Business Issue in South Australia - Research Proposal Example

Word count: 1524 Research Proposal on business issue in South Australia Table of Contents Introduction 3 Literature Review 3 Misappropriation of funds 4 Research problems and aims 7 Data sources 8 Reference list 9 Introduction Corporate fraud in the recent years has contributed to the downfall of many renowned companies such as WorldCom and Enron and many more. These fraudulent activities are either undertaken by the internal management or the external auditors. Such a business issue was encountered by South Australian Company, K&S Corporation. K&S (Kain & Shelton) Corporation was established during 1945; since then the company as aspired to become the leading logistic solutions and transport provider in New Zealand and Australia (K&S Corporation, 2015a; K&S Corporation, 2015b; Evans, 2015v). During the first quarter of 2015, K&S Corporation had encountered a major problem regarding corporate fraudulent. The Victorian Police had charged two of the former employees for misappropriation of funds during the period 2007 to 2014 (Changarathil, 2015; Evans, 2015). The company was subject to fraudulent misappropriation of about $7.1 million during the above mentioned period (Changarathil, 2015). This business issue has forced the company to undergo legal charges and it has even taken legal action against KPMG, which was its external auditor. Hence, this business issue will be discussed in the report. The reason for selecting the particular topic is that financial fraud had affected a number of companies during the financial crisis period. Hence, a report will be prepared based on the business issue that is encountered by K&S Corporation. Literature Review Corporate financial fraud had gained attention in the past few decades (Srinivasan, 2005). It had contributed towards financial crisis that affected the global economy during the period 2007-2008 (Blanton, 2012). It is observed that a number of regulations had failed to generate any positive result in combating against the financial fraud that took place within the private and public companies (Agrawal and Chadha, 2005). The fraudulent activities had raised concern regarding the effectiveness of the corporate governance of the companies. According to Srinivasan (2005), the fraudulent activities undertaken by the companies had not only affected the internal business operation but also created great impact on interest of the shareholders. The stakeholders, which include the shareholders, employees and general public, are affected by the decreasing trend in the sales revenue over the years as the profit declined subsequently. The decrease in profit of the companies affected the dividend per share that is offered on the investment amount to the investors or shareholders (Agrawal and Chadha, 2005). Hence, the shareholders lose confidence on the companies as they failed to earn extra return on their investments. The financial fraudulent activities include misappropriation of funds and misstatement of the financial reports (Agrawal and Chadha, 2005). Misappropriation of funds The misappropriation of funds or asset misappropriation has become prominent in the past few years as many companies are observed to have undertaken the policy for the personal gain. Though the consequences of the activity are severe to the companies, they employ such activities for their gain (Levi and Smith, 2011; Non-profit risk management, 2015). Misappropriation of fund refers to the activity where the perpetrator uses deceitful techniques for stealing the assets of the company. In such a case, certain assets of the company are used by the individuals for their benefit; thus the fraud is committed. According to Holtfreter (2004), the individuals who may commit this type of financial fraud are the customers, vendors or employees of the company. The main difference in defining asset appropriation is that the assets are acquired with the help of deceitful techniques rather than directly stealing it by force. The asset appropriation fraud can be subdivided into two parts such as 1) theft of the cash and 2) theft of the non-cash items (Levi and Smith, 2011; Non-profit risk management, 2015). The circumstances under which the appropriation takes place are briefed as follows: 1) The assets are manipulated before they are recorded in the book of accounts of the company. 2) The assets are also manipulated when it is held by the company through misuse of the supplies, inventory, equipment, cash and many more. 3) The data related to the purchase of assets are also subject to manipulation during the process. In such a case, the company makes the transaction for goods or services which are not purchased or pays too much for it (Marta, Singhapakdi and Kraft, 2008). Several researchers are of the opinion that these types of asset misappropriation are expensive to the company as the consequences are severe. The report on Nation on Occupational Fraud and Abuse that was published during 2008 categorized asset appropriation into different types such as cash larceny, fraudulent disbursements, skimming and misuse of assets. Skinning is defined as the activity where cash is taken by an individual before it is recorded in the books of accounts of the company. It may take place at the point of sale and at the time of receipt from the debtors (Marta, Singhapakdi and Kraft, 2008). Cash larceny is identified as the fraudulent activity, which involves theft of cash after it is recorded in the book of accounts. The cash is also stolen from the company accounts and petty cash accounts or even from the deposits (Cox and Thomas, 2004). Hence, the fraudulent disbursement aims at covering a number of schemes that includes billing prepared against the payment of false invoices that are made for the purchases. Moreover, the checks are tampered, which indicates alteration and forging of the check for personal gain, which is owned by the organization. Expense reimbursement involves false claims against the fictitious business expenses. The payroll schemes refer to the bills that are prepared for any payment against any false documentation (Cox and Thomas, 2004). The non-cash misappropriations refer to the schemes, which are used by the employees for stealing or misusing non-cash assets of the companies; this includes equipment or inventory