Focusing On Financial Fraud Control

Question: Discuss about the Focusing On Financial Fraud Control. Answer: Introduction to fraud control Modern management team members are faced with numerous global and national issues. Managers are currently crippling with an issue in professional accounting known as financial fraud control. Spicer (2016) states that fraud control is a contextual issue in many organizations which if not addressed it can result to other challenges and problems. Fraud control has become a bigger problematic issue with the growth of financial computerized systems usage, technologies in payments and receipts, and changes in financial legislations have increased more financial risks to organizations. Findings and empirical data have found out that lack of a good fraud control systems can lead to fraudulent financial practices. Financial fraud is an intentional act of manipulation of financial records in order to gain interest from them. Financial fraud can be done by any employee or person regardless of level of management (Ndofor, Wesley Priem, 2015). The financial fraud is well known to be an internal and external problem facing many organizations. Its consequences can vary with severity on organization image and resources. Research shows that organizations lose 5% of its annual revenue through employee financial fraud. In some of the business they have been forced to close due to bad image or loss of resources originating from financial fraud. Other organizations have been crippling badly on IT related financial fraud. It is reported that they lose substantial amount of resources through what is known as cyber-crime (Sthlberg F-Secure Oyj, 2015). Recommendations from company reports show that majority of them they suffer from IT related financial fraud risks because they lack IT systems that can be able to monitor any kind of financial fraud (Cosoi Bitdefender, 2014). The 12th Global survey in 2011 justified that fraud is one of the most contextual issue facing managers in several organizations. Many organizations are posed with questions on how right they need to tackle financial fraud in their systems. The impact originating from fraud related issues is huge making many organizations to employ a substantial number of resources to mitigate or eliminate the risk completely. The dependency syndrome created by several organizations has led many to fail in fraud mitigation and control. A keen observation has shown that organizations depend on the following: third part investigations, use of disciplinary actions, internal investigate mechanisms, and whistleblower hotlines. The dependency syndrome as created a culture of non-ownership of financial fraud control within the organization internal control system (Usman Shah, 2015). Criticisms have been leveled to olden management in matters of financial fraud control. The arguments of such criticisms were that the entire old fraud control was based on dead data (provision of financial control systems after a negative result). Financial records were audited first followed by control formulation from findings and recommendations. Preference of modern financial fraud control management is on the rise in organizations. It involves focusing on using forward looking forensic professional accountants who are supposed to focus on raw financial data and future events to design financial systems for fraud control (Ndofor, Wesley Priem, 2015). Financial forward looking forensic accountants are employed to ensure standards and procedures are in place to prevent frauds before they occur. The focus of this project report is providing knowledge on my course coverage to understand, explain, and recommend solutions on financial fraud control in my work place. Knowledge learnt as the panacea to financial fraud control The need to have an international recognized standard of accounting and reporting as lead to numerous scrutinys from accounting users. This has prompted managers to use accounting science to solve any emerging problem or issue. One of the subjects was on professional accounting learnt in school. It entailed a process of collecting, organizing, presentation and interpretation of business information to end users. Any professional accounting is expected to perform such functions but they need to be guided with certain accounting standards, principles, concepts and assumptions. One section that provides financial checks in accounting is known as financial audit (Verwey Asare, 2016). Fraud detection and prevention are closely related but mean different concepts. Explanation of prevention encompasses training, procedures, and communication of financial fraud from occurring, whereas detection involves techniques and activities which enable organizations to recognize any fraud from occurri ng. It is good to understand the context in which the financial control originates to be able to solve problems related to it (Shao, 2016). Many of the accounting users would accept financial reports if only they have been audited and verified to have met specific criterias. Discussions in class on role of accounting users enabled us to understand the various users of financial reports and criteria they will choose to accept such reports. The negatives of any financial audits usage made it to be discarded and new approach looked upon. Knowledge gained in class discussed a number of fundamental concepts of financial control which included: process, people, and objectives and with reasonable assurance. It means that any financial control should be human oriented involving a well-defined process that focuses on a predetermined outcome (Ramamoorti, Morrison, Koletar, Pope, 2013). All organizations depend entirely on finance, and their performance can be altered badly with a poor financial accounting system. We learnt that the goal of any organization is to have an accounting system that will act as financial check or control system. The goal provides the starting point when formulating a financial control system. There are a number financial frauds learnt in classroom (Marcel Cowen, 2014). There is financial statement fraud which includes a deliberate omission and manipulation of financial statements for own interest. Financial records fraud involves deliberate alterations, falsification and stealing of financial records for certain interests. There are other types of financial frauds that have identified them include: bankruptcy, tax evasion, and violation of legislations governing accounting (Albrecht, Holland, Malagueo, Dolan, Tzafrir, 2015) This represented examples of financial and economic crimes found outside and within the organization. The understa nding and conceptualization of the kind of financial risks is important in identification and management of financial frauds. According to Jain Godha (2014) knowing financial risks is easier way of identifying situations that can lead to financial fraud in workplaces. There