Mobily Telecom Case Study Introduction Prior to 2014, Mobily Telecom was one of two top telecom companies in the Kingdom of Saudi Arabia (Sharma, 2014). The company influenced its target audience by providing high-end Internet services, mobile telephony, and home line services at a competitive price. Established in 2004, Mobily became the second telecom corporation in Saudi Arabia, taking away the monopoly from its only competitor Saudi Telecom Company. Mobily adapted to the needs of Gulf consumer by ensuring high internet speeds were reliable and more affordable than its competitor Saudi Telecom (Mobily, 2017). Fraud Action In November 2014, the one-time powerhouse in telecommunications in Saudi Arabia was finding themselves in severe financial trouble. Mobily Telecom suspended Khalid al-Kaf, chief executive, and put Serkan Okandan, his deputy, in temporary charge while the companys audit committee probed accounting errors that wiped out about $380 million in previous profits (Kerr, 2014). An indefinite suspension took place a short time later when the Mobily Telecom audit committee determined that Khalid al-Kaf should be held accountable as a form of corrective action taken by the board of directors. According to the Financial Times the three main issues regarding the fraud investigation are: Mobily Telecom reported a shock profit drop in the third quarter and restated earnings through 2013. Restatement of income from a loyalty program since 2013 amounting to $378 million. Misaccounted revenues relating to the sale of top-up cards with handsets via third party vendors, restating revenues down by $1.7 million since the beginning of 2013. By addressing the concerns of the investigation, Mobily Telecoms share pricing started to drop, and in the month leading up to the announcement, Mobily Telecoms shares dropped by 35% (Kerr, 2017). Strategic Position The accounting fraud at Mobily Telecom negatively affected the business by bringing increased scrutiny, decreasing its stock value, and harming its reputation and image. Due to the fraud discovery and the disclosure of misappropriation of funding, Mobily Telecoms shares dropped 35% in the first month after the announcement. The shares were not the only thing to take a negative hit after the scandal broke, with the cash cycle sales in 2013 and 2014 going from -7% to -43% (Watfa, 2015). Fraud Discovery The initial fraud discovery took place in 2013 when Mobily was gearing up to open its shares internationally. This expansion invited increased scrutiny leading up to the move towards international share purchasing. Mobily senior executives disclosed the discrepancies and irregularities in accounting practices in November of 2014. A direct result of the disclosure was a sharp decline in share prices and future ubncertainty (Watfa, 2015). Penalties & Outcome The penalties and outcome was determined under Article 49 of the Saudi Arabias Capital Market Law (creating a false or misleading impression around a company's value). A separate lawsuit was filed against nine suspects in Mobily Telecom by the Committee of the Resolution of Securities Disputes. The lawsuit was filed using Article 10 (functions of the board, as well as articles related to disclosure of financial information and duties of directors and senior executives (Reuters, 2015). Articles 49 and 10 were the primary basis of the lawsuits filed against Mobily senior executives in December 2015. In May, the Capital Market Authority recommended nine current or former officials at Mobily Telecom be prosecuted for violations that included insider trading, a week after the regulator confirmed more than one person was suspected of violating regulations on such conduct (Reuters, 2015). The lawsuit and the Capital Market Authority concluded that nine senior level staff members and executives did not ensure the integrity of the financial and accounting systems of Mobily Telecom. The actions that were taken after the investigation was underway showed poor judgement and lack of respect for the law. The preparation of financial reports for 2013 and 2014 and lack of implementation of control systems to help mitigate the risks of the company demonstrated the shortfalls of the senior executives (Reuters, 2015). Impact The impact of the accounting scandal not only affected the companys fidelity in the telecommunications community but also the way the shareholders, board members, and the management team viewed risk and the companys internal processes (Rashad & Al Sayegh, 2015). The increased risk consciousness of the shareholders and company management served to create more checks and balances in order to prevent future accounting mismanagement or scandals, as Mobily could scarcely afford to weather another scandal. Additional changes came in the firing of the chief executive, Khalid al-Kaf, and initiating a restack of personnel to create a more conducive business model. According to Turki Fadaak, head of research and advisory services of AlBilad Capital, what happened set the alarm bills ringing and pushed board members to revise their roles, made investors carefully check financial statements, and caused company managements to review their accounts carefully (Rashad & Al Sayegh, 2015). Due to the difficulties Mobily Telecom was facing, the board members were able to revise responsibilities. Looking inward, the analysts were adaptable to the changes by agreeing to meet with management teams more frequently, which put more responsibility on the divisions and held them accountable for appropriation of funding (Rashad & Al Sayegh, 2015). Conclusion Mobily Telecoms accounting fraud could have been prevented if more checks and balances were in place from the companys inception. Mobily began as a corporation with great potential in a unique market, with a mission to provide affordable telecommunication services for the fast growing Saudi economy, but ultimately turned into an executive-enriching scheme that hoped to elude the Board and regulators. Once the company was under investigation for accounting fraud the insider trading began and a cover up ensued. The fascinating part of this case study was that the accounting fraud would have likely gone unnoticed longer if the shareholders did not seek to access international capital and make their shares available worldwide. This pursuit brought more scrutiny and auditors started, which ultimately uncovered the accounting fraud and evoked significant damage to Mobilys shareholders and reputation.

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