Control in Organizations
Fraud is one of the major consequences of a company’s poor control management system. It is impossible to build an effective management strategy with high productivity if the company neglects to pay attention to the flow of financial processes. It is worth considering the cases of different companies that faced fraud due to their lack of control. Fraud is a serious problem, which leads to the destruction of the company’s sustainability, reputation, and profitability. In the light of rising competitiveness, the companies should be careful in detecting the gaps in their performance. Otherwise, the consequences may have an unpredictable influence on the company, its employees, and customers. Companies need to consider every aspect of their control systems in order to make them effective. A precise evaluation of the existing cases of fraud, their reasons, strategies to reduce them, feedback control measures, and business implications generally show the importance of integrating a complex control system.
Control Problem Areas
First, it is worth noting that the problems at all companies involved in the case took place at the low and middle levels of management. It is a first level problem due to the individual character of financial issues, which took place in a short time frame. Every employee mentioned in the cases was performing at the lowest level of the company’s control. For example, a postal worker at USPS and bookkeeper in the bookstore at NC proved that top-management’s inattention and ignorance of the processes taking place at the lowest levels of performance lead to unexpected expenses. The case mentions common fraud when former employee of Calgary Transit took home coins in his bag. The middle management was also involved in the case, when it came to the evaluation of the department’s perspective with its tactical goals and objectives. For example, a theft-prevention specialist mentioned that the case did not receive enough attention from the middle management for evaluation of his activities. As long as he was the one responsible for theft-prevention, nobody attempted to control his performance with precise evaluations.
Every company involved in the case neglected their primary function – financial control. It is the most crucial control aspect, which aims to make the income and outcome of financial performance balanced according to the strategic goals and objectives of the company (Bartol et al. 2011). It controls the collection of receivables and payment of bills according to the law. Inappropriate inventory management, employees’ selection and recruitment, and inaccurate sales forecasts prevent the company from performing effectively (Davidson et al. 2009). For example, the case involving the theft-prevention specialist showed the problem of a financial character in the internal control of the company. Not every employee should have access to the stamps or signatures of other employees. Additionally, the company neglected checking the flow in the light of blind trust in the new employee. As long as the company’s financial duty is to provide customers with a transparent financial flow related to the purchasing activity of goods and services, the company should remember that employees need the same supervision in order to prevent inconsistencies. However, the cases show that financial problems of the low level management remain unnoticed until they result in significant financial losses.
Finally, all cases involve a lack of feedforward and concurrent control. For example, none of the companies have provided employees with strict control of their activity in the report form. It could have prevented employees from starting their fraudulent activity due to the impossibility of making up checks and financial reports (Davidson et al. 2009). Regarding the concurrent controls, the managers did not detect fraudulent activities due to the lack of supervision and total control of the financial documents registered by subordinates.
Control Management Strategies
As long as internal fraud is one of the most common consequences of inappropriate control, it is worth taking the first steps towards improvement of the company’s activity by implementing direct supervision. It is the most convenient and effective form of analyzing the performance of every employee based on their behavior and fulfillment of assigned responsibilities. In terms of financial activity, managers taking higher level positions should actively supervise the performance of their subordinates. Financial reports, checks, and cash flow should play the primary role in the corrective actions of the companies involved in the case in order to prevent the development of the same problems. Regardless of the fact that direct supervision is a costly initiative, which requires presence of supervisors throughout the company in order to control employees, it is less costly than fraud committed by employees in an unexpected way (Waddell, Jones, & George 2012). In order to make supervision more effective, the company should initiate a reporting system involving all employees. If someone notices suspicious activity of a colleague, anonymous reporting system will let top managers know about the fraud. In this way, employees willing to get involved in financial machinations will feel discouraged to implement their plans due to the fear of being caught.
Second, it is essential to establish appropriate financial goals and standards within the company based on the activities of every department. Forecasting makes it easy to predict the flow of income based on the customers’ purchasing behavior and market fluctuations. In addition, employees should have a commonly shared standard of making reports about the financial activities they manage inside the company (Schermerhorn & Holbrook 2006). For example, an electronic system including formulas and forms of financial processes can quickly detect suspicious activities due to the inconsistency of data between departments. Small-business companies should also make it an obligation for sales personnel to save checks after every customer. It will help check products presented at the shelves of the store, checks, and the revenue received throughout the day, week, or month.
Finally, screening control can be effective enough in the detection of fraudulent activities. The companies involved in the case faced significant inconsistencies in the flow of products and services. It is worth making inventory control a regular initiative, which will show the consistency of available inventory and registered amount of necessary appliances (Schermerhorn & Holbrook 2006). Employees should not feel free to take equipment and things belonging to the company. Even phone books involved in one of the cases should be properly recorded in order to prevent the rise of costs. In this way, it will be impossible for employees to make their fraudulent intentions go unnoticed and unpunished. The company should be in charge of making sure it does not miss fraudulent activities.
