Introduction
In the modern society, there has been an increasing number of fraudulent cases in businesses. Entrepreneurs, senior executives and other employees are depicted to engage in significant immoral activity that is contrary to the business practices and the laws that govern it. Such practices may include fraudulent financial statements which involves a deliberate action to misstate, omit or misrepresent of data in these records as a means of misleading the reader with the intent of showing a company’s financial strength. There is also the asset misappropriation includes cases where individuals entrusted to protect and manage the assets of the company steal from it. Finally, there is the issue of corruption which is the action of using one’s power with the aim of diverting funds, laundering money, and defrauding investors among others. The following paper will demonstrate the impact of the
How does each type of fraud impact the organization?
The above mentioned fraudulent schemes are depicted to have significant negative consequences to the organization. One of the major consequences is financial loss. In both fraudulent financial statements and asset misappropriation it is easy to identify the financial loss. Another impact to the company is noted where the occurrence of fraud causes a lack of trust among the public (Porter, 2012). The customers, potential investors, creditors and other third parties that may wish to be associated with the company will keep away. Many of the companies believe that avoiding the company will prevent the problem from trickling down to them. Corruption may also bring about significant reduce of morale among workers. A senior executive who is exposed as corrupt will make his or her subordinates to feel embarrassed for association with the company hence many of them may seek employment elsewhere. In all the above cases of fraud, the impact realized is an increased cost of auditing. The company will need to pay for excessive auditing whereby it is intended to ensure that the other members left in the company do not enable similar behavior (Porter, 2012).
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Consider the relative frequency
One of the most frequent fraudulent schemes in a given business is asset misappropriation. Nearly 91% of all fraud cases are in this form causing businesses an average of $150,000. Despite the enforcement of the law, this negative behavior continues to take place hence requiring the involvement of law enforcement groups such as the Searle Civil Justice Institute (Omar, & Bakar, 2012). This is an organization that oversees the bribery-related activities from 1977 to date. It is evident that through the announcement of Foreign Corrupt Practices Act (FCPA) investigations an organization will realize a significant decline in its market capitalization of approximately 2.9% (Rose-Ackerman, & Palifka, 2016) However, this decline is proportionately higher when financial fraud including asset misappropriation or fraudulent financial statements are added to the investigation. The fraud schemes may realize an initial loss of 16.3% but may extend to 54.9%. A 2014 report shows that typical organizations experience 5% in annual losses due to the fraudulent practices. Aproximately22% of these events include losses above $1 million.
Conclusion
The above report shows that fraud is clearly a major issue in the global business market. From small businesses to the international corporations, any of them can be affected by fraud. The owners of a business have to take responsibility of influencing workers and all their subordinates to embrace integrity in their practices. On a yearly basis, these organizations are subject to investigations due to the occurrence of fraudulent schemes. It is the effort of the owners and senior management to ensure that such events do not take place to avoid a depleted public image, financial loss and inefficiency of business among other practices.
References
Omar, N., & Bakar, K. M. A. (2012). Fraud prevention mechanisms of Malaysian government-linked companies: An assessment of existence and effectiveness. Journal of Modern Accounting and Auditing , 8(1), 15.
Porter, E. (2012, July 11). The spreading scourge of corporate corruption . New York Times, Retrieved from http://www.nytimes.com/2012/07/11/business/economy/the-spreading-scourge-of-corporate-corruption.html
Rose-Ackerman, S., & Palifka, B. J. (2016). Corruption and government: Causes, consequences, and reform . Cambridge: Cambridge University Press.
