REPLYOVERVIEWThe student will post one reply for this discussion. Your one reply must be a critique of the other student’s Discussion: Internal Controls and Ethics Analysis in this course. instructio
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REPLYOVERVIEWThe student will post one reply for this discussion. Your one reply must be a critique of the other student’s Discussion: Internal Controls and Ethics Analysis in this course.
The critique should be between 1000 and 2500 words, twelve-point type. The student will claim the work to be critiqued by a posting in reply to the selected student’s work. The critique will consist of a thread in reply to the selected student’s work. A proper critique will address each item in the Case Analysis in order, starting with the Case Summary, stating whether you agree with the posted work and adding such comments as you think will add to the Case Analysis. Each question must be written and addressed separately. The Statement of Christian World View must be commented upon. If an item (Case Summary, question, or Statement of Christian World View) was omitted, you must supply the missing item.
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Internal Controls and Ethics Analysis – Walmart de Mexico
In 2012, Walmart was in the middle of a hug bribery scandal in Mexico. The company allegedly paid governor officials as much as $24.5 million dollars to provide faster access to store building permits (Rarick, 2018). Why does the U.S. cared about what Walmart was doing in Mexico? Many companies complained that it put them at a disadvantage in competing with other companies abroad. Does enforcing a code of ethics on business abroad makes sense? In this summary, we will explain what happened with Walmart de Mexico and the Foreign Corrupt Practices Act.
The New York Times did an investigation about Walmart de Mexico in 2012. What they found was an incredible amount of corruption and an incredible amount of disregard for the law in Mexico. This is hard to believe, but when we look at how widespread the corruption was among Walmart executives in Mexico we just realize, when it comes to other countries, they just ignored regulations and did not care at all.
There were several other cases of corruption in Mexico, but the one that I would like to highlight is a Walmart built in 2004 in a very specific area in Mexico near ancient pyramids. The Aztecs referred to these pyramids as the sun and the moon and it is considered a very historical area. Because of that, there were certain zoning rules and regulations that prevented Walmart from building near the pyramids. But they decided they wanted to build the new Walmart store one mile away from the pyramids. Officials said that Walmart could not do that for a number of reasons. First of all, the traffic congestion there was already terrible, and they did not want to add more congestion. They also did not want to shut down the local businesses there, and bringing a Walmart would cause local business to leave. Another problem was that, when it comes to ancient ruins, anthropologists and archeologists could have said that there are ancient ruins in the area where this Walmart was built and, as a result, they did not want to have that building there for excavations needed to be done. (Blevins & Green, 2013). What Walmart eventually did is that they went to a government publication that basically takes the new zoning laws and publishes it and paid out to those who work for the gazette. When the gazette published the new zoning map, they made one change, and that one change was that Walmart would be able to build their superstore on that area. Starting with a $52,000 bribe to change the zoning map, Wal-Mart de Mexico bribed their way to get the store built. (Blevins & Green, 2013).
The New York Times reported:
The Time’s examination reveals that Wal-Mart de Mexico was not the reluctant victim of a corrupt culture that insisted on bribes as the cost of doing business. Nor did it pay bribes merely to speed up routine approvals. Rather, Wal-Mart de Mexico was an aggressive and creative corrupter, offering large payoffs to get what the law otherwise prohibited. It used bribes to subvert democratic governance — public votes, open debates, transparent procedures. It used bribes to circumvent regulatory safeguards that protect Mexican citizens from unsafe construction. It used bribes to outflank rivals (Barstow, 2012).
There were several different Walmart’s that were built in Mexico where corruption was involved, according to the New York Times, with many of them. There were several other bribes in other countries as well. (MMR, 2013). Executives in the U.S. started hearing about these briberies and did an internal investigation. (Knapp, 2022).