certain frauds that have not been highlighted to be major but form part of frauds include; management refusal to apply accounting standards and decisions to manipulate accounting practices. Any financial frauds can lead to wrong disclosures. Knowledge of forensic accounting can form a stronger basis of mitigating and managing financial fraud risks. Jain Godha (2014) stated that the use of forensic accounting techniques is important in work related environment because it fully utilizes knowledge from several disciplines including: accounting, law, auditing and investigative skills that help to identify and solve issues related to financial fraud. The use of forensic accounting will allow a wider dimension of thinking in solving fraud related cases in organizations (Adjaoute Brighterion, 2014). Knowledge learnt opines that financial fraud can vary according to the character, nature and standard of operations. For example financial fraud can be classified based on the person performing the act or by the method employed to carry out the act. On the basis of the persons performing the act it can be an internal fraud if it involves financial fraud committed by employees within the organization or it can be external fraud if it is committed by persons outside the organizations with knowledge regarding organization procedures and systems (Yiu, Xu Wan, 2014). The third class can be mixed fraud that involves employees colluding with persons outside the organization. Classification based on the method employed to carry out the act provides the type of fraud for example stealing, financial manipulation, discrepancies, bankruptcy, and pilferage. Understanding the knowledge on classes of financial fraud is important in mitigation and explaining causes, and consequences of each type of frauds to employees. Popoola, Che-Ahmad Samsudin (2014) opines that through classwork on professional accounting we learnt that all auditors and management should be responsible ensuring financial fraud is managed. The role of a lead person in internal controls is important in providing guidance and direction on ways of managing financial frauds. Any accounting auditor must take the lead to establish an internal fraud control mechanism that will help in guiding financial procedures and activities (Boding, Wood McGirr, 2014). Employees within the organization need to be trained on matters regarding financial frauds this will create a good ethical culture. In project management we were able to learn risk management processes which involved: risk identification, assessments, and mitigations which can be applied in financial fraud management. Earlier signaling and responsive methods be adopted by the management by adopting a risk fraud evaluation and mitigation process. In addition to ensure inclusivity au ditors and management need to create an oversight team, unit or section to address cases of fraud (Campbell, Butler Raiborn, 2014). A good accounting system will prevent fraud and wastage of resources. Understanding the accounting system involves exposure to concepts, standards, procedures and assumptions governing accounting profession. Through knowledge it is necessary for organizations to create whistle blower protection policies that will ensure no victimization and recognition of employees to decisions. Financial audit involves a systematic independent inquiry to ascertain the accuracy of financial reports and processes to provide corrective measures. In organizations financial audits were used as a means of financial fraud control. Internal (within the organization) and external (outside the organization) auditors were employed to provide valuable opinions on accounting records and processes are meeting the expected standards. We were able to learn that during audit a certain process is followed focusing on specific sensitive information and lead areas. The negative findings of an audit were known as queries which were subjected to further justifications and audits (Brazel, Jones, Prawitt, 2013). Every organizations and workplaces are susceptible to financial fraud which means that not all fraud can be prevented or cost effective to try. Knowledge on audit procedures and role is important in formulation of financial fraud policies on how to manage it. It needs organizations to for mulate better cost effective ways to manage financial fraud by coming up with ways of fraud prevention and detection through audit systems (Boding, Wood McGirr, 2014). Financial audits were seen firstly, not to solve emerging problems because of dependency of old financial records. Secondly, not a proper tool in preventing the organization to emerging financial risks. Thirdly, findings of financial audits would be accepted or rejected depending with users approach. Fourthly, negative audit findings have been associated to individuals rather than the process itself. Lastly, financial audits are wastage of time because it takes a substantial time of the audited persons who should be engaging in production. The fear created during financial audits creates a financial check for a short period but is not sustainable. From the knowledge gained of financial audits and negatives of it needs a proposal of a forward looking approach of fraud financial control (Boritz, Kochetova-Kozloski Robinson, 2014). On trying to focus on use of forward looking accounting as a method to solve current issue of systems fraud control managers are faced with other issues which include; relevancy of the process to organization policy, accounting principles and practices, changing organization financial culture, and sourcing the right personnel and resources for the system (Fligstein Roehrkasse, 2016). In additional managers are faced with the changes in technology affecting computerized financial accounting systems usage which makes financial control difficult to implement. One learning outcome in school was to build a professional accountant who would be able to conceptualize financial work problems, and suggest sustainable solutions to problems. Relevancy of strategy to the project The upsurge of financial system fraud in the current global economy as prompted many management in organizations to utilize forensic accounting as become an importance factor to employ. It seen as one of the best method to certain any emerging fraud related cases. The importance of linking legal matters and accounting practices is important in providing users of accounting assurance that issues are safe. Proper strategies done in a different perspective need to be employed to ensure financial fraud is tackled (Li, Yu, Wong, Ngan, 2016). One strategic initiative to be employed in the project is stakeholder participation. There are various stakeholders in organizations who can be users, employees, and management. Stakeholder analysis involved looking each of the parties power, interest and influence then deciding better ways of engaging them in