Wednesday, April 27, 2011

Motivating the Need for Fraud Prevention

Cost savings and increased profits - Annual company losses by means of fraud can be prevented by enforcing the right standards and procedures. If a company suffers losses due to crime, prices of goods and services are increased to make up for the losses, in other words, the consumer has to pay the losses. The other expense regarding crime within a company is detection and investigation costs, and implementing of control costs like computer systems, or clock cards. If fraud is decreased by means of internal controls, profits increase.

Reputational risk - In the case of Enron, it became public that the company was defrauded, and Enron then became a company with one of the worst reputations in the world. Having a good company reputation means that the public trusts the company and is willing to invest in such a company. If a company suffers from a negative reputation, shares will decrease, consumers will stop supporting the company, and other companies can choose to terminate contracts or friendships with such a company.

Positive work environment and staff morale - When fraud is discovered, negative feelings arise in a company. Management needs to make critical decisions about disciplining or firing employees, and relationships between all levels of employees are changed, mutual trust is affected. When there is no fraud losses, the company doesn’t suffer any losses, there is no reputational risk, and staff morale does not suffer.

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