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Research Paper-Control management of public expenditure

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Research Paper

The major written assignment for the course is a Research Paper.  This paper should demonstrate understanding of the reading as well as the implications of new knowledge.  The 20-page paper should integrate readings and class discussions into work and life experiences.  It may include explanation and examples from previous experiences as well as implications for future applications.

The purpose of the Research Paper is for you to culminate the learning achieved in the course by describing your understanding and application of knowledge in the field of accounting.  The Research Paper will contribute 25% to the course grade.

Focus of the Research Paper
Complete and submit your choice of one of the listed assignments.  Select one of the following choices:

  • Choice one – Your role is as a public official elected at the local city level, 50,000 to 250,000 population.  After reviewing the course concepts you will identify several issues that directly connect to the written assignment.  In addition to reading the assigned text materials to develop knowledge about the concepts, a thorough master’s level education requires the development of effective research skills.  In this assignment you will work to develop a rich resource of academic sources to support your paper.

Prepare a 20-page double spaced paper (excluding the title and reference pages) on the following topic:

You have a $10 million dollar budget allocated to you by the city manager and can get up to 100% matching federal funds if you meet the federal standards.  You have been asked by the mayor to determine how to allocate the budget to best support the needs of the city.  These  include but are not be limited to supporting capital requirements, operational requirements, and subsidizing non-profit organizations or used as economic incentives to bring new private concerns into the city.

Prepare a report for the mayor and city council on your proposed expenditure plan assessing the key course objectives including fund accounting and financial controls, control and management of public expenditures, government financial reporting requirements, analyzing financial statements and budgets to make appropriate administrative decisions, and applying budgets as disciplinary process.


 

  • Choice two – your role is as a consultant with ten years experience in the public financial management industry.  After reviewing the course concepts you will identify several issues that directly connect to the written assignment.  In addition to reading the assigned text materials to develop knowledge about the concepts, a thorough master’s level education requires the development of effective research skills.  In this assignment you will work to develop a rich resource of academic sources to support your paper.

Prepare a 20-page double-spaced paper (excluding the title and reference pages) on the following topic:

You are in the role of a consultant with ten years experience in the public financial management industry.  A group of 20 civic leaders are considering forming a new task force and have asked you to prepare a proposal on whether they should build a facility in an area within 30 miles of the downtown center of your 500,000 population city for $100 million dollars.

Prepare a report for the mayor and city council on your proposed expenditure plan assessing the key course objectives including fund accounting and financial controls, control and management of public expenditures, government financial reporting requirements, analyzing financial statements and budgets to make appropriate administrative decisions, and applying budgets as disciplinary process.

  • Choice three – your role is as the chief operating officer of a large non-profit hospital or agency with ten years experience in the public financial management industry.  After reviewing the course concepts you will identify several issues that directly connect to the written assignment.  In addition to reading the assigned text materials to develop knowledge about the concepts, a thorough master’s level education requires the development of effective research skills.  In this assignment you will work to develop a rich resource of academic sources to support your paper.

Prepare a 20-page double-spaced paper (excluding the title and reference pages) on the following topic.

You are in the role of a chief operating officer.  A board of directors has requested that you prepare a summary of the issues involved in a $50 million expansion.  Because of local political and uncertain national financial policy of the to-be-elected national officials they may have to scale the expansion back to $25 million.

Prepare a report for the mayor and city council on your proposed expenditure plan assessing the key course objectives including fund accounting and financial controls, control and management of public expenditures, government financial reporting requirements, analyzing financial statements and budgets to make appropriate administrative decisions, and applying budgets as disciplinary process.


 

  • Choice four – your role is as the chief operating officer of a large government agency with ten years experience in the public financial management industry.  After reviewing the course concepts you will identify several issues that directly connect to the written assignment.  In addition to reading the assigned text materials to develop knowledge about the concepts, a through master’s level education requires the development of effective research skills.  In this assignment you will work to develop a rich resource of academic sources to support your paper.

Prepare a 20-page double-spaced paper (excluding the title and reference pages) on the following topic.

You are in the role of a chief operating officer of a large government agency.  Your supervisors have requested that you prepare a summary of the issues involved in a potential reduction in U. S. Federal budget that will affect your agency by 40%.

Prepare a report for the mayor and city council on your proposed expenditure plan assessing the key course objectives including fund accounting and financial controls, control and management of public expenditures, government financial reporting requirements, analyzing financial statements and budgets to make appropriate administrative decisions, and applying budgets as disciplinary process.

  • Choice five – your role is as the chief administrative officer of a large non-profit health relief organization.  After reviewing the course concepts you will identify several issues that directly connect to the written assignment.  In addition to reading the assigned text materials to develop knowledge about the concepts, a thorough master’s level education requires the development of effective research skills.  In this assignment you will work to develop a rich resource of academic sources to support your paper.

Prepare a 20-page double-spaced paper (excluding the title and reference pages) on the following topic.

You are in the role of a chief administrative officer for a large non-profit health relief organization.  A board of directors has requested that you prepare a summary of the issues about how to solve the health needs of an African country.  Your organization has limited funding and will need to obtain subsidized medicine from major pharmaceutical companies.  They also have the opportunity to get non-generic, non USDA approved, alternative stem cell derived medication from foreign sources.

Prepare a report for the mayor and city council on your proposed expenditure plan assessing the key course objectives including fund accounting and financial controls, control and management of public expenditures, government financial reporting requirements, analyzing financial statements and budgets to make appropriate administrative decisions, and applying budgets as disciplinary process.

Finkler, S. A., Purtell, R. M., Calabrese, T. D., & Smith, D. L. (2013). Financial management for public, health, and not-for-profit organizations (4th ed.).

Upper Saddle River, NJ: Pearson Prentice Hall.

Sample Paper

Public Financial Management

Name

Instructor

Course name and number

Date

Public officials play a critical role in budget allocations. The main aim of a public official is to allocate available funds in a manner such that the general public receives the greatest benefits from the application of the funds. The public sector must ensure that scarce resources are allocated in a manner that optimizes their usefulness. It is imperative for public officials to take into consideration the preferences of the local citizens while making budget allocation decisions. In order for growth to be achieved at the local city levels, fiscal resources must be managed in a prudent manner so as to support market-led growth. Budget allocation plans should satisfy three key elements: responsiveness, responsibility, and accountability. Responsiveness of budgets relates to the level in which the allocation of budgets matches the publics’ expectations. Responsibility is achieved when budget allocation is conducted in an efficient and equitable manner, with minimal risks being involved. Accountability relates to the level in which public officials can be made to account for every resource spent for public use.

