Analysis of Wells Fargo Accounts Fraud Scandal Case Study

This case study examines the Wells Fargo accounts fraud scandal, triggered by the unauthorized creation of millions of customer accounts. The scandal, which resulted in significant fines and reputational damage, stemmed from a high-pressure sales culture and a flawed performance management system that incentivized employees to sell unwanted products. The analysis explores the root causes, including the decentralized corporate structure, aggressive sales targets, and failures in risk management and corporate governance. The report highlights the roles of independent directors, the shortcomings in Wells Fargo's risk management approach, and the importance of ethical sales practices. The study also covers the regulatory responses, the resignation of key executives, and the steps taken by the bank to address the issues, including the elimination of sales goals and the reform of incentive schemes. The case concludes with insights into the necessity of robust risk governance and the long-term implications for the financial institution's reputation and customer trust.

Running Head: Wells Fargo accounts fraud Scandals
WELLS FARGO ACCOUNTS FRAUD SCANDAL
Name of the student
Name of the university
Author note

1Wells Fargo accounts fraud scandals
Executive summary
The corporate management of risk indicates the procedures that are applied by the corporation to
eliminate economic loss. The executives, risk managers, middle managers and line managers
along with the employees conduct the practice in order to prevent the exposure of financial loss
by the internal controlling over the technologies and individuals. Thus risk management denotes
the external threat to the company as the variation in an economic market that hamper the
monetary assets.

2Wells Fargo accounts fraud scandals
Table of Contents
Introduction......................................................................................................................................3
Assessment of risk...........................................................................................................................4
Key risk........................................................................................................................................4
Key causes for fraud scandal.......................................................................................................4
Risk classification........................................................................................................................5
Risk response...............................................................................................................................5
Shortfall in approach of Wells Fargo...........................................................................................6
Aspects of risk governance..........................................................................................................7
Conclusion.......................................................................................................................................8
References......................................................................................................................................10

3Wells Fargo accounts fraud scandals
Introduction
The Well Fargo is accountable for fraud scandal is continuing controversial issues which
is brought by the formation of millions of checking accounts and fraudulent savings on behalf of
the clients of Well Fargo without obtaining permission of them (Schaltegger, Burritt and
Petersen 2017). The fraud news widely spread in the later 2016 after the governing structures
which involve The consumer Financial Bureau of Protection in the United Kingdom charged
around US$185 million from the company as the consequence of the unlawful act (Hopkin
2018). The company in addition to the fines also faces litigation that bought against then in
criminal and civil suits which comes around $2.7 billion at the end of the year 2018 (Kostry et al.
2017). The clients of Wells Fargo notice that the fraudulent act of the company after being held
responsible goe alleging unanticipated charges and also obtain debit cards or unexpected credit
or credit lines. The initial report raise blame towards the managers and workers of the Well
Fargo for the issue along with that sales incentive that re-linked with the solutions of selling
multiple or financial goods (Cavico and Mujtaba 2017). Later on, the blame was transferred to
the pressure of top-down from the management of higher-level to open up accounts through the
process of cross-selling. The few risks hold by the bank inclined to economic crisis from the
period of 2007-2008 that resulted in stability image in the financial world and also on Wall Street
(Jiang and Shen 2017). The reputation of stability in the financial institution was discolored by
the fraudulent activity that is widely spread and the subsequent coverage that is engaged by the
corporation (Witman 2019). The controversial issue that had been raised leads to the resignation
of CEO name Johnf Stump. Furthermore, the inquiry held in the bank was led by Senator of
United States along with that presidential election in the year 2020 of the candidate named

