Risk Management and Assessment

Fraud Risk
Student’s Name
Institutional Affiliation
Date
Risk Management and Assessment
Financial auditing is an integral part of any business management. It is in charge of facilitating the communication of financial position of a company. In simple terms, it involves setting up, maintaining and reviewing financial records of a given company to understand its financial position.
It is therefore essential that financial auditing provide a fair representation of the financial position of a company when disclosing important financial reporting. Without strict audit regulation, stakeholders of these companies are susceptible to risk fraud.
Types of Fraud Risks
Fraud Triangle
According to Dr. Donald Cressey in his research on criminology in fraudster behaviors, he came up with three main conditions that stimulate the fraud. One of the factors is the personal motivation and decision of the person who intends to perform the crime. Secondly, is the returns or rather the returns that the person committing the crime will get. Finally, there must exist the opportunity to get involved in the criminal activity.
Pressure
Pressure is the primary cause of a person to commit fraud. It is often financial, such as the incapability to pay bills such as medical, fees and the like, an addiction to drugs, alcohol, gambling or the desire to possess expensive luxury items. However, some frauds are committed merely out of greed. There are no pressures involved except the desire to gain wealth.

Opportunity
When preventing fraud, having an opportunity is the most important factor that should be considered. If a company eliminates chances for fraud to be committed, then it can be significantly cut down. Fraud prevention is much cheaper for companies than detecting it later. This is because there will be minimal chances of losses since they will be recovered once the fraud has already transpired. Opportunity is consequent where internal factors come into play. The more internal controls a company has implemented or designed, the less the chance of employees committing fraud. It is therefore essential to implement internal controls that are effective and efficient to gain the significant benefits for the company. Having effective internal controls include such as supervision, segregation of duties, and information technology controls for instance use of passwords, hand scanners, etc.
Rationalization
Rationalization involves making excuses for why it is adequate to commit fraud in a given circumstance. A reason may be strong, for instance, a ransom case where someone is likely to die without the money or in the event of a medical emergency where money is needed urgently for example in a surgery. However, this can also be weak, due to simple reasoning such as or “I will not get caught” or “I want the money”. Other examples of rationalization might be: “I deserve it for my hard work”, “everyone else is doing it”, “I will pay it back later”, or “it is a good cause”. Once the three fraud factors have been recognized, fraud is not likely to be committed.
Risks Related to the Revenue
a) Misappropriation of Assets
This occurs when employees or workers steel company assets; whether monetary or physical. Lack of proper security and supervision, workers could take inventories out of a faculty. However, asset misappropriation is not only making items from the company but also unauthorized use of company assets.
b) Payroll fraud
Ghost employee is a common form of fraud in extensive health facilities. The payroll staff either creates a forged employee in the payroll records or sometimes prolongs the pay of employees who have left the hospital or alter with the payment record so that the direct deposit payment is made out to them. This fraud works best in large hospitals such as Urgent Hospital where supervisors have huge staffs and cannot track compensation for each employee in sufficient detail. Additionally, such cases of fraud are experienced where there is a change on the management of the organization. As the former manager exists, a certain gap is left which allows the other senior employees left to include some close accomplices who in the real sense are not recognized by the relevant authorities. By the time the new management gets to realize such cases, it finds that some employees have had a good share of the hospital finances. For this reason, constant and regular checking of the organization’s accounts is necessary to ensure only rightful employees are in the payroll.
c) Incorrect Accounting
Apparently, companies need to assess their performance by considering its current and past financial positions. The necessity of such is for the organization to determine whether its running on losses or some progress is being made. Therefore, distorted and inaccurate records give a false impression of the firm hence putting it in a position it does not rightfully belong. Such misleading calculations and information can either be done by the employees or the management to cover for the stolen money from the hospital finances.
This two fraudulent activities may cost the hospital a lot of funds as it will be paying non-existing employees and pay an extra amount of money for the misused assets. It will then be appropriate to implement proper auditing measures such as;
i) To apply appropriate technology in its operations. Through the use of computerized employee management system, the management will be able to monitor employee payouts and attendance. This can be done by the use of biometric attendance system for the employees hence eliminate chances of ghost workers being paid.
ii) Proper supervision of each employee should be implemented. This can be done by applying appropriate human resource management. There should be a permanent human resource manager to supervise how employees work and assets they use. The HRM should ensure each employee is accountable for every assigned asset.
3. Data Visualization
Data visualization is a term that describes various efforts that help people understand the relevance of data by placing it in a diagram or visual context. Trends, Patterns, and correlations that might be undetected through textual data are exposed and recognized easily with data visualization software.
MEMORANDUM
TO: All Employees
FROM: Professional Auditors
DATE: 14th February 2018
SUBJECT: Audit Risks
Considering the audit documentation file regarding fraud risk, I would like to bring to your attention the following patterns that may contribute to the risk management risks. A significant risk is the involvement of distributors in the sales who impose their market prices that affect the external market for the business. In the same regard, all employees are therefore encouraged to promote the products produced and manufactured by their specific departments and ensuring direct distribution of the products to the consumers.
False accounting is also a common challenge that has been identified and thus leads to unaccountability of various funds by the organization. Such accounting is regarded as corruption, and any employee who will be involved I such will face the full force of the law without any fear of favour. To curb such instances, the organization should employ the modern technology which involves the use of computers. By making use of such technological equipment, it is more likely that the cases of inaccuracy and fraud will be avoided.
Continued cooperation and commitment of each employee in seeing this cases of fraud and management risks come to an end should be a team effort and indeed will see our company scale to greater heights.
We are grateful for your selfless efforts in making the organization better.
Best regards,
Professional Auditors.
References
Padgett, S. (2015). Profiling the fraudster: Removing the mask to prevent and detect fraud. Hoboken, NJ: John Wiley & Sons, Inc.