Fraud Triangle Model: WorldCom Fraud Assignment Help
Apply the fraud triangle model to discuss the World-Corn Fraud and briefly discuss how Gebler's approach to "Creating An Ethical Culture" could have made a difference for Betty Vinson.
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The fraud triangle applies to the fraud in the WorldCom. The three main elements of the fraud triangle are rationalization, pressure and the opportunity. WorldCom was having high amount of merger and acquisition related activities which had muted the signs of company debt for the investors. The opportunity in this case was the elimination of the debt and had high level of capitalization in the market thus leading to fraud. The management of the WorldCom had been using the opportunity of capitalizing the expenses which is not allowed as per GAAP and hence showing increased revenue. Thus, the increase in the revenue provided the opportunity for the merger in place of the actual net worth of the company. (Montange Portfolio, 2017)
WorldCom was having high pressure of keeping the debt equity ratio as low as possible. Hence they have conducted fraud in order to keep debt low and hence maintain solvent position. They have acquired external assets and have undertaken merger on fraudulent basis. Thus the management was under a perceived pressure to undertake fraud.
The rationalization of the management under the WorldCom case was to undertake actions to keep the level of debt below the critical levels of the company by way of hiding the debts and showing the high level of income in order to show the long term solvency of the company.Thus,WorldCom fraud contains all the elements of fraud triangle.
The Gebler's approach to creating an ethical culture would have made a difference for Betty Vinson by focusing on developing right culture in the company in order to reduce the level of the unethical code of conduct in the business. The Gebler's approach will help in developing the ethical culture by understanding the value and the behavior that are required in order to meet the ethical goals. Thus, approach of Gebler is concentrating on developing a change-based behavior in order to fulfill the compliance level objectives of the organization. The approach provides that a system of culture should be encouraged which will help in development of values related to transparency and also ensuring that the managers did not take part any of the activities which may lead to fraud in the business. Hence the approach shows that if the top management is showing adherence to the ethical actions than the chances of misconduct by low and middle level of management will also decrease. (David Gebler, 2006)
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