In the modern-day and age, it is increasingly important for the management to have strong internal controls in place that can mitigate the overall risk of fraud or errors within the company.
Managers need to have a foolproof strategy to ensure that their controls and SOPs (Standard Operating Procedures) do not impose any inherent risk because it might inevitably lead to significant financial losses, which might hamper the overall reputation of the organization.
In order to understand Management Responsibilities related to fraud, certain areas need to be discussed:
- How can managers prevent fraud?
- What should the managers do once fraud is detected?
- How can managers prevent fraud?
Preventing fraud in an organization requires proper controls, which can detect any material misstatements within the financial statements.
Managers are responsible to have a clear cut strategy regarding the prevention of fraudulent activities, which needs to be communicated to the other team members.
Intentional misstatement in financial statements is a criminal activity. Therefore, this should be communicated properly with all the team members, and organizations should ideally have a zero-tolerance policy towards any activities like this.
Furthermore, they should also have SOPs designed, which can ensure that the incentive to cheat, or commit fraud does not exist.
The role of internal auditors in this regard is also very crucial. Having a proper internal audit department ensures that the organization has a procedure and policy in place to perpetually check for any discrepancies and material misstatements.
Internal Risk assessment is also an important strategy in this aspect, and identification of all the inherent risk procedures and protocols might be a preventive measure that can reduce the overall risk.
However, regardless of having all such policies and practices in place, there are still some instances where fraud is committed, resulting in severe financial losses, and the inevitable loss of repute for the corporation.
What should the managers do once fraud is detected?
Once fraud is a detective, the immediate course of action is for the managers to ensure that damage control is done on a timely basis.
The people accountable for the fraud should immediately be laid off, and there should be zero tolerance for anyone remotely involved in the process.
Furthermore, it is always fundamental to have a Fraud Response Plan, in case any fraudulent activity is detected at the organization.
This Response Plan lays down certain rules, and to-dos which can be a viable strategy for the management, following the detection.
The reasonable steps, as mentioned earlier can include some, or all of the following strategies, given below:
- Clear reporting mechanisms
- A thorough investigation
- Disciplining of the individuals responsible
- Recovery of stolen funds or property
- Modification of the anti-fraud strategy to prevent similar behavior in the future.
Conclusively, it is extremely important for organizations to have a documented plan in order to respond to suspected or detected cases of fraud.
In this regard, a fraud response plan should include a clear statement on the corporate policy about dealing with fraud, Furthermore, it should set out the roles and responsibilities of all those who are involved in responding to suspicions.
Moreover, it should also provide a framework regarding how an investigation should ideally be handled, further ensuring that due process is followed and the integrity of evidence is maintained.