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Employee fraud

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INTRODUCTION Employee fraud is now more or less present in every company of every industry. Companies have been reluctant to address this issue, therefore causing a 'black hole' in the companies performance. Fraud has developed dramatically in the past five years, as employees get even more skilled, more cunning, and more devious. The multinationals of 'Barings', 'BCCI', 'Pollypeck' and 'Sumitomo' have all experienced the full force of fraudulent behaviour and are all lessons to be learnt by other organisations. But how do you prevent a fraudster from committing such acts, not only harming a company's reputation but by causing major losses. This report aims to give an insight into the world of fraud, and how and why it exists in t he workplace. 1 WHAT IS FRAUD? "All those activities involving dishonesty and deception that can drain value from a business, directly or indirectly, whether or not, there is personal benefit to the fraudster" (Davies, D (2000) P. 2) Basically, what the definition is saying is that fraud can be a whole range of activities from gross mismanagement involving an element of deception, unauthorised risk taking irregularities, manipulation and theft through to the major international frauds. There are of course legal provisions under which fraud is prosecuted. However, whether or not an incident qualifies for prosecution, is not the main focus of this report. The key question is: does an incident impact value? If it does, then it concerns the board of a company and its shareholders. Pressure Pressure is often the root cause of fraud. Many cases are by overwhelming pressure. Types of these pressures could be either, business or personal related. Business related such as, to meet targets, to reach bonus thresholds, to keep one's job, to maintain a promotional path, or to prop up an ailing part of the business. There are also personal pressures such as financial problems, serious gambling habits, expensive divorce settlements or even extravagant lifestyles. ...read more.


then splitting the money 50/50. Therefore direct controls have to be put into place to ensure such activities are not carried out at any level in the business. 3.2.5 Fraud responses Here the concern is regarding the protection of whistle blower. In significant number of cases staff are aware of who has committed the fraudulent offence, but do not know whom they should talk to or the procedures to take. But the most important issue is the confidential protection of the whistle blower. Staff may be forced not to let, as they are not familiar with the protection they would receive. Businesses should meet the requirements of the Public Interest Disclosure Act, which ensures protection of whistle blowers. 3.3 The Business Environment This is the last dimension in figure 3.1. It is concerned with the internal aspects of the business. This dimension has a huge influence on the other dimensions, which means it should be analysed carefully. 3.3.1 People "People commit fraud, not business or systems" (Davies. D (2000) P. 45) People can disclosure a lot about the business, which may result in fraud risk, for example a finance staff members may disclose financial information to a sales staff, who can take the information as an opportunity to commit a fraudulent activity. When looking at people as a cause of fraud, there are many aspects that have to be taken into account, shown as followed: * Recruitment screening 1 * Career moves 2 * Morale issues 3 * Management styles 4 * High staff turnover 5 3.3.2 Culture & Ethics The following quotation defines what cultures is in business terms: "A company's values, how a company does business, its management style and how it treats its employees, customers, suppliers and the other stakeholders." (Davies. D (2000) P. 53) You then have national cultures in which groups (people) operate; the fusion between the two creates a vast and complex matrix of cultures. ...read more.


and see a man called !!!!!!!, he would smile at me, sign this piece of paper. I would write 'Mickey Mouse' on a piece of tissue paper which was then threw away. He handed me a bag of money, which I would then take back and distribute". (See Punch, M 1996, p12) 5. PREVENTION OF FRAUD IN THE WORKPLACE The best possible way to prevent fraud is to be aware that it exists. West (1988, pg 103) made an excellent quote for the prevention of fraud by saying "the only sure way to prevent fraud is to be aware that it exists, that it can happen to you and to take positive action to minimise the risk". If a person has this sort of attitude then fraud would be minimal in that organisation as they are aware of it. However a great number of people whom fraud do it because they are confident that they can get away with it. The main reason for fraud is the lack of security. As explained previously throughout the report and it may be anyone of the reasons mentioned. So having adequate management supervising employees is very important as the culprits may be overviewed. 5.1 Codes applied by Plc's The code that applies to all Plc's - which is a part of the stock exchange listing rules and the implementation of this, is the responsibility of the directors. 1) The board must maintain a sound system of internal control to safe guard the shareholders investments and the company's assets. 2) The board must at least annually, conduct a review of the effectiveness of the company's system of internal control and risk management. (Price, pg 58, 2000) This proves that most fraud is committed by an insider or as described by many as staff. So if staff are the root cause of this dilemma then the prevention process should begin from them as well. The way to ensure that staff are good is by finding out more about during the recruitment process. 5.2 Recruitment process During the interview challenging questions should be raised to detect a true fraudster. ...read more.

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