Fraud at Wipro - Assignment Example

MANAGEMENT Name Institution Professor Course Date Introduction While worldwide financial crisis has compelled firms to stiffen their belts, some workers also experience the same pressure and are using their employers to source for easy money. Employees’ fraud is on the rise and 93% of Indian banks indicate a rise in cases of fraud. Wipro realised that an internal finance department employee de-frauded the firm about 4 million dollars over an extended period. The company realised the fraud when it received an overdraft note which did not tally with bank book. Given the rise in employees’ fraud, there are calls for a better comprehension of fraud detection and prevention. This paper assesses the fraud at Wipro, highlight control problems that facilitated the fraud, strategies that Wipro needs to eradicate the possibility of internal fraud, feedback control checks to ensure strict adherence to the implemented strategies and potential impacts of poor control procedures for Wipro and other organisations in India. 1. What are the types of control not being carried out effectively in Wipro and other it companies in India: give examples of these control problems areas from the case study. The fact that the employee in Wipro managed to steal from the company for three years indicates that there are major control problems in the company. The types of control include the feed forward control, concurrent control and feedback control. Had the company implemented effectively the feed forward control, the embezzlement would not have occurred. This is because the feed forward control centres on the regulations of input to ensure that inputs attain the principles set by a firm. The inputs subject to feed forward control include time, finances and other organisational resources. Feed forward control helps in preventing difficulties that may face the company (Bartol, Tein, Matthews, Sharma and Ladal 2011:427). Feed forward control prevents problems from arising since it is precedes the actual organisational activities. Wipro took pride in its process integrity, ethics and value system of its workers. Given its image and the trust it had on its employees, it did not notice the fraud until after three years. The feed forward control helps firms in anticipating problems before they arise. Wipro lacked concurrent control that entails regulating ongoing activities of a firm as a portion of the change process. Concurrent control ensures that the ongoing actions of a firm conform to the firm’s standards. Bartol et al (2011:427) asserts that concurrent control identifies complexities in firms’ procedures which could mean faulty output. The fact that the fraud at Wipro took several months unnoticed implies that the firm lacked this type of control. With respect to concurrent control, the firm can establish lock-out options on the computers besides using corporate hotlines for reporting. The concurrent control provides immediate feedback to managers on how efficiently resources are being used. Wipro lacked feedback that ensures that a firm’s products attain organisational goals and standards. Feedback control serves as final check for earlier undetected deviations. The reality that the employee at Wipro de-frauded the company 4 million dollars in small portions for an extended period, indicates the company lack of effective feedback control. The period taken by the employee was long enough for the firm management to have detected the irregularities. Feedback control helps firms in ascertaining undetected deviations such as the inaccuracies in the company’s bank account. The feedback control would have helped in monitoring how firm’s finances are being used and for what activities they are used for. Being an IT firm, Wipro lacked cybernetic control that self-regulates and monitors a given situation and take necessary corrective action. This type of control would have helped the company to monitor, detect the irregularities and make corrective actions as soon as the embezzlement started. This type of control would have helped in keeping the company’s financial status at the level set by the management without intervention (Bartol et al 2011:427). 2. What strategies that reflect steps in the control process would you implement as the CEO of Wipro to eradicate the potential for similar types of internal fraud at Wipro in the future? With respect to classical management theory, control entails a series of methods for measuring effectiveness of other management functions such as leading, organising, planning and serves as a foundation for taking suitable corrective action when effectiveness lacks. Control is the principal managerial function but rarely exercised without some type of resistance (Linstead, Fulop and Lilley 2004: 212). According to Davidson, Simon, Woods and Griffin (2009: 318), control offers firms a mechanism for adjusting their courses when performance falls outside of acceptable boundaries. Davison et al (2009:321) claim that notwithstanding the type or levels of control systems that a given firm needs, any control process hold four major steps. The steps are also confirmed by Waddell, Jones and