarters. He also had a good reputation before the fraud, and was able to give investors confidence in the company even though it wasn’t doing well financially, such as his television interview when he said he thought the stock should be in the 20’s.
Rationalization – His rationalization was that selling 99 million in stock was something any other MBA would do, and the american dream. He also rationalized to his CFOs that other companies cook the books too. He also rationalizes that he deserved the right to keep some of the money because he built up the company from nothing.
QUESTION 2
1. What evasive tactics did you observe in the Scrushy interview (be specific)?
2. When the interviewer told Scrushy about how everyone claims he is a crook, he tried to attack the interviewer by calling his name and saying that he ‘knows’ he is not.
When initially asked about the CFO’s motive to commit the fraud, he tried diverting the question by saying he certainly didn’t commit the fraud, and people know he wouldn’t.
When asked again, he initially declined to answer the question, then later gives his reasoning for the CFO’s motive.
Scruchy was gave an equivocal answer when asked whether he kept track of the financial numbers. Rather then answer whether he did or not, he just says that CEOs don’t do that, rather it is the CFO’s job.
Furthermore he gives ‘half’ answers such as not selling the stock at the highest point, even though he sold the stock at the 10-14s which is much higher than the 3s during the interview. And he says he didn’t sell the company out, to only later say that he didnt’ sell ‘all’ of it.
He attacks the interview later on again by saying that $99 million dollars was going away, and asking what the interviewer or anyone would have done.
Finally when the interviewer askes whether he thinks everyone that accused him of being a crook is wrong but he is right, he tries to evade the question again by saying that the testimony of people who were criminals and felons would say otherwise.
Question 3
In the interview, Richard Scrushy claims that he is innocent and that it was others who committed the fraud. In your opinion, based solely on this interview with Scrushy, indicate whether you agree or disagree with Scrushy’s claim.
1.
Strongly Agree
2.
Agree
3.
Neither Agree nor Disagree
4.
Disagree
5.
Strongly Disagree
6.
Not Applicable