Financial Frauds and Corporate Ethics

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Financial fraud can be defined in so many ways by different scholars and financial analyst but the most common ones include (Gioia p.6). Manipulation of accounting figures, this normally happens when managers of an organization intentionally understate or overstate the company financial information in order to favor the firm financial performance. Financial fraud can also be defined as the act of misappropriation of assets which includes theft and misuse of the company assets and funds for instance stealing revenues, and misappropriation of inventory.

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Whether fraud involves big money deals, money laundering, it attracts less outrage in comparison compared to other crimes done in public. The main reason for this is that the firm financial fraud has diffuse costs to the company and the society in large and huge benefit the person who has committed the crime. But even if financial fraud cost is shared and has less impact in the short term, in the long run these financial fraud has the ability to undermine the very reason of the striving of any society which includes the rule of law, accountability and democracy.

Matthew R (pp.32-39) this means that the economies that have been built on poor practices and planning and have got bad regulated financial sectors are the most affected by financial fraud in any given society. Financial frauds always thrive or succeed in those environments where the destinations and funds flow can be easily detected by every individual in that given company; it will also flourish in places where many personal connections between the employees and secrecy override open reporting and daily auditing practices.

Such companies will be having weak regulatory structures and poor legislative provision which are inadequate to combat the threats posed by financial frauds.

Financial frauds undermine democratic institutions which have been built by the shareholders of that particular institution for so long; it therefore betrays the public faith in openness and fairness of dealings of these modern companies. It also undermines the legal economic practice by increasing the high chances of risks in the field of individual and corporate investment. It is also true to say that the government legitimacy, meaning that public security in many countries is compromised by high suspicion of fraud and corruption at the highest levels. Examples of such countries include Russia and Mexico.

Financial fraud is a serious threat to democratic social economic development and peaceful coexistence, out of theses there are several themes that comes out and they include, the idea of financial fraud being a major issue of development and institution building, there is always various effective measure against financial fraud which includes strategic decisions in applying scarce resources effectively.

All the financial criminal activities for instance tax evasion, drug trafficking, fraudulent financial schemes and the misappropriation of public funds have one common feature, which is using of the same system to allow proceeding of fraud and crime. Few countries for instance china has got process that makes it almost impossible for financial frauds and this is so because they have financial institutions in both off shore and overseas jurisdictions who are willing to keep the identity of their clients, the amount and the source of the finance secretive. This kind of system has emerged as a good as before, it is supplicated and it working very well to combat financial frauds in the country. Those countries whose systems are not that high tech face a major challenge in investigating financial crimes.

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Therefore there is need for cost effective strategies to be used to combat financial fraud, it is evident that an effective strategy will require resources but most of the countries that are hard hit by financial fraud are straining beyond their national budget to finance even their projects at home. One big issue that comes out from this is the difficulties of achieving the expected results in the struggle against financial fraud (Craig, pp 16-17).

In conclusion many third world countries face a unique challenge in putting off domestic and international financial fraud in the midst of their own economic challenges. In facing such challenges most of the third world countries would benefit in the long research for the most cost effective strategy that can be used to combat financial fraud. This is very important because the failure to crack down on laundering activities in most of the third world countries present them with more complicated challenges. The issue of blaming foreign financial markets and the relaxed financial regulation presents itself as a fertile land for financial frauds.

Business ethics is a form of applied ethics with an aim of instilling a sense of responsibility to the company employee’s population on how they can be able to conduct business with a lot of responsibility.

There is no single way to deal with the company assets fraud, therefore everyone deals with assets differently. Some of the employees like to be associated with the company assets while others do not care at all about the usage and the condition of a particular firm’s equipment wether it is a desk, a chair, a computer or even the company cash flows. When an individual detach themselves from valuing the company assets like the second situation, it needs careful and a thoughtful considering for that employee to finally attach any value to the various assets found within that company. This attitude of employees not to feel anything for the company materials and cash flows is not new in various companies, it does not change from work to work but an ethical employee aims to respect the value of others and their property, therefore every employee should make a moral connection between responsibility, ownership and ownership.

Not every employee is not careful with the company assets but those who are considered good starts excluding certain persons, this normally happens when a certain group is considered to come from outside from where moral values and fairness apply. The most common example is when employees exclude those employees who are not from their race or tribe from major decisions in the company. This behavior of looking down the standard ethics of others is not in the correct order, because at the end of the day there will be discounting everyone who works in the company and their valued customers.

In a greater awareness much training is needed for the employees so that they can start attaching value to the company assets and utilities. Secondly training also needed for the employees to embrace one another with respect so that the issue of segregation based on ethical standards should not arise in an organization at all. One example of such exclusion shows up in our areas of operations, different departments tend to be morally different just because they are dealing with different areas within the organization.

In addition to that, the management behavior is sometimes wanting, they count themselves unique even though they are not ethical upright in so many ways. If ethical separation exists within an organization it up to the employees and the management to come up with ways to prevent this from spreading to other area that is affected, it is important to promote justice through encouraging direct contact between employees.

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Since the 70s various companies have been able to address the issues of business ethics in different ways including the introduction of various programs, committees, the development of ethical codes to be used in the company and the preparation and dissemination of value statements at all cost with an aim of ensuring that business ethics prevail in the organization.

The continuous bad business behaviors have been able to raise questions on how business ethics can be improved within an organization and ways in which the underlying misconduct can be addressed so that an organization can run effectively; in addition to this there is also a need to promote proactive, sustainable business practices and social responsible practices that are accepted by the general community in which the organization operates.

The multinational companies, governmental organizations, the USA and entire European countries must take an active role in making sure all the business entities are accountable for any misconduct, therefore all business organization should be accountable for their wrong doing, poor social and environmental business performance. Various researches have shown that it benefits if organization takes corporate social responsibilities, and corporate governance seriously (Cooper and Sawaf, pp126-127).It also shows that organization performances in social and environmental situations are very important to the public as performance in financial areas. People expect a lot from their favoutite companies for instance, they want a company to increase their value, make profit and also act responsible for them in their areas of living.

It is also true that, the more individuals consider business ethics and corporate social responsibility into their daily investing decisions, the more responsible the companies will become, rules and regulations can only go far to stop various scandals that can arise within an organization. Opotow, S (pp1-20), but if the public stop investing into an organizations that do not value them at all, all others will learn from this and start taking corporate ethics seriously.

Work cited

Cooper, K. and Sawaf, A. Emotional acumen in Leadership of organizations. New York: Putnam/ Grosset, 1996.

Craig, D. ” Rotation and cross-training, Leads to a lesser amount of strain.” USA editor 788 (1998): 16-17.

Gioia, D. A. Multicolored fires and personal morality. Journal of ethics of business 11 (1994): 379-389.

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Matthew, R., Shaw L. et al. “Prevention of motivational consequences”. Journal of Social Psychology 67 (1995): 89-90.

Opotow, S. Ethical elimination and prejudice: An overview. Journal of Social Sciences Issues 46 (1992): 1-2.

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