Budget allocation calls for greater scrutiny in the application of public funds to minimize incidences of fraud and improve accountability in the public sector (Quah, 2016). Independent evaluations are often conducted across many states to ensure that public funds are used objectively and in a manner that maximizes public benefit. Developing countries are often faced with accountability issues in allocation of public funds. Due to the endemic corruption in the developing countries, there is need for public sector reforms that can help ensure public funds are used for the benefit of the greater public. In the U.S., there is greater accountability in allocation of public funds due to a number of reforms that were implemented in the public sector. This paper provides a detailed report of the best way in which $10 million dollar budget can be allocated to best support the needs of a city with a population of about 250,000 residents.

The proposed expenditure plan for the local city level place more emphasis on supporting the core services required by the citizens. The core services in the city include: enhancing the public safety, maintenance of the general physical infrastructure, infrastructure, improvement of transport and communication facilities, and lastly enhancing investment in the region. This proposed expenditure plan is based on the policy of fiscal prudence which advocates for careful utilization of public funds. Fiscal prudence is of great importance since it will ensure that the available resources will adequately be utilized to cater for the main mission as well as to support other critical financial undertakings. In the management of public funds, it is necessarily to exercise caution especially in relation to public debt. Credit limit establishes the maximum amount of debt financing that the city can take. The proposed expenditure plan is $10 million dollars, with the possibility of an additional 100% matching federal funds.

The sample budget allocation covers capital requirements of the city, operational requirements, and subsidization of non-profit organizations.  The operating budget will comprise about 60% of the entire budget allocations, while capital requirements and economic incentives will take about 40% of the entire budget. The following is a simple budget overview showing the operating budget and the capital improvements budget to be applied in the city. This budget preparation assumes that the public officials will satisfy all the federal requirements and thus access 100% additional federal funds.

Table 1.1 Total Budget Program Allocations for the City

Total Budget Program
Operating Budget Requirements $12,000,000
Capital Improvements budget $8,000,000
Total Budget Allocations $20,000,000

 

This budget is prepared in accordance to the city’s long-term strategic plan of ensuring that it achieves financial sustainability and most importantly growth.

The operational requirements are divided into a number of subsections. The following table shows the structured operating budget allocations for the city.

Table 1.2 Operational requirements budget summary.

Operational requirements budget summary
General or common fund $5,066,493
Revenue Funds

Transport and Communication Sector

Performing arts

Transit

Housing sector

Donation funds

 

$273,833

$245,038

$1,510,324

$430,296

$611,729

Debt Servicing $784543
Internal Service budget $54,000
Enterprise funds

Solid waste management

Water services

Sports development

Parks and other facilities

 

$492,449

$2,462,351

$75,793

$699240

Total Budget Allocation $12,000000

 

The general fund comprise of the mayor’s appropriations for the various positions in the city. These appropriations are used to cater for salaries and wages of various staff working at the local city level. Some of these positions include court interpreters, clerks, program analysts, staffing for capital improvements, library staffing, code inspectors, fire inspectors, and other positions directly under the local city authority. There are a number of departments attached to the general fund which include City Clerk, City Attorney, City Manager, Community Development, Internal Services, Community Services, and City Court department. The General Fund will create additional employment opportunities. It is estimated that about 30 permanent positions will be created and about 20 temporary positions. This will also stimulate the creation of indirect employment opportunities.

Capital requirements budget summary

The following table shows the capital requirements budget summary that will be used in the proposed expenditure plan.

Table 1.3 Capital requirements budget summary

Capital Requirements Budget Summary
Enterprise program funds

Water

Sports

Sewerage

 

$1,823,810

$115,445

$550,777

Special purpose programs

Transit

 

$1,534,309

General purpose programs

Drainage development

Improvement of parks

Fire medical rescue

General governmental

 

$46,275

$2,454,337

$140,812

$701237

Transportation department

Street lighting installation

Others

 

$128,545

$504,453

Total $8000,000

 

The capital requirements budget summary addresses the city’s critical infrastructure needs. Funding for the capital budget is derived from a number of sources which include: general obligation bonds, supported bonds, grants and donations, and special revenues. As earlier mentioned, it is important to take into consideration the debt limits especially when financing through issuance of government bonds. This is because issuance of bonds has a significant impact on interest rates and the general performance of the economy. The city’s debt limit levels can safely be determined by using the limited property value. This involves the use of an established formula to determine the value of a particular property and consequently the applicable tax rates.

The Capital Budget primarily comprises of the city’s major projects that are in progress and meant for enhancing public safety, health, and maintenance of key assets. The budget will thus cater for a variety of projects such as infrastructural developments, improving the emergency services department by acquiring modern equipment, improvement of communication facilities, development of pars, road development, and among other projects. The city’s annual budget can be appropriated depending on the various categories of major expenses. The following chart shows the sample budget allocation plan based on expenditure type.
Project Summary

 

Fig. 1.1 Budget Appropriations based on Expenditure type

From the above chart, it is possible to see how the budget will be allocated to cover various critical expenses. The personnel costs comprise of the largest share of the total budget. Personnel costs are those associated with payment of wages, salaries and other benefits for all employees who are under the city’s payroll. Expenditure in capital projects is the second largest in the budget proposal, comprising of 28% of the total budget. The services sector/supplies will also cost a substantial portion of the entire budget, with 22% of the total budget going towards service provision. Another important consideration in the proposed expenditure plan is debt servicing. It is proposed that 14% of the total budget go to towards debt repayment. Debt servicing is important for the local city. It will help in securing more debts in future since the city will gain a positive reputation by reducing its debt levels. Countries as well as international financial institutions are more willing to lend to states that have good debt repayment history.

