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1. What were the failings of ethical leadership and corporate governance by management of Parmalat? How do you think these deficiencies contributed to the fraud?
Top management is ultimately to blame for the fraud. They created and maintained misleading information and documents on nonexistent bank accounts. The management and company had a duty or obligation to honest and reliable financial reporting. They also had a duty to all the shareholders and investors, not just to the Tanzi family. Top management cannot blame the other parties; that is like saying, “if the other parties had said something or caught the fraud, we would have stopped.” The auditors had a duty to perform the audit with objectivity, due care and professional skepticism. They did not perform the audit with due care and skepticism and may have been responsible for the perpetuation of the fraud by not being more diligent. How many were affected by the auditor’s inaction and poor audit procedures? How much did it cost the stakeholders?
Top management used Parmalat resources for their own benefit. This was not a secret at Parmalat. Others in the company probably believed the culture did not promote ethics and they may have been less concerned whether the financial statements presented financial position, results of operations, and changes in cash flow in conformity with accepted accounting principles.
The leadership at Parmalat might have created ethical dissonance for those whose ethics were high while the organization’s was low. There is no indication that the culture fostered openness and transparency, two essential elements in creating an ethical environment. Parmalat’s leadership was inauthentic as it did not promote an ethical organization environment.