Introduction
This part intends to introduce the concept of management fraud to the learners (executives) so that they can easily follow what is being presented. This part also discusses the reasons why management fraud occurs and what managers intend to do achieve by manipulating their financial statements. In this part, some recent corporate scandals are presented to show the seriousness of this offence. Thus, through introduction, managers will know more about management fraud, how it is done and the seriousness of this offence.
Effects of management fraud
This section highlight the main points of the presentation in brief that needs to be taken seriously by the managers for them to prevent management fraud in the company. How the executives of the company plan and execute this fraud is further discussed in this section. This includes overstating financial statements with the aim of raising or lowering the share price of the company. In addition, the negative implications of this practice to the managers and the company are also presented in this section. This will enable the managers to know the implication of this practice to them and also to the corporation as a whole.
Recommendations
This section of the presentation shows the practical recommendations or actions that managers can take to prevent fraud management in the company. This includes systems such as internal audit department that can be implemented in the company to prevent any form of management fraud such as window dressing. The recommendations given will also enable the company to detect any type of fraud that may be conducted even by the junior employees. In conclusion, the section will help the executives to employ good corporate practices in the management of the company.
Management fraud in the company
It is a common habit for the management of both private and public companies to cook or manipulate financial reports in order to show higher profits to the public.
Financial information is misrepresented when corporate revenues and assets are overstated and corporate expenses and liabilities understated with the aim of misdirecting or misusing the funds of the corporation.
Effects of management fraud
The management may also manipulate the financial information of the company with the intention increasing and decreasing its share price.
Low price of share will make the company to be sold at a lower price during takeovers thus allowing the management to benefit from the difference between actual price and the sale price.
High price of share shows that the company is performing well and therefore investors are attracted to come and invest in the company.
The management may also aim to increase their remunerations in the name of increased profitability thus enabling executives to earn a
higher salary.
The recent management fraud scandals such as Enron, Lehman brothers and others have put corporate managers on the spot light and they cannot afford to manipulate their financial statements without being noticed(ABlunder, 2005).
The government, shareholders, suppliers and other stakeholders of this company cannot tolerate management fraud and therefore as the custodian of shareholders’ wealth we need to avoid it at all costs.
This fraud will have negative implications to the management as well as to the company as a whole. Management will be charged before the court of law for corruption and embezzlement of funds charges while the company will risk losing its public reputation which has been built in many years.
Recommendations
In order to avoid this type of fraud, the management ought to be committed to the principles of good corporate management where transparency and accountability are upheld in the all the operations of the company (Krahnke & Wanasika, 2011). The company must choose the accounting standards that will be used in the reporting of its financial statements that are in line with the requirements of the law. The company needs to adhere to the generally accepted accounting principles (GAAP). This will ensures that the company adheres to the rules of reporting revenues, expenses, assets and liabilities of the company without overstating or understating their value. Again, following these rules will ensure that that the company will not include the income that is yet to be earned and the expenses are not forwarded in the next financial year to show high profit in that particular year. Creditors and debtors of the company should also be recorded in their appropriate period. Thirdly, the company need establish an independent internal audit department that will be left to assess financial records of the company without interference from the executives to ensure any possible fraud from junior employees or even senior managers is detected at an early stage (Asare et al., 2008). In addition the company should have external auditors who will be assessing the financial records of the company regularly as a way of ensuring they are prepared in accordance with the established rules and regulations. Finally, the company should come up with a committee for investigating and disciplining those employees who may be detected to have carried any form of financial theft.
References
ABlunder, S., (2005). How could it happen? Enron and the Architecture of Wrongdoing. EBS Review, 20, 63-73.
Asare, S., Davidson, A., & Gramling, A. (2008). Internal Auditors' Evaluation of Fraud Factors in Planning an Audit: The Importance of Audit Committee Quality and Management Incentives. International Journal of Auditing, 12(3), 181-203.
Krahnke, K. & Wanasika, I., (2011).Minimizing strategic deception through individual values. Journal of Academic & Business Ethics, 4, 1-23.
