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Introduction
Occupation fraud which is also known as internal fraud or employee fraud, theft, or embezzlement refers to “….the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets” (Wells, 1997, p.14). However, there exist three major classes of Occupation frauds. Firstly, embezzlement of possessions is an occupational fraud that comes through skimming and larceny.
Lastly, Wells (1997) points out the second and the third occupational frauds as “…corruption through extortion and kickbacks, and the fraudulent statements through incorrect employment credentials and financial statements” (p.12). A tool and die company can lose many of its resources through occupation fraud and abuse where the dishonest employees misappropriate the company’s assets leading to many losses. The company’s reputation will be at stake in case of detection of occupation fraud, as many people and customers will not trust the company’s employees and hence the company will end up losing many customers.
In addition, operations in the company will not run smoothly as the company will not entrust many of its employees with its customers, assets, and information. Alvarez. (2002) states, “Business cannot succeed unless the company trusts its employees to perform all of its activities” (p.118). However, based on a tool and dye company, occupational fraud and abuse have a lot of impacts.
The impact of occupational fraud and abuse on a tool and dye company
Occupation fraud and abuse can have fatal impacts on a tool and dye company, which is preparing for a forthcoming contract bid from the government. Contracts from governments have stringent requirements with a lot of specifications and details. All the rules, procedures, and terms of government contracts are set in advance so that the companies can prepare adequately before the actual bid period comes.
The governments carry out thorough scrutiny on the companies bidding on its contracts and thus the company must be able to prove how well it is in terms of management and ought to meet all the laid down requirements. If there is an occupational fraud in a tool and dye company, its reputation will be soared and it will not win any bid on government contracts because for a company to win a bid, its records should be as clean as possible, otherwise not worth winning.
The most effective way of dealing with occupation fraud is by preventing it. Thus, it is of paramount importance for a company to carry out complete reviews of its financial status before the bidding of any government’s contracts. As a result, it calls for an action by the company’s management to come up with an atmosphere conducive for its customers, who on the other hand will realize the cost of dishonest dealings.
U.S Governmental Oversight
Accounting frauds mostly, “…involve very sophisticated means for overstating revenues, overstating the worth of the company’s assets, understating company expenses, underreporting the liabilities of an organization, or misusing and misdirecting funds” (Sheetz, 2006, p.23). The U.S. government discourages people from accounting frauds activities and has implemented severe punishments to the companies and individuals, who commit accounting frauds and abuses. Through its strong investigative bodies, the U.S government can investigate accounting frauds and abuses prosecuting those involved.
Penalties for committing accounting fraud in the U.S are severe and involve hefty penalties and imprisonments. For instance, in 1997 the U.S. Congress passed an act called Foreign Corruption Practices Act (FCPA), which prohibits corruption and bribery practices and imposes stiff penalties. The U.S. government does not award contracts to companies that have been involved in any accounting frauds and abuses. Thus, if the tool and dye company has any records of accounting frauds, it will not be awarded any contract by the government and this is very detrimental to its existence, as revenues will reduce at an alarming rate.
Potential Corruption Schemes to be Aware of Within the Company
A tool and dye company is exposed to many corruption schemes in its line of operation and the potential ones include kickbacks, which involve a corrupt employee and a vendor, and as a result, the company overpays for its goods and services. In this case, the vendor gives part of the overpayments to the dishonest employee. Bribes are also common within the tool and dye company where the employees receive bribes to give out some services or some goods. Extortion can also be rampant in the company where the employees demand payments using crude means such as blackmail and threats. This will affect the company’s reputation causing a loss of its key players such as supplies and customers.
Conflict of interest is another corruption scheme the company will face. This occurs when the employees, business owner, or the management team have an undisclosed interest in the company’s assets or business operations. Through these interests, the involved people can influence the decision made by the company, which can be fatal, as they will make sure that the decisions favor their interest at the expense of the company’s interest.
Embezzlement of the company’s resources money and other resources is another corruption also common where the dishonest employees misuse resources by making false claims. Transactions with the related parties can also be a corruption scheme. This occurs when the company’s transactions with the third party are conducted in dubious ways thus increasing the company’s costs and decreasing its revenues.
However, these corruption strategies pose tremendous effects on the company’s operations, revenues, reputation, and profits. Therefore, they should be dealt with accordingly. The company management team should come up with effective measures aimed at preventing corruption schemes. Accounting evidence is of paramount importance in any company, firm, or parastatal. However, one can ask, ‘What is accounting evidence?’
Recommendation of types of accounting evidence and methods
Accounting evidence is the process of finding evidence using accounting and investigative practices. Sheetz. (2006) states, “Evidence obtained is essential in that, it is the one used by company officials and lawyers in case of the court case” (p.124). To support the review of the company’s financial status, proper and efficient collecting of company records which include bank statements, past financial reports, information on the company’s databases, memos, and emails, among others, should be carried out.
“The methods that should be used in gathering the evidence should be very efficient, reliable, and fast and should include link discovery, where the company’s forensic accountant uses practical and statistical tasks to develop deterministic and graphical evidence. In addition, the company can use Bayesian probabilistic to find concealed links amongst the documents collected to produce evidence” (Sheetz, 2006, p.121). Another new method is Hybrid Evidence Correlation (HEC), which uses logic to determine suspicious patterns, which are difficult to notice. The company should seek the services of a reliable company dealing with accounting evidence.
Reference List
Alvarez, F. (2002). Financial Statement Analysis: A Practitioner’s Guide. San Francisco: Wiley Publishers. Print.
Sheetz, M. (2006). Accounting and Fraud Forensic Investigation for Non-Experts. San Francisco: Wiley Publishers. Print.
Wells, J. (1997). Occupational Fraud & Abuse. London: Obsidian Publishers. Print.
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