Bribery at Wal-Mart de Mexico

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Case Overview

Wal-Mart de Mexico is the largest foreign subsidiary of Wal-Mart Company. It has a high growth rate and builds stores in many places at a very impressive rate. Its expansion rate has been very impressive to the extent that it has become the success story of Wal-Mart. At the moment, around 20% of Wal-Mart’s stores are at Wal-Mart de Mexico (Barstow, 2012). What is not known is that behind the success story of Wal-Mart de Mexico is a chain of unlawful activities, ranging from bribery to forgery. These uncouth activities, which have triumphed and are concealed by top management in Mexico, are brought to the limelight by a former employee who informs the new lawyer.

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Investigation reveals that the management of Wal-Mart de Mexico has been bribing government officials to obtain permits. The crimes are concealed by giving the expense a justifiable explanation in the books of account. Using bribery, Wal-Mart de Mexico is not only able to get permits but also circumvent environmental laws as well as other legal requirements (Barstow, 2012). Furthermore, Wal-Mart de Mexico has been able to increase its sales through helping selected high-volume customers avoid taxes. Bribery is against government laws and can lead to law suits or even closure of the subsidiary (Ranzaee & Riley, 2009). Moreover, it has been revealed that some officials are misappropriating company funds. All this leads not only to financial loss, but also liability for legal actions according to the laws of the government.

Management’s responsibility Regarding Fraud Control

It is the responsibility of managers to ensure that no fraudulent activity takes place. Shareholders employ managers so that they can help them secure company assets and above all, ensure that the value of their investment is increased (Singh, 2007). Legally, managers are supposed to ensure that they adhere to government laws and avoid actions that will cause any loss to the firm, financial or otherwise. Unfortunately, the managers of Wal-Mart de Mexico are involved in perpetration of fraud. Instead of them being at the forefront to condemn bribing and misappropriation of company resources, they help in concealing the vice thus encouraging it.

Corporate Culture and Environment that Contributed to the Fraud

From investigation, the environment at the company allows flourishing of fraudulent activities. The chairman of Wal-Mart de Mexico, Mr. Eduardo Castro-Wright, puts a lot of pressure on the junior employees to ensure that expansion sails through regardless of what the law states. As a matter of fact, he himself conceals the crimes by manipulating the corporation investigation unit. Similarly, the parent company and the top managers in United States have never questioned the secret behind the rapid expansion of the Mexico subsidiary. On the contrary, they praise and promote managers of Wal-Mart de Mexico even after allegations of bribery have been made against them. On the same note, managers have a lot of power in controlling who is assigned the task of investigating any issues raised (Barstow, 2012). Consequently, the managers are exonerated from blame each time they go against regulations of the firm.

Impacts of the Fraud to the Company

Though the management of Wal-Mart, both in America and Mexico, has tried to hide this information from the public and government agencies, eventually the information will leak and cause various effects. First and foremost, bribery is against the Foreign Corrupt Practices Act of America as well as the laws of Mexico. As a result, there is a possibility of law suits against Wal-Mart de Mexico which can prompt legal actions (Girgenti & Hedley, 2011). On the same note, fraudulent activities usually lead to financial loses. So far, the firm has paid $34.3 million in tax back after activities of assisting clients to avoid tax were discovered. On the same note, the firm has already paid $24 million in bribe, money which could have been used for other projects. Furthermore, the firm risks loosing public confidence and this can lead to withdrawal of investors thus shaking its financial stability. Since the firm has become the envy of many people, when the information reaches the public it will destroy the firm’s public image which can lead to decrease in sales (Singh, 2007).

Measures That Could Have Prevented the Fraud

The situation that Wal-Mart has found itself in would have been avoided if caution was taken from the initial point. Internal controls are paramount to any firm in avoiding fraudulent activities. However, controls were lacking in Wal-Mart de Mexico. It has been noted that managers frustrate all efforts to investigate them thus creating room for more fraud to be perpetrated. Therefore, the investigations unit should have been well staffed with more people assigned the duty of investigating the managers (Ranzaee & Riley, 2009). Additionally, if the investigations unit was independent and reporting directly to executive board, it could have had power to prevent the activities. Similarly, external auditors are necessary to uncover internal frauds. Consequently, if external auditors were sent once in a while they would have discovered the fraud early enough (Girgenti & Hedley, 2011). On the same note, promotions should not be pegged on performance only, but also on other aspects like legal compliance and ethical values. This will ensure that employees do not concentrate on performance at the expense of company values.

References

Barstow, D. (2012). Vast Mexico Bribery Case Hushed up by Wal-Mart after Top Level Struggle. The New York Times. pp. A1.

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Girgenti, R. H., & Hedley, T. P. (2011). Managing the Risk of Fraud and Misconduct: Meeting the Challenges of a Global, Regulated and Digital Environment. New York: McGraw Hill Professional.

Ranzaee, Z., & Riley, R. (2009). Financial Statement Fraud: Prevention and Detection. Hoboken: John Wiley & Sons.

Singh, D. (2007). Baking Regulation of United Kingdom and United States Financial Markets. Farnham: Ashgate Publishing.

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BusinessEssay. (2022) 'Bribery at Wal-Mart de Mexico'. 3 May.

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BusinessEssay. 2022. "Bribery at Wal-Mart de Mexico." May 3, 2022. https://business-essay.com/bribery-at-wal-mart-de-mexico/.

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BusinessEssay. "Bribery at Wal-Mart de Mexico." May 3, 2022. https://business-essay.com/bribery-at-wal-mart-de-mexico/.