Over the last one and a half decades, the cases of corporate scams have gone up exponentially. Toyota, Volkswagen, Apple.Inc, Samsung, and most recent Huawei are some of the giant companies that have made international headlines over multibillion-dollar scandals leading to increased questions over corporate ethics. Traditionally a fraudulent act or fraud is described as an activity in which one party takes advantage of another through any act, omission, or concealment, involving a breach of legal or equitable duty or trust. In a court of law, it is necessary to prove that a false representation was made as a statement of fact and was intended to deceive and induce the other party to act upon it. Unfortunately, fraud in the corporate world is not a new phenomenon as the greed for money as well as other material resources has existed for a while. It is for this reason for the emergence of the concepts of forensics and auditing
Types of Fraud
Over the years, as the corporate environment changed, so has the risks posed by fraudsters in the corporate world. Currently, there are several ways that have been identified as fraudulent activities although they differ significantly; for instance, the Enron saga was a case where stakeholders were given a less than accurate account of the company’s financial health. On the other hand, the VW saga was more of an internal scam that was set to influence global sales through lies and collusion by company executives and third party associates. The two cases are different with the VW case leaning towards the influence of directing competitive advantage while the Enron case was based on poor management and malicious intent. Today, the common types of fraud are
When analyzing fraud cases in the 20th and 21st century, it becomes clear that a majority of then have been a cause of false accounting. As indicated by Carroll and Ann, the main aim when dealing with false accounting is the overstating of assets while understating liabilities thus doctoring an organization’s profile in a better light than they are in actuality (62). Frequently, commercial pressures to report an unrealistic level of earnings, which can take precedence over controls designed to prevent fraud occurring, exist. Payroll fraud is part of false accounting as it involves the diversion of resources to fictitious entities.
Any organization is susceptible to lose of or the undervaluing of assets due to the direct actions of employees and third parties acting independently or in collusion. Unlike false accounting, the assets are not undervalued, but in most classes, they are missing and are not recorded in any book of account. This form of fraud is best known for its use of kickbacks and Intimidation from third parties
The introduction of IT in the corporate world over half a century ago ushered in an age of increased efficiency, particularly when it came to accountability. However, just as computers and other digital devices have been used positively, some individuals have taken advantage of them to find new ways of perpetrating fraud such as diverting funds from one bank account to another, having gained unauthorized access passwords. As explained by Nilsson and Birger, hackers have also become a menace in holding up business as hostages threatening to make public-private information such as trade secrets (73). IT, as well as other forms of digital technologies, have increased organizational efficiency, but they have also opened up new opportunities for fraud through their vulnerabilities.
Money laundering is not considered fraud directly; however, it is a mechanism that proceeds from the crime to defraud an individual or an organization. Examples of such linkage could include obtaining bank loans against assets derived from criminal activities or issuing company cheques to third parties and those parties issuing cheques to an individual
Investment Scheme Fraud
Investment scheme fraud can also be thought of as third-party asset misappropriation. It involves taking money from customers on the promise of spectacular returns but using the cash for one’s purposes.
Fraud Triangle is considered to illustrate the structural foundation innate in a wide variety of fraud offenses. The concept of opportunity contained by the Fraud Triangle is deliberated to be the initial element of fraud. Opportunity is regarded as the first solicitation or invitation set forth by the lawbreaker with regard to possible victims. Rationalization is the second step within the course of events articulated within the Fraud Triangle. Succeeding to a positive solicitation endeavor, the fraud wrongdoer typically tries to instill a false sense of self-assurance as well as security within the victim through the use of dishonesty and perversion. The conception of pressure is reflected in the final constituent of the Fraud Triangle as well as serve as an all-embracing component with regard to the activity of fraudulent activity. The use of high-pressure coercion tactics provide for an environment disallowing for proper analysis and impulsive consent
As aforementioned, fraud encompasses a variety of crimes that include, but are not limited to, false representation, failing to disclose information, abuse of position, and obtaining services dishonestly. Each form of these fraudulent cases holds a unique risk factor. False representation is traditionally referred to as theft; on the other hand, fraud by failing to disclose information is often linked to the risk espionage, which may affect competitive advantage. The management is expected to develop an internal control system that analyzes the type of fraud that is most prevalent, how to manage such as situation, as well as the punishment or reward system that discourages fraud from reducing these risk.
The world’s largest internet retail company, Amazon, is considered a modern-day marvel due to its success. It finally made its first profits in the last quarter of 2001 after the internet bubble bust as most ‘.com.’ companies tanked
Fig 1. Amazon’s Annual net income (cash flow) from 2004 to 2018
|year||Net income in a million U.S dollars|
Amazon is among the most notable brands globally, particularly because of its online retail and shipping services. For the last decade, the corporation has been identified as a threat to retailers across the world as it is the leading retailer in the United States recording over 232 billion U.S dollars in sales during the 2018 financial year. However, Figure 1 indicates that the net income fluctuated from 588 million dollars in 2004 to 190 in 2006, or 1,152 million dollars in 2010 to -39 in 2012, followed by -241. Currently, the company has employed different means to regulate costs, for instance, through revised taxes from tax breaks received from state stakeholders. Nonetheless, it is notable that in spite of its success across the globe and the U.S, the firm does not have a warehouse. Having the mentioned facility would mean at the very least increased cost in purchasing as well as maintaining of storage equipment. The company would be forced to increase staff members, thus increasing thecost of the processes. As such, it is more profitable for the organization to lease warehouses than buying them. As indicated by Heene and Ron, the amount of inventory that allows Walmart to run the ‘Wheel and spoke’ strategy is limited as compared to Amazon (116). With this in mind, adopting a strategy of owning warehouses even with owning the distribution channels is not recommended. Nevertheless, there exists the negative side of not having large warehouses, particularly during the holidays. Additionally, as seen in New York City over the last few months, the company has failed to set itself up due to public opinion.
Currently, the company’s net income is estimated at 10,073 million U.S dollars meaning the company can buy land and customize its warehouses. However, this would affect logistics, especially in the Human Resources department, as some workers will be expected to take up new roles as well as hiring new staff. From the information provided, it is clear that Amazon.Inc had a substantial amount of cash flow in 2018; arguably this amount should be used to transform the company policies in owning physical assets in the United States if not globally.
Carroll, Archie B., and Ann K. Buchholtz. Business and Society: Ethics, sustainability, and stakeholder management. Nelson Education, 2014.
Heene, Aimé, and Ron Sanchez, eds. Enhancing competencies for competitive advantage. Emerald Group Publishing, 2010.
Nilsson, Fredrik, and Birger Rapp. Understanding competitive advantage: The importance of strategic congruence and integrated control. Springer Science & Business Media, 2005.