Question

Answer the following in a well detailed post:

How would you structure a board of directors and hired executive(s) to reduce the likelihood of issues like Fraud?

Answer 1

Answer

Fraud is an intentional act by one or more individuals in or outside the company, involving the use of deception to obtain an unjust or illegal advantage. Fraud may be committed by way of misappropriation of assets or fraudulent financial reporting.

To reduce the likelihood of issues like fraud, the Board of directors and hired executives of the company should be focused on eliminating the situations which act as incentives for the individuals to commit fraud.

Such situations which induces the managers and employees to commit fraud includes;

• Financial obligations or pressure
• Management's unrealistic goals
• Dissatisfied employees or lack of motivation among employees
• Lack of adequate internal control etc.

Here is how the Board of directors and executives should eliminate these situations of commiting fraud.

When there is pressure on the business individuals from sources outside or inside the company, to achieve an expected earnings/performance target or financial outcome, they may commit fraud by using any illegal or unfair means to achieve that expectations. Even the honest individuals can commit fraud in an environment that imposes sufficient pressure on them. The BOD and other executives should be focused on eliminating these pressures on the employees and help them to work in a friendly environment. They should also prevent the management from making unrealistic goals by letting the employees to work according to their efficiency and with more quality.

Dissatisfied employees will have the tendency to commit fraud by misappropriating assets from the company. They may steal cash or goods of the company when they do not get the return that they expect. Dissatisfaction happens due to various reasons such as low salary scale, not giving bonus or overtime works. Employees expect something in return for their hardwork and that return is also a source of motivation for them to work even more. Hence the Board and executives should pay attention to the matters regarding payments to the employees. Further they should provide motivation by giving them performance appraisals and bonus and should communicate with them, the matters which affect their work evironment and if possible should take advice from them to make changes in the workplace.

Lack of internal control will also let the employees to commit fraud. When there is adequate internal control, all the matters that happen within the entity will be well managed and controlled. The opportunity of making any fraud or errors is very rare. For this it is advisable to appoint an internal auditor or some other executives to maintain the control in the entity.