fraud process. Internal control systems in organizations should involve participation by all members. To ensure sustainability and good working culture it is necessary that workers are trained and provided with necessary tools and equipment to tackle matters regarding to fraud. Leading organizations in the world have proper working systems that have embraced better working ethical culture. Participation will involve coming up with an oversight team that will ensure fraud control operations are not personalized but grouped (Kurvinen, Ilkka, Murthy, 2016). Klein (2015) argues that other strategy to be employed in working environment to manage matters of fraud is through capacity building. Dispensing knowledge through trainings is an effective means of tackling financial frauds in working environments. Employees who have been trained and are exposed to types of fraudulent practices can discourage such events. The trainings can take place frequently and not a periodic activity. If training is done continuously it exposes employees to emerging issues to fraudulent practices. It is then becomes an important factor solution to sustainability of fraud practices. Employing the right recruitment procedures is important. Conclusion The use of financial controls becomes a useful purpose in organizations which is designed to detect, prevent and mitigate financial frauds in workplaces. In addition financial controls focus on ensuring financial reporting compliance with required financial standards, laws, regulations and operation efficiency. Financial fraud is a major problem facing many organization this has prompted management of many organizations to look at competitive ways to mitigate and prevent it. It is important for management of organizations to provide other employees with necessary information that enables them to make necessary decisions on financial frauds. The management of organizations is tasked with the responsibilities to set up an internal control system that will provide assurance to financial users that financial fraud can be prevented. In addition the management is task with a responsibility to define each partys roles in mitigating or eliminating financial frauds. Successful working station s are that have proper means of evaluating and identifying risk through risk management techniques. Risk management takes a leading role in ensuring that the business does not suffer from the effects of a financial fraud. Setting priorities, culture, and ethical codes are important channels in ensuring fraud management takes place in a sustainable manner. To ensure that financial control is acceptable to all the relevant stakeholders the course of action need to be justifiable and each party is treated equally in respective of the level of management. Management and employees need to look at management of financial fraud in a wider perspective to ensure a sustainable solution to the problem. Recommendations The project report found the following strategies based on lessons learnt and research findings important in management of financial fraud in work place, and organizations can utilize them. The top management needs to enhance ethical culture of fraud control by ensuring full commitment. The top commitment will become a representation model to other employees to follow. Majority of organizations prefer the use of an enforced corporate code of ethics and use of proactive fraud risk assessments prevention mechanisms becomes useful in identification and fraud control (Rodgers, Sderbom, Guiral, 2015). The management will need to change the attitude of the employees towards auditing process. Internal controls involve likely changing attitudes of the employees towards auditors. In the work place the employees fear the auditors or the auditing process. There have misconceptions that auditing is responsibility of audit team. By ensuring participation through communication that will strengthen employees interest and motivation to work ethically. Any post-investigation research and proper forensic analysis clearly indicate that employees are part of any fraudulent ring. A forensic research policy needs to be implemented in a work place to ensure that a clear financial fraud litigation process is known. It is necessary for organization to employ forensic accounting (auditors) to help in proper forensic research and analysis to facilitate litigation process. It becomes easier taking action before a financial fraud occurs in a workplace (Adjaoute Brighterion, 2014). Observations and listening to employees is helpful in risk identification. It is a clear way to expose things that need to be addressed and to identify financial risks. Management in work place need to take the initiative of spending time observing and listening to their employees in their respective work stations. Risk identification, response and mitigation techniques are important components in ensuring financial fraud risks are well managed. Another best way of managing financial fraud in work places is by segregating duties to various individuals. Segregation of duties involves dividing, allocating work and establishing responsibility to them. The process of segregating duties enhances responsibility and accountability in addition helps in ensuring that a good internal control system is maintained. Another benefit resulting from segregating duties if argued is the spreading of risks to a number of key persons. Better corporate culture is essential in any organization that prevents organizational financial fraud. It creates a good positive working environment that employees are motivated to work on. The corporate culture should ensure that every employee to be responsible to any actions committed. Organizations need have a representative term defining financial fraud among its core values, and outline standards to achieve it. The management within the work place needs to have a regular detection strategy that can be updated and reviewed continuously to adapt to the changing work dynamism. Each of the employees needs to be aware of the existing fraud risk policy that defines category of risks and consequences associated to them. References Adjaoute, A., Brighterion, I., 2014. Artificial intelligence fraud management solution. U.S. Patent Application 14/514,381 Albrecht, C., Holland, D., Malagueo, R., Dolan, S. and Tzafrir, S., 2015. The main role of power in financial statement fraud schemes. Journal of Business Ethics, 131(4), pp.803-813 Boding, B.S., Wood, N. and McGirr, M., 2014. Acquirer facing fraud management system and application methods. U.S. Patent Application 14/292,684 Boritz, J.E., Kochetova-Kozloski, N. and Robinson, L., 2014. Are fraud specialists relatively more effective than auditors at modifying audit programs in the presence of fraud risk?. The Accounting Review, 90(3), pp.881-915 Brazel, J.F., Jones, K.L. and Prawitt, D.F., 2013. 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