Auditing,governance and scandals - Coursework Example

The problems that faced A.I.G are not purely financial crises brought about by the tough global economic condition or any form of catastrophes. The problems, as evidenced by the Mutual fund scandals (2003), the Insurer bid rigging (2004) and AIG accounting scandal (2005) were purely caused by managerial twists and dysfunctions (Evans, 2012 p62). The management administration and governance failures saw the company plunge into a deep financial crisis, from which it has been trying to recover until present day (Markham, 2005 p510).

The management and governance failure for this organization are traceable in several of the management deliberate misdeeds. First, the company took a huge amount of funds that were collected from securities lending, and invested them in the subprime bonds. Additionally, the company comingled its insurance subsidiaries to give it back some more money for that purpose (Boyd, 2011 p72). In so doing, the company ignored all the risks involved in operating liquidity subprime bonds and went on to commit huge amount of its customer’s funds to this risk. . The organization inflated its reserves that are used to pay claims by $106 million, making its reserve appear as though it was in a good state, and thus overly stating the organization’s total net worth.

Additionally, the top management of the organization engaged in an illegal scheme with its traders, where it instructed them to buy A.I.G shares from the stock market in bulk, so that its share prices would rise (Spencer, 2009 p42). The acceptance of the ethical and accounting lapses, which led to the fraudulent and manipulation of accounting practices, places this organization on the list of companies with a high management and governance failure. Finally, bid rigging is yet another management failure that adds to the governance problem of the organization.

The organization and its subsidiaries were involved in colluding with the executives of leading insurance companies, to defraud customers off billions of money, under false pretenses (Markham, 2005 p496). The executives arranged some fake noncompetitive bids and then conveyed them to the customers of some of the company’s subsidiaries, while also hiding some commission charges, to defraud the insurance buyers. A.I.G improvements and changes after the big scandals Notwithstanding the financial crisis that the company experienced after the scandals and management malpractices, the situation of the organization has continued to improve.

The organization has engaged in various practices that improved its situation. First, the organization replaced all the top management executives who were involved in the malpractices, with other fresh individuals, who are committed to the course of reviving and improving the situation