Bribery is one characteristic of a corrupt society and we see that clearly happened with Walmart de Mexico. God’s law prohibits the taking of a bribe. Exodus 23:8 say: “Do not accept a bribe, for a bribe blinds those who see and twists the words of the innocent” (NIV). The same rule is repeated in Deuteronomy 16:19: “Do not pervert justice or show partiality. Do not accept a bribe, for a bribe blinds the eyes of the wise and twists the words of the innocent” (NIV). The negative effects of taking a bribe are visibly outlined in these bible verses. Bribery clouds the truth and perverts or twists the words of those who would be righteous in the sight of God. Bribery is one example of a company engaged in unethical behavior. Ethics is about knowing and doing what is good or right, and workplace ethics is about knowing and doing what is good or right at work. Applying the Bible can help us decide and do what is ethical or moral at work. Whatever you do, work at it with all your heart, as working for the Lord, not for human masters, since you know that you will receive an inheritance from the Lord as a reward. It is the Lord Christ you are serving. (Colossians 3:23-24).
- Identify control activities that Walmart could have implemented for Walmart de Mexico and its other foreign subsidiaries to minimize the likelihood of illegal payments to government officials. Would these control activities have been cost-effective?
Walmart could have established an anti-corruption policy for Walmart de Mexico and its other foreign subsidiaries. Such policy should be documented and communicated to all employees in the U.S. and its foreign subsidiaries, and enforced to all levels of the company, from top level management, administrative, executive, supervisory, to entry-level employees. Walmart could have also implemented and maintained an adequate set of internal audit controls like keeping separate ledger accounts for expenses related to gifts and rewards to foreign employees and foreign government officials, keeping tabs on money that is withdrawn from the petty cash account, and keeping a separate ledger account for payments that are made to outside third-party vendors.
These control activities would have been cost-effective. Every internal control and policy establishment has a cost to the organization. Each process must be designed, implemented, operated, and then tested, sometimes both internally and externally. For the design of a policy and an internal control to be considered effective, the control cost should not be more important than the potential benefits of the control.
- What responsibility, if any, does an accountant of a public company have when he or she discovers that the client has violated a law? How does the accountant’s position on the company’s employment hierarchy affect that responsibility, if at all?What responsibility does an auditor of a public company have if he or she discovers illegal acts by the client? Does the auditor’s position on his or her firm’s employment hierarchy affects this responsibility?
Accountants might be worried about facing subsequent retaliation in the workplace; however, they are responsible for protecting the public from financial and company fraud. Sometimes, that means reporting or disclosing a corrupt or dishonest situation of a client or employer who is violating a law. No matter the position on the company’s employment hierarchy an accountant is held to the same code of ethics. In July 2016, the International Ethics Standards Board for Accountants (IESBA) adopted “Responding to Noncompliance with Laws and Regulations”, which applies to all accountants.
It sets out a first-of-its-kind framework to guide professional accountants in what actions to take in the public interest when they become aware of a potential illegal act, known as non-compliance with laws and regulations, or NOCLAR, committed by a client or employer. (IESBA, 2016).
The auditor’s position on his or her firm’s employment hierarchy does not affect this responsibility. According to AU Section 317.10 “Audit Procedures in Response to Possible Illegal Acts”
When the auditor becomes aware of information concerning a possible illegal act, the auditor should obtain an understanding of the nature of the act, the circumstances in which it occurred, and sufficient other information to evaluate the effect on the financial statements. In doing so, the auditor should inquire of management at a level above those involved, if possible. If management does not provide satisfactory information that there has been no illegal act, the auditor should consult with the client’s legal counsel or other specialists about the application of relevant laws and regulations to the circumstances and the possible effects on the financial statements. Arrangements for such consultation with client’s legal counsel should be made by the client. The auditor should also apply additional procedures, if necessary, to obtain further understanding of the nature of the acts. (PCAOB, 2016).
- Does an audit firm of an SEC registrant have a responsibility to apply audit procedures intended to determine whether the client has complied with the FCPA? Defend your answer.
