Commonwealth Superannuation Scheme - Super Fraud Fund - Assignment Example

FINANCIAL FRAUD NAME INSTITUTION Introduction Cases retrieved from: http://sgp1.paddington.ninemsn.com.au/sunday/feature_stories/transcript_1572.asp http://news.softpedia.com/news/New-Charges-in-Major-Australian-Bank-Fraud-Case-191372.shtml Cases of financial fraud have been rampant in the recent past. During the last decade, many organizations have been hit by a series of high profiled financial frauds. Many organizations have collapsed on the account of such fraudulent activities (Nocera 2012, p. 19). In the recent past, some of the scandals that amazed the world were Enron and WorldCom. These two have been considered the biggest financial scandals of all time. These scandals were executed mostly through misrepresentation of the financial performance of the organizations. Most organizations could not discover some of these fraudulent activities even under the watchdog of external auditors. This explains that those schemes were executed intelligently with people who understood well the presentation of financial statements. In overall, most of those perpetrators found liable were sentenced for imprisonment. While at the same time, there are those whose cases are still on-going while others escaped uncaught. 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 (Harvard Law Review 2009, p. 17432). In this report, our focus will be upon two organizations that were faced with such financial crimes. These organizations include a bank and the Super Fraud Case. Description of the Cases Commonwealth Superannuation Scheme: Super Fraud Fund This case involved a pattern of players. The perpetrators of the scheme coordinated the execution of the plan in a very unique manner. The perpetrators planned to steal over $150 million from the superannuation fund. The money belonged to Commonwealth Superannuation Scheme. This scheme is among the largest schemes responsible for managing super funds for over 50,000 members. The funds were stolen by use of fake identification documents. The custodian to the funds, by then JP Morgan received a fake fax. The fax involved the request to transfer some money to certain accounts. This appeared exactly as many other faxes that the custodian had been dealing with in the past. Therefore, the custodian had no reason to doubt the transaction. It is after the authorization of the transaction that she realized that the money was channelled to unique accounts all over the world. The money was redirected to various bank accounts in different countries which had not engaged the scheme in any transaction before. The deal was executed within a very short time because of the ease of electronic money transfer. The level of sophistication of this fraud scheme was above the security of the super fund. Bank Fraud This was fraud involved stealing the money from some banks in Australia using information gained through insider trading. This case involved stealing from Australian banks and laundering the money outside the country. The fraudsters took advantage of the internal connection to gain information that will help them extort money from various banks. The gang consisted of a group of people with each playing a given role. The perpetrators had already stolen $1million and were on a pure strategy to steal $100 million from bank accounts of customers to the bank. This group of people had connection from people working in banks in Australia. The various employees that were used had access to confidential information about the customers. The employees accessed the confidential details of some of the account holders of the bank. The information was then channelled to the outside gang who worked on the model of executing the crime. At the end of it, the organized gang used false documentation to open accounts in foreign countries. This was to be the destination of the money that was to be stolen from the banks. Differences between the Two Cases First, the approach used in the two fraud cases is a bit different. The main reason for the success of the case involving superannuation fund was in having expertise in manipulating electronic transactions. The electronic system that also contained the faxing technology is not the kind of system that one could easily manipulate. The transaction verification and approval system is not the one that could easily be manipulated. This required high level of understanding of the nature of the system and how it works. On the other hand, the bank fraud deal was boosted by insider information. The perpetrators did not require a lot of expertise in accessing the Bank information. The employees working in the bank easily availed the required information at all time. Therefore, the first difference arises on the manner of approach. While one required sophisticated approach to manipulate the transaction system, the other case of fraud heavily relied on insider information for almost the entire process. Second, the perpetrators in the case of the bank fraud were targeting individual accounts. They wanted to steal money from the hefty individual bank accounts. On the other hand, the perpetrators were not targeting money of any specific person, but from the bank account of the entire scheme. The money in the case of the superannuation account took the form of any other investment transaction. In fact, the vice president to the scheme, JP Morgan saw it as a valid transaction for investment purposes. In such a case, it would have been difficult to notice if the organization does not have the appropriate backup system that is running at that time. This is the only tool that probably the scheme would have used to sense some danger in the transaction that had been executed. The other case is a bit different. The fact that the perpetrators were dealing in fraudulent activities directly from the customers’ bank accounts was quite technical. It would have taken a relatively longer time for the bank realizes unless an individual senses early enough to inform the bank. The validation of such transactions could have been assumed on the basis that these were dealing with genuine customers themselves. This is what could have complicated issues even more. Similarities The cases discussed in this say have some elements that can be used to categorize them in the same class. In both the cases, there was an element of laundering present. The plan was that after the money had been stolen, it will be channelled to different bank accounts in different oversee countries. This act characterizes