George (2012:410). These steps include Establishment of standards Measurement of performance Comparison of performance and standards Evaluation of performance and action As the CEO of Wipro, the strategies that reflect establishment of standards include codes of conducts and ethics that will ensure provision of a positive work setting and control inappropriate use of company’s resources. The company’s code of conducts and ethics will help in preventing inappropriate actions and ensures effectiveness and efficiency. Setting reward and punishment systems where stiff penalties and policies for any fraud would apply as well as installing security systems and rules that would prevent unauthorised people from handling and controlling the company’s finances. Screening of applicants is also essential and setting of a system for anonymous reporting to allow workers to report strange conducts or occurrences besides establishing a system that protects whistleblowers. Installing a systems that requires any cheque from and to the company to hold two signatures The strategies that reflect measuring performance will include daily, weekly and monthly expenditure and revenue performance measurements. The production performance will be expressed with respect to unit cost, product quality and product volume. The strategies that reflect comparison of performance and standards would include personal observations, oral and written reports, daily monitoring of cash reserves, and a time table for comparing performance to standards. Daily monitoring and personal observation would include the assessment of minor and major performances. This assessment ascertains gaps in performance and provides prospects for the manager to identify any irregularities on the company’s functional systems and units. Written and oral reports would facilitate understanding of major issues affecting the company and providing feedback on the company’s overall performance. The timetable would help in monitoring the company’s cash reserves on daily basis. By use of reports besides personal observations, Wipro would prevent employee’s fraud given that these measures facilitate measuring of the actual performance against the set standards. The strategies that reflect corrective action include review form, personal observation and performance statements that would help in ascertaining areas that need corrective action. This step requires diagnostic and analytical skills based on the performance assessment. I would also ensure that each unit in the company submit summary performance statement on quarterly basis and provide full performance statement on yearly basis to correct any irregularities if any. 3. What follow up ‘Feedback controls checks would you use to ensure that the strategies you have brought for compliance within Wipro are followed? There are numerous system weaknesses identified from Wipro’s case and to enhance the system to thwart prospective fraud, the feedback control phase is paramount. Feedback control evaluates past activities to improve future performance. Bartol et al (2009:428) define feedback control as a regulation exercise after a service or product has been finished to ensure that the finished output attains organisational goals and standards. Feedback control at the company must handle employees’ fraud to thwart its occurrence. The feedback control regularly assesses the company’s processes to make shifts that help in enhancing the output effectiveness. To ensure compliance of the strategies proposed to prevent possibility of fraud at Wipro in future, I would implement quality checks that would prevent and control deviations. I would also hold employees’ workshops, seminars and regular meetings to ensure that the strategies are being followed. Fraud awareness training will act as a double-edged tool that would not only ensure strict adherence to the implemented strategies but also prevent fraud in future. I would also conduct routine checks on the company’s cash flow systems, surprise audits and comprehensive fraud risk analysis. I would join efforts with personnel from the finance unit in order to attain updates on how the company’s finances flow. Besides collaboration with personnel from the finance unit, I would also extensively use the company’s technological systems to detect any misconduct and perform computerised edit checks. Daily monitoring of employees activities would form part of the control check. I would also use bureaucratic control through policies, rules, reward systems, schedules and strict supervision to ensure that employees’ conducts are expected while their performance meets the set standards. I would also conduct regular visits to the finance depart to assess compliance. Direct supervision would ensure compliance while management by objectives would help in evaluating the ability of employees to attain the set performance stands. Other feedback control checks would include employees and customer surveys, performance measures and variance analysis. Interviewee responses would be used to measure the output level, complaints, operating budgets, capital budgets and assess financial statement for liquidity and profitability (Vallabhaneni 2009: 1) . Activity-based costing would help in ascertaining whether companies resources go to functions that add value to the company while Economic Value Added (EVA) would evaluate g the company’s net operating profit minus the cost capital invested in the firm’s tangible assets to ensure that there is no misuse of fund besides determining areas of improvement ( Vallabhaneni 2009: 1). 