Week 7 ASN
JCC31
CorporateFraud.docx1
CORPORATE FRAUD: CASE OF PROVIDENT CAPITAL INDEMNITY (PCI) COMPANY
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The organization of focus in this paper is Provident Capital Indemnity (PCI) Company in Costa Rica. The president of PCI, Va. Vargas Calvo was sentenced for sixty years in prison on 23rd October 2012 for engaging in a fraudulent scheme (Justice, n.d). The fraudulent scheme of about half a billion dollar had an effect on the company and people in America and abroad. PCI is reinsurance and an insurance company conducting its operations in Costa Rica and registered with Dominican common wealth. The company has Vargas a resident of Costa Rica as the major shareholder. In 2012, Vargas was found guilty of committing conspiracy in wire fraud and committing mail, three counts associated with fraud of mail, three counts associated with wire fraud and three counts associated with money laundering. The trial of Vargas and Castillo Jorge who was the independent auditor of PCI found them guilty of omitting and misleading the clients and investigators of PCI concerning the ability of PCI to sort out due claims on the financial guarantee bonds issued by PCI Company. The evidence brought before the court showed that PCI’s president spent the ill gotten 23 million dollars on unrelated organizations, his soccer teams, himself and his family in Costa Rica. Castillo who was an employee in PCI and later the independent auditor of the company was found guilty of committing mail and wire fraud and also was sentenced for engaging in the mail and wire frauds (Justice, n.d).
With regard to the complaints filed by SEC in the United States District Court for Eastern District located in Virginia, PCI is located in Costa Rica and is an is an offshore company that offers financial guarantee bonds on settlements of life and as well offer insurance services to investors by paying death benefits in cases where the person insured lives beyond the expected years. The company issued around 198 bonds from 2004 to 2010 that acted as a setback of various bonded investment offerings about the life insurance policies of more than 670 million dollars in value (Justice, n.d). The bonds of PCI originated mainly from the life settlements of third parties in United States and abroad. The complaints from SEC were that PCI provided the “audited financial statements” to Dun and Bradstreet(D&B) that gave a favorable rating of 5AFS as per the reported net worth of PCI. The company went ahead to include in its marketing platforms and materials that the rating of D&B is a true reflections of the company satisfying the customers and the ability of the company to operate with a low ratio of loss. As per the complaints of SEC, Vargas and PCI had an idea that PCI had a “bouquet” made up of reinsurers of high reputation which could backstop the life settlement bonds obligations. However, it was evident that PCI did not have such a reinsurance bouquet (Justice, n.d).
Castillo Jorge and Minor Vargas were found guilty and sentenced committing mail and wire fraud. Companies and organizations can work together with the employees and third parties in detecting and investigating such frauds to prevent losses to the clients and the company. Measures such as use of checks and balances in the system to ensure that no person has total control over all financial transaction parts and also to offer the Board of Directors a chance to carry out an oversight concerning management and operations of the company should be put in place (Bierstaker, 2006). The company should also request an explanation in the event where there is a variation of funds from the one indicated in the budget, monitor the financial activity and operations of the company while making a comparison on the budgeted and actual expenses and revenues. The companies and Board of Directors can also consider an explanation of the annual financial statements from the independent auditors as well as approval of financial procedures, policies and expenditures in the minutes of the Board meetings. The periodical review of the general ledgers and registers can also be done in order to ascertain if there is prompt payment of payroll taxes (Bierstaker, 2006).
The companies and the Board of Directors can also detect, investigate and curb fraud by evaluating the performance of executive director against the job description, participate in the hiring process of consultants and external parties such as the consultants as well as including the fiscal procedures and policies in expense and travel expenditures, the use of company properties and guidelines for making purchases and to be approved by the Board of Directors (Bierstaker, 2006).
Research has had a significant impact in the examination of fraud and in professions associated with financial forensics. Research has helped the companies to familiarize and be compliant with the Sarbanes Oxley Reporting in accounting and auditing of finances (Best, 2015). The SOX act provides that the CEO and CFO must be accountable for the internal accounting controls as well as review all financial reports to ensure that the reports do not contain any misinterpretations. Research also helps the companies and organizations to learn from the past fraudulent scenarios with a view to prevent such incidents from happening (Best, 2015).
References
Best, P., Kummer, T., & Singh, K. (2015). The effectiveness of fraud detection techniques in not-for-profit organizations. Managerial Auditing Journal, 30(4), 435-455.
Bierstaker, J. L., Brody, R. G., & Pacini, C. (2006). Accountants' perceptions regarding fraud detection and prevention methods. Managerial Auditing Journal, 21(5), 520-535.
