An organization culture can be defined as the sum total of the attitudes and psychology which are communicated by management to the workers. The ethics, beliefs and core values are incorporated into the overall company objectives and the day to today execution of work. Unfortunately, organization culture is an often-ignored risk for assessing propensity towards corporate fraud. In Watkins opinion if the values of the top erode it is “magnified in the trenches”.
In the Enron case the “dominate minority controlled the majority”. There was an eminent fear of job lost and retaliation. Most of the staff is “going along for getting along. A survey conducted by CEB indicated that workers are unwilling to express negative feedback when it is perceived as a career impact. Just like Watkins indicated in her email: “There is a veil of secrecy around LJM AND Raptor. Employees question our accounting propriety consistently and constantly. This alone is cause for concern.
Then, there is the fraud symptom that rationalizes behavior. In hindsight Watkins realize that that pay packages to aggressive accounting practices was rationalize by management. She was concern with the write-offs and handling of prior period restatements.
I read that in one of Watkins post Enron speaking engagements she compared corporate behavior to a pot of water. Basically, saying that when it goes from cool to warm actions must be addressed because once the water is hot, people won’t jump out and behave.
Today, the audit profession minimizes its role in fraud detection, and expresses that is the responsibility of management. By denying responsibility for fraud detection, auditors intend to guard themselves against legal claims. For several decades the profession inched away from fraud detection and became more engrossed in reporting issues, attempting to lay the responsibility for fraud on management. Generally, the accounting profession has been very reluctant to go back to their old ways and accept they have any specific responsibility for fraud
Then, SAS 82 entitled Consideration of Fraud in a Financial Statement Audit was implemented in 1997 to assist auditors in…