Fraud is a serious and growing international problem, and can greatly affect a company's performance. The current case highlights the impact that culture can have on corporate corruption through the culture of a specific organization, as well as through the broader culture of a society. In this case, Russian NorthOilService (NOS) acquired 98 percent of the shares of the near-bankrupt Kazakh drilling company, South MunaiGas (SMG) in 2007. NOS management realized that SMG's weak financial standing was caused by corporate fraud and corruption, among other factors. Unfortunately, NOS was unable to prevent the new management team of SMG from committing fraud, despite NOS's anti-fraud efforts after acquisition. This actual case study focuses on the accounting and other frauds perpetrated by the SMG management team and the anticorruption measures implemented by NOS. It addresses fraud, bribery, corruption, and misappropriation of assets through inappropriate procurement procedures, in a cultural environment differing substantially from U.S. corporate contexts. This case is suitable for use in auditing, corporate governance, and fraud examination courses.
This paper investigates whether the setting of loss reserves depends on an insurer's complexity, which is de¯ned by the number of business lines an insurer underwrites and on the insurer's expertise in those lines. Our results suggest that insurers with higher levels of complexity tend to over-reserve. We also¯nd that, as complexity increases, insurers that are¯nancially weak and smooth their earnings, tend to under-reserve (i.e., bias their loss reserves upward). Further, we¯nd that as complexity increases, insurers with high tax liabilities tend to bias their loss reserves downward (i.e., over-reserve), suggesting that tax strategies are important issues for insurers. An insurer's degree of complexity is particularly salient when determining the extent to which loss reserves can be aggressively set.
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