It’s not unusual these days to hear about large corporations that have become involved in some major financial scandal. Parmalat, Enron and Worldcom are three examples of corporate irregularity.

Some companies simply don’t record their losses, or they record them as loans to subsidiary companies that have been specially created for that purpose . Some companies record normal expenses as capital
expenses, and remove them from the profit-and-loss account. In some cases, important movements of revenue are simply not recorded at all. They mysteriously disappear from the balance sheets.

Other accounting discrepancies may include suspiciously low interest payments, company investments that don’t exist, falsifying sales figures and removing money from the pension or social security funds of company workers. Corporate theft often involves billions of Euros. Many financial analysts agree that these cases are not “mistakes”, but illegal practices that have been going on for years.

Parmalat executives have admitted that they secretly stole at least 500 million euros ($630 million) and transferred it to a family-owned subsidiary. The financial director admitted “cut and paste” forgery, in which a document with Bank of America letterhead was scanned and then added to a document verifying a deposit account with that bank holding over $4.98 billion. The document was then passed through a fax machine several times in order to appear authentic.

The huge energy multinational corporation Enron is another example of bad business practice. Enron admitted to exaggerating earnings and hiding debt using a complex system. The company later went bankrupt, and hundreds of people lost their jobs.

WorldCom, like Enron, was another very successful company. They have now admitted that $3.8 billion of operating costs were treated as capital spending, forcing it to restate results for 2001 and the first quarter of 2002. With so many losses, Worldcom had to file for bankruptcy and default on its debt of $35 billion.

Corporate theft has become an unfortunate stain on international finance. Maybe it’s time for companies to resist financial pressure and consider the consequences to their shareholders and employees before they act illegally.