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Role of the CFO in Enron scandal

Were Enron’s financial problems created by its Chief Financial Officer? What was his role in the scandal?

 

Andrew Fastow was the CFO of Enron at the time of the scandal. He had played an active role in the scandal and the department of Justice indicted him on 98 counts. He was charged with fraud, money laundering, obstruction of justice plus conspiracy and faced upto 140 years in jail for his alleged role in the scandal.  Apart from years in jail he could have been fined millions if he was convicted on all the counts. The Federal officials seized $37 million from the money that Fastow had earned from the company. Initially Fastow kept denying the charges. However, he pleaded guilty on two counts later.

Fastow had hidden the true financial condition of the company by hiding its debts and following unethical accounting practices. Moreover, his use of SPE’s for hiding $1 billion of Enron’s debts was also discovered. Overall, he used some quite unfair methods to earn around $30 million. It would not be wrong to say that the company had become the centre of evil on the inside. The way he inflated revenue was also a reason that the firm collapsed so quick. Overall, CFO acted in a very irresponsible manner and the way the firm approached its demise, he himself would not have imagined this end.

 

Role of ethics and accountability in the financial world:

 

Management of financial organizations requires both accountability and ethics. However, they are important for any business and still when it comes to financial firms, irresponsibility can cause major problems. Financial firms hold an important responsibility and a lack of accountability on their part can cause losses for not just the immediate stakeholders but can shake the entire community’s confidence. Enron in this regard became a lesson for the entire financial community. Anti-bribery policies and compliance are now absolutely essential for the Financial firms. These firms need to have compliance units and provide their employees with training in ethics.

Several of the large multinational companies have special trained officers to endure compliance who ensure that the employees follow the code of conduct and that they do only the right thing. Corruption is a major bug and companies have focused on its removal following the Enron scandal which might be an indication that the overall moral state of the national and world state has improved. In case of Enron, its financial problems had been created by its leaders, managers, and the partners. Apart from the decay of Enron’s culture, personally its managers, leaders and other responsible officials showed a clear lack of ethics. They pressed the employees to follow and generate profits by whichever means possible. All these things led to the quick death of the company and Enron in its death proved that a lack of ethics and regulation can be self-destructive for financial organizations. Soon after the scandal was discovered the introduction of SOX followed.

Written by Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.

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