Fraudulent cases have become a common practice in multi-companies, which cheat their customers to get high returns. Insurance companies, real estates, IT companies, and investment companies have all been involved in such cases. American International Group, Inc. (AIG) was in 2010 involved in a fraudulent activity where they were accused of having been involved in activities and practices that discriminated against African-American borrowers. AIG together with Federal Saving Bank and Wilmington Finance Inc., were alleged to have charged African- Americans higher fees on wholesale loans. The case stated that AIG together with the two companies signed a contract where they liaised with mortgage brokers to acquire mortgage applications which were later on countersigned and funded by AIG Inc. In this process, AIG did not monitor the brokers with regards to the setting up of brokers’ fees. The outcome was to the disadvantage of the borrowers of African-American origin, who paid fees higher than those paid by their white counterparts (Department of Justice, 2010). The company was also alleged to have made AXA believe that the reinsurance facilities functioned on a facultative mandatory criterion, whereas on the other hand, AIG treated the reinsurance as entirely facultative and transferred bad risks to reinsurers. The AIG Inc. was also accused of misrepresenting the amenities that rendered AXA off guard.
The company suffered legal and economic repercussions as a result of the fraudulent activity that involved mortgage and housing loans in the United States: an activity that was alleged to as having caused, together with other factors, the 2010 economic meltdown and the mortgage crises that almost paralyze the United States of America. After this fraud case, the company was charged about 1.6 million U.S dollars while some of its managers and executives were taken to court to face criminal charges. The company therefore lost some of its leaders, who had taken led it into success. The company financial losses and had to be bailed out by the Federal bank. This also led to organization restructuring to cater for the executives who were to face criminal charges. In turn, the restructuring slowed down the development of the organization and the company later on started realizing immense losses as a result of the fraud.
Discuss “management’s” responsibility to the company stakeholders to protect and secure the company from fraudulent activity.
AIG Inc. being a large multi-million company should focus on equitable distribution of its services regardless of gender or race. The management has the responsibility of monitoring and implementing fraud program components that would ensure that the company stays out of legal consequences. Negative publicity is bad for a respectable organization like AIG Inc., as it reduces the credibility of a company while at the same time tainting the company’s public image. The management is therefore tasked with the responsibility of preserving the image of the company on the behalf of the stakeholders. In the above case, the African-Americans are part and parcel of the company’s stakeholders and should have been therefore treated with equality compared to the whites. Program checks are important in that they monitor controls of hotline activities and identify any reflags within the organization (Kaiser 2008). It is also through accountability that the management can be held answerable t the stakeholders in matters concerning fraudulent activities. Management should function according to the codes of conduct and the work ethics. This ensures that cases of fraud are greatly minimized.
Discuss the corporate environment and culture that may have contributed to the fraud.
There was conflict of interest among various members of the management team who wanted to secure business deals for their own gains. During this time, AIG officials had entered into agreements with a number of reinsurers and brokers whom they promised business deals and bribes. In so doing, the company would benefit by securing deals and getting favors from their trading partners: in this case, the insurance companies. The company was also engaged in soliciting manipulated bids contracts from the insurance companies. It was later on discovered that some of the top management was involved in this fraudulent activity.
Apart from the conflict of interest between the organizational management and the organizational goals, it can also be argued that the company lacked effective monitoring strategies where even the advisors are involved in the fraud. This therefore means that no one can monitor the other with regards to fraud. The inability of the investors to place law suits to people involved in past fraudulent activities also further promoted the fraud: The people involved were never mindful of the legal implications since they knew that none of the investors in the firm would place any.
Discuss the impact to the company or brand as a result of the fraudulent activity.
These are illegal, and unethical business practices that a company of Infosys’s caliber should not partake. For any brand to sell and for a company to realize maximum profits from its activities, there must be trust between it and its clients; the consumers of a brand trust that the company or the owner of the brand is in a position to deliver quality services or products in the very manner expected by the consumer. This trust is however affected by cases of fraud. The fraudulent behaviors are a risk to the reputation of the company across the world. These allegations could damage the company’s reputation especially in the market thereby making investors to shy off. For instance, AIG fraud case attracted the attention of the general public and the US senators and portrayed a negative picture of the firm. The public disclosure of these fraud allegations will damage the organization’s brand because the sensational media coverage will be translated by the clients and customers into an early sign collapse in the market and decreased value of the services the company will be providing. This will result into a decline in revenue and even a market collapse of the organization’s business in the long-run. Failures to look into this problem and instill necessary preventive measures will give the competitors a competitive advantage. They can capitalize on this problem and lower their product or service costs in order to lure customers into their business (FRB, 2010).
Discuss the measures that could have prevented and/or detected this fraud
Fraud destroys the organization in terms of its financial implications and the public image that comes with the unearthing of the fraudulent activity. An organization should therefore put up measures that would help the business save millions of money that could have been lost as a result of fighting lawsuits and money swindle by money-hungry individuals. AIG lost more than 1.6 million US dollars in paying off debts involved in this case.
This fraud could have been detected if the company had external auditors to check their books of account on a regular basis. Based on the past fraud cases, the company could have developed a benefits of damage assessment where the damages that are caused by fraudulent activities are assessed in terms of their damage on the brand of the organization and the financial repercussions. By doing this, the company could have prevented this and other future frauds.
The company stakeholders could have played their role of monitoring the activities of the management in order to detect any form of fraud whenever they occurred or even before they happen.. Additional data collection and fraud risk assessment report gives the stakeholders and opportunity to get a picture of areas that are vulnerable to the fraud risk. A survey should, therefore, be conducted to recognize such areas and put necessary preventive measures in place. The government should be in control of the business environment companies are operating. The US government for instance should demand that Infosys and its auditors develop elaborate internal controls mechanisms of fraud detection. Since senior executives are the ones in most cases involved in fraudulent activities, greater fraud detection mechanisms stress must be placed upon them (Gary & Campbell, 2011).
