Carroll Foundation, ING Fraud - Essay Example

FINANCIAL SCANDAL NAME INSTITUTION FINANCIAL SCANDAL The entire world has been hit by financial fraud. The situation has been worsened during the last decade as many businesses were affected by financial fraud scandals (Bradsher, 2004). Many organizations have collapsed on the account of such fraudulent activities. Some of the financial scandals that made headlines in the recent past include that of Enron and WorldCom. These two have been considered the biggest financial scandals of all time. The masterminds of these scandals succeeded on the grounds of falsification of financial reports in order to conceal the illegal operations going on. Those schemes were executed intelligently with people who understood well the presentation of financial statements. This is the reason most of them skipped the attention of professional auditors. These scandals have enlightened most of the players in the industry. The stakeholders are becoming more sensitive to possibilities of financial frauds. Many policies have been drafted in different sectors with a target of reducing the rate of these incidences. In Australia alone, many cases of financial fraud have been reported. According to the report released by KPMG, financial fraud is a serious crisis. The report revealed that between 2008 and 2011, a total of 546 large fraud cases were brought before the court. Through these scandals, the country lost $1 billion. In this report, our focus will be upon two organizations that were faced with such financial crimes. The first organization of study is ING. The other company that has been hit by financial fraud is Carroll Foundation. The Carroll Foundation Case Carroll Foundation is a charitable organization. It is situated in Queensland in Australia. The organization controlled sheep stud estate and food processing business entities. The report by FBI indicated that a serious fraudulent accounting embezzlement took place in the organization’s books of accounts. The syndicate of fraudsters consisted of the CEO, tax partner, company’s solicitor and the Barclays bank. This is one of the high profiled scandals in the history of Australia. It involved a sum of $1,000,000,000 (1 billion dollars). The scandal took almost 6 years before being discovered. Throughout the period, the company was being audited by Edward Robinson & Co. in association with Kingston LLP. The scandal was a series of events that was orchestrated by the Group Company and went to many branches all over the world. One of the branches that were greatly affected was the Australian trust branch. The ING Case ING is a multinational insurance company. The company offers both insurance and finance services. The company has a branch in Australia offering the same services. The company suffered 30 million losses as a result of fraud committed by the accounting experts in the company. The court hearings indicated that the whole ordeal was orchestrated by the company’s senior accountant. The effect of this financial fraud was a net loss of $30 million. The total amount of money that the company lost in this scandal was $45.3 million. In this particular case, the accused agreed to the charges laid against her. In the scam, it is reported that the senior accountant made over 200 illegal transfers into her personal accounts from the company’s treasury. At the same time, there are those transfers that took place by directly sending money to her places of shopping. She would later do her shopping which was later discovered that some of the properties she used to buy were much above the market price. She followed her actions with deletion of the records using the computer user accounts of former employees of the company. She was doing everything possible to legitimize her transactions. In as much as the falsification was not so complicated, it was not easily discovered. Differences between the two cases There are so many features that differentiate the two cases involved in the financial scandals. The first difference relates to the level of complication. In the case of Carroll Foundation, the scandal was magnanimous in nature. This was one of the biggest scandals of the time. This is because the scandal attracted the participation of various branches. At the same time, the size of the company was a great contributor. The channels for the embezzlement that was witnessed in this Trust started in the head office. This was the most surprising thing. On the other hand, the ING fraud case was a rather small case when compared to Carroll Foundation. The scam involved only a single money outflow channel. The scam in this particular case only relates to the Australian branch. The other branches were not affected in this case. That is to mean that the other branches of the multinational company did not participate as was the as was the case of Carroll Foundation. In the Carroll’s case, the magnitude of the fraud scandal was the reason the scandal was unearthed over six years after taking place. At the same time, the complexity of the organization has also contributed to the fact that the investigations are still on-going unlike the ING case. The other difference relates to the execution of the scam. In the case of the Carroll Foundation, the syndicate was much networked. It contained a number of players who played specific roles in order to execute the plan. This worked to complicate the entire process for some stakeholders to suspect. This is completely contrasted to the case that took place in ING Corporation. In the case of ING, the scandal was a one person deal. It was planned and executed by the same person. The deal did not contain any outside player like it was in the Carroll’s case. The chief accountant was responsible for falsification of the accounting transaction and execution. The nature of the work of the Chief Accountant in this particular case made it possible for the scam to be executed. The monitoring of the work done by the Chief Accountant was quite shoddy. The management did not have the proper strategies to deal with such financial frauds (Graham, Meredith & Price, 1998). Last, is about the channelling of the money. The