Requirement 1In light of big business scandals that have surfaced over the past few decades, large corporations have been put under the magnifying glass to ensure they are not operating in a dishonest manner. Wells Fargo is still under investigation for the millions of accounts that have been opened without customer knowledge. “Over 5,300 employees were fired for creating millions of accounts without customers’ permission, under intense corporate pressure to meet high sales targets” (Wolff-Mann). Millions of customers who had limited interaction with the bank have been the victim of fraud. One customer Micheline Maynard used Wells Fargo to sell their house, a brief interaction. When Maynard was in the process of moving, she was informed from her mortgage broker that she had a $30,000 line of credit. Customers have found that Wells Fargo has opened many different types of accounts in their name without their knowledge. There have even been fees charged to accounts they did not authorize.
The bank forced millions of customers into binding arbitration against their will and even their knowledge. Wells Fargo is now facing the consequences of their fraudulent activities and its effects on others. The bank paid $185 million to Los Angeles and federal authorities as a result of the millions of fraudulent accounts that the employees have opened. The company is also facing class action lawsuits as a result of their fraudulent actions. Many stakeholders were harmed and even some that benefited from the decisions of the employees. The CEO, John Stumpf benefited from the millions of accounts being opened without the customer’s knowledge. It allowed many employees to reach their strict sales quotas to keep their jobs. The customers were stakeholder who were harmed because they had lines of credit opened in their name without their knowledge or approval. Some faced fees they were responsible for on a credit account they never authorized.
The customer’s rights were violated because their credit was affected by accounts they never authorized. “Employees forged signatures, conjured phony email addresses and shifted funds between real and false accounts, sometimes generating unwarranted fees for customers” (Dayden). The case is considered to be more of a security fraud and wage theft violations. The customers have to face the mandatory arbitration and the hit on their credit reports that resulted from the employees opening accounts in their name. The particular conflict of interest is that employees chose to secure their employment at the expense of the customer’s best interest. The judgment was skewed because the focus of maintaining quotas was more important than maintaining integrity. The bank’s substantial quotas required employees to open so many new accounts, to the point that over five thousand employees decided they would fraudulently comply. The conflict of interest is that the bank tarnished its good name to better their personal position.
Identify the missing internal control procedures in each situation
Situation A: in this situation the company is violating safeguard procedures. There needs to be a system of check and balances in place to ensure that the employee is accurately and honestly complying with his position. He has too many opportunities to act in a fraudulent manner because he controls the entire process.
Situation B: in this situation, the company changed their procedures and there is no longer a safeguard procedure in place. The accountant needs to reimburse the employees for the actual expense incurred during travel, not allowing the employees to submit a summary and taking it for face value. It allows for fraudulent reporting and employees to profit from their travel.
Situation C: in this situation, Linda is responsible for the company compliance yet fails to ensure the company is in compliance with laws and regulations. Using personal judgement to determine cases with employees can open the employer up for serious legal ramification. Compliance with laws and regulations protects the employees and the employer equally.
Identify each firm’s possible problem created by not having the control procedures
Situation A: in this situation the company failed to implement the necessary monitoring procedures. The control procedure is important because it ensures that the employee who is ordering the product is not responsible for verifying its receipt and also responsible for the total inventory. Without a monitoring system in place the employee has not obligation to report accurately.
Situation B: in this situation there is a violation of control procedures. Employee travel and reimbursement should require proof of actual expenditures. The company cannot claim expenses that were not actually incurred. Employees how overstate their expenditures could result in fraudulent claims. The company needs to implement a strong control procedure to verify the actual expenses incurred from employee travel.
Situation C: in this situation the company does not have a system of risk assessment in their human resource department. Linda makes decisions regarding employees based on her judgment. The risk associate with operating in this manner could cost the employer serious legal repercussions if the company fails to comply with employment laws.
Proposes a policy procedure
Situation A: in this situation it would benefit the company to implement a separation of operations, custody of assets, and accounting. It will ensure that one employee is not given too much power and that there is a system of checks and balances. More employees will responsible for controlling the inventory, not just one person.
Situation B: in this situation it would benefit the company to have proofs and security measures. Having the employees submit their receipts for travel provides the necessary proof related to actual expense.
Situation C: in this situation the company would benefit to employ competent personnel, rotating duties, and mandatory vacations. It would ensure that one person is not responsible for making decisions regarding employees. Requiring vacations will also verify that others are competent in all areas of operation.
- Dayden, D. The Real Scandal at Wells Fargo: Execs Got Rich by ‘Sandbagging’ Clients. The Fiscal Times. 13 Sept. 2016, http://www.thefiscaltimes.com/Columns/2016/09/13/Real-Scandal-Wells-Fargo-Execs-Got-Rich-Sandbagging-Clients. Accessed 27 Oct. 2016.
- Wolff-Mann, E. Wells Fargo customers recall their shock upon discovering fraudulent accounts. Yahoo Finance. 25 Sept. 2016, http://finance.yahoo.com/news/wells-fargo-customers-recall-their-shock-upon-discovering-fraudulent-accounts-124902698.html. Accessed 27 Oct. 2016.