How Serious Were Stephen Richard’s Actions?

1.  How serious were Stephen Richard’s actions? Why?

Stephen Richard’s action was really serious. At first, he thought it would be alright to “shift” sales and record for a few days early to meet the company’s quarterly target. He argued that all sales were legitimate transactions; the all over revenues and company’s financials were not impacted by recording sales in different quarters. He had a good purpose but wrong technique. This technique was leading him to fall into “rationalization” of the fraud triangle. He could have done it differently. Richard didn’t realize that what he did was creating a culture of sales driven, manipulation of financials reporting, and lack of focusing on ethics and integrity of the company- two important elements for a successful company. Having an aggressive accounting practice and failing to disclosure appropriate company’s quarterly performance, it led to Stephen Richard to a final destination, being sentenced for his wrongful act.

1. If Computer Associates achieved the same financial results through GAAP flexibility, does your answer to Question 1 change?

No, I would not change my answer. Although at that time, the scandal wasn’t illegal, but Stephen Richard’s action was considered immoral and unethical. He led the accounting team to recognize revenues for a few days were considered an act of bending the rules to misleading shareholders and investors.

1. Suppose you were placed in Stephen Richard’s position at Computer Associates and were under pressure to extended the fiscal quarter. How would you handle the situation differently? What would be the expected consequences?

If I was placed in Stephen Richard’s position at Computer Associates, I’d lower a percentage of quarterly bonuses based on executed contracts instead increasing based salary and develop a profit-sharing plan, which allows manager from each department to review employees’ performance annually to remits the employees’ hard work. Doing this way, the company can still motivate employees to perform well and minimize pressure on top executives to maintain sales on each quarter.