Joseph Wellington Presentation about Management Fraud - Assignment Example

 Joseph Wellington Presentation about Management Fraud Abstract Fraud in an organization affects both the staff, the company, the economy at large, the consumer, and the government. Fraud occurs when the three pillars of fraud are present namely opportunity, justification and financial pressure. Implementing fraud reporting and whistle blowing mechanisms within an organization is indispensable for early detection and mitigation of fraud. Staff education on the effects of fraud will help reduce or lower fraud. It’s imperative that an organization puts in place fraud auditing measures that should be reviewed regularly and also implement fraud prevention technologies with regard to information systems management and computer systems. Introduction Fraud is a pervasive act that involves but is not limited to unauthorized access to sensitive data and information, using deception and lies to out rightly misuse or fraudulently acquire organizations’ resources and assets or use company information for unintended purposes. The effects on the organization, the individuals involved and customers can range from negative to disastrous. This paper will evaluate the adverse effects of fraud on an organization; individuals and consumers make recommendations and give a conclusion on the effects of fraud. Literature review I. Effects to the consumer a) Fraud in business affects the consumer negatively; the customer is the reason why businesses exist and fraud actually impacts negatively on them. Consumers broadly refer to anyone involved in the dynamics of a business from people that buy from the organization to shareholders. b) Consumers are affected by fraud in business because they do not get their money’s worth; for instance in a Ponzi scheme, consumers actually end up losing money eventually. A more common type of fraud is when organizations’ lie about the origins and quality of a product; they could for instance sell leather items as being hand made in Italy from buffalo hide when in reality the leather jackets are actually made in Vietnam by machines using cheap cow hide. c) Customers also suffer psychologically from a feeling of being cheated or swindled and thus lose faith in business. This tends to hurt expenditure on non essential commodities like holidays which reduces the quality of life for these customers. d) Suppliers to a business that is shut down lose a customer; while customers also miss a product line. If there were some customers that depended on a product and the supplier is closed down due to fraud, these customers are greatly inconvenienced as they have to look for equivalent alternatives. II. Fraud affects a business and its stakeholders (Mongie, 2009) a) Fraud affects a business in that it can be shut down, suffer irreparable legal consequences that greatly erode its assets b) Businesses also lose credibility and suffer a great damage to their image. This causes stigmatization from former associates like suppliers. The blacklisting of a business will lead to its shut down (Mongie, 2009). c) Fraud strains businesses bottom-line by reducing its profits and revenue. It is estimated globally that fraud constitutes seven percent of an organizations’ revenue and this loss could be the difference between a firm making a loss or a profit d) The identities, wealth, assets, and private information of a firm’s employees especially managers is put at risk due to internal fraud threats. Fraud leads to legal consequences that result in loss of career, family assets, and personal liberties in the event of one being jailed. III Fraud affects an economy overall a) Fraud means losses that can cause a business to shut down leading to job losses and for instance contributing to the unemployment rate figures, which give a poor indicator of the state of an economy (Shahabadi, 2007). b) Fraud costs government great losses in revenue for instance through tax evasion. This costs the government much needed revenue for instance to initiate projects that will stimulate economic growth. Tax evasion also compromises perfect competition in an economy, which lowers quality and benefits to consumers (“Spam laws”, 2012). c) Fraud can bring an economy to its knees; for instance the Enron and WorldCom scandals in the USA led to a jittery investor population and large capital movements that affect the economy negatively; over cautious investors and those who withdraw investments due to panic affects stock markets and their returns (McKibbin & Stoeckel, 2012). Fraud takes place when factor in the fraud triangle overrides others. All three aspects of the fraud triangle namely opportunity, justification and pressure must be present for fraud to occur (Singleton & Singleton, 2012). Financial pressure is often a big motivator to commit fraud especially in the hard economic times. Firms also engage in or expose themselves to fraud in attempt to cut costs more so during hard economic times (Mongie, 2009). Participating in fraudulent activities causes personal, social, and family problems as culprits lose moral standing in society and will be shunned by peers, it affects families adversely and causes psychological trauma, loss of income and career for the culprits. The shutting down of an organization usually leads to losses in assets by shareholders who include employees who hold shares and options in the company. Fraud exposes fellow colleagues and staff members to further risks of losing their assets and privet information. Fraud occurs mostly whenever an opportunity exists; this opportunity usually is weak internal controls, advances in technology and complicity by staff members and other insiders. Recommendations The firm’s management must pass on information of the dangers and adverse effects of corporate fraud to all levels of staff with specific repercussions such as criminal prosecution and career and income loss. Firms need to put in place measures for internal reporting and tipping mechanisms so that staff can tip management of fraudulent activities early enough. Early detection of crime can save a company and even an economy (Vona, 2008). Whistle blowing mechanisms should be put in place that protects whistle blowers and offers sufficient motivation to give tips to management on fraud. The firm must put in place measures to protect, respond to and mitigate fraudulent activity through regular internal audit mechanisms, information systems security systems and a periodical review and improvement of the security systems and internal audit processes (Vona, 2008). Conclusions Fraud not only has negative consequences and effects to organizations but also affect customers, the economy, the government and employees. When firms are closed due to fraud, employees lose a source of income and jobs; closing big organizations also affect economic growth by setting off a chain of events that lead to a loss of confidence in markets that retard economic progress. Fraud exposes colleagues to loss of assets and personal data. Fraud occurs when all three factors in the fraud triangle that include opportunity, justification and pressure (usually financial) are present. Organizations should mitigate fraud be educating staff on its effects and consequences including legal proceedings against perpetrators; improve internal fraud audit mechanisms to detect fraudulent acts early enough. Firms also need to invest in information management security systems to prevent fraud especially computer and information system based fraud. Mechanisms for whistle blowing by staff members should be put in place as staff can be the best asset in detecting and preventing fraud. References McKibbin, W. & Stoeckel, A. (2011) what could be the impact of the WorldCom and other us corporate failures? Economic Scenarios, (3), 1-3. Mongie, L. (2009, June 29). The effects of fraud on businesses in the economic downturn Retrieved from http://www.fanews.co.za/article.asp?FraudCrime~5,General~1094,The_effects_of_fraud_on_businesses_in_the_economic_downturn~6479 Shahabadi, A. (2007). World trade organization (pp. 81-85) New Delhi, INDIA: APH Publishing Corporation. Singleton, A., & Singleton, J. (2010) Fraud auditing and forensic accounting (3rd edition Ed pp 44-46). Hoboken, NJ: John Wiley and Sons. Spam Laws. (2012). What are the societal impacts of fraud? Retrieved from http://www.spamlaws.com/fraud-effects.html Vona, L. (2008). Fraud risk assessment: building a fraud audit program (pp. 38-45). Hoboken, NJ: John Wiley and Sons. Read More