4Wells Fargo accounts fraud scandals
Elizabeth Warren, the numeral of resolution in between various parties and Wells Fargo along
with that pledge from the novel arrangement for bank reformation.
Key causes for fraud scandal
The goals of independent directors in the company in directing the inquiry is assumed to
be the fundamental causes of sales practice that are improper in community financial institution
which is for identification of remedial activities, so there is no scope for repetition of the
problem and to reconstruct the trust of the customers in the bank (Tayan 2019). The employees
of the bank opened unauthorized credit card accounts for customers. Wells Fargo as reported by
Financial Times is well known in banking institutions as king of cross-selling (CLASS 2018).
The strategy of cross-selling is attractive in retail banking due to the fact that a valuable portion
of the relationship with customers in the bank is to obtain clients as the customer. The employees
at Well Fargo had an apparent target of selling near about eight items to per customer. The
strategy that is constructed by Well Fargo is termed as high pressure in selling culture (Mboga
2017). The employees are given un imaginary number of sales quota to achieve and the condition
embodied is too stringent that employees may be terminated for not attaining the target. The
salesperson due to the impossible target set out to them resort to fraudulent practices or adopt the
policy of sales tactics that are aggressive will lead to the scandal (Hillson 2016).
Assessment of risk
The root causes are the nature of individuals, high pressure burdens inclined the
employees to obtained illegal practice.Risk assessment is termed as the description of the entire

5Wells Fargo accounts fraud scandals
procedure or method which involves identification of hazards and factors that lead to creates
danger, Furthermore, it involves appropriate measures for elimination or controlling risk at tie
where there is no possibility for the elimination of hazardous situation (Antonacopoulou, Bento
and White 2019). The scandal of cross-selling in Wells Fargo is highlighted in 2016 and is
seemed to stuck in downward failure in the process of risk management. The root reason is the
policy of cross-selling that had been adopted by the employees of Weels Fargo impacted the
program of failure in risk management. The investigation conducted in the year 2010 opined that
the failure of Wells Fargo is due to the negligence in the process of risk management and the
company made the settlement in exchange of $1 billion (Grayson and Hodges 2017). Risk
culture is the mutual understanding of the corporation and the purpose of business. The
employees need to understand the rules of compliance and risk towards the goals of business.
Risk classification
The classification of risk on the basis of the framework is market risk, liquidity risk,
operational risk, reputational risk, business risk, moral hazard and systematic risk (Bromiley et
al. 2015).
Risk response
The panning of risk response involves determining the method to eliminate or reduce
risk to project in addition to that provides opportunities to make growth in impact. The project
manager should operate for reduction or elimination of risk prior to occurrence. The project
managers are accountable to eliminate the impact and probability of risk and enhance the impact
and probability of opportunities. The strategies of risk management include avoidance,
mitigation, transfer.The responses of Well Fargo to risk management is although oversight
mechanism and independent risk are maintained by the company the senior leaders are held

6Wells Fargo accounts fraud scandals
accountable for guaranteeing that correct practice are implanted in divisions (Sadgrove 2016).
The group leaders of risk management took principal in addressing and assessing risk within the
unit of business along with that accountable principally to business heads. It is believed by John
Stumpf that the structure of better management of risk by fostering decision making in addition
to that yielding sound decisions on business as that will make them closer to the clients (Hillson
and Murray-Webster 2017). The chief risk officer in operational division viewed compensation
issues or sales practices among command but as the obligation of business line and control
functions. The risk officer viewed sales structure as a known issue but was contained, small and
well managed (Gatzert and Martin 2015). The department of internal audit viewed that controls
and processes that are designed to investigate, detect and remediate violations of sales practice
were efficient in mitigation of related risk at sales practices. Nevertheless, there is no initiative
on the part of the audit department of the company for the determination of the root factor of
sales structures that is ethically incorrect. It is concluded by the report that centralization
advisability was subject disagreement within the company of Wells Fargo, it is visible from the
event that the strengthen centralized functions of risk is suited to efficient risk management. The
article of Los Angeles times highlighted violations, salse practices were considered in the report
as the noteworthy risk to the risk committee of the board. The scandals of cross-selling practice
in the company of Wells Fargo emphasized the crisis of executives who are high performing and
whose conduct is not inclined to the values of the company. The compensation structure of Well
Fargo highlighted the policy of cross-selling as a metric of performance for presenting incentives
to employees.