transmission of money from the organization’s treasury to the individual accounts was very different in the two scams that we are analysing in this particular report. For instance, the case of Carroll had an element of money laundering. The cash that was being embezzled was directed to the bank accounts in the foreign countries. This is also another factor that made it very difficult for the FBI investigating agents to gather sufficient evidence to prosecute all the suspects. On the extreme end, the scam in ING was very simple. There is no money involved that was send out of the country. The Chief Accountant took every step of what she was doing very simple. She simply channelled the money to her local bank accounts. At other times, she used to channel the money directly to the account of the various dealers in various properties she wanted to acquire. The habit of channelling of money directly to the account of sellers of certain properties she wanted to buy. When the investigation was underway, the forensic investigators had an easy work detecting the falsification of accounting entries. At the same time, the property ownership was another area of concern that made it for the investigators to suspect. The similarities In as much as the two cases are very different. There some few areas that indicates some similarities in the two cases. One of the similarities is the fact that in both cases, the scam was not discovered immediately. This is very common with many organizations that have faced the issues to do with financial fraud. The scams took some years before the deals were unearthed. For instance, the Carroll Foundation took over six years before it was unmasked. This is determined by two major reasons. One has got something to do with the size of the organization. For instance, Carroll was a very huge organization and it was a bit challenging to easily unveil such malpractices. Another reason why it took some years is the issue of internal controls. In the organizations where internal controls are in operation and strong, it would be very easy to sense anomalies when the system of internal controls is very strong. This is what made it very easy for the Chief Accountant. There were no checks and balances that will improve the level of accountability of the Chief Accountant. This would completely have helped close some of these loopholes. Recommendations The first recommendation deals with internal controls. Internal controls refer to every effort made and practically implemented by the company whose main agenda is to limit or completely prevent the loss of the company’s assets and other resources. These internal controls can be policies or even structures that have been specifically put into place to avoid the loss of the organization. These two companies require very strong internal controls in order to limit the loss of the company’s assets. The most affected company is ING. From the confession of the Chief Accountancy, the company have very weak internal controls. The Chief Accountant made it very clear that what tempted her to start defrauding the company were the loopholes in the company’s financial system. The Chief Financial Officer, who was supposed to hold the chief accountant accountable, was not serious on the job. He failed to oversee the role that was being played in his docket. This is very serious and it makes it difficult for the company to effectively guard the properties of the company. The weaknesses portrayed in the Australian branch may be extending to other branches all over the world. This can be very bad for the company and it must be corrected as early as possible. There are various forms of the internal controls that the two companies can implement for the benefit of the organization’s assets. One relates to execution of various responsibilities in the organizations. One of the compulsory requirements relate to ensuring rotational working programs. I believe that this can bring the real transformation that the two organizations need. The rotational program will mean that employees’ tasks will be revolving over time. This is based on the danger of allowing some employees to work in specific position for a very time. In the case of such nature, the fraud may be executed perfectly without the suspicion of the company. Therefore, compulsory rotational of the employees will help reduce the chances of financial theft. More so, external auditors must also be rotated for period of about five years. The information provided by the chief accountant about her direct boss indicates something very important. The accusations levelled against the manager who was supervising the chief accountant discharged his responsibilities with a lot of laxity. Therefore, the company is tasked to develop a recruitment program that will ensure the best employees are selected and retained. The company is in need of qualified and very motivated in dealing with the affairs of the company. This is more demanding when it comes to some of the most sensitive sections of the organization. These are sections dealing with the finances of the company. The organization ought to ensure integrity check is a compulsory requirement for all the people absorbed in the organization. Therefore, apart from the basic qualifications, potential staff must pass the integrity test. This is to ensure that the company is not hiring suspects. This is very important when it comes to dealing with finances. This position requires a highly committed and motivated individual in order to achieve. Conclusion From the report above, the cases of financial fraud and theft are on the increase. The organizations must be very committed to fighting such crimes. It is the responsibility of the management to ensure prevention and detection of financial fraud activities against the company. The internal controls put in place must be strictly followed by all people in the organization. Besides, there is a need to ensure that the culprits are punished to a point where they will serve an example to others (Yardley, 2007). This is in the hand of the relevant bodies to legislate those policies. 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