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Activity B

The document discusses the Enron scandal involving four personalities: Kenneth Lay and Jeffrey Skilling who knew about fraudulent activities but prioritized profits over ethics, Lou Pai who left Enron with $215 million leaving his division with $1 billion in losses, and Enron who manipulated the California electricity market. Ethical issues involved manipulating financial statements and deceiving people to increase profits. The fraud could have been prevented with stronger internal controls, regular auditing, anti-fraud training, background checks, and designating employees to prevent fraud.

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Gellie Buenaventura
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123 views

Activity B

The document discusses the Enron scandal involving four personalities: Kenneth Lay and Jeffrey Skilling who knew about fraudulent activities but prioritized profits over ethics, Lou Pai who left Enron with $215 million leaving his division with $1 billion in losses, and Enron who manipulated the California electricity market. Ethical issues involved manipulating financial statements and deceiving people to increase profits. The fraud could have been prevented with stronger internal controls, regular auditing, anti-fraud training, background checks, and designating employees to prevent fraud.

Uploaded by

Gellie Buenaventura
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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FAR EASTERN UNIVERSITY

INSTITUTE OF ACCOUNTS, BUSINESS, and FINANCE

Governance, Business Ethics, Risk Management and Internal Control

ACTIVITY B

NAME : DATE :
SECTION : SCORE :

ESSAY. Watch ENRON SCANDAL using the youtube link below and answer the following
questions. (20 points)

https://www.youtube.com/watch?v=e5qC1YGRMKI

1. Name four (4) personalities involved in Enron Scandal and describe their participation in
perpetrating the fraud. (10 points)

“Investment Fraud” or “Money Transfer Scams”


The Vahalla Scandal (1987) – also known as the Enron Oil Scandal.
It was a scandal in which money was manipulated through gambling beyond limits by two
oil traders. These two traders used fake accounts with such names as Mr. M. Yass to
transfer money on their accounts. Lay and Skilling both knew about the scandal even
though auditors were worried when they found it out. Lay and Skilling both decide and
support the gambling to put profits over ethics.

“Financial Statement Manipulation”


Mark to Market Accounting (1992) Jeffrey Skilling
Mark To Market Accounting – allow or permit the business to fraudulently to get billions of
money. The logic about this fraud is that you can change the value in the balance sheet
depending on the condition of the market. Enron writes down profit 50m in their books on
the day even though they knew that the amount of money will be received the following
year they wrote it despite not receiving it.

“Embezzlement Fraud”
Lou Pai
- He left and on in 2001 with 215 million and he left his business division with 1 billion
dollars of losses and escaped the whole scandal

“Market Manipulation Fraud”


Enron Merge with Pacific Gas and Electric Company- California (2000)
- California roiling blackout became common. This is the idea of Enron for the double
capacity that will surely get a higher electricity demand so when it happens the greater
the demand the higher the price it is. Manipulating the market about the electricity
making excuses to shut down for a few minutes so that if they hit the price they want
they would move it back. This fraud was very clever for me because traders had an
energy map to know the places they want to target to control the electricity and knew
exactly how to squeeze every dollar from the people of California.

2. What ethical issues in business were involved in the Enron case? Explain your answer. (5
points)

 Lay and Skilling both decide and support the gambling to put profits over ethics.
 Manipulating the financial statement to get billions of money.
 Lou Pai steals money and gets away with the obligation
 Deceive people for the shortage of power to increase the demand. They call different
companies and make excuses to shut down for a few minutes. That permitted them to gain
more dollars from the state of California.

3. How do you think could the fraud have been prevented? Explain your answer. (5 points)
 High security for Internal Controls – Restriction access to Financial account data and all
sensitive information that might use for fraud 
 Auditing the book regularly - It will help to prevent fraudulent activity because it will
provide detection of fraud for business.  
 Getting seminars to all employees on how to prevent fraud activities Unethical behavior
will not be tolerated” – Establish an anonymous reporting system to employees if they feel
suspicious behavior or action by cow owners or customers 
 Background check for Business Partners - Make sure that you know business partners by
providing background checks such as an address, business check if there is, etc. 
 Have a Fraud Fighters in your company – Having these people by your side will help the
company be safe and secured. Invest in these people that will help to prevent fraud even it
is pricey it will help you not to lost billions of money.

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