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Avon’s bribery scandal

Avon incorporation is one of the leading door-to-door distributors of cosmetics. The internal audit of Avon’s China subsidiary indicated fund misappropriation attributed to the failure by the management to uphold and enforce moral and ethical principles in the company’s financial decisions. Although China prohibited the direct sale of Avon products before 2006, the policy underwent review to allow direct sales, but on strict regulations. Avon’s lack of a robust ethical model created loopholes allowing employees to engage in unethical business practices and transactions. An unknown whistleblower revealed the fraudulent activities in Avon’s China subsidiary, which prompted the company to embark on unraveling the fraud that threatened to damage its reputation and cause significant financial losses. The scandal entailed the bribing of Chinese officials to permit the firm’s operations. Fraudulent Avon employees would feature the bribes in the company’s miscellaneous expenses such as travel, gifts and entertainment. Avon used the fraud report to conduct a thorough audit of its foreign subsidiaries in compliance with the internal investigation and China’s compliance policies. Similarly, the company reviewed its accounting practices such as the reporting of expenses, especially the miscellaneous costs.

The aftermath of Avon’s bribery scandal was the detrimental performance of the firm’s stock at the New York Security Exchange. The value of Avon’s stock dropped by about 8 percent upon the announcement of the scandal and declined further in the following weeks. The expected company revenue decline by about 2 million Yuan compared to the previous quarterly financial reports. The investigation of Avon’s bribery scandal implicated some of the company top officials in the China subsidiary including the president, K. Kao, the chief financial officer, Jimmy Beh and Ian Rossester, the head of global internal audit and security in New York. The investigators assessed the failure by the company’s top officials to adhere to ethical standards in the management of business transactions and employee practices. The investigation revealed that K. Kao failure to undertake his leadership roles encouraged employees to engage in unethical practices and transactions. Similarly, the investigation revealed that Jimmy Beh was responsible for misappropriation of funds because he was the CFO overseeing the movement of funds during the bribery scandal. Further investigation revealed that the CFO attempted to conceal the bribery by documenting incorrect financial reports, which clearly demonstrated that he participated in the malpractice. Avon suspended the CFO on grounds of misconduct in official duty and lack of ethical values such as accountability, transparency and responsibility. Avon’s investigation demonstrated that Ian Rossester was irresponsible in monitoring the accounting progress of Avon’s subsidiaries within the holding company. He demonstrated unethical behavior by allowing the scandal to remain unnoticed until an undisclosed individual tipped-off the CEO.

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