Management Fraud : When Guardian turns into Exploiter

Corporate fraud is an issue which requires swift awareness. Executive management or seniors may commit corporate fraud which may be also referred as white-collar crimes. Fraud is where a person intentionally misappropriates corporate assets or manipulates organization’s resources by using their position of employment within an entity for one’s personal direct or indirect financial gain. Management plays a key role in administering occurrences of fraud. It is the management who can advance a corporate culture, so that fraudsters find no or little room to perpetrate such atrocious acts. Today, almost every businesses are familiar with the legal requirements for internal controls and governance structures so as to minimize the fraudulent acts.?

Internal controls are hence controls established by executive management to limit fraudulent practices. But what if, executive management itself has emerged as a cosmic threat. Because of their position, which allows them to misrepresent accounting records, offer inappropriate financial information, inflating stock prices, take part in insider trading, exploit corporate property, etc. Management personnel might potentially intimidate employees into engaging in unethical behavior and encompassing limitations, management-level fraud would be more difficult to detect. The executive management oversees the financial statements, employees, organizational resources and also determines the rules, bylaws, ethics, and codes of behavior. ?Therefore, no one challenges the management, as a result their position of authority can be abused for fraud. Many a times, employees decide to stay quiet to protect one’s job.

Hence, it is evident that the management is capable of engaging in fraud and preventing it. As a best practice management can set clear ethical standards, create zero-tolerance policies, and set an excellent example for the rest of the organization by using their influence, power, and authority to do so. Employee counseling sessions, employee fraud courses, more open communication channels, and whistleblowing hotlines are just a few of the disruptive techniques that management might deploy to reduce such fraudulent instances.

?Distorting the frauds

Fraud can be linked to 3 major elements, which are:

1.??????Availability of suitable targets which are victims.

2.?????Presence of motivated offenders which are persons committing fraud.

3.?????Lack of capable guardians which are defective controls.

Despite existing controls and best practices management or employee fraud constantly occurs in business, which can have a variety of adverse impact on the success of the business including liquidating the business and active job losses. Ineffective internal controls, misplaced trust, and a lack of hiring and supervision procedures all contribute to an opportune environment to commit fraud. It is also challenging for an organization to identify culprit based on their actions as fraudsters may escape due to their positions in the business since they may utilize their administrative positions to place blame on others or simply flee the scene of the crime. Therefore, it is advised for organization to make continuous efforts to minimize the opportunities available to employees to commit fraud.

Fraud disruption is the act of stopping fraud in its tracks. This further entails putting in place defenses against a corrupt mind, such as prevention and detection systems. Prevention is meant to stop the happening of fraud in the first place. By putting preventive measures in place, such as passwords, fraud can be avoided. This is known as fraud prevention. Contrarily, fraud detection means examining the fraud once it is committed. Detection demand a series of actions taken to expose an ongoing scam, such as neural networks.

?It is important to understand how fraud disruption, fraud prevention, and fraud detection differ from one another. Fraud disruption is the act of preventing or curbing fraud by fraud prevention and fraud detection schemes. Fraud prevention is a strategy for making it more difficult for fraud to occur in the future. This can be accomplished by improving internal controls, establishing explicit ethics norms, learning about the interests and issues of employees through corporate counseling etc. Additionally, policies regarding employment rotation, segregation of duties, realistic forecasting, etc., can all contribute to disruption of ?fraud. The process of detecting ongoing fraudulent activity is called fraud detection. Having whistleblower protection policies and hotlines, conducting thorough background checks before hiring, keeping track of vacation balances, keeping an eye on employee behavior for signs of greed or other pressures, and even investigating the causes of a sudden increase or decrease in the price of goods and services are some methods for detection that can help stop fraud.

A common framework used to understand the individual’s motives to commit fraud is outlined in the Fraud Triangle, which consist of three elements i.e., pressure, opportunity, and rationalization. The fraudsters always look for an opportunity to perpetuate the fraud. If the opportunity is coupled with motive and reasoning, it becomes a deadly combination. Opportunity comes in two forms: the knowledge (capacity) to commit fraud and the (ability) to hide the fraud & avoid detection once it has been committed. The term "pressure" describes the reason why the crime was committed. This could involve issues with one's own finances, peer pressure, etc. Also, the offender believes that the only way to release them from this pressure is to conduct a crime. It is vital to distinguish between the pressure that an employee faces and those that management faces. Employees at the management level may experience additional pressure on top of any personal strain they may be under to meet critical performance targets. This can mean being unable to maintain the company's financial stability or operate in accordance with expectations. This connects back to rationalization, the Fraud Triangle's third component. The ability of the criminal to rationalize their crime is referred to as rationalization. They try to persuade their own moral code that engaging in deception is okay. Many a times, fraudsters are first-time offenders who do not view themselves as criminals. The management could alternatively claim that they committed the fraud for the benefit of the company, to protect others, or that it was only a temporary measure.

To prevent fraud in the contemporary, it is crucial to keep track of the pressures that employees and managers experience. Fraud could be stopped by keeping an eye on the work and performance of management and making sure that there are strong cultures that support ethical behavior. To combat fraud from all sides, management must therefore pinpoint some crucial patterns and ensure that these are continually evaluated and improved.