A financial scandal happens when a business or organisation is found to be defrauding its customers, investors, suppliers or the wider public. These kinds of fraud have a devastating impact on companies’ reputations and can lead to huge fines for those involved. The good news is that there are many steps that businesses can take to prevent such fraud. This includes creating a culture of ethical behaviour, implementing robust systems for managing risk and whistleblower protections.
The most famous cases of financial scandal include the Enron scandal, in which the energy giant kept massive debts off its balance sheet and inflated profits. This led to the collapse of the company, and to the downfall of its accounting firm, Arthur Andersen. Another example was Bernie Madoff, a US investment manager who defrauded investors out of billions of dollars. Other high profile examples include Carillion, a construction company that went bankrupt in early 2018, and the revelations about high-street fashion chain Ted Baker’s audits by KPMG.
What’s more, a number of people lost their jobs or had their life savings wiped out as a result of these scandals. There is no doubt that this kind of fraudulent activity has a profound human cost, and it is important to address it by encouraging cultures of ethical behaviour, implementing robust systems for management of risk and ensuring that employees can speak up without fear of reprisal. Regulatory bodies also play a crucial role by establishing and updating laws to cover different types of financial misconduct and by imposing penalties for breaking them.