The City’s Overall Financial Assessment

Over the years, the city has employed sound financial management policies that have enhanced its strong financial standing. This has mainly been through the use of appropriate fiscal policies that encourage controlled spending and maximum savings. The financial sustainability of the expenditure plan decisions are assessed based on five-year financial forecasts. Financial forecasts should be updated yearly so as to reflect the current economic trends. A variety of sources, both internal and external, should be used in making the financial projections and models. Financial forecasts are important since they provide policy makers with a long-term view of how current decisions will affect its future potential to sustain itself financially. The financial forecasts are thus a key pillar in ensuring financial stability of the city in the long-run.

There are a number of indicators that can give policymakers clues concerning the financial strengths of the city. First, fund balances can be used to determine the city’s financial potentials. Fund balances related to the unassigned revenues in the general fund. The financial reserves held by the city can also be a good indicator of its financial strength. The financial reserves represent the share of revenues that the city has in stock and can use especially during emergency needs. Bond ratings are also used as indicators of financial strength. There are various international financial organizations that provide details on bond ratings such as Standard & Poor and Moody. High bond ratings can significantly reduce interest rates pegged on the city’s debt (Brigham, & Ehrhardt, 2008). The city’s debt management plan can also be used as an indicator of its financial strength. It is important to establish sound debt management practices so as to build a strong positive debt portfolio. Lastly, the development activities of the city can be used as a measure of its financial strength. High development activities are an indication good financial strength.

Control & management of public expenditure

It is of great significance for the city to establish control measures and sound management practices of public expenditure. Control & management of public expenditure ensures that the budget is consistent with current macroeconomic constraints (“International Monetary Fund” (n.d)). The budget preparation process is a critical process that involves careful execution of duties by various organizations involved in the budget preparation process. The principles of budget are used to checking the use of public expenditure in the public domain. There are a number of basic principles that guide the budget allocation process. The principles state that budget allocation should have the following core characteristics: it should be realistic, comprehensive, transparent, policy-oriented, and the entire budget process should show accountability especially in relation to budget execution.

Comprehensiveness of the budget process relates to whether gross estimates are applied and the completeness of government operations. Transparency relates to whether the budget process satisfies all outlined national and international standards. The realisms element assesses whether the budget is hedged on a robust macroeconomic framework. The element also looks at the applicability of the financing provisions made. There are three critical characteristics of an effective budget process. These include unity, annuality, and universality. Unity of the budget system means that revenues and expenditures are used together in establishing yearly budget estimates. Annuality of budgets relates to the period covered by the budget (“OECD,” 2004). Budget preparation is an annual process, including its execution. Universality of the budget process involves the manner in which resources are allocated. Available resources should be used for a common purpose rather than for specific purpose.

Responsibility in budget control and management

It is important to outline responsibility in the budget preparation process. At the local city level, the finance department should be charged with developing the budget. However, this may differ between countries or states.  In virtually all nations including the developed nations, authorities face a daunting task in ensuring accountability relating to the control and management of public expenditures. A weak accounting framework is one of the major reasons why most countries face challenges in maintaining accountability relating to the control and management of public expenditure. Accountability is critical to accumulating wealth and establishing successful economy (Oyeriende & Iyoha, 2010). In most countries, presence of laws or anti-corruption agencies may not deter individuals from embezzling public funds. However, it is only a robust accounting framework that can help ensure accountability in the control and management of public expenditure.

Ways in which the local city can improve on public expenditure management

The local city can improve on public expenditure management by conducting internal and external audits. Traditionally, authorities were content with internal audits. However, the internal checks can easily become subverted. Independent analysis of public expenditure is thus critical in ensuring accountability in the control and management of public expenditure. Most local governments have realized the need to control public expenditure and establish accountability in the sector. The second way in which local governments can improve on public expenditure management involves establishing a sound institutional framework. In public expenditure management, there should be clearly outlined principles that guide the budget process. The constitution should enumerate a list of laws that ought to be followed. In addition, there should be a balance between the executive and legislative powers. Power legislative bodies such as the parliament should have the legal jurisdiction to scrutinize the budget allocation process.

There should also be a clearly defined budget process. The budget preparation process follows a sequel of steps that gives policymakers time to evaluate each step and whether the milestones in each of the step has been accomplished before proceeding to the next step. The procedures used in the budget preparation process should be integrated to ensure a smooth budget process. During the budget preparation process, constraints should be clearly outlined and included in a report. The draft budget should be present to a legal body with the appropriate mandate to scrutinize it well. According to (Allen & Tommasi, 2001), the draft budget should include an outline of the fiscal policy objectives identified by the government, budget policies, macroeconomic framework, and an analysis of the key fiscal risks that may impact its implementation.

It is important to take into consideration the budget execution and monitoring process as a way to improving the control and management of public expenditure. A legally established body with higher authority such as parliament of finance ministry should be charged with monitoring the budget to ensure that it does not go beyond normal limits. There should be sound systems for checking personnel expenditures as well as the budget allocations. Comparisons should be made between actual spending and budget forecasts to ensure that they are in line. Public expenditure management should also involve financial control strategies. There are a number of procedures that are critical in ensuring sound internal control. These include: financial reporting standards, clear audit trail, well-defined procurement procedures, and a modern accounting system. Having an effective procurement process is a major step towards ensuring accountability in the budget process. Procurement practices can be improved through implementing a sound legislative framework, developing efficient complaints procedures, and through establishing an organization responsible for streamlining the procurement process in a country.

Government Financial Reporting Requirements

Government financial reporting can be defined as the process whereby financial information relating to performance is recorded in a specified manner for accountability purposes. Local authorities which follow the laid down financial reporting requirements are more accountable in their actions. It is also easier for policymakers to utilize the financial reports for the purpose of planning and policy formulation. The government requires multiple reports in relation to the budget process. The major purpose of these reports is to enhance accountability in relation to the way local governments make use of public funds. The Budget and Accounting Procedures Act formulated in 1990 was the first attempt by the Federal Government to enhance accountability through provision of budget reports and other information. The act required various executive agencies to issue budget reports to the Treasury Secretary.

