Every year, news of new corporate accounting scandals hit the newspapers. In almost all cases, readers wonder how accountants and managers thought that they could get away with these acts of malfeasance. Most insiders, however, wonder how they ever got caught. Here are some of the most common ways that scandals come to light.
First, there are various government agencies that investigate questionable activities. Many of these investigations are launched when taxes are due, but strange activity on the market can lead to investigations as well. Federal investigators are thorough, they often have the power to subpoena potential witnesses. While a company may still be able to avoid sanctions by hiding information, government agencies are very effective at uncovering improper behavior.
Another common way that shady financial activities are discovered is through whistleblowers. Whistleblower protections are fairly strong in the United States, and those who unveil illegal activity may be rewarded. There are, however, ramifications for those who report illegal activity, and many have trouble finding work in the future. Whistleblowers often claim their motivation was not financial, but instead moral.
Lawmakers often call for more investigatory power when it comes to financial scandals. When companies cheat, investors may lose considerable money as the stock value of the company they invested in could drop considerably. In addition, taxpayers lose out as well; when companies find ways to avoid paying taxes that are due, the government has less money to spend on important programs. As a result, the government may be forced to cut programs or to ask for more taxes from those who do not cheat on their taxes.
Many business professionals have an unyielding view of how business should be run. If they feel that they can get away with illegal activities, many will do so. Fortunately, the government is getting better at detecting corporate scandals, and many experts expect that strong enforcement will prevent many future scandals.
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