7Wells Fargo accounts fraud scandals
Shortfall in approach of Wells Fargo
The shortfall of Well Fargo risk management is the negligent act in the process of
controlling and regulating risk. The media report relating to the initial scandal which came out in
2016 revealed that the company is liable for failure in the management of risk due to the below-
mentioned reasons. Firstly in the year 2009-2016, the company committed the scandals of cross-
selling where the massive number of accounts created without obtaining customers' consent.
Secondly, the bank made a leakage accidentally of PII relating to accounts. Thirdly in the year
2017, the charges raised against Wells Fargo are around 800,000 clients for dragging them to
insurance which they are not in requirement. The federal reserve in the year 2017 made the
imposition of unprecedented authorizations on Well Fargo forbidding them from developing
outside their holdings. The novel ad campaign launched by Wells Fargo in the year may, 2018,
termed as Reestablished with the aim of reattaining the faith of the client after massive failure
perpetrated by then in the process of risk management. Nevertheless it has been disapproved by
the general on the supposition that the same is inauthentic and insincere.
Aspects of risk governance
Risk governance indicates rules conventions, institutions, mechanism and processes by
that the risk concern decisions are implemented and adopted. Risk governance can be positive or
normative as it formulates and analysis the strategies of risk management to reduce or avoid the
economic or human expenses incurred due to the disasters. The framework of risk governance is
a wide-ranging approach that assists to analyze, evaluate and manage the issues of significant
risk for what there is the deficiency in the process and structures of risk governance. The
management of regulatory risk is designated as the threat of having the factor authority to
operate which is take away by regulator or applications of prospective or retrospective conditions

8Wells Fargo accounts fraud scandals
that impact adversely to he economic asset of the company. The regulators of Well Fargo has
issued an unusual and stinging rebuke of the bank of United States that the determination to
reform risk controls ad governance have been unsuccessful to date. The declaration from the
Comptroller Currency office highlighted that the bank pressure remains severe three years post
the fake accounts scandals that are exposed to the failure of numerous governance throughout the
company in addition to that pressed extra scrutiny from the regulators. The spokesman for OCC,
Bryan Hubbard states that the performance of Well Fargo bank and its inability in
implementation of efficient corporate governance along with that successful program of risk
management. It is expected by the national financial institution that customers are to be treated
fairly in a sound and safe manner and also to follow the regulation of law. The Senior
management of Wells Fargo has adherence to models of sales structure. The sales models are
called for annual development in products such as savings account, checkings account, credit
cards that are sold each year. The senior leadership in the community bank had failed to accept
or appreciate their sales targets which are increasingly unacceptable. The senior leadership
criticized nd challenged the unrealistic goals of sales by raising the argumant that they produced
product sales that are neither used or needed and they tolerate the account that re low standard as
a required by-product of the organization driven by sales. The community bank failed to
appreciate that accounts that are low quality are the indicator of unsanctioned accounts. The
investigation confirmed that the only mode to address the root reasons for abuse in sales practice
and model of broken sales was to emphasize other performance metrics and unrestraint pressure
through the incentives of sales and sales goals. It is declared by Wells Fargo in September 2013
with the board’s accord that banks would eradicate goals of product sales in retail banking. Wells
Fargo in January 2017 to address the compensation incentives that are misaligned, put a program

9Wells Fargo accounts fraud scandals
of new incentives that are concentrate on services of the customers somewhat than sales
products.
Conclusion
Thus it is concluded that the control functions of Well Fargo particularly in the law
department, corporate risk, internal investigation, human resources dealt with the issues of sales
practices in Community bank. The decentralized structures of organization in Wells Fargo
indicates the centralized functioning that had the equivalent unit in community bank obstructs
insights of corporates and dominion over community bank. Thus the risk function in Well Fargo
is mainly decentralized. The decentralized construction in the department's response of the
human resource of Wells Fargo is responsible for deficiency of visibility in the nature and scope
of issues of sales practice. The decentralization and fragmentation structure of regulatory
functions requires to be addressed. The sales practices in late 2015 are marked as high risk; there
lies general perception in the control functioning of Well Fargo ‘s that the abuse in sales practice
was the issue of modest relevance and victimless crimes. The remedial measure adopted by
Wells Fargo to resolve the issues of sales practice is as follows. Firstly measures should be
adopted to resolve the issues raised in sales practice. The community bank made a reduction of
sales targets for the year 2013 though the aim was not attainable. The leadership of the
community bank is incapable to address adequately the problems that are underlined resulting in
the infringement of sales practice. Wells Fargo has added controls and centralized monitoring to
augment the mistake of practices in sales. The recommendation made by Loughlin that board
sanctioned the involvement of Mc Kinsey & Co. to make an analysis of the risk functioning of
Wells Fargo and make several strategies for improvement. The goals are to minimize the
problems of salse integrity and clarification of processes and roles when they happen. The sales