Federal financial reporting objectives

The Federal Accounting Standards Advisory Board (FASAB) outlines four key objectives in relation to federal financial reporting. The four include: stewardship, budgetary integrity, systems & control, and operating performance (Hatch, 2013). All financial reports prepared should satisfy the four aforementioned objectives. In satisfying budgetary integrity requirements, the financial report should include detailed information concerning the manner in which budgetary resources were acquired and how they were used. In other words, there should be clearly defined revenue sources along with amounts obtained and expenses incurred. The stewardship objective involves giving a report about the financial position of the government. In this case, it involves giving a report about the local government’s financial position. The stewardship objective will require the local government to declare the kind of economic resources it has the claims against them. This is simply the financial health of the local entity, along with future prospective. The stewardship objective thus provides policymakers with a future outlook with regard to sustainability of resources (Hatch, 2013).

The other objective is operating performance which provides details about program accomplishments. A federal financial report should provide details about accomplishments made, activity or program costs, and general information about sustainability of funds (Hatch, 2013). For example, a statement of net cost can be used to indicate the actual costs of operations in the budget process. Systems and control is another important federal financial reporting objective. This objective makes a recommendation that the financial reports should enable users to determine if all the necessary financial reporting standards and controls were observed. As per this objective, users should also be able to know whether other federal financial reporting standards were followed to the latter. Systems and control reports objective can be achieved by giving details on the internal controls employed in the budget process.

Financial reporting standards and requirements are currently regulated by congress through three statutes namely: Accountability of Tax Dollars Act of 2002, Government Management Reform Act (GMRA) of 2002, and Chief Financial Officers Act (CFO Act) of 1990 (Hatch, 2013). The CFO Act of 1990 is extremely important in proving guidelines for government financial reporting standards and procedures. The act requires relevant authorities to submit audited financial statement, provides a legal framework for leadership structures, devises long-term planning, and improves accountability reporting protocols. The GMRA act aims at introducing reforms in the running of the Federal government by evaluation of the current financial management practices and human resource planning. ATDA act of 2002 was meant to strengthen the CFO Act such that it could cater to multiple branch agencies. The Government Accounting Standards Board (GASB) is legally mandated to outline principles governing accounting and financial reporting systems.

Local city budget policies

A number of policies will be observed in budget allocation by the local level city authorities. These policies reflect the goals and objectives that are meant to be achieved in the application of the budget. Strong policies provide a framework for comparison between current budgetary performance and the proposed budget.

  • In the operating budget, current revenue will be used to support current expenditure. In a situation where the current operating expenditures exceed the current revenue, the general fund balance can be used to bridge the gap, provided that all the necessary policies are observed.
  • Projections for revenue and expenditure are to be conducted biannually over a period of five years.
  • Financial systems will be used to measure expenditures and to evaluate the program performance.
  • Current operations will not be financed using the current portion of long-term debt.
  • Capital projects that are bonds supported will not go beyond the useful life of the bonds that support them.
  • The city must keep maintaining its physical assets on a regular basis to avoid high cost in future.
  • The city will channel 25 percent of the current revenue towards retained earnings.
  • The city’s accounting and financial reporting will be conducted in accordance to GASB policy framework.

Analyzing financial statements & budgets to make appropriate administrative decisions

As a policymaker, it is imperative to conduct researches on various economic aspects in order to make appropriate decisions concerning the budget allocations or expenditure plan. It is important to analyze financial statements and budgets in order to reach conclusive decisions. The analysis may take various forms such as fiscal analysis, policy evaluation, or a combination of fiscal & policy analysis. A fiscal analysis concentrates on establishing fiscal issues such as federal legislation, regulations, initiatives, and other reports. It is also important to perform a policy analysis in order to make appropriate administrative decisions. A policy analysis enables individuals to make informed decisions in regard to government regulations and programs. Policy analysis is important since it helps decision makers to analyze the impacts of a particular policy to the public or organizations. Lastly, policymakers can perform a combination of policy and fiscal analysis in order to make appropriate administration decisions.

There are specific steps that policymakers should use in analyzing financial statements and budgets. Six basic steps can be used helping policymakers come up with appropriate administrative decisions. The first step is to clearly define the problem or need. In this step, policymakers should thoroughly assess the magnitude of the problem by conducting a quantitative analysis of the issue. It is also important to determine the extent of the problem or the population affected by the problem. The second step involves gathering information relating to the specific problem. In situations where policymakers are unable to obtain particular information, they may make assumptions based on historical or comparative data. It is important to test data in order to verify its accuracy. The third step involves analyzing the various alternatives available. There might be various options available to a policymaker with regard to particular problems or issues at hand. For instance, the local government may have various options in case of a deficit budget such as raising taxes, borrowing funds, relying on donations, creating incentives, and among other options.

The next step in analyzing financial statements and budgets involves establishing the criteria for determining the best alternatives. Various criteria may be used such as feasibility, efficiency, uncertainty & risks involved, effectiveness, consistency to expectations, and the outlined priorities. Once a criteria has been established, the policymaker should evaluate the available alternatives by weighing each of them against predetermined measures.  The final step involves making a recommendation about the best alternative. In this step, the policymaker combines all the gathered information and tries to draw conclusions based on the results. Policymakers should be creative in developing a viable solution to the problem. The policymaker should take into consideration the existing administration’s ideas and opinions and include at least one of them as a viable solution. The policymaker should provide more than one recommendations to enable the administration consider a set of different alternatives.

Applying budgets as a disciplinary process

The budget system should be time-efficient and provide maximum gains. Various local authority officials should develop estimates of the amount the appropriate amounts that can be adequately used to fund their programs or organizations. The local government should conduct annual analysis of expenditure needs instead of relying on previous year spending. This is mostly because priorities may change or new needs may emerge which impact the way budget allocations are made. The city authorities should be able to account for every money spent. The city should use advanced accounting systems that can help in eliminating overheads and inefficiencies in the entire budget allocation process. Many local governments lack mechanisms for keeping track of all costs that they incur. The lack of a sound budgeting and accounting system may lower the quality of the budget process and lead to high inefficiencies in the entire process. Budget committees are vital in the budget implementation process. The caliber of employees working in these committees greatly determine its effectiveness.

