Part 3 Criminal resolution

While all three defendants asserted that they were not guilty of any of these charges, the facts appear to support otherwise. Specifically, the defendants knowingly and willingly did not disclose to Commerce Bank that the securities were purchased on margin by CIG to induce the bank to grant loans to the defendants clients. Moreover, WWM on behalf of CIG sent monthly reports to Commerce Bank falsely showing the face value of the bonds as solely owned by the defendants clients. Thus, the defendants fraudulently made it appear that the full market value of the securities was available as collateral for the banks loan, when, in fact, the collateral was insufficient. The case for Gary was criminally adjudicated when he pled guilty to one count of bank fraud. Gary completely cooperated with the authorities and as part of his sentence had to perform community service and outreach. Following his guilty plea, a complaint was filed (with the State Board of Accountancy) against Gary which resulted in his case being placed on the Accounting Regulatory Board disciplinary committees agenda.

Task 1.3

Continuing to evaluate Garys actions from the perspective of an Accounting Regulatory Board, you are now to assume the role as a member of your local Accounting Regulatory Board. Board members (or a committee thereof) are responsible for reviewing complaints about licensees and determining appropriate actions (a.k.a., punishment) based on local laws and regulatory guidelines. As such, you are a member of the disciplinary committee that is hearing Gary Smiths case. He has been convicted of committing an illegal act (bank fraud) therefore charged with violating the relevant professional code. Based on the facts presented in the case, what is your recommendation as to the appropriate punishment (if any) that should be imposed on Gary and what is your reasoning for your recommendation? Some specific questions to consider are:

1. Did Gary know he was violating a professional code^[1]when he committed the illegal act? Does that matter when determining his punishment?
2. Do you think this was a one-time occurrence for Gary and that he will not engage in fraud in the future?
3. Do you think Gary should be allowed to continue to work as a professional accountant? As part of your answer consider thefollowing questions. Do you think people who make a mistake should be forced to lose their career permanently? Can people learn from their mistakes and return to a trusted position once they have served their debt to society?
4. Consider your evaluation of different ethical frameworks in Task 1.1.2. How does your analysis of those different ethical frameworks affect your decision as a Board member?
5. What have you learned about the relation between business and ethics as a result of working on this case? Be sure to include adiscussion of the responsibilities of all participants in any given situation.

To help guide your recommendation, Appendix C summarizes the Boards prior disciplinary actions for a variety of offenses.

1.4. Part 4 Fraud triangle and fraud diamond

The fraud triangle is a common framework used to describe the elements that are typically present when a fraud takes place. Many research studies suggest that fraud is more likely to occur when someone has an incentive (pressure) to commit fraud, weak controls or oversight provide an opportunity for the person to commit fraud, and the person can rationalize the fraudulent behavior (attitude). This three-pronged framework (commonly known as the fraud triangle) has been formally adopted by the U.S. auditing profession as part of AS 2401.

Wolfe and Hermanson (2004) expanded the fraud triangle framework into a fraud diamond by including a fourth element (capability). Capability refers to the personal traits and abilities of a person that determine whether the person can make the potential fraud (due to the presence of the other three elements) a reality. These traits include intelligence, access due to position in the company, confidence, immunity to stress, effectiveness at lying, and coercion skills. For example, in order for someone to have the capability to be able to commit a fraud, the person must be smart enough to understand and exploit internal control weaknesses and then use his/her position, function, or authorized access to his/ her personal advantage. If collusion is required, a person must have a persuasive personality to be able to convince others to go along with a fraud or to simply look the other way. If deceiving auditors or supervisors is required, the person must have the knowledge and ability to tell a convincing lie.

Task 1.4

Typically, all three elements of the fraud triangle (or the four elements of the fraud diamond) are present when a fraud is found to have taken place, but not always recognized until after the identification of the fraud. Do you think each element of the fraud triangle or fraud diamond was present in this case? Why or why not? Does your evaluation of the fraud triangle/diamond affect your evaluation of Garys actions and his punishment? Explain your reasoning. Wolfe and Hermanson (2004) and ACFE (2018) provide descriptions of the fraud triangle and fraud diamond.

4. Epilogue

Gary pled guilty to one count of bank fraud and was sentenced to one day in Federal Custody. Jeffrey, the ringleader, was found guilty on all four counts and was sentenced to three years in Federal Prison. Dale was found not guilty on all counts. Gary served his sentence and then was investigated for bank fraud by the State Accounting Disciplinary Board. He retained his professional accounting license, without any restrictions, but was fined $500 after arguing to the Board that he willfully committed fraud out of a desire to help others. Gary was also serving as an unpaid consultant with the FBI on other Bank Fraud cases, and operated an outreach campaign at numerous high schools and universities to help students understand just how easy lapses in ethical judgment can become far worse. Gary has recently developed a highly successful accounting services practice, and has stayed on the light side. 5. Research methods