Philip Crosby was a former president of ITT. While president, he wrote a book advocating that producing error-free products was possible and could be very profitable. He left ITT to form Philip Crosby Associates, Inc. (PCA), a consulting firm based on his own book's principles. The new company became so successful that it began to attract For-tune 500 executives, who paid large fees to spend a few days at PCA with Philip. PCA was a unique reflection of its founder's values. Crosby argued that to produce error-free products, you need to have an environment of mutual respect. If employees have pride in working for their company and feel that their company is open and honest, they will perform to the best of their abilities and will not steal from the company. PCA had an international division that posted $2 million in sales in its first year and had expectations to double that figure in the second year. In February of the second year, PCA opened an office in Brussels and had more offices in the planning stages. PCA decided it needed a director of finance who could work with each new country's reporting rules and translate foreign currencies into their U.S. equivalents. After a reasonable search, the eight senior PCA executives agreed to hire John C. Nelson. John had an MBA and seemed to have an impressive understanding of the technical aspects of the international marketplace. He also had an impressive reference provided to PCA by his previous company. Steve Balash, vice president of human resources, said, "He seemed like the kind of honest individual we'd want to hire. "Unfortunately, John C. Nelson was not an honest individual. In fact, he wasn't even John C. Nelson. Rather, his real name was Robert W. Liszewski. When hired, Robert deco-rated his office with an Illinois CPA license; the CPA certificate had been created on his home computer. The background reference that was provided to PCA had been written by Robert's wife, who was a part-time worker with "John's former employer. "Robert's job at PCA was to develop financial information for PCA's fast-growing inter-national operations. Robert's work did not go very smoothly, even from the start. He was terribly slow at con-verting numbers from foreign currencies to U.S. dollars, which should not have been a tough task for a CPA. In addition, his monthly reports were always late. After about a year on the job, Robert faced his first big test. The company's third-quarter report deadline had passed, and Robert was far from completing it. His excuses ranged from "The outside bookkeepers...haven't yet computed the final receipts "to" the computer crashed." PCA executives decided to let Robert continue because he seemed to be catching on and was doing better on other projects. In December of the third year, Robert's bookkeeper quit, leaving him completely in charge of all the money that flowed through that division (approximately $12 million that year).Robert quickly became hopelessly behind in keeping the books and was finally called in to explain his problems to the chief financial officer. In the interview, Robert started crying, saying that he had cancer and had only three months to live. The chief financial officer believed Robert's lie, and he was allowed to keep his job. PCA's business began to get worse. In the third year, the company's stock fell to $12 per share from $20 the year before. On March 12 of that year, the chief financial officer tried to move $500,000 from one bank account to another. He was informed by the controller that the account did not have a sufficient balance for the transfer. The CFO knew that the account was supposed to have at least $1 million in it. To see where the money went, the controller scanned the ledgers of wire transfers from the questionable account. She found an unposted transfer that did not appear to be legitimate. The amount of $82,353 had been transferred to a U.S. company called Allied Exports, supposed to pay for shipping products to Brussels. The materials were being sent from South Bend, Indiana, to Brussels. The controller knew that South Bend was Robert's hometown, but did not think anything of it. Sub-sequent searches found several more wire transfers to South Bend totaling more than $425,000. The company called the Indiana secretary of state's office to check on Allied Export's incorporation records. They were informed that the president of Allied Export was a woman named Patricia Fox. Management recognized Patricia as Robert's wife. With help from his wife, Robert had created a dummy company in South Bend, Indiana. In over eight months, Robert funneled over $961,000 to the dummy company by charging the expenditures to a number of different expense accounts. Robert's wife was arrested in South Bend when she tried to withdraw $230,000 from the account. In their home, detectives found PCA's ledgers that Robert had stolen and a lock-box that contained all of Allied Export's monthly statements, canceled checks, and incorporation papers. While searching the house, the police spotted Robert driving by in a white Porsche, but they were unable to catch him. Two weeks later, police computers showed a new driver's license had been issued to a John C. Nelson. When they checked out the address, police found an elderly man. The man was thermal John C. Nelson, who identified Robert's picture as his old boss, Bruce Fox, who had been fired from a bank in Indiana when the bank discovered that he had previously served an 18-month sentence for embezzling $400,000.

Assume that you are the fraud-fighting consultant hired by the company.

a. What advice would you give this company?

b. What kind of fraud prevention, detection, and investigation programs would you recommend be implemented?

c. What kind of ethics programs would you put in place?

d. What kind of prosecution policies would you establish?