There are four ways in which budget committees can enhance the effectiveness of the budget process. First, there is need for biennial budgeting. This involves allowing the budget cycle to run for a period of two years, in contrast to the yearly budget cycles that are common in most parts of the world. Extending the period may be of benefit since it gives more room to budget committees to manage resources. In the annual budget cycles, the budget committees spend a lot of time in planning and implementation of the annual budget cycle. The second step in to adopt standard capital budgeting and cost accounting techniques. These techniques are important because they give more clarity on overheads, expenses and costs. Majority of local city authorities lack the relevant tools that can enable them keep track of indirect overhead costs. Activity-based techniques can be useful in assessing the entire cost of various programs.

The next method is to encourage those in charge of fund administration to ensure efficiency by use of rewards. Altering the incentive structures in place can help fund administrators focus more on achieving efficiencies in fund administration. The last method is to restructure the budget process and make it simple. The budget process has remained the same for over four decades. The current budget process is dogged by complexities in the system, particularly in the manner in which it is administered. There are numerous committees with overlapping duties and responsibilities which creates confusion. Restructuring the budget process can therefore be of great benefit and save on costs.

The budget process

The budget process is a critical process in ensuring that budget allocation takes place effectively. Budget preparation is importance since it gives department room for reassessing their goals or objectives and the strategies for achieving them. There are a number of phases employed in the budget preparation process.

  • Policy phase – This is the first phase of the budget preparation process. This phase is guided by the goals and objectives of the council. These act as the directives that establish the tone to be followed. Various departments discuss their needs and forward these to the relevant individuals (In Cruz-Cunha et al., 2014).
  • Financial capacity stage – This is the second phase in the process. The financial capacity phase entails forecasting as part of the decision making process. In this phase, short-term and long-term projections are made. Financial projections are then prepared covering each major fund to be applied. These forecasts cover a period of five years. Those involved in the budget preparation process may then examine a number of different scenarios that may have an impact on each of the funds.
  • Outreach phase – This involves a series of meetings that are conducted by the policymakers to discuss the overall goals and objectives in relation to the city. A number of items may be discussed during the meetings such as timelines, available resources for allocation, budget guidelines, and fiscal constraints.
  • Assessment of needs – this is the next stage in the budget implementation process. In this stage, different departments assess their programs, needs and the current micro and macroeconomic conditions. In this phase, the departments carefully scrutinize their ongoing programs in order to find areas of improvement or recommend for elimination.
  • Development phase – this phase involves the review of budget requests from various departments, financial capacity of the city, manager priorities, and departmental needs evaluation. A preliminary budget is then developed.
  • Implementation phase – this is the final phase of the budget process. The proposed budget is submitted to the relevant authority which is often the council (In Cruz-Cunha et al., 2014).

 

Comprehensive Budget Plan for the operational budget

Major Assumptions

The general fund is expected to reduce following a $201,300 deficit occasioned by discontinuation of a temporary sales tax. The deficit will reduce with time since the economy is expected to grow steadily over the five year period. The transit fund is expected to remain relatively stable in the first few years. From 2018, a deficit may be experienced due to high expenditures to be incurred in the improvement of parking in the city. The sports development fund may experience a $ 25,278 deficit in the middle of the five year forecast. This deficit will be occasioned by a cut in debt service costs. The water/sewerage fund is expected to remain relatively the same over the five year period, experiencing small surpluses towards the end of the period. This is because of the low population growth in the city hence fewer new connections. The population growth in the city is 0.2% which indicates a low population increase. Population growth helps in revenue projections from various sources such as social services and recreation. Population also impacts shared revenue calculations (Burchell & Listokin, 2012).

City revenues are projected to increase over the coming years. The growth in revenues will largely be driven by an increase in state sales tax. High revenues will also be driven by growth in the tourism sector. The development sector is experiencing a resurgence in activities from the recent economic recession. Construction has increased remarkably and is expected to maintain growth over the coming period. According to Baker (2016), spending in hotel construction in the U.S. increased by 13 percent in 2015 , while that in construction of office blocks went up by 15 percent. A 3% growth in institutional development was also achieved. Growth in the commercial and residential sectors is expected to rise in the coming period. In the fringe benefits sector, health insurance costs are projected to rise in the next five year period. The high insurance costs will be driven by a greater maturity in the workforce and a high number of retiring employees. Inflation rate will remain stable due to a relatively stable economy.

Strategic priority of policymakers and the city council

Policymakers and the city council are working with an aim to fulfill five key strategic priorities. These priorities include: enhancing the safety and security of all citizens; improving the quality of life of all residents, creating strong community links and connections; ensuring long-term sustainable growth and development; and maintaining robust financial stability of the region in the long-run. The following chart shows the council’s strategic priorities in order of their relevance.

A large portion of the budget will be spent in enhancing the quality of life of the local citizens. This portion of budget will be used to improve core infrastructural amenities. This is part of the asset maintenance efforts by the city. This budget will cover things such as streets maintenance, water, parks, and other capital programs. The key objective is to improve all the neighborhoods and ensure that council services are close and easily available to all the residents. The second strategic priority is to implement sustainable growth in the region. There are a number of ways the city can implement sustainable growth. First, there is need to reduce utility bills so that production costs also fall. Reduction in utility bills can attract investment into the region. Improving energy efficiency is another way in which sustainable growth can be achieved. This will be helpful in reducing electricity bills for the residents as well as the investors. The city plans to achieve a 20% reduction in the total amount of energy consumed by total households annually. The city will also shift to green sources of energy as alternative energy sources.

The role of nonprofit organizations

Nonprofit organizations have a critical role to play in shaping the economy of the region. These organizations are critical in provision of public services that the local authority may be unable to provide to its citizens (Horne, Johnson, & Van Slyke, 2005). In addition, nonprofit organizations can support the local government in provision of public services through partnerships. The role played by nonprofit organizations in city environments has increased tremendously in the last decade. Nonprofit organizations have become increasingly important since they are able to provide core services in a non-coercive way unlike governments (Salamon, 2003). They are also non-distributive in terms of profit which makes them more attractive in delivery of public services. Nonprofit organizations are independent of government and control their own activities. The board of directors which is responsible for the management of these entities does not benefit from their activities which makes them ideal for delivery of sensitive public services. Subsidizing nonprofit organizations would thus be beneficial to the general public since there would be corresponding improvement in provision of services.