In order to make the implementation of every proposed initiative successful, it is important to consider effective feedback control, which will indicate the possible gaps in the achievement of appropriate performance of every employee. First, it is worth emphasizing that first level management, middle management, and top management should follow the same scheme of giving and receiving feedback. For example, first level employees should be ready to give feedback about the implementation of the supervision and reporting system within the company. It will show the efficiency of the company’s decision-making process aimed towards elimination of fraud.
Second, middle level management should be ready to take a charge of analyzing the performance of departments. Feedback control meetings should have a commonly accepted schedule, which will not violate the needs and values of employees (Robbins et al. 2012). It should become a natural activity, which will show the employees the need to check their performance within the company. This way, the company will have an opportunity to integrate transparency not only in its relations with customers but also in the employees’ performance. It is necessary to make transparent financial performance a commonly shared value, which will prevent employees from engaging in fraudulent activity. In addition, the responsibility of mid-level management lies in the precise evaluation of the financial reports and their active use in meetings dedicated to feedback control. As long as these meetings already mean that the outcomes show a myriad of problems, the managers’ responsibility is to see the connection between employees’ performance and financial reports.
Finally, feedback sessions should be of a private character, which implies personal meetings between the manager and his subordinates. The behavior of the subordinate during the feedback session can indicate the fear of being caught while making fake checks or making inappropriate checkups of the inventory (Robbins et al. 2012). Every employee should expect to face the questions aimed to evaluate their financial performance. It refers to every employee having direct or indirect connection to the financial resources or inventory management. In addition, the managers can understand the employees’ intentions by analyzing their attitude to direct supervision, anonymous reporting system, or feedback control in particular. Significant dissatisfaction may be one of the indicators of the employees’ desire to go beyond legal ways of earning money.
In general, the company should aim its attention towards control of cash flow, inventory management, and employee job satisfaction levels. It is obvious that unsatisfied employees seek the ways of stealing the company’s finances. This way, feedback control initiatives will become effective detection tools for evaluating the presence of suspicious activity. As a result, it will be possible to improve feedforward and concurrent controls along with transparency.
Implications of Poor Control
Inappropriate and even poor control management leads to a myriad of consequences faced by an organization, its employees, and customers. As soon as it becomes public knowledge that the company had an employee engaged in fraudulent activity, the reputation of the organization is immediately damaged. The lack of trust builds the negative aura around the company, which was not able to detect fraud for a long period of time. All these problems are time consuming and lead to extreme rises of costs. The company finds it difficult to handle the pressure of an external environment, which will perpetuate the suspicious sentiment towards the company. Finally, theft contributes to the increase of costs due to inability to make proper tracking of inventory. As a result, the company will not be able to spend financial resources effectively due to the lack of items.
Employees, in their turn, will also suffer from poor management control. First, there will be no evident system of standards regulating employees’ performance. Instead of feeling a freedom of actions, the majority of employees will feel confusion in completing their routine activities. In addition, employees might feel lost in the myriad of the company’s processes, which make it mandatory to report every deviation from the plan. Lack of standards and appropriate control will lead to the dissatisfaction of employees due to their inability to find the best way to report their performance. They will not be able to know whether their performance was beneficial or not. In addition, if the company faces fraud, employees will feel continuous embarrassment. thinking that others put them in the same category as the ones engaged in fraud. Employees will have to work for the company, which does not value a proper order in its processes and documents. As a result, it may lead to an increase of the employee turnover rate.
Finally, customers will significantly distrust to the company, which does not know how to address its own control issues. Customers who have to ask a myriad of questions about receiving their goods or services are most likely to stay dissatisfied. If the company is not capable of delivering goods and services on time, the loyalty of customers changes in a negative way.
Wipro Ltd, an Indian information technology services exporter, faced fraud committed by Anup Kumar Agarwal who worked for the company as an assistant manager. The company faced the lack of information security, which resulted in a significant loss of financial resources (Lison & Raghu 2010). Apple Inc. also faced fraud as a result of poor control. Apple store employee recoded debit and credit cards and purchased gift cards for almost $1 million. It resulted in a significant loss for the company.
The evaluation of the case study revealed the gaps in the performance of many companies, which neglected to pay much attention to the control system. As a result, fraud became an outcome of the company’s ignorance to the employees’ suspicious performance for a long time. It is necessary to implement a strict control system, which will limit the employees’ freedom in the company along with giving them a framework for their performance. Otherwise, organization, employees, and even customers will suffer from the inappropriate control management system and damaged reputation caused by fraud.