Week 3 - Company Incentives Case

1. Incentives: Ethan had the incentive time continue the fraud because he hadn't been caught. He wanted to continue the illusion that he was a competent CPAS and to maintain his relationship with his high maintenance girlfriend.

Opportunity: the company had a high level of internal controls weakness making it easy for Ethan to continue the fraud. All he needed was to override the internal controls. He was the only person looking at the numbers and because Vicki trusted him he wasn't questioned about making the bank deposits. As the text notes, management override of internal controls may be a problem similar to what happened at Efron and World Com. 18.9 percent of respondents in the ACFE survey indicated that override of existing controls had occurred at victim organizations.

Rationalization: Ethan believed that the fraud was necessary to continue his relationship. He also thought that he could repay the money he stole before it was missed.

2. Vick had a "loyalty to his boss" in the sense that he and Lester were close friends. Lester also knew of Jensen's own embezzlement so Jensen felt he had no choice but to cover. Jensen had an obligation to report the fraud because the fraud had a material effect on the financial statements. He should have made a formal report to the board even if it meant exposing his own embezzlement.

3. Vick should report the fraud. He risks exposing himself as an embezzler and loosing the friend he has in Lester buthe has to maintain the integrity he does have since he repaid the money he embezzled and the good work he was doing until that point. He was unaware of Lester's fraud and could claim so.