10Wells Fargo accounts fraud scandals
reliability project which is initiated by Paterson in 2011, is to offer strategies relating to the
issues of sales truthfulness in Community Bank. Thus the investigation report concerning sales
practices is to evaluate the root factors for untenable sales practices in Walls Fargo and to
identify several actions for the mitigation and prevention of the issues and to reconstruct the trust
of the customers in the bank.

11Wells Fargo accounts fraud scandals
References
Antonacopoulou, E.P., Bento, R.F. and White, L., 2019, July. Why Didn’t the Watchdogs Bark?
Internal Auditing and the Wells Fargo Scandal. In Academy of Management Proceedings (Vol.
2019, No. 1, p. 12966). Briarcliff Manor, NY 10510: Academy of Management.
Bromiley, P., McShane, M., Nair, A. and Rustambekov, E., 2015. Enterprise risk management:
Review, critique, and research directions. Long range planning, 48(4), pp.265-276.
Cavico, F.J. and Mujtaba, B.G., 2017. Wells Fargo's fake accounts scandal and its legal and
ethical implications for management. SAM Advanced Management Journal, 82(2), p.4.
CLASS, J.E., 2018. TOGETHER WE'LL GO FAR... AWAY FROM COURT: THE WELLS
FARGO SCANDAL AND THE LIMITS OF ITS MANDATORY ARBITRATION
AGREEMENTS. Review of Banking & Financial Law, 37(2).
Gatzert, N. and Martin, M., 2015. Determinants and value of enterprise risk management:
Empirical evidence from the literature. Risk Management and Insurance Review, 18(1), pp.29-
53.
Grayson, D. and Hodges, A., 2017. Corporate social opportunity!: Seven steps to make
corporate social responsibility work for your business. Routledge.
Hillson, D. and Murray-Webster, R., 2017. Understanding and managing risk attitude.
Routledge.
Hillson, D. ed., 2016. The Risk Management Handbook: A practical guide to managing the
multiple dimensions of risk. Kogan Page Publishers.

12Wells Fargo accounts fraud scandals
Hopkin, P., 2018. Fundamentals of risk management: understanding, evaluating and
implementing effective risk management. Kogan Page Publishers.
Jiang, J.X. and Shen, M., 2017. Traditional Media, Twitter and Business Scandals. Michael,
Traditional Media, Twitter and Business Scandals (May 1, 2017).
Kostry, N., Malloy, T., Wang, M. and O’Rourke, J.S., 2017. Wells fargo & company:
Accusations of illegal customer account management (A). The Eugene D. Fanning Center for
Business Communication, Mendoza College of Business, University of Notre Dame.
Mboga, J., 2017. EXPLORATIVE CASE ANALYSIS OF ETHICAL FINANCIERS AND
ELICITING MILLENNIALS PERSPECTIVES OF FINANCIAL MARKET
SCANDALS. European Journal of Economic and Financial Research.
Sadgrove, K., 2016. The complete guide to business risk management. Routledge.
Schaltegger, S., Burritt, R. and Petersen, H., 2017. An introduction to corporate environmental
management: Striving for sustainability. Routledge.
Tayan, B., 2019. The Wells Fargo cross-selling scandal. Rock Center for Corporate Governance
at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate
Governance No. CGRP-62 Version, 2, pp.17-1.
Witman, P.D., 2019. “What Gets Measured, Gets Managed” The Wells Fargo Account Opening
Scandal. Journal of Information Systems Education, 29(3), p.2.