The nature of fraud dictates that much of its costly consequences are hidden. Since concealment is a fundamental component of most fraud schemes, some frauds go for long years without ever being discovered; in addition, of the cases that are reported and recorded, very few of them are ever executed with absolute efficiency. Conversely, most frauds are observed to carry substantial indirect costs: these include depreciated productivity, reputational damage and the related loss of overall business. Apart from these costs, the costs associated with investigation and remediation of the issues that allowed them to occur (ACFE, 2014). The result, therefore, is one of a financial iceberg, one with features and consequences of the misappropriation visible, and another below the surface far less fathomable.
1.The General Manager of a private of an investment holding pleaded guilty to stealing an amount of two million dollars from the club trough fraudulent checks, and payments to non-existent employees. The general manger admitted to money fraud, wire transfer’s fraud and the intention to embezzle from the holding. Over a period of more than four years the general manger had ghost employees receiving salaries, he had arranged favors for people who were close to him and entered them into the pay role, and there was also billing checks to employees that led to his own account. In addition, the GM also wrote checks addressed to the holding to pay for his personal luxury such as car rentals and leases, hotel payments, and to please colleagues.
The GM’s fraudulent behavior only came to light after the investment holding hired a new treasurer to control its finances. It was when duplicated invoices were brought to the treasurer’s desk that the malicious activity was discovered. The type of asset misappropriation committed by the GM bordered along mail and wire fraud. Both poor management and lack of management played a major role in promoting the above described case. The general manger had a hand in financial matters for over four years which presents a case of extremely poor financial management department or lack thereof. There is no proper detection measure put in place suggesting an utter lack of management (McFarland and Newman, 2013).
2.If they are not appropriately tackled, opportunistic slap-at-the-back-of-hand measures could lead to an infectious spread of asset misappropriation in organizations. Whenever strict punishments are not enforced, organizations create a culture of theft and fraud. As a result of lenient treatment, fraudsters tend to think that their act. Apart from the direct impact of lost funds, asset misappropriation fraud can also ions are excusable. A deep fraud case is one that the organization’s management fails to distinguish between their own money and company funds. Consequently, the impact on an organization’s staff morale and reputation cannot be denied (McFarland and Newman, 2013). Honesty and repercussions are observed to promote employee morale.
There are various consequences that should follow a case of fraud in order to ensure compensation and punishment to the offender. Thus, some ways used as consequences and punishment for fraud are: extended jail terms, hefty fines, loss of significant licenses and downright layoffs. In the above mentioned case study on the general manager, a jail term was proposed and a hefty fine to with it. In the GM’s case, the organization was compensated by the criminal and justice system by redirection and repossession of the GM’s assets (McFarland and Newman, 2013). This was used as part of the plan to pay of the firm in settlement for the embezzled funds. Inversely, the criminal and justice system is not always able to compensate organizations for their asset losses. The joy of solving the leak is all the compensation most organization’s get since a jail term is only of use to the fraudster. Most organization’s assets are never recovered.
3.For most organizations, risks are seen as potential occurrences that could affect the latter results of the organization’s mission. Essentially, risk management is about understanding the nature of potential occurring risks events and finding where they represent threats, a final part is recognizing the risks and setting out efficient mechanisms to mitigate them (CIMA, 2008). Fraud is a risk that presents an array of problems to an organization, not only to its financial acuity but also to its overall image and reputation.
Managing the risk of fraud is the same in principle as managing any other business risk, more so, risk management is essential when dealing with an organization’s stakeholders. First, after the consequences of fraud have been understood, the whole iceberg, investors and stake holders should be informed in a most prudent manner. Since stakeholders are an important part of how an organization functions, risks should follow implementing an anti-fraud strategy across the organization. Stakeholders should be informed as soon as there is any information for them. This is best executed in a systematic manner, both at the organizational level, that is, by using ethics policies and anti-fraud policies, and at the oriented operational level, through execution of plans for control and procedures(CIMA, 2008). Informing stakeholders is therefore a means of risk management in organizations.
4.In line with the American Institute for Certified Public Accountants that states, ‘Consideration of Fraud in a Financial Statement Audit’, organizations are expected to deals and to have ways to deal with cases of fraud and misappropriation in their companies. The statement of auditing standards No. 1 states that an auditor should be able to perform their financial functions in an organization without interference. It further states that an auditor should strive to get the assurance that financial statements in assessment are free of any misappropriation, whether in error or intentionally (AICPA, 2014).