that is employed for their own benefit. There are few asset misappropriation frauds, which are severe enough to bring in hard consequences to the company (Action Fraud, 2012; Balsam, Jagan and Yang, 2003). The asset misappropriation starts in a smaller level and gets larger as the individual gains interest and confidence in capability to get away with the dishonest plan. The perpetrators are threatened by the external and internal audits and thus they wait for the right time when the threat is passed on. Hence, they resume it as soon as they feel that they can continue stealing until it is detected. It is a well known fact that amount of scheme increase with time; such as the present stolen amount is higher than the previous ones (Albrecht and Kranacher, n.d.). The classical theory related to fraudulent activities offers excellent foundation for improving the knowledge regarding asset misappropriation. The theory highlights that if asset misappropriation has to take place then the perpetrator must experience perceived pressure, which forces him/her to commit the fraudulent activity and also search an option through which he/she can rationalize the action as acceptable one (Balsam, Jagan and Yang, 2003). Research problems and aims The main research problem is to highlight the issues that are related to financial fraudulent activities in the companies. There are several studies related to the topic but it is important to decipher the exact requirement of the theories that clearly elaborate asset misappropriation. Financial fraud has become a significant term in the past few years as the companies have experienced several issue based on it. Asset misappropriation is regarded as the most common financial fraud that has forced the companies to encounter legal actions. This has not only affected the internal control of the company but also made huge changes in the management formation (Balsam, Jagan and Yang, 2003). In this case, a South Australian logistic company, K&S Corporation is selected for highlighting the business issues, which is experienced by the company in the present days. Here, the business issue is related to asset misappropriation, which have forced the company to encounter legal actions and two of the employees are arrested for the mentioned charges (Evans, 2015). The employees are charged for manipulating the asset values by employing deceitful methods for changing the value of the same. Hence, it is evident that the research will provide enough details regarding the asset misappropriation undertaken by the employees of K&S Corporation. The main aim of the report is to decipher the fact regarding the financial fraud undertaken by different companies around the world and highlight on the activities, which are modified by K&S activities. The report will also highlight the same business issue that is experienced by other organization and hence draw a comparison between the two situations. Data sources Data are significant for the success of any research. This research takes into account data pertaining to financial fraud in companies that has led to severe consequences in the past years. The consequences even led to bankruptcy of the companies; one of the main financial frauds that are most common in the companies in the recent years is asset misappropriation. The method highlights the deceitful techniques used by the employees to steal cash or check from the company assets. The secondary sources are journal articles and academic books that have highlighted the issue appropriately. However, information is also collected from newspaper and company websites. Reference list Action Fraud, 2012. Asset Misappropriation Fraud. [online] Available at: < http://www.actionfraud.police.uk/sites/default/files/Asset%20misappropriation%20fraud.doc.pdf > [Accessed 7 May 2015]. Agrawal, A. and Chadha, S. 2005. Corporate governance and accounting scandals. Journal of Law and Economics. Albrecht, C. and Kranacher, M., no date. Asset Misappropriation Research White Paper for the Institute for Fraud Prevention. [online] Available at: < http://www.theifp.org/research-grants/IFP-Whitepaper-5.pdf > [Accessed 7 May 2015]. Balsam, S., Jagan, K. and Yang, J. S., 2003. Auditor industry specialization and earnings quality. A Journal of Practice and Theory, 22, pp. 71-97. Blanton, K., 2012. The rise of financial fraud: scams never change but disguises do. Chestnut Hill: Center for Retirement Research. Changarathil, V., 2015. K&S Corporation in Fresh $7m Fraud Scandal. [online] Available at: < http://www.adelaidenow.com.au/news/ks-corporation-in-fresh-7m-fraud-scandal/story-fni6uok5-1227238492994 > [Accessed 7 May 2015]. Cox, J. D. and Thomas, R. S. 2004. Public and private enforcement of the securities laws: Have things changed since Enron? Notre Dame Law Review, 80. Evans, S., 2015. Lightning Strikes Twice: $7m Fraud At Firm Controlled By Family Of Late BRW Rich Lister Allan Scott. [online] Available at: < http://www.smh.com.au/business/lightning-strikes-twice-7m-fraud-at-firm-controlled-by-family-of-late-brw-rich-lister-allan-scott-20150225-13ok9f.html > [Accessed 7 May 2015]. Holtfreter, K., 2004. Fraud in US Organizations: An Examination of Control Mechanisms. Journal of Financial Crime, 12(1), pp. 88 – 95. K&S Corporation, 2015a. Annual Reports 2013. [online] Available at: < http://www.ksgroup.com.au/annualreports/2013-Annual-Report.pdf > [Accessed 7 May 2015]. K&S Corporation, 2015b. Corporate History. [online] Available at: < http://www.ksgroup.com.au/history.html > [Accessed 7 May 2015]. Levi, M. and Smith, R., 2011. Fraud Vulnerabilities And The Global Financial Crisis. [online] Available at: < http://www.aic.gov.au/media_library/publications/tandi_pdf/tandi422.pdf > [Accessed 7 May 2015]. Marta, J., Singhapakdi, A. and Kraft, K., 2008. Personal Characteristics Underlying Ethical Decisions in Marketing Situations: A Survey of Small Business Managers. Journal of Small Business Management, 46(4), pp. 589 – 606. Non-profit risk management, 2015. Broken Promises, Shattered Trust. [online] Available at: < https://www.nonprofitrisk.org/library/articles/internalcontrol05062001.shtml > [Accessed 7 May 2015]. Srinivasan, S., 2005. Consequences of financial reporting failure for outside directors: Evidence from accounting restatements. Journal of Accounting Research, 43, pp. 291-334. Read More