Yes, an audit firm of an SEC registrant are responsible for applying audit procedures to decide whether clients have complied with the FCPA. The mission of the SEC is to protect investors, maintain fair, orderly, and efficient markets, and facilitate formation. (SEC, 2022). They ensure that public companies are being honest about their business practices and risks so that investors can make fully educated decisions when engaging in investment activities regarding a company. As an SEC registrant, a company is supposed to tell the truth about their business, the securities they are selling, and the risks involved in investing in those securities. (SEC, 2022). Companies need to be transparent when providing any information to all potential external users and it is expected that auditors pay attention to a company’s compliance with FCPA. Failing to do this, a company could be at risk to be investigated regarding their knowledge of any violations of FCPA. This is what happened with Walmart de Mexico. Furthermore, in 2019, SEC charged Walmart with violating the books and records and internal accounting controls provisions of the FCPA by failing to operate a sufficient anti-corruption compliance program for more than a decade as Walmart experienced fast international growth.
- If the citizens of certain foreign countries believe that the payment of bribes is an acceptable business practice, is it appropriate for U.S. companies to challenge that belief when doing business in those countries? Defend your answer.
Yes, it is appropriate for U.S. companies to challenge that belief when doing business in those countries. Dealing with public officials creates many ethical and compliance challenges, such as bribery and corruption, for companies that do business internationally. These activities in the workplace are serious crimes whose costs go far beyond criminal penalties and large fines. FCPA prevent such activities. Organizations can manage and minimize the risk of FCPA violations by educating employees on how to deal with public officials and communicating clear guidelines on acceptable and unacceptable behavior.
Barstow, D. (2012). Wal-Mart Hushed Up a Vast Mexican Bribery Case. The New York Times. Retrieved from https://www.nytimes.com/2012/04/22/business/at-wal-mart-in-mexico-a-bribe-inquiry-silenced.html
Bible Gateway. (2022). Colossians 3:23-24. New International Version (NIV). Retrieved from https://www.biblegateway.com/passage/?search=colossians+3%3A+23-24&version=NIV
Bible Gateway. (2022). Deuteronomy 16:19. New International Version (NIV). Retrieved from https://www.biblegateway.com/passage/?search=Deuteronomy+16%3A19&version=NIV
Bible Gateway. (2022). Exodus 23:8. New International Version (NIV). Retrieved from https://www.biblegateway.com/passage/?search=Exodus+23%3A8&version=NIV
Blevins, J., & Green, B. P. (2013). Examining Foreign Corrupt Practices Act Compliance Issues. Internal Auditing, 28(2), 3-12. Retrieved from http://ezproxy.liberty.edu/login?qurl=https%3A%2F%2Fwww.proquest.com%2Ftrade-journals%2Fexamining-foreign-corrupt-practices-act%2Fdocview%2F1353341301%2Fse-2%3Faccountid%3D12085
IESBA. (2016). Responding to Non-Compliance with Laws and Regulations. Retrieved from https://www.ethicsboard.org/focus-areas/responding-non-compliance-laws-and-regulations
Knapp, M.C. (2022). Contemporary Auditing. 12th Edition. Cengage Learning.
MMR. (2013). Walmart Grapples with Bribery Scandal in Mexico. Business Insights: Global. Retrieved from Retrieved from https://bi-gale-com.ezproxy.liberty.edu/global/article/GALE|A316953094?u=vic_liberty&sid=summon
PCAOB. (2016). AU Section 317. Illegal Acts by Clients. Retrieved from https://pcaobus.org/oversight/standards/archived-standards/pre-reorganized-auditing-standards-interpretations/details/AU317
Rarick, C. A., Williams, H., Barczyk, C., & James, A. (2018). Walmart de Mexico and the Foreign Corrupt Practices Act: Stepping Over the Border and Stepping Over the Line. Journal of Leadership, Accountability and Ethics, 15(1), 43-50. http://ezproxy.liberty.edu/login?qurl=https%3A%2F%2Fwww.proquest.com%2Fscholarly-journals%2Fwalmart-de-mexico-foreign-corrupt-practices-act%2Fdocview%2F2112560522%2Fse-2%3Faccountid%3D12085
U.S. Securities and Exchange Commission. (2022). The Role of the SEC. Retrieved from https://www.investor.gov/introduction-investing/investing-basics/role-sec