In conclusion, budgets are of great importance in the control and management of public expenditure. Budgets serve as the key to decision making at both the local and national levels. The budget should reflect the needs of the citizens. In order for the budget to reflect the needs of the citizens, policymakers must conduct in-depth analysis of the current budget, programs to be implemented, federal policies, current needs of the locals, and others. This helps ensure that the budget reflects the needs of the majority. In planning budgets, policymakers must ensure that they take into consideration budget constraints. All budgets are limited by inadequacy of resources and hence the city must carefully plan on how to allocate the limited resources for maximum social benefit.

 

References

Allen, R., & Tommasi, D. (2001, 5 28). Managing Public Expenditure. Retrieved from OECD: http://www1.worldbank.org/publicsector/pe/oecdpemhandbook.pdf

Baker, K. (2016). Nonresidential Construction in full recovery mode. Retrieved from The American Institute of Architects: http://www.aia.org/practicing/AIAB106916

Brigham, E. F., & Ehrhardt, M. C. (2008). Financial management: Theory & practice. Mason,     Ohio: Thomson Business and Economics.

Hatch, G. (2013, October 22). Federal Financial Reporting: An Overview. Retrieved from Congressional Research Service: https://www.fas.org/sgp/crs/misc/R42975.pdf

Horne, C. S., Johnson, J. L and Van Slyke, D. M. 2005. “Do Charitable Donors Know Enough-   and Care Enough-About Government Subsidies to Affect Private Giving to Nonprofit          Organizations?” Nonprofit and Voluntary Sector Quarterly,Vol. 34(1): 136-149.

International Monetary Fund. (n.d). Budget Preparation. Retrieved from:             https://www.imf.org/external/pubs/ft/expend/guide3.htm

OECD. (2004). The legal framework for budget systems: an international comparison. OECD      Journal on Budgeting, 4(3): 2-34.

Oyerinde, D., Iyoha, N. (2010). Accounting Infrastructure in the Management of Public Expenditure in Developing Countrires: A focus on Nigeria. Critical Perspectives on Accounting, 21(3): 361-373.

Salamon, L. M. 2003. The Resilient Sector: The State of Nonprofit America. New York:   Brookings Institution.

In Cruz-Cunha, M. M., In Moreira, F., & In Varajao, J. (2014). Handbook of research on enterprise 2.0: Technological, social, and organizational dimensions.

Quah, J. S. (2016). The role of the public bureaucracy in policy implementation in five ASEAN countries. Cambridge: Cambridge University Press.

Burchell, R., & Listokin, D. (2012). The fiscal impact Handbook: Estimating local costs and revenues of land development. New Jersy, NJ: Transactional Publishers.

Public Financial Management-Explain the meaning of the variances

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Price Variance

EXPLAIN THE MEANING OF THE VARIANCES

Student’s name

Institution Affiliation

Explain the meaning of the variances

Introduction

Variance is the dissimilarity between a planned, budgeted, or standard cost and the definite amount incurred. The computed variance can stand for both revenue and costs. The variance aid the company in comparing their planned and the actual outcomes and the effect of the two on the performance of the firm. Further, the variance can result to either favorable or adverse variance. A favorable variance is attained when the actual performance is enhanced than projected results. An adverse/unfavorable variance occurs when the actual results are worse than the estimated results. This paper will explain the meaning of price, volume, and mix variances. The paper will consider revenues and how things turn out for the group considering aspects such as profit.

Price Variance

It is the dissimilarity between the real price that is paid by an enterprise to acquire an item and its average price, the difference is multiplied by the number of units acquired. If the result is positive, it means that the actual costs have amplified over its standard price (Davis, M. et al. 2014). Nevertheless, if the results of the variance are negative it means that the real costs have lessened over its standard price. The price variance in cost accounting occurs when a firm is preparing its annual budget for the subsequent year.

Standard price in this case is the price that the enterprise thinks that it should pay for the item that is an input for their services or product.  According to Finkler, Steven A. et al. (2012), the price is usually determined months prior to the actual time of purchasing the items. Therefore, the price variance arises when the actual price at the purchase period is higher or lower that the standard price determined in the planning stage of the firm’s yearly budget. The price variance can occur in case there is change in the quantity of units required to be acquired. In our calculation in the excel sheet, the treatment of Flu Patients had unfavorable variance of about ($ 14,000).

Volume Variance

It is the dissimilarity between the total planned overhead costs and the real amount of overhead that is allocated to manufacturing processes by use of the fixed overhead rate as a result of the difference in the actual and budgeted volume of production. The variance is as a result of the variation between projected and budgeted manufacturing schedule. Further, there is a volume variance that results from the difference between budgeted and actual sales units. The possible reasons for disparaging sales volume variance comprise stiff competition from the outsiders or other competing product of the company, poor quality of products, improbable budgeted sales units, and higher sales price variance.

Mix Variance

The mix variance can occur when there is a difference in the quantity of client’s purchases of each product or services matched to the magnitudes that a business is anticipated to sell. The sales mix variance equates the real mix of sales to the budgeted mix (Finkler, Steven, A. et al. (2012). It measures the change in profit that is attributed to the disparity in the proportion of the diverse goods from standard mix. The metric is used for scrutinizing the firm’s effectiveness since some services and merchandize have advanced profit margin equated to others.

The reasons for favorable mix variance may include the surge in demand for profitable products than anticipated. Second, the decrease in the production of high margin produces due to supply side limiting aspects such as shortage of labor and raw materials. Third, upsurge in supply and demand of less lucrative products. Lastly, the sales team may not focus on selling produce that have higher margins due to lack of consciousness or skewed performance inducements. There is also material mix variance. In an organization, there is much time and money spent to establish the meticulous mix of materials. The best mix of resources is those that balance the cost of all the materials with the generated yield. The final product should reach certain quality standards.

Conclusion

Variance is described as the dissimilarity between a planned, budgeted, or standard cost and the definite amount earned. This paper has examined the meaning of price, volume, and mix variances. It has explored that the computed variance can stand for both revenue and costs. The variance aid the company in comparing their planned and the actual consequences and the effect of the two on the conduct of the firm. Additional, the variance can result to either favorable or adverse variance. A favorable variance is achieved when the actual performance is enriched than estimated results. The paper concludes that an adverse/unfavorable variance ensues when the actual outcomes are worse than the expected results. The overall project was profitable as only price variance for Flu Patients was unfavorable.

