Enron Fraud Executive Summary

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Aditya Earl Alphonso
Auditing Information Systems (ACC 2340)
Enron Fraud Executive Summary
The Enron scandal has its place in history as one of the largest – if not the largest – and
most tragic corporate American downfalls to ever take place. It resulted in a multi-billion dollar
company crumbling to the ground and declaring bankruptcy within only a matter of days, and as
a result left shareholders and employees confused and broken. The Enron ordeal was not simply
the result of one mistake or the wrongdoing of one person, but the simultaneous actions of
management and employees alike. None of those actions, however, would have been possible
without the perfect environment for fraud that was well alive within Enron. The pressure that
plagued the management and traders, the opportunity for them to play outside the rules, and their
ability to rationalize their actions all played significant roles in the collapse of the fraudulent
machine that was Enron Corporation.
Enron was founded by Kenneth Lay, a man with humble beginnings but unbreakable
ambition. As a child he dreamed of the financial security the world of business could provide
him, and that was what he sought after with Enron. Lay eventually appointed Jeffrey Schilling
CEO of Enron. Schilling championed Enron’s move to mark-to-market accounting, and then the
books took on a life of their own, as the firm could book profits on future ventures that were
nowhere near as certain as Schilling and the rest of the company made them to be. This gave me
the company the initial opportunity it needed, and with Schilling at the helm of a hoard of
hypothetical returns, Enron’s stock price skyrocketed through the years.
This gain in stock price eventually led to pressure on the management for groundbreaking
results, and as the pressure built, so did the cheating at Enron. One quarter of inflated results had
to be followed by another quarter of unbelievable profitability, and the only way to do that was to
inflate results yet again. Meanwhile, the CFO of Enron, Andrew Fastow, was harboring the
corporation’s debt in hundreds of companies created especially for that purpose. In addition, the
making more money, leadership that lacked a real moral compass, and the perfect environment
for fraud eventually led to Enron’s downfall, and the ruin of what could have been one of the
greatest corporations the world has ever seen.

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