Prevention of Fraud
A fraud poses devastating impacts on organizations. Thus, organizations should adopt measures to safeguard themselves from fraudulent activities. An organization’s vulnerability to fraud depends on its internal control structures. The perpetration of fraud may be from within or outside an organization. In both cases, an individual with a comprehensive overview of an organization’s internal structure could commit asset misappropriation, corruption, fraudulent accounting and financial reporting.
There is a variety of internal controls whose adoption can considerably minimize fraud cases such as the one that took place at the Air Force. First, the Air Force should have an independent audit committee. An empowered audit committee should be conversant with risky aspects that introduce opportunities for the commission of fraud. The role of an audit committee in scrutinizing an organization’s transactions and conducting quarterly reviews minimizes chances of fishy transactions going unnoticed (Wells, 2005). Establishing an internal audit department to work in conjunction with the audit committee will further promote the identification of fraud within the Air Force. This is because internal auditors have a comprehensive understanding of an organization’s procedures. Thus, collaborative efforts between the two parties will facilitate the creation of a fraud control environment in which audit reports for various departments undergo scrutiny to identify mismatched financial records.
Secondly, the Air Force should encourage frequent fraud risk assessment exercises that incorporate all the departments. Fraud risk assessment provides insight into departments and individuals who are likely to engage in fraudulent acts. It also highlights the impact of a fraud scheme within an organization. Data collected through fraud risk assessment provides guidelines upon which an organization’s management can create anti-fraud systems and policies (Wells, 2005). It helps to link internal control systems with various fraud risks so that the management introduces intervention measures in response to the system’s loopholes. Frequent fraud risk assessment exercises will promote good ethics within the Air Force by discouraging fraudulent behaviors and giving employees confidence to report suspected cases of fraud. It creates an organizational culture that does not support employee misconduct.
Thirdly, the Air Force should adopt and promote tools that foster the reporting inappropriate activities. A periodic evaluation of the tools is important in order to ensure that they are effective in fraud prevention. This is because technological advancement and human interference cause the effectiveness of internal controls to deteriorate over time. Delegating the responsibility of managing fraud reporting tools to an external party is vital concerning the confidentiality of the information obtained from the tools (Wells, 2005). In addition, the Air Force should adopt relevant information and communication tools and practices that promote quick identification and reporting of mismatched records. Monitoring tools will create a continuous process of assessment and thus facilitate quick responses by the management. Auditing software will help the audit committee in its deliberations relating to matters of fraud.
Fourthly, the Air Force should adopt policies that promote the scrutiny of potential employees during the hiring process. This will ensure that the moral and ethical uprightness of workers is not questionable. Consulting with referees and past employers will protect the Air Force from individuals with the likelihood of committing fraud.
Creating a distinction between various departments depending on their roles within an organization is crucial concerning the mitigation of fraud. All financial transactions within the Air Force should be a responsibility of the finance department. Controlling the funds for the whole organization from a central point reduces chances of fraud.
Three factors known as the fraud triangle promote the commission of fraud. These factors are economic pressure, the presence of an opportunity and rationalization. Organizations seeking to mitigate cases of fraud should focus on reducing opportunities for fraudulent acts. They should implement internal control systems that detect and deter acts of fraud irrespective of the perpetrator.