 

References

Davis, M., Obłój, J., & Raval, V. (2014). Arbitrage bounds for prices of weighted variance swaps. Mathematical Finance, 24(4), 821-854.

Finkler, Steven A., Thad Calabrese, Robert Purtell, Daniel Smith. Financial Management for Public, Health, and Not-for-Profit Organizations, 4th Edition. Pearson Learning Solutions, 2012-06-01. VitalBook file.

Volume, Mix, and Price Variances
Price Variance
Price Variance = Actual Dollar Sales – (Units Sold * Budgeted Unit Price)
Flu Shots = $ 66,000 – (1,200*55)
$ 66,000 – $ 60,000 = $ 6,000
Flu Patients = $ 98,000 – (1400*80)
$ 98,000 – $ 112,000 = ($ 14, 000)
Volume Variance
Volume Variance = (Actual Units Sold* Budgeted Average Unit Contribution Margin) –
Budgeted Contribution Margin
Flu Shots = (1,200*40) – $ 40,000
$ 48,000-$ 40,000 = $ 8,000
Flu Patients = (1,400*40) – $  40,000
$ 56,000-$ 40,000 = $ 40,000
Mix Variance
Mix Variance = Actual Units Sold * (Average Unit Margin for Units Sold – Average Unit Margin
for Budgeted Units)
Flu Shots = 1,200 * ($ 55 – $ 40)
1,200 * $ 15 = $ 18, 000
Flu Patients = 1400 * ($ 70 – $ 40)
1400 * $ 30 = $ 42, 000

 

Public Financial Management-Operational Analysis

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OPERATIONAL ANALYSIS

Student’s Name

Institution Affiliation

 

Operational Analysis

Introduction

The process of acquiring equipment by the Mead Meals on Wheels (MMWC) is a huge financial choice that can have an adverse effect in the operation of the company. The machine has a total cost of $ 700, 000 with a five years life span and the executive director. Therefore, there are key factors that the firm should consider before buying the machinery. The company should consider the finance, tax implications, growth plans and usage, time, and running costs. This paper will explore and present an endorsement backing the type of financial influence the development of facilities will have on MMWC.

Finance

MMWC may choose to purchase machinery or equipment to have its full ownership. However, the decision may affect their cash flows rendering the company incapable of performing other functions such as paying of employees. According to Finkler, Steven A. et al. (2013), the company can take a bank loan or enroll in an asset finance program if it seeks to purchase the equipment. The merit of purchasing the items is to have ownership, it also act to reduce taxes, and there is possibility of deduction through depreciation. The disadvantage of the method is that there is a higher initial expenses and the company is stuck with old equipment after it becomes obsolescence.

Nevertheless, it can lease the asset so as to preserve capital and offer flexibility. The latter option has both its merits and demerits. The leasing of equipment as a method of capital finance will ensure that the company spends less compared to purchasing. There is less tax deduction compared to the purchase of an asset. It is so because the lease payment is deducted as a business expense on the tax return thus reducing the net cost of the lease. They have flexible terms as they are easier to acquire and have more elastic or flexible terms than loans for purchase of the assets. It is also easier to upgrade the asset after its five years of usefulness or when it becomes obsolescence. The demerits of this type of financing include the high overall cost and the obligation to pay cash for the full lease term. Finally, the company will not own the asset after the expiry of the lease term.

Equity financing is also a means of trading a share of the possession of the business for a financial venture in the business. This kind of arrangement allows the investors to share on the proceeds or profits of the company (Finkler, Steven A. et al. 2013). The equity or investment in the company by the shareholders is not repaid at a later date. The equity financing can take the form of membership units or stocks.

The company can search for venture capitalists. They will provide the cash required for investment but in exchange of shares in the firm.  The investors assist companies that are successful or have a proven track record. In this case, MMWC should prove that they have a high demand for its products and their means of gaining a competitive advantage compared to their competitors.

Growth Plans and the Machine Usage

The management should consider the plans of the business and how the machine will fit in the long term. The MMWC does not have enough jobs to make sure that the equipment is fully utilized.  There is no any plan that is set to make sure that in the coming years there will be enough job for the equipment. Estimating the extra work that the machine can handle vis-à-vis the returns, it is not profitable to acquire the new asset. Further, the company should look at the running cost of the equipment to check if it impacts considerably the general cost of the asset over its lifetime.

Time

Time is a great factor to consider when purchasing an asset. The equipment that cost $ 700,000 is likely to serve for five years after which it becomes obsolete. So the company may choose not to fully own it as it will need to make another hefty purchase five years to come. Therefore, financing the asset through lease is the viable option in this case.

Conclusion

After analyzing the merit and demerit of financing the purchase of the new equipment, the paper recommends that MMWC should lease the equipment rather than buying it. The reason for this is that the equipment is expensive and it does not have a resale value. The paper has explored and presented an endorsement backing the type of financial influence the development of facilities will have on MMWC. Considering the cost of capital that is at 9 percent and the interest on the loan at 8 percent per annum, the paper recommends that the MMWC refrains from acquiring the loan from the bank for the purpose of purchasing the asset.

 

References

Finkler, Steven A., Thad Calabrese, Robert Purtell, Daniel Smith (2012). Financial Management for Public, Health, and Not-for-Profit Organizations, 4th Edition. Pearson Learning Solutions. VitalBook file.

Operating Budget
Degree of Operating Leverage (DOL) = Q (P – V)/Q (P – V) – F
Q = Quantity Produced or sold
V = Variable Cost Per Unit
P = Sales Price
F = Fixed Operating Costs
First Quarter
DOL = 9,600 ( $ 147,200 – $ 4,000)/ 9,600 ( $ 147,200 – $ 4,000) – $ 36, 000
9,600 ($143200) = $ 1,374,720,000/$ 1,374,720,000 – $ 36, 000 = 1.0000
BEP = ($ 0.5 + $ 0.75) = ($ 1.25)

 

Public Financial Management-Explain your Budget to the County Council

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Explain your Budget to the County Council

Student’s Name

Institution Affiliation

Introduction

Capital budgeting concerns the investment of funds with expectation that it generates extra remunerations or cash-flows in the future. It entails the maximization of the limited incomes to the best investment prospect that is accessible. Further, the investments of current funds focus on long-term assets. Examples of capital budgeting decisions include acquisition of another enterprise, expansion of prevailing business, replacement and transformation of assets, research and expansion programs, and the purchase of novel long-term assets. In this case, the capital budget includes acquisition of two garbage trucks, a bulldozer, three new lawn mowers, and building an activity center.

