The largest US bank by market capitalization, Wells Fargo has recently been embroiled in scandal, over creating millions of fake customer accounts without customers’ knowledge or consent. The high-profile case of Wells Fargo raises many questions about accountability, representation and control in organizations, and more specifically about accounting.

Obtain Wells Fargo’s Annual Reports from the past 3 years (2013-2015) and use them as a resource for answering the three questions below. In your response, you can consider the guiding questions and instructions included for each question.

In your opening discussion, briefly comment on the major changes in the financial position of the bank, its financial performance, and other dimensions of performance. In the narrative parts of the report, try to detect the role of cross-selling in the bank’s strategy to deliver performance.

1)   Representation

What kind of picture did the Annual Reports provide about Wells Fargo, and for whom?

• To develop your response, consider how accounting representations relate to reality, the financial statements, and the Annual Report as a whole.
• Why was the bank engaging in these fraudulent activities? Consider the specific strategy of cross-selling, and the environment of performance expectations and pressures faced by a public corporation, as experienced by Wells Fargo. Discuss how these expectations are translated into accounting representations.

2)   Accountability

Discuss the role of accounting as an accountability system at Wells Fargo, as an example of a large public corporation.

• What can we say about discipline and self-discipline in the management accounting system of the bank (e.g. the role of cross-selling targets)?
• When the scandal broke, there was a controversy about who should be blamed. Wells Fargo blamed the employees who created the accounts and had fired thousands of people over several years. Was the fraud only the low-level sales employees’ fault? How was this controversy resolved? Why do you think it is not clear who should be held accountable when something goes wrong at an organization?
• Discuss the relevance and problems of corporate governance, and try to identify some of these problems at Wells Fargo.

3)   Control

What are the limitations of accounting (e.g. budgetary) controls, and how might they have played a role in the fraud at Wells Fargo?

• Try to find out as much as you can about the control system, especially about sales incentives and how lower-level employees were controlled. You will find the critical literature on control useful to develop your response.
• What are some challenges of internal controls and especially Enterprise Risk Management systems, which might have affected the bank? In your response you can draw on descriptions of risk management and risk factors at the bank.

You can use the publicly available video of the US Congressional hearings (especially https://www.youtube.com/watch?v=xJhkX74D10M with Senator Elizabeth Warren, and the long video of the second hearing https://www.youtube.com/watch?v=IeV7UX7z3m4) on the Wells Fargo scandal, and any documents by the US Consumer Financial Protection Bureau (CFPB) as material to help understand the managerial practices at the bank.

Gather further information from reports and analysis about the bank’s practices from high-quality sources (e.g. Wall Street Journal, Financial Times, Bloomberg, CNN and other leading news media, New York Times, Los Angeles Times, The Economist).