Week 2 Assignment
Week 2 Assignment
Because of the growing concern of organizational misconduct that allowed companies to get away with unethical crimes, the Federal Sentencing Guiding for Organization was (FSGO) formed. It was established by the U.S. Sentencing Commission (USSC) in 1991 to ensure ethical compliance of organizations. The creation of this commission meant that organizations were responsible for the conduct of their employees. The FSGO’s mandate was to create a consistent standard that would be used across the nation by judges presiding over such cases. The organization’s mandate prevented intermediary sentencing; therefore, similar cases would have analogous verdicts. A standard sentencing structure clearly outlined the penalties that were accompanied by breaching the ethical compliance policy. The penalties were stiffer to organizations than they were for the employees. The areas that were focused on were those of safety, competition and environment.
Events That Led To Each of These Regulatory Measures
The conception of this FSGO was because of the increased well-organized white-collar crimes. Those involved robbed the public of their investments and shut down business thereafter. An example of this white-collar crime is the infamous III Wind Investigation that was beneficial to scammers within the military and corporate world, but was at the expense of the U.S. government and its people. It was carried out during the procurement of defense equipment, and there was a lot of bribery in the attempts to win the tender from the U.S. government. Millions of dollars were lost through embezzlement of funds from the numerous contractors and military personnel involved. These scandals led the U.S.S.C. to pass the federal sentencing guidelines and curb the collateral damage inflicted to unsuspecting investors and employees.
The Sarbanes-Oxley Act was implemented in 2002. It brought about significant changes in the financial sector. It was amended to provide security regulations in the business and accounting practices of organizations. Its main aim was to address the loopholes that were exposed by fraudulent scandals during the early 2000s conducted by companies like Enron, Adelphia, Tyco International and WorldCom. The act has eleven titles, but the most crucial sections include 302, which states that a mandate that compels senior management to verify and certify the accuracy of their reported financial statement. Moreover, section 402 compels auditors of a firm and management to set up internal controls and report methods that highlight the adequacy of those regulations. Additionally, section 404 states that the cost of publicly trading companies incurred is too expensive to attempt to do the necessary internal controls. Section 409, which highlights that the changes in the financial conditions of the company warranted an urgent disclosure to the public in easily comprehensible terms. Section 802 has stiff penalties for changing, destroying, mutilating, hiding, falsifying records, documents or tangible material with the intention of obstructing legal investigations from being carried out.
Consumer Financial Protection Bureau (CFPB) was established in the year 2011 as a means to protect consumers from lenders with malicious intent (Ferrell, Fraedrich & Ferrell 2005). It was set up after there was an economic meltdown that had ripple effects in the real-estate business. Its main mandate was that of upholding the existing regulations that restricted the opportunistic lending of creditors in the economic boom with the intent of auctioning property in the wake of a meltdown. This enabled the government to consolidate the responsibilities of previously different governmental branches. This makes it easier for the government to assist the citizens when it comes to financial advice for mortgages. This is crucial as citizens are educated and have a good idea of what they are getting into prior to signing of contracts that bind them. This helps the mortgage payer not to be enrolled in high-spending insurance plans and prevents the use of risky features.
Impact of These Laws on Business Ethics
The impact of the implementation of the law has led to companies upholding ethical compliance. The consequences of fraudulent activities to the organizations involved are very stiff, and as a result, companies avoid these tendencies, as previously they seemed to be governed by bystander apathy (Shaw, 2010). Some of the penalties are monetary fines, restitution, organizational probation, community service periods that last for years and serving of jail terms. These outlined rules are set to provide a guideline for organizations to come up with programs that help re-educate these violations and create a prevention and detection mechanism. Unlike before, today a prevailing system is used in sentencing. Organizations that attempt to implement the ethical compliance guidelines face less stiff penalties.
The necessary steps undertaken include effective communication of the protocol observed in disseminating the internal audits and generation of comprehensive reports. Caution in the delegation of tasks to employees that have criminal cases filed against them should be observed. This prevents unnecessary court scenarios where the management is fined because of negligence. A well-organized program compliance structure helps to reduce the likelihood of malicious employees. Breaking of stipulated rules leads to disciplinary action against the offender. This shows that action is indeed taken in order to control fraudulent employees. Establishing a reporting system can be used to report perpetrators. Observance of these principles and laws has made business increasingly transparent and accountable.
For instance, the CFPB ensures that the borrower has a sufficient asset base in order to repay the loan prior to agreement. This prevents the borrower from entering a financial agreement where the creditor extorts them because of lack of knowledge. As such, businesses have to review their manifestos lest they be charged for fraudulent activities. It also prevents institutions from asking for an upfront fee of more than 3% of the loan. Companies now have to conduct employee surveys or distribution of questionnaires as a measuring tool used to understand the organizational culture. This means that organizations have to meet with the new (FSGO) requirements to fulfill the program effectiveness criterion. These have an effective compliance and ethics program, periodic evaluation of the organization’s compliance of the ethics program and oversight of the same through carrying out of internal audits.
Serena is one of the companies that have been affected by the Sarbanes – Oxley Act after it was enacted in 2002. These effects were experienced in the Information Technology (IT) department and corporate governance sectors. After the legalization of the law, the IT department had to revamp the security systems to control the breaching of network protocols that would lead to loss of information. More stringent security systems were set up, and security passes were limited to area codes within the company. As such, those working in the marketing department could not readily access data and information from the accounting section. There was also increased accountability measures put in place that ensured the ease of tracking the monetary transactions, which was in compliance to the Act.
Previously, there were errors undetectable to the enterprise resource planning system, which meant that there had to be a restatement of the company earnings. It is because of this that new systems were put up to ensure fast detection of oversight errors and avoidable risks. There were also better documentation processes, which ensured the auditing techniques used were clearly outlined in case of the need for confirmations. This was in compliance to the Sarbanes-Oxley Act whose main aim was to ensure the accuracy in the internal audits and financial reporting that is done by companies.
Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2005). Business ethics: Ethical decision making and cases. Boston: Houghton Mifflin Co. Print.
LRN. (2006). The impact of codes of conduct on corporate culture: Measuring the immeasurable. Retrieved from http://www.ethics.org/files/u5/LRNImpactofCodesofConduct.pdf
Serena. (2006). The Impact of Sarbanes-Oxley on IT and Corporate Governance. Retrieved from http://www.serena.com/docs/repository/products/change-governance/sarbanes-oxley-it-co.pdf
Shaw, W. H. (2010). Business ethics: A textbook with cases. Belmont, Calif: Wadsworth. Print.
Wulf, K. (2012). Ethics and compliance programs in multinational organizations. Wiesbaden: Springer Gabler.