Fraud can pose great danger on business particularly that most fraud schemes and financial transactions have increased its complexity due to the sophistication and advancement in technology. There are indeed several causes of economic scandal. Finn & Cafferty (2002) emphasized that scandals of any forms can cause great impact on the economy. Goldman (2006) on the other hand cited the common causes of frauds such as dishonesty, corruption, deception or greed. While it is true that there are companies that seem vulnerable to the negative impacts of fraud, still there are companies that have surpassed the financial trials and have revive the stability of the company. Experts have cited that regardless of the form of fraud the best weapon that a company can employ is organizing a team and committee that is responsible for detecting and deterrence of fraud in the company.
Companies which experienced Corporate Fraud
There had been several companies which experienced fraud and eventually resulted to the downfall of the organization. Even the largest company in the country and even from other countries such as Australia, Switzerland, Denmark and many others have encountered corruption and fraud caused by several factors. Among the companies which had experienced corporate fraud are the Tyco International, Enron, and Bearn Sterns (Ramage, 2006). Tyco International is a company with broaden manufacturing firms that deals on electronic components, health care facilities, fire safety and fluid control (Luijerink, 2008). The company is situated in Jew Jersey, USA. IN 2005, its CEO was found guilty of committing robbery from the company for an amount of $600 million. Enron on the other hand, is a Houston-based company which has declared its bankruptcy because of accounting schemes committed by the company’s accounting firm headed by Arthur Andersen. The company was once considered as the most stable company, however because of the fraud its shares had dropped from $90 to $0.50 (Goldman, 2006). It has affected the economic world and thousand employees and several investors were affected with the company’s downfall. Bearn Sterns is one of the largest investment banks which experienced corporate fraud and almost declared bankruptcy. However, it was sold to JP Morgan Chase for $40 million.
How fraud can be detected?
In order to detect the possibility and the presence of deception and scheme in a company, it is important that regular surveys and monitoring is conducted (Pickett & Spencer, 2007). It is found out among studies conducted that the extent and level of fraud varies in some manner. However, it is further revealed that the prevalence of fraud is high within the organization and it is also a serious and costly problem (Ramage, 2006). Finn & Cafferty (2002) emphasized that the occurrence of fraud increases with the growth in the globalization. Moreover, it also increases with the augmentation of the competition in the market, with the technology development and with the challenges and difficulties experienced by the economy (Luijerink, 2008). While it is true that organizations and company are vulnerable to frauds and schemes both from internal and external forces, still there are several companies which have not organized and employed formal system and procedures in the prevention, detection and addressing fraud cases and deception. Indeed, it is important that CEOs will understand that there is single system which is absolutely proof to the possibility of schemes, however there are several steps that can be taken in order to discourage fraud and anybody will be discourage to commit this act.
In the company, the most suitable person who can easily detect any forms of fraud are the management accountants because they have the professional training and preparation on analysis of the information and the system (Finn & Cafferty, 2002). Moreover, they too have the significant roles in designing, planning and implementing programs and measures that will ensure anti-fraud inside the organization (Goldman, 2006).
As a measure of detecting the risk of fraud, it is necessary that organizations will regularly identify and check the risks of having fraud within the organization through the utilization of the CIMA (Chartered Institute of Management Accountants) risk management cycle. This risk management cycle is a multi-faceted process which includes the identification of risks, assessment of its impact and prioritization of actions in order to manage and minimize the risks (Finn & Cafferty, 2002). Loraine Ortiz and online writing company Glorious Essays emphasized that the risks for fraud should be recognized in all areas and process of the organization so that its possible impact must be assessed immediately. In addition to the monetary impact of the fraud risks, its non-financial impact should also be assessed and this means its influence on the company’s status (Goldman, 2006). If the extent of fraud is already assessed and detected, it is necessary that the organization will implement a well-planned and effective anti-fraud plan or strategy in addressing the deception risks.
The anti-fraud strategy that can be implemented is basically composed for four components. This includes prevention, detection, deterrence and response (Goldman, 2006). Of all the employees in the company, the most suited and competent in making and implementing anti-fraud strategy are the management accountants. Provided with the training they have undergone, they are expected to have a better and broader understanding of the business process. Moreover, they also understand the system comprehensively and they are capable of identifying the efficiency and the appropriate procedures that an organization should have.
However, it is also not appropriate that only the management accountants will have the primary concern on the risks of fraud in the company. Luijerink (2008) emphasized the importance of having collaboration and teamwork of all the department in the company in order to ensure that any forms of fraud is avoided. In a study conducted, it was found out that the risks in business sectors to experience frauds and deception can be due to the lack or absence of comprehensive policies and culture along with the poor staff management supervision (Pickett & Spencer, 2007). This clearly indicates that indeed, teamwork and good leadership are the key elements in the early detection dn deterrence of fraud in the company. Goldman (2006) cited further that there are schemes which are directly related to the employees’ risky behavior on financial aspects. Through the good leadership and teamwork in the company, it is easier to trace the unusual behavior which are demonstrated by employees. Another reason why good leadership and teamwork in the company is needed are: a) to ensure adequate recruitment and hiring process; b) implement job segregation; c) implementation of regular independent checking of main transactions; d) to have an adequate access controls to the physical assets and to the information systems; e) to have an improve and comprehensive internal control of documents; and lastly, f) to have a well-monitored cash transactions.
To sum it all, the corporate fraud that is a risks of all companies and organization can be eliminated if there is a well-planned and implementation of fraud-response strategy. This strategy should uphold the organization’s commitment to have a lawful, ethical and moral standards in all transaction of the company. Organizations should also be clear and transparent when it comes to dealing with frauds and corruption in the company. Moreover, it is indeed significant that team leaders and all employees are hones and considerate enough to report all forms of suspicious behavior and transactions to the authorities in order to ensure that the negative impact of corporate fraud are eliminated.