Enron Scandal, Research Paper Example

Many economists and historians have considered the Enron scandal as the most notorious white-collar crime within the history of the United States. The following is an overview of events that contributed to the Enron scandal. Most, if not all, corporations are regulated by the government. The government will play a vital role especially in regulating and authorizing business activities in accordance with the type of business. However, this was not the case with Enron Corporation. The government had little or no control over the activities that the corporation handled. Deregulation of the corporation by the government was a contributing factor to its downfall. It is without doubt that deregulation gave the corporate executives the power to control and manipulate the earnings reports. The earnings reports that the investors and employees received from the corporate were extremely slanted in nature. It was unethical that no losses were listed in the aforementioned reports, and they portrayed the corporation as a profit making company.

The executives of the corporate embezzled and mismanaged the funds. The executives embezzled the funds that were lawfully entitled to the corporate use for personal use. The executives were involved in corrupt activities of pocketing the investment funds from the investors, which contributed heavily to the downfall of the corporate. Misrepresenting the earning reports did not give the correct financial status of the corporation. Misrepresenting the financial report portrayed the corporate as prosperous and profit making. The prejudiced reports not only thrived more investments from the existing investors but also fascinated new investors to relish the financial gains from the corporate. Misrepresentation of financial reports gave the unscrupulous executives an opportunity to enjoy the funds that the unsuspecting investors.

The Enron had several inherent risks that attracted the attention of the auditors. The foremost inherent risk is a misrepresentation of the earnings reports. The government had little or no control over the business activities that corporate was involved. Considering the government deregulation on the corporation, its executives had the powers to oversee financial reports that were issued to the investors as well as the public. The unscrupulous executives manipulated the above-mentioned reports to be exceedingly skewed in nature. It is without a shred of doubt that the corporation was making huge losses. However, such vital information about the incurred losses was not included in the earning reports that were issued to the investors and employees. The earnings reports were built on biased information and failed to reflect the financial status of the aforementioned corporation. Misrepresenting the earnings reports were an inherent risk the Enron because it portrayed the company to be making profits. However, this was not the case because Enron was languishing in huge losses.

The fraudulent energy crisis that the Enron had announced was a concern to the auditor. It is without doubt the subject corporation was popular and was influenced in matters of business and the economy at large. Reports stated that Enron had announced that they were faced with a crisis of Natural Gas. The Enron executives took the advantage of its general populace to convince the public about the crisis and therefore no measures were taken to validate these statements. From a retroactive view, it can be suspected that the executives had manufactured the aforementioned crisis in order to blind the public from the unscrupulous activities that they had committed. Consequently, the corporation was approaching bankruptcy.

Enron Corporation was a combination of two companies, Houston Natural gas, and InterNorth. The failure of Enron started when Jeffrey Skilling was hired. He came up with a staff that was so corrupt. The staff plotted a plan to hide billions of US dollars that led to Enron being bankrupt. The money they hid was from the deals and projects that had failed. They also gave fake finance reports to hide their crimes. Andersen was under pressure since some stuff as Andrew Fastow was telling him to ignore those issues. By that, they wanted to hide what they were doing and continue hiding more money for themselves.

Enron Corporation was faced with loss of cash that leading it to be bankrupt. In 2000, the shareholders of Enron filed a case in court since their share value had dropped in a big range. The investigation began in 2001and it was conducted by the US Securities and Exchange Commission. In December 2001, a deal from Dynegy failed. The deal was that the Enron Corporation was to be sold to Dynegy at a very low value. However, after sometime Enron became bankrupt completely.

Enron’s board also facilitated to the bankruptcy of Enron Corporation. Enron depended mostly on derivatives in order to remain in business. The board members had inadequate experience with the derivatives and most times did not understand what they were being told. By that they ended up approving some things that later led to the downfall of Enron.

Andersen was Enron’s auditor and he was so reckless in his job. He earned a lot of money from Enron. The money came from the consulting fees that were supposed to be the corporation money. The money accounted to be approximately 27% of the total revenue of audit fees. Capitalizing on loopholes was one way that was used to save money by the accountants but that worked to their advantage: taking advantage of Enron’s weakness. The shareholders of Enron were refunded some little cash compared to the billions of cash they had invested in the corporation.

Enron went bankrupt due to the accountants taking advantage to enrich themselves thus making Enron to fall. After the investigation, safety measure to protect the investors was introduced. Heavy penalties were set to any person who would use the firm resources to his benefit. One of the policies introduced was that the auditors were to remain independent. That meant that if the auditor and the client had any connection, the audit was to be cancelled immediately. There was also a measure to know if there was anybody committing a fraud against the company.

Arthur Andersen was accused of deleting and destroying important documents to the corporation. He also was accused of writing false reports that led to the inflation of the company’s income. Arthur Andersen was taken in a law court and was found guilty of misuse of the company’s fund. He was told to compensate the money to the investors. According to my view, the penalties were not too heavy. He should have been made to pay with interest to account for the time lost and making the investors to lose faith in the corporation.

Opinion

In order to avoid such activities, the management of Enron Corporation should have followed the law governing the public companies. It is evident that Enron did not share the important facts that would foster understanding to the stakeholders of the company pertaining the transactions of the company. The top management of the company should have disclosed the company transactions to its stakeholders and the investors who are members of the public. Enron Corporation should have facilitated the provision of the company’s complete financial statements together with the expected benefits that accrued because of the company’s large transactions.

The company should not have hired the employees from outside the company; neither should they have vested powers in them to make crucial decisions regarding the operation of the company. It is clear that, upon the change of the company’s organizational structure, the reward system in the company changed in that, big opportunities opened for the top performers whereby they accessed huge bonuses. Because of fear of their superiors, the junior employees could not report their seniors thus leading to the downfall of the company. If the company had facilitated the issuance of complete financial statements, the unclear transactions would have been subjected to investigations hence holding the responsible persons accountable.