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Resources » Articles/Knowledge Sharing » General »
Financial Frauds, Is it magic of Money Making or Money Eating.
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How to make huge money in shortcut way? While reading the economic history of some famous companies probably we can find many such ways which make us which tell us how to become crorepathi within few years. We are reading different types of financial frauds since many years in news papers. People who involved in these frauds are not ordinary people. These people are great executives of famous business organizations. Some of them are promoters of companies. These people are highly qualified, decent and highly status people in the eyes of society. Satyam scam is very recent example for this.
Why it takes so many years to trace these financial frauds? The people, who involved in these scams, are normally decision makers of the organization. When these people are in superior post it is waste, if there is any number honest people in down line jobs. They cannot do anything though they know about the scams because fraudulent people have power. Some times there is secret understanding between employees and directors in many misappropriations of fund cases, which is not good for the financial health of the organization
Every year companies are publishing their un-audited quarter, half yearly financial statements and yearly audited reports in news papers Satyam computers Ltd also may be one of those companies who are regularly publishing their financial statements. A common share holder how can judge the authenticity of these statements. Some companies are showing huge profits at the end of every year. It may help them to boost their share values. What about poor investor. They cannot have the authority to inspect books of accounts of the companies. They trust company accountants and auditors. If the famous auditors fail to trace the frauds or misappropriation of funds, then who will give the protection for the investment of ordinary shareholder?
Tracing of financial frauds or misappropriation of funds in organizations is very difficult task. But it is not impossible task. Recent years there were many interesting multicrore scams detected. These scams are happened not in ordinary companies. All are large and very reputed companies. Shareholders should grateful to some committed and honest auditors. Normally culprits are following many ways. To focus them as financial stronger companies sometimes they are overstating assets and understating liabilities in financial statements there may be some secret pressures to show these unrealistic figures for some commercial reasons. Illegal transfer of funds from one bank o another bank account which can be easily accessible by stranger person, claiming unrealistic expenses these are some other ways of frauds in business.
In all major frauds in Public Limited Companies main involvement are the senior executives of companies. Because in Public Limited Companies Governmental the control over board of management. It is different matter if Government officials involved in frauds. But in Private Limited Companies there are involvement of board of directors along with senior officials is very high. All these cases common investor suffers a lot. Employees may not lose their jobs but there is no compensation to the investor. When Satyam Computers was in crisis its share values were reached very low level.
Insurance companies are also not fee from frauds. There are also different types of frauds in insurance fields. These may be overstated claims, or false claims for the losses which never occurred, destruction of assets in order to claim insurance. Normally insurance companies are conducting detailed enquiries before releasing compensation. But if there is involvement of insurance officials in these frauds it is difficult to trace them.
Is it possible to prevent these frauds occurring in companies? Normally there are many suggestions to prevent these financial frauds. Creating ethical climate in organization, strong financial control, management information system which helps for the effective communication among different departments and officials with in the organization, increased creativity of employees, performance evaluation of directors and employees of the organization are some the good measures. The external auditing is one of the effective control methods. But these auditors should be committed and honest and they should work for the interest of public.
Simply expectation of ethics in functions is not enough but there should be proper code of conduct for the board of directors, employees of the companies. This code of conduct should be aimed to bring transparency, honesty and accountability in discharging their duties and responsibilities.
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