NCJ Number
69912
Journal
Financial Executive Volume: 45 Dated: (September 1977) Pages: 18-23
Date Published
1977
Length
6 pages
Annotation
Actions that companies can take to curtail management fraud and other irregular practices are presented.
Abstract
Disclosures of illegal payments to United States and foreign officials by American companies have resulted in increasing demands for governmental controls over corporate practices. To counter this trend, companies should publicly conduct their own investigations of suspected fraud and establish monitoring procedures to prevent future problems. An initial step in a fraud prevention program is a formal statement of company policy regarding illegal payments which considers the Securities and Exchange Commission guidelines on disclosure. Items which should be disclosed include funds accumulated outside normal channels of financial accountability, payments to government officials, and payments which are related to a significant amount of business. All levels of management should be aware of areas which are vulnerable to fraud, such as auditing processes, conflicts of interest, and purchasing procedures. An effective system of internal controls constitutes a deterrent to fraud, but it must be managed by an individual who is free to report any irregularities to the proper authority regardless of organizational level. An internal audit department must have ready access to top management, as well as freedom to examine all records. Monitoring procedures for the internal audit department to follow are suggested, including a survey of employees concerning company policy on illegal payments and a review of company contributions, expense accounts, consultant fees, and payroll policies. A checklist of situations which are conducive to fraudulent or irregular practices is provided.