Some risk factors presented by the AICPA are manipulation, and or falsification of records on to which clear financial information should be presented. As a risk factor, organizations should be able to assess and contain any financial information that should otherwise be liable to tampering. Another risk factor is given as misrepresentation in or intentional omission of information in financial statements in any way. The second risk factor incorporates that the financial statements should incorporate every bit of financial information transparently. The intentional misapplication of accounting principles in relation to the general accounting principles in a bid to breach transparency is also considered a risk factor for fraud. In other words, the financial department of any institution is liable to risk factors associated with fraud. An important solution given for the risk factors is intentional accounting as well as transparent recording of organization finances as plans to review risk factors (AICPA, 2014).
5.Generally managers and supervisors in organizations are in a favorable position to detect and implement measures to curb any forms of asset misappropriation in their respective departments. In the same way, the staff represented by the management also has an intricate duty to assist management by reporting any suspected irregularities happening in their vicinities. As an effective measure to deal with misappropriation and fraud cases, managers and supervisors should be provided with a response card or manual. The manual should state implicitly the decisions to make in case the cases are brought forward or detected.
Some reasonable steps that can be taken to curb, respond and detect cases of fraud include: concise and clear method of reporting any instances. A clear reporting mechanism enables a ready avenue in handling and dealing with fraud as soon as it is detected. This is more effective than setting up tribunals to deal with the instances as they occur. A second strategy is one on through investigations. Each organization is expected to have through auditing and investigation mechanisms as a sound corporate governance plan. Another sound corporate governance strategy is applying disciplining of the individual responsible for misappropriation. Discipline as strategy ensures that standards are preserved both intrinsically and externally. A fourth corporate governance strategy involves setting up mechanisms for compensation in recovery of any lost assets. Lastly, a lasting solution should be devised in modification of anti-fraud strategy to prevent any similar misappropriation cases in the future (ACFE, 2014).
6.Organization are stepping up to introduce sound fraud prevention mechanism into their operational functions. Some of the strategies being enforced by organizations include a zero tolerance approach to any fraud instances. The zero tolerance procedure is not only enforced for the instances themselves but as an early warning for any cases that are bound to occur. The fraud prevention strategy ensures that cases that would have been earlier swept under the rag are prosecuted. That is, organizations are making sure that any fraud cases are prosecuted as promptly as possible in bids to make examples of, and streamline organizational finances and promote integrity (PWC, 2007). Action is observed to be the most effective way of dealing with fraud.
It is fundamental that organizations have a through documented plan for reacting and dealing with cases for fraud, preferably a prior set strategy. Essentially, a proper fraud response strategy should include a clearly set statement on the corporate policy in relation to responding to fraud. In the same way effectively set out the roles and responsibilities of the personnel involved in detection and dealing with the organizations asset misappropriation instances. It should outline the way an investigation should be handled, that is, by ensuring all due processes are followed and held to the latter. The fraud response plan may be responded to by employees and the public in various different ways. In order to ensure favorable responses, organizations should ensure that integrity is preserved and fair trials and investigations lead any asset misappropriation instances (CIMA, 2008).
Since hindsight is always clear, organizations should strive to evaluate the way in which they have handled misappropriation cases in order to ensure perfect vision for dealing with cases in the future. The probable reality is that there is not a single organization that could claim to be immune to asset misappropriation, after all, to err is human. Therefore, in order for organizations to come close to perfection, there needs to be a practice of personal integrity by every participant in the companies. Personal accountability ensures an optimized manner of dealing and detecting fraud in any organization. Further, reviews of other organizations’ mistakes ensure that although companies cannot be immune from their own mistakes, a proper lesson is learned from other people’s mistakes.
Association of Fraud Examiners. (2014).Report to The Nations on Occupational Fraud and
American Institute of Certified Public Accountants. (2002). Statement of Auditing Standards
No. 99. AICPA New York: 2002.Print.
Charted Institute of Management Accountants.(2008). Fraud Risk Management: A Guide to
McFarland. A., Newman. P. (2013). Case Studies of Fraud in the Hospitality Industry: A
Retrospective on how Real Fraud could have been prevented. The Bottom-line: Fraud Prevention.
PricewaterhouseCoopers, (2007), Economic Crime: people, culture and controls The 4th
biennial Global Economic Crime Survey. www.pwc.com/crimesurvey
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