Monday, March 25, 2019

How to counter corporate fraud

One of the most common elements among the firms, which countered frauds is the involvement of senior management in the frauds including members of the Board of Directors, the CEO, the CFO, and other key executives. It is attributed mainly to the culture of that organization demonstrated by the tone at the top, which sets the corporate culture and in many cases is a root cause of the unethical conduct and fraudulent activities (Sweeney, 2003). Culture issues start in accounting adjustments leading to massive fraud by attempting to fix each quarter’s numbers to close the gap between targets and actual results.

It is an informative post regarding corporate fraud. There are some consequences for the fraud.

  • Loss of reputation

  • Negative returns

  • Increase the cost of capital

  • Lose market share

    There are some recommendations that could help to prevent the fraud in organizations.
  • The incentives could be paid for employees after completion of projects.
  • Reducing the operational risk.
  • Select the appropriate accounting and finance approach for the organization.
  • The payment of stocks to be minimized
Reference:
Pavel, T., & Encontro, M. (2012). The Enron Scandal. Göteborg: Chalmers University of Technology. Retrieved 3 6, 2019, from http://www.math.chalmers.se/~rootzen/finrisk/GR7_TobiasPavel_MyleneEncontro_ENRON.pdf

Kurant, P. (2014). Corporate Fraud and its Consequences: An Empirical Study. FEP. Retrieved 3 5, 2019, from https://sigarra.up.pt/fep/pt/pub_geral.show_file?pi_doc_id=27703

Rockness, H., & Rockness, J. (2005). Legislated ethics: From enron to sarbanes-oxley, the impact on corporate america. Journal of Business Ethics, 57(1), 31-54. doi:10.1007/s10551-004-3819-0

Sunday, March 24, 2019

Policies that prevent corporate fraud

There are several business policies and procedures to control or limit the risk of corporate fraud.
1.  Facilitation of information to the market and to improve the problem of information asymmetries.
Financial regulators have imposed disclosure requirements as a central pillar of financial market regulation in all developed financial markets (Seligman, 1983; Coffee, 1984; Mahoney, 1995; Selden, 2006). The issuers of financial tools and financial services providers have to disclose to the market and their counterparties all relevant information, in a timely manner, and make sure all market participants have equal access to this information.
2. Protection of individuals.
The legal systems may impose duties or suitability requirement on certain market participants in order to provide the required protection of individuals who participate in the financial market with insufficient expertise to understand the information and avoid being manipulated by the others, who are more expert in the market.
3. Legal systems.
The legal systems prohibit certain deceptive behavior through general fraud laws, which may appear in both civil and criminal bodies of law (Podgor, 1999; Buell, 2006, 2011; Ryder, 2011, pp. 93–139; Harrison and Ryder, 2013, pp. 61–90). The law provides several legal acts that target different kinds of financial fraud. For example, the acts that target financial fraud in the banking or insurance sector, fraud perpetrated using mail and wire communications, or fraud perpetrated through the use of a computer or the Internet.
Reference
Rockness, H., & Rockness, J. (2005). Legislated ethics: From enron to sarbanes-oxley, the impact on corporate america. Journal of Business Ethics, 57(1), 31-54. doi:10.1007/s10551-004-3819-0

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