February 2, 2012
The purpose of this article analysis is to identify situations that may lead to unethical practices and behavior in accounting. Brooke Corporation and founder Robert Orr are an example of how Sarbanes Oxley (SOX) laws have not been as effective as most want to believe as based on the article, “Eight Years after the Fact is SOX working? A Look at the Brooke Corporation” by Beth Hazels. Brooke Corporation was, “once the largest franchisors of property and casualty insurance in the United States” (Hazel, p.19) until both company and founder filed for bankruptcy in 2008. Robert Orr and Brooke Corporation committed fraud on their financial statements as well as misappropriated commissions and funds due to their franchisee agents, customers and lenders during their 24-year reign of deceit. Lawsuits alleging anywhere from “fraud and civil racketeering to business valuations and financing were brought up against Brooke corporation and most were dropped. Brooke was also in violation of several SOX laws that have yet to be raised against them” (Hazel, p.23).
Brooke Corporation handled everything from financing their franchise agents to selling them office space through several of their own entities all owned by Robert Orr. Insurance agencies were then directed to pay Brooke Corporation directly to a master account instead of their Franchise Agents where Brooke would then dole out agent commissions, rent and utilities payments to vendors and landlords. The only problem was “for years Franchise Agents would complain that Brooke would not send them commission reports from the insurance companies showing the total commissions earned…and that while payments for utilities and rent were withheld from commission checks those payments were not made to the landlord and utility companies” ( Hazel, p.20). Company integrity and trust was lost albeit never built between agents...