Question

discuss exhaustively controls framework that can prevent or detect fraudulent behaviour in order to enhance effective performance in a business organizations in Nigeria

Answer 1

A fraud is an act which is conducted purposefully with an aim of gaining unfair advantage. So the person committing fraud will ensure he is taking anough precautions so that he is not getting caught. That's why it is difficult to detect frauds. However the following measures taken can reduce the risk of frauds and can prevent frauds:-

1. Strong internal controls - Strong internal control mechanisms should be put in place in the organisations. There should be a clear set of rules about do's and don'ts and heavy penalty in case of violations, so that it brings in a sense of caution in the organisation.

2. Seggregation of duties - Segregation of duties is required in all the process involved in an organisation like Order to cash process, procure to pay, assets purchase, HR process, etc. No two process should be in the hands of same person which can give the person an opportunity to commit fraud. For eg: Person making an invoice posting should not be the one who is making the payment posting, else he can easily post false bills and make payments himself.

3. Rotation of job - Job rotation is very much required at frequent time, so that people dont get time to settle in and think about loopholes in the process and exploit those loopholes. It has been seen that most people who commit fraud have been in the same job role for quite a long time which has given him the opportunity to exploit the loopholes in the process. Rotation of job can invovle rotation of job role, rotation of work of place, etc.

4. Strong internal audits - An independent internal auditor with a repute should be appointed to conduct internal audits in the organisation at frequent intervals. A proper audit plan must be drafted for each year of engagement and different audit areas must be targeted each month/quarter of audit period. This can reveal the loopholes in the internal controls in the organsation and based on the recommendations of the audit team, proper action can be taken.

5. Joint responsibility - Joint responsibility should be in place in the organisation so that it is difficult to commit a fraud. For example, a cash box having a combination of two keys with different persons's so that the same can be accessed. Or, An expense voucher requiring the approval of two different managers before payment.

6. Effective ERP systems - Effective ERP systems provide authorisations to an employee only for the areas he needs to work upon, have inbuilt checks in several cases and have a workflow concept designed in it, etc. These features greatly contol the ability of a person to commit a fraud. For eg. A person in the purchase department will not have access to bank account ledgers or the system will have an inbuilt check that same invoice number cannot be posted twice, or if someone makes an expense posting of more than $50, will go through an approval workflow before the same can be paid.

7. Proper Background check of employees before hiring - Background check is performed by independent external organisations before any new employee is hired. If the employee has any case of fraud repoted against, the same will be revelaed at the time of such check.

8. Install physical controls like guards and entrance and exit points, CCTV cameras, access control systems, etc.

All these controls frameworks can prevent as well as detects fradulent behaviours in an organisation.