Enron Scandal - an Example of 'White Collar' Corporate Fraud

White Collar Crimes

Forensic accountants often times investigate white collar crimes. White collar crime was first presented in 1939 by Edwin H. Sutherland, an American sociologist. Sunderland found that white-collar crimes were generally committed by a person of respectable or high social status in the course of their employment. Major types of white-collar crimes are corporate fraud, Ponzi schemes, embezzlement, extortion, money laundering, identity theft and counterfeiting.

Corporate Fraud

One major white-collar crime investigated by forensic accountants is corporate fraud. Through manipulation of a business’s financial data, the value, share price and financial performance of a corporation is manipulated to make the company’s performance look favorable to investors, employees, and others. Financial record manipulation can include falsified or off book accounting entries and financial statements, evasion of regulatory oversight, insider trading and tax violations. One of the major cases of corporate fraud involves Enron. Enron, an energy trader, and supplier, formed in 1985. In 1999 they created an trading website that focused on the buying, selling and trading of energy commodities. Enron was party to every transaction on the trading site as either buyer or seller. In later 2000, Enron was financially starting to fall apart but their CEO, Jeffrey Skilling hid their losses. They were able to fool regulators by using off the book accounting methods referred to as market-to-market accounting, this method made the firm appear to show higher profits than they earned. They also created special purpose entities, which is not illegal, however they used these entities to hide their troubled assets, keeping them of Enron’s financial books. Enron’s audit firm, Arthur Anderson, knowingly signed off on the financial statements despite knowing about their shady accounting practices. Through the work of federal forensic accountants, many criminal charges, and guilty pleas to charges ranging from wire and securities fraud to insider trading and conspiracy.

Conclusion 

White collar crimes are financially motivated, nonviolent crimes perpetrated by businesses, individuals, and government professionals. According to the FBI, the motivation behind these crimes is to obtain or to keep from losing money or assets for personal or business gain. White collar crimes are often considered crimes of privilege and often go undetected due to the criminal’s relative power and status in society, generally because they are high ranking business executives with influence and resources.