Company Fined $185 Million for Fraudulent Account Creation - Essay Sample

Introduction

The company fraudulently created millions of savings as well as checking accounts on behalf of their clients without their approval or consent. About 1.5 million checking and savings accounts, as well as over 500,000 credit cards, were opened by employees without clients' authorization. As a result of the fraud, the company was fined a total of $185 million by the United States Consumer Financial Protection Bureau (CFPB) and other regulatory agencies. By the end of 2018, the company faced other civil and criminal lawsuits amounting to approximately $2.7 billion (Tayan, 2019).

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The company charged its clients with unexpected bank fees. Also, the clients received unanticipated debit or credit cards. The fraud was initially linked with the company's branch workers and managers as well as selling multiple financial products as a means of creating sales incentives (Elson & Ingram, 2018). It later got realized that the fraud was mainly as a result of cross-selling, where the top management pressurized other junior employees to open as many accounts as possible for the company.

The company violated the principle of sound incentive policies. It rewarded employees for confiding with the organization to participate in fraudulent acts. As a result of creating new credit cards and checking accounts as well as enrolling the company's clients in online banking services, the organization rewarded the employees with huge bonuses (Witman, 2019). The act demonstrated an act of greed among the employees and their unconcerned nature towards the organization's clients. The company placed too much pressure on the employees to sell more than what the clients demanded. The bank's marketing plan set very high sales targets for the employees. The employees in an attempt to meet the set sales target went ahead to engage in unethical practices such as cross-selling to existing customers other additional banking products without putting consideration on the clients' needs or wants (Mims, 2017).

The company violated the principle of effective corporate governance. The management of the company got linked with several fraudulent acts that proved their inability to control the organization (Mims, 2017) effectively. For instance, the branch managers were connected with the sudden increase in bank fees as well as the creation of savings and checking accounts on behalf of the clients without their consent.

The company also violated the accounting principle of the proper use of customer information. The employees of the organization created millions of savings and checking accounts on behalf of the clients without their consent or authorization (Elson & Ingram, 2018). Also, they created new credit cards and enrolled the company's clients on online banking services without making consultation on whether the clients needed the services or not.

The company also violated the accounting principle of full disclosure. The company did not inform its customers concerning the fraudulent activities occurring within the organization, although they were aware of these occurrences (Elson & Ingram, 2018). The customers came to realize these fraudulent dealings only at the moment when they were charged unanticipated fees and when they received the unexpected debit or credit cards.

Wells Fargo violated the principle of customer information confidentiality. The employees ordered credit cards for pre-approved customers, and without their knowledge, they filled out the requests using their personal contact information to hide the fraud from customers. In a process known as ''pinning,'' the company was capable of controlling customer accounts. It was also in a position to enroll them in their programs, such as online banking services (Ochs, 2016).

The company also violated the accounting principles of hiring and firing employees. The company wrongfully fired three prudential employees who revealed the fraud about employees of the bank issuing unwanted insurance policies. The policies included renters' insurance policies by Assurant as well as life insurance policies by prudential financial.

Recommendations to Fix the Accounting Principles Violation by Wells Fargo

Putting in place proper rules and guidelines about employee recruitment, hiring, and terms of employment. The policy is crucial because it accurately outlines the various directions which must be adhered to by organizations in the process of hiring and termination of employment contracts of their employees. Such a policy would, therefore, ensure that organizations do not terminate employment contracts of their employees based on unfair grounds. This would reduce the number of cases of wrongful termination of employees' contracts.

There is also putting in place stringent measures that can enhance the confidentiality of customer information. It is essential for organizations as well as other regulatory agencies to put in place strict guidelines concerning the manner of handling and to ensure the confidentiality of customer data. The measures would restrict employees from using customers' data in any unauthorized way, thus enhancing the privacy of customers' information.

