ACC305 Trimester 1: Wells Fargo Management Accounting Analysis Report

This report analyzes the financial and ethical issues facing Wells Fargo, stemming from scandals involving unauthorized accounts, unfair fees, and poor business practices. The memo highlights a significant decline in deposits and stock prices, attributing these issues to weak internal controls and a lack of effective management accounting. The report examines the impact of these problems, including penalties from regulatory bodies and damage to the bank's reputation. It emphasizes the need for a thorough review of existing systems, implementation of robust internal controls, and the use of management accounting tools to prevent future fraud. The report suggests improvements like segregation of duties, periodic reviews, and the use of advanced technology to improve the accounting system and prevent fraud, offering recommendations for the board of directors to address these challenges and restore the bank's financial health.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Authors Note:

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Memorandum
To: The Board of Directors
From: Sushant Rijal
Subject: Decrease in deposits and stock prices to fall behind horribly.
The purpose of this memo is to highlight the current issues going on for Wells Fargo with the
possible causes and potential solution. The company has lost many of its shareholders and are
behind from its rivals. Wells Fargo is far behind 47% from Citi group and 70% from JPMorgan
chase. The company is facing 2% fall in deposits which is $30 billion and further research shows
12% of customers are expecting to move their money elsewhere.
These threatening issues are associated with the scandals and poor business ethics. It started in
2016 when the fake account scandal broke wide open. The bank secretly created millions of
unauthorized credit cards and bank account without letting the customer know. Unfair mortgage
rates were applied by modification and the company ended up paying more than they owned.
Small business were tricked with unfair credit card fees by issuing 63 page contract. Over
570,000 customers were auto insured even if they didn’t need any insurance. Not only this, the
bank has provided services like insurance for pets and other complicated products that they fully
didn’t understand which has caused a huge loss. Due to incorrect pricing and fees the company
has refunded 285 million dollars. The ethical problems has also been highlighted because of
employees found to alter documents (Abhayawansa and Guthrie, 2014).

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The company not only opened more than 3.5 million fake bank and credit card accounts, it has
also charged the customers wrongly. Unnecessary mortgage fees were charged from the
customers. In addition the customers were also forced to take car insurance by the employees of
the bank. Once these news were under the carpet nothing seemed wrong for one of the largest
American banks around the globe. However, subsequent to the leak of information the reputation
of the bank has taken a huge beating. As a result the share prices of the bank has tumbled. In a
statement released in August, 2018 the company apologized to its customers for the technical
glitch that resulted in foreclosure of hundreds of homes. Widespread customer abuse on the part
of the bank resulted in brushing penalty being imposed on the bank by the Federal Reserve. The
penalties have not yet been removed by the Federal Reserve means that the company has to pay
the hefty fine for now. The huge penalty imposed on the bank by the regulatory agency
handcuffed the bank from expansion as a result the growth of the bank stopped. The
unprecedented and widespread fraud with the customers warranted penalty and accordingly
brushing penalty was imposed on the bank by the Federal Reserve (Egan, 2019).
The Fed also has assured that the asset cap it has imposed on the bank will not be lifted until the
bank take all necessary course of actions to clean the mess that it has created. Once the Fed is
satisfied then it will lift the asset cap.
The fact that the bank officials opened 3.5 million unauthorized bank and credit card accounts
shows the wide spread malpractices within the bank. The weak accounting system and internal
controls within the bank are the main reasons behind the fraud that caused huge losses to the
customers of the bank. Thus, firstly the management has to conduct a thorough verification and
appraisal of the existing systems in place within the bank. Once the weaknesses in the systems

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are identified these have to be dealt with strongly. Necessary controls shall be instituted to get rid
of the weaknesses from the system.
The share price of the bank has seen a massive decline subsequent to the circulation of massive
accounting fraud. Though the management has claimed that it has reached a $142 million
settlement with the customers but the massive damage to the reputation has been done. As a
result the shares of the company have been left in the dump with significant drop in the share
prices of the company. The management should have used management accounting tools to
identify the fraud at initial level (Hammersley, Myers and Zhou, 2012).
The management accounting systems have improved significantly over the years however, it is
important to implement the system properly to extract maximum benefit out of the system. The
internal controls within the organization must be improved to ensure such fraud can never take
place. Immediate actions shall be taken to improve the internal control and systems in place to
ensure such incidents never take place. Management accounting system instituted within an
organization shall be reviewed on periodic basis to identify weaknesses in the system and to
make necessary changes in the system to strengthen the system. The controls within a system
must be strong to ensure frauds cannot be continue for long. The segregation of duties and
responsibilities properly amongst employees and workers is extremely important to the smooth
operation of any system. In addition to that the duties and responsibilities of the employees must
be changed without any notice as a standard practice to reduce the risk of collusion among the
employees. The risk of collusion will be reduced significantly if there is no fixed pattern in
allocating work responsibilities. The management accounting tools especially ensure that the
accountants do not get the chance to manipulate accounts (Lee, Han and Chung, 2012).

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It is the responsibility of the board of directors of the company to take all necessary precautions
to ensure that the accounting system within the bank is efficient and does not permit fraud to be
perpetrated. The use of advanced technology will help the Board of directors to improve the
quality of accounting system to record all financial transactions. Use of technology in modern
business environment will help the Board of directors of Wells Fargo to deal with the situation in
the future.

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References:
Abhayawansa, S. and Guthrie, J. (2014). Importance of Intellectual Capital Information: A Study
of Australian Analyst Reports. Australian Accounting Review, 24(1), pp.66-83.
Egan, M. (2019). The two-year Wells Fargo horror story just won't end. [online] CNNMoney.
Available at: https://money.cnn.com/2018/09/07/news/companies/wells-fargo-scandal-two-
years/index.html [Accessed 20 May 2019].
Hammersley, J., Myers, L. and Zhou, J. (2012). The Failure to Remediate Previously-Disclosed
Material Weaknesses in Internal Controls. SSRN Electronic Journal, 2(4), pp.12-38.
Lee, Y., Han, Y. and Chung, C. (2012). Output tracking control with enhanced damping of
internal dynamics and its output boundedness for static synchronous compensator system. IET
Control Theory & Applications, 6(10), pp.1445-1455.

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