all acts involving such huge amounts of money. Most of the cases where a lot of money was reported to have been stolen the money was channelled to overseas bank accounts. This is because the perpetrators are weary of the fact that when money is banked in local accounts, it is very easy for the investigating arm to discover the ordeal. In such situation, the federal investigation unit only requires to carry out an audit of the bank accounts of suspects. In cases where no suspects in particular are attached to such case, the investigation may only focus on supernormal bank deposits or balances. Due to this knowledge, the perpetrators are very keen never to bank their stolen money into the local bank accounts. This was the divine plan of the perpetrators of the two cases. For the superannuation fund, the money was automatically channelled to bank accounts in Greece, Hong Kong and Switzerland. In the other case, the police superintendent said the perpetrators had used fake documents to open bank accounts in foreign countries. Another similarity of the two fraud cases relates to the possible impact if the deal was executed to completion. This would have been disastrous for the two organizations. It is good to highlight that in the two cases, the plan to rob these two institutions was not executed to completion. The superannuation was able to recover the money from the bank accounts of the culprits. On the other hand, the mega fraud deal against the banks was aborted as the police apprehended most of the perpetrators before the deal were executed. In the circumstance where the deals were successful, it would have been detrimental for the organizations. Since these fraudulent deals involved huge amounts of money, it would have led to the possible collapse of the two organizations. This would have been the case basing the understanding from what has happened to other organizations in the past (Yardley 2007, p. A9). In most cases, the discovery of such cases affected organizations beyond cure. This is even worse when dealing with information to do with insider trading. The customers and other stakeholders may never have faith in the management and the entire organization. This could be very disastrous to the organization. This has happened to many organizations in the past and it would have been the case with these two organizations. Recommendations The first and the elementary requirement for prevention and detection of financial fraud is by establishing a strong internal control system. Internal control refers to every procedure, rule, structure, individual put in an organization whose main goal is to limit the possibility of loss of assets by the organizations. This therefore involves every procedure that is in operation and in one way reduces the risk of asset loss. An organization with a strong internal control system will ensure that the loss of the assets is minimized as much as possible. An organization is said to be having a strong internal control if the procedures and regulations put in place are highly respected. Another approach towards detection and investigation of such scandals is by upgrading the information management systems to the best standards ever. It is obvious that in 21st century, a serious business cannot succeed without the use of technology. The use of technology has facilitated transaction processing, but it has its own risks. The organization has the duty of ensuring that all the security procedures required on the information system of the organization are fully adhered to. This includes appropriate backup procedures. The most confidential information of the organization must be backed up in a separate and secure place. This will guarantee the retrieval of any information in case a circumstance demands. At the same time, various components of the information system must be upgraded on a regular basis. This is very crucial especially in the financial institutions in order to ensure no loophole is left. This is to ensure that no process is compromised at the peril of the funds involved. Moreover, the organizations should be very carefully when appointing employees into the organization. This is more demanding when it comes to some of the most sensitive sections of the organization. These are sections housing confidential information. The organization must make integrity check a compulsory requirement for all the staff being employed in the organization (Shaw & Barry 2012, p. 124). 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. It requires people that can be trusted. Last, the organizations must undertake regular audits on both the financial statements as well as the employees. The importance of the financial audit is to ascertain possible anomalies and investigate their source early enough. On the other hand, an audit on the employees is also very important. This should be done in consultation with the human resource departments. This must be done to assess the effectiveness of the employees and their reliability in various positions. Conclusion As we have learned, the cases of financial fraud and theft are very common (Calin 2002, p. 82). The organizations must be very committed to fighting such crimes. From the top most office holder, to the least of the employees, adherence to policy guidelines is a must. The internal controls put in place must be strictly followed by all people in the organization. It is the responsibility of the management to ensure prevention and detection of financial fraud activities against the company. More to that, the organizations and the regulatory bodies should operationalize severe punishment for all those people convicted of financial fraud. For instance, the senior management who are found to have participated in such ordeals must never be allowed to work elsewhere. At the same time, the law should be modified to punish the perpetrators by setting high amounts of money as compensation for crimes committed. Such should be used as examples to deter people from ever engaging in such activities. References Bradsher, K. (2004). Financial Scandals Hits Hong Kong. New York Times, vol. 153(52776), p.W1-W7. Calin, J. (2002). What are some of the more notorious Wall Street Scandals? Money, vol. 31(9), pp. 82. Graham, B., Meredith, S.B., & Price, M.F.(1998). The Interpretation of Financial Statements. New York, NY: Harper Business. Harvard Law Review. (2009). Go Directly To Jail: White Collar Sentencing after the Sarbanes- Act, 122 (6), 17428-17449. Messier, WF. (2002). 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