Creating a conducive environment in which employees, as well as customers, can freely express their ideas and feelings. When the employees and customers are free to air out their views and opinions without the fear of intimidation from the authority above them, they can disclose any hidden as well as critical information they have concerning the organization. The customers can also provide their honest feedback regarding the company's products and services. This would ensure that there is full disclosure of any relevant information which could affect either the customers or employees of an organization.

The other issue is on building and promoting effective corporate governance. It is significant for the regulatory bodies to step up their effort towards enhancing the effectiveness of corporate governance. This can be achieved in several ways, including steadily motoring organizational performance, appointing competent persons to head the managerial positions and evaluating board as well as director performance in an attempt to pursue opportunities for improvement. Effective corporate governance seeks to ensure that organizational resources are utilized by and for the best interest of the shareholders, employees, and customers of an organization.

The next recommendation is on the promotion of the welfare of employees. An organization needs to put in place regulatory guidelines that enhance employees' working conditions as well as career development opportunities aimed at fostering both personal and professional satisfaction and the organization's development. Satisfied employees are more willing to work with minimal supervision and can, therefore, meet the set performance targets. The performance targets for employees should be challenging but realistic and achievable under normal circumstances.

There is also the formulation and implementation of a proper remuneration and benefits structure. An organization needs to put in place a better salary structure and reward system for its employees. Furthermore, the regulatory agencies, as well as organizations, should develop and implement proper rules and guidelines about how employees are compensated for their skills and expertise. This would ensure that employees' efforts are rewarded properly and only when necessary.

The regulatory agencies should adopt strict financial and monetary policies. The regulatory agencies should ensure that they formulate and implement strict regulatory guidelines, especially for financial institutions such as banks. For instance, the imposition of huge fines and penalties on the financial institutions which are found liable for charging unanticipated fees to their clients. Such kind of policies would ensure that financial institutions do not engage in unauthorized financial practices.

There is also the imposition of laws and regulations governing employees' conduct and behavior. Regulatory agencies, as well as organizations, need to form and implement rules which govern employees' conduct and behavior. Furthermore, these rules should impose huge penalties and fines on those employees who behave contrary to the expectations.

Lastly is the reorganization of companies as well as regular shifting of employees.' Shifting and reorganization enable employees to move from one organizational department or branch to another regularly. The process is significant because it opens up new business opportunities for organizations, improves efficiencies and profits, and also provides financial protection for an organization during difficult times. Also, shifting minimizes chances of fraud because employees do not spend a lot of time together in one department.

References

Elson, R. J., & Ingram, P. (2018). Wells Fargo and the Unauthorized Customer Accounts: A Case Study. Global Journal of Business Pedagogy Volume, 2(1). Retrieved from https://www.igbr.org/wp-content/uploads/articles/GJBP_Vol_2_No_1_2018-pgs%20124-133.PDF.

Mims, J. H. (2017). The Wells Fargo scandal and efforts to reform incentive-based compensation in financial institutions. NC Banking Inst., 21, 429. Retrieved from http://scholarship.law.unc.edu/cgi/viewcontent.cgi?article=1445&context=ncbi

Ochs, S. M. (2016). The leadership blind spots at Wells Fargo. Harvard Business Review, 10. Retrieved from http://www.academia.edu/download/57102385/The_Leadership_Blind_Spots_at_Wells_Fargo.pdf

Tayan, B. (2019). The Wells Fargo cross-selling scandal. Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance No. CGRP-62 Version, 2, 17-1. Retrieved from http://resources.gabankers.com/PD%20Dept.%20Links/2019%20Schools%20Mobile%20Website/Third%20Year%20Materials/308-3%20of%203%20-Ethics-Pagnattaro%20-Wells%20Fargo%20Cross-Selling%20Scandal%20Stanford%20Closer%20Look%20Series.pdf

Witman, P. D. (2019). "What Gets Measured, Gets Managed" The Wells Fargo Account Opening Scandal. Journal of Information Systems Education, 29(3), 2. Retrieved from http://www.jise.org/Volume29/n3/JISEv29n3p131.pdf