Effective management control systems align managers’ personal interests with those of the overall company. Such a system provides the procedures and policies ensure a firm’s employees can work to achieve the best possible results, and minimize the opportunities for personal gain and fraud. Two areas most vulnerable to the misalignment of individual employee interests are performance evaluation and compensation. According to a report by the Treadway Commission, the following pressures can lead to financial fraud:
Unrealistic budget pressures with emphasis on short-term results
Financial pressures that result from bonus compensation plans that depend upon short-term results
(Lanen, 2014, p.455)
If these issues are not adequately addressed within the Management Control System, the system itself can provide incentives to commit fraud.
Instructions
Read case study 12–55 about the fraud at GE’s Kidder Peabody Investment firm. The case is found at the end of chapter 12 in your textbook.
Please discuss the following questions in your initial post:
Suppose you were an accountant at Kidder Peabody and you realized the accounting system flaw. What would you do?
Discuss how the bonus program at Kidder Peabody contributed to the fraud.
Do you feel that the offer of GE managers to help “cover” the losses from Kidder Peabody were ethical?
Be sure to cite any sources that you use with APA. Wikipedia is not an acceptable source.