4. What are the potential implications of poor control processes in the organisation, the staff and customers for Wipro and for all organisations Effective control draws attention to major organisational procedures, hold realistic, comprehendible and achievable standards, measures performance and promote feedback (Linstead, Fulop and Lilley 2004:215). Bartol et al (2011:418) affirms that the controlling function in an organisation is the regulatory element that allows managers to take diverse means to monitor performance and implement the required collective action. Waddell, Jones and George (2012: 406) assert that controlling entails the process through which managers monitor and control how effectively and efficiently an organisation and its employees are carrying out the actions needed for attainment of organisational goals. Organisational control is essential in identifying quality services and goods given that it provides managers with feedback concerning product and service quality. Bartol et al (2011:418) further assert that control helps managers to handle uncertainties, identify opportunities, handle complex issues, decentralise authority and above all, detect irregularities such as embezzling of companies’ fund. Davidson et al (2004:319) asserts that effective control successfully monitors and regulates organisational activities. Managers must identify the qualities of effective control and comprehend how to determine and overcome occasional resistance to control. Poor control blocks attainment of organisational goals besides tarnishing the image of the affected company. For instance, Wipro suffered losses and negative publicity when such a big company was served with an overdraft note. Poor control can halt the operations of a company and this affects the profitability and productivity of the company besides affecting a company’s structure (Murphy & Tina (2011:608). For instance, when Wipro discovered the fraud, international investigations that apparently affected the company’s operations were conducted where internal transfers and job rotations were conducted. Poor control can lead to waste of resources particularly when a fraud occurs and the company needs services from external audit agencies. Companies that have poor control do not grow in terms of talent development and innovation. For example, feedback control helps firms in ascertaining areas of growth and understanding where the company goes wrong. Feedback control facilitates performance reviews that determine areas of improvement. Effective control establishes flourishing workplace relations that encourage employees to behave appropriately and report strange conducts. Had Wipro used effective control, the fraud would not have occurred or would have been detected earlier. Poor control affects employees moral, job satisfaction and attitude. For instance, after the Fraud at Wipro, job rotations and internal transfers were conducted which most certainly affected employees’ motivation and job satisfaction following the abrupt changes embraced by the company. Poor control also affects the customers, particularly when services are put on hold to pave way for investigations. It affects the supply chain and even contravenes some contracts when services are interfered with. The change of staff customers are used to also affects customers’ buying behaviours. Conclusion Fraud remains comparatively entrenched within organisations. However fraud takes place in firms with poor or ineffective control systems. Wipro lacked feed forward control, concurrent control, feedback control and cybernetic control. The lack of these types of control facilitated the fraud of 4 million dollars. Control limits accumulation of errors to preventing damaging a firm’s financial health. Any control system hold several fundamental elements which include, responsibility, standards, analysis and comparison, feedback, tolerances and correction. The fraud at Wipro affected the organisation, customers and staff. However, with effective control and correct strategies the Fraud at Wipro could have been prevented. Reference List Bartol, K, Tein, M, Matthew, G, Sharma, B & Ladd, B (2011) Management foundations. Sydney: McGraw Hill. Davidson, P, Simon, A, Woods, P & Griffin, R (2009) Management. UK: John Wiley & Sons. Linstead, S, Fulop, L and Lilley, S (2004) Management and organisation: A critical text. New York: Basingstoke, Hampshire. Murphy, P.R, Tina, D.M (2011) Psychological pathways to fraud: Understanding and preventing fraud in organisations. Journal of Business Ethics.101 (4):601-618. Vallabhaneni, D (2009) What’s your MBA IG: A manager’s career development tool. UK: John Wiley & Sons. Waddell, D, Jones, G, & George J (2012) Contemporary management. Sydney: McGraw Hill. Read More