Detail of the crime
In the recent past, several cases have been reported of employees using the complex nature of the financial statements and the weaknesses in the accounting standards to manipulate the financial records. White-collar crime is characterized by inflating the asset values, overstating the reported income and cash flow, and failure to disclose the liabilities in the financial records. The white-collar crimes committed in an organization set up are of different types. They can be categorized into conspiracy, securities fraud, false statement, insider trading, and fraud with the primary intention of self-gain by the perpetrators (Glasbeek, 2012). Many organizations such as Google, Nortel Networks, Enron, and Wal-Mart have been victims of such crimes. Enron and Nortel Networks were shut down following massive fraudulent activities by employees.
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A specific area to address
The specific area to be addressed under white-collar crime is the misstatement, which involves failure to disclose material facts in the financial statement, a serious violation of the Generally Accepted Accounting Principles (GAAP), and the amount involved in the company’s profitability or turnover (Glasbeek, 2012). This crime is often committed by a trusted agent managing the financial standing of a company by betraying the trust and responsibility bestowed upon the agent by stakeholders.
Group of focus
The specific group of focus in this white-collar crime is the shareholders who lose their investments as a result of misstatement. In most cases, the investors become a victim of extensive conspiracy to manipulate financial records, which might run for several years before discovery. The crime is often discovered when the company is almost collapsing (Glasbeek, 2012). At this point, the shareholders may lose their lifetime investment when the company goes under.
Possible prevention and intervention
In addressing status crime (misstatement of financial performance), organizations should create a clear management policy statement that has compliance standards as a preventive measure. Besides, the board of governors in the organization should create water-tight fraud detection and periodic audit systems as the primary focus to ensure that the stance of the company on compliance, procedures, standards and responsibilities are followed by agents managing finances. By integrating these elements, the board will set a tone on how employees report misconduct since the program is informative of the omission and acts that are prohibited by the company and law to minimize criminal conduct situations (Glasbeek, 2012). To make the crime detection systems effective and customized within the organization’s culture, the board should take the opportunity to communicate and proactively reinforce the code of conduct, values, and expectations.
Since the organization structure is dynamic and flexible to various changes in the code of conduct and corporate governance, proper integration of audit and fraud detection systems is ideal in handling financial misappropriation in the organization. According to Armstrong, Guay, and Weber (2010), this system creates a setup for establishing a stable moral tone for managing an organization’s financial standing. As indicated in the NBES survey, employees are less likely to engage in unethical conduct when they are fully aware of different ethical conducts in the workplace.
By integrating the audit and fraud detection units, the board of an organization will be in a position to create fear and responsibility in performing allocated roles since the system is flexible to record excellence or misconduct to promote efficient and sustainable internal controls within the organization. In a study conducted by Armstrong et al. (2010), it was established that awareness of different fraud detection systems in an organization may deter potential criminal activities.
Armstrong, C.S., Guay, W.R, & Weber, J.P. (2010). The role of information and financial reporting in corporate governance and debt contracting. Journal of Accounting and Economics, 50(3), 179-234.
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Glasbeek, H. (2012). Wealth by stealth: corporate crime, corporate law, and the perversion of democracy. Toronto, Canada: Between the Lines.