Steps and Processes in Capital budgeting

The venture will start with an idea that develops to reality. Secondly, River County should develop the ideas from the top management but should consider the notions of the lower management (Mielcarz, P. et al. 2014). Thirdly, the experts should appraise the projects to define the viability. Fourthly, it should rank the projects according to viability, utility, profitability, and desirability. Fifthly, after the ranking of the projects, the River County should form an investment committee to decide on the appropriate venture that is undertaken.

Characteristics of Capital Budgeting

The capital budgeting decision is made by the managers or top-level directors. The projects extend beyond a year and they are considered long term in nature. Their cash flow, benefits, and returns flow in form of money over a period of time. Additional, the generated return is acceptable by creditors and owners and should exceed existing rates in the bank.

Objectives of Capital Budgeting

Capital budgeting evaluates the value of the developments and ranks them in the order of their sustainability and preference. The ranking provides a peck order that a firm can use in acquiring the assets. It also ensures effectual control over large venture. Finally, they fix primacies on expenditures so that they utilize long-term resources.

Evaluation Techniques

The technique used should maximize the wealth of the shareholders. Secondly, it should consider the cash flow of the projects to determine the project viability (Vecchi, V. et al. 2013). The criteria should separate the projects that assist the River County from a peak order. Supplementary, the evaluation should provide an objective that proposes a clear way of acquiring the projects.

Benefits of Capital Budgeting

The projects affect the value of the company. For example, the revenue from the garbage trucks ensures there is surge in the value of the company and shareholders wealth (Clancy, D. K. et al. 2014). The projects are expensive for example the construction of the activity center cost $650,000. So, the projects expose the company into risks. However, if implemented well, they can results to cash flow in the company.

Challenges faced in analyzing Capital Budgeting

Capital budgeting is faced with inadequate information. For example, River County acquisition plan does not reflect inadequate data. According to Gupta, D. et al. (2012), there are also uncertainties on the cash flows and cost of capital. Also, there is ambiguity on life-span of the project. Further, there is conflict in the method used for appraisal. The accounting rate of return and internal rate of return conflicts when ranking equally exclusive investments.

Methods of evaluating Capital Budgeting Techniques

The two methods of analyzing capital budgeting include the traditional method or non-discounted cash flow methods and the modern method or the discounted cash flow method. The traditional method uses accounting rate of return and payback period to evaluate capital budgeting. The modern method uses three methods to explore the viability of a project. They include net present value, profitability index, and internal rate of return.

Analyzing the Capital Budgeting of River County

There are four assets that the River County is contemplating to acquire or create. They include two garbage truck, a bulldozer, three lawn mowers, and building an activity center. The cost per unit of garbage trucks is $150, 000, for bulldozer is $240, 000, three lawn mowers is $16, 000, and construction of an activity center includes $650,000. The expected lifetime for the two garbage trucks is 10 years, for bulldozer is 8 years, for three lawn mowers are 5 years, and 40 years for building an activity center. The total cost for the project is $ 1,670,000. The projects are ranked according to viability of the project.

Conclusion

The report has analyzed the steps and processes of capital budgeting. It has also investigated the characteristics, merits, and demerits of this budget. The capital budget of River County includes acquisition of two garbage trucks, a bulldozer, three new lawn mowers, and building an activity center. Further, it has explored the techniques and challenges faced in analyzing capital budgeting.

 

 

References

Clancy, D. K., & Collins, D. (2014). Capital Budgeting Research and Practice: The State of the Art. Advances in Management Accounting, Emerald Group Publishing Limited, Bingley, 24, 117-161.

Gupta, D., & Mohanty, R. P. (2012). Factors affecting capital budgeting decisions: A structural equation modeling study. Indian Journal of Finance, 6(10), 18-25.

Mielcarz, P., & Mlinarič, F. (2014). The superiority of FCFF over EVA and FCFE in capital budgeting. Economic Research-Ekonomska Istraživanja, 27(1), 559-572.

Vecchi, V., & Hellowell, M. (2013). Securing a better deal from investors in public infrastructure projects: insights from capital budgeting. Public Management Review, 15(1), 109-129.

Capital Budgeting in River County
Details No. Cost Per Unit Expected lifetimes (Years) Depreciation (Annual) Total Annual Depreciation Total Cost ($)
Garbage trucks 2 150,000 10 15,000 30,000 300,000
Bulldozer 1 240,000 8 30,000 30,000 240,000
Lawn Mowers 3 16,000 5 3,200 9,600 480,000
Construction of an activity center 1 650,000 40 16,250 16,250 650,000
1,670,000

Assignment 4: Fraud Prevention and Detection Plan

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Financial Statement Fraud

Financial Statement Fraud

Name

Course name and number

Instructor

Date

Financials statement fraud is one of the most common forms of fraud that occur in companies. Financial statement fraud involves careful manipulation of the accounting system with an aim of making the financial status of the company appear healthy to investors and the shareholders. Some form of financial statement frauds perpetrated in the past include disguising loans as sales revenue, concealing losses, deliberate omission of financial figures and/or transactions, falsification of figures, lack of adherence to accounting principles, and other forms of frauds. The Sarbanes Oxley Act of 2002 was introduced to deter companies from fraudulent reporting of financial figures. The Act, however, may not be able to deter acts of fraud where the management is involved in perpetrating such cases. This paper will assess two fraud cases related to financial statement fraud, specifically the Satyam Scandal of 2009 and the American International Group fraud which occurred in 2005.

Satyam Computer Services was an Indian-based company with interests in IT services and products. The company was engaged in the fields of system maintenance, engineering design, software development and packaged software integration. The company was publicly traded and its shares listed in India’s stock exchange. In 2009, the company changed its name to Mahindra Group following a takeover by Tech Mahindra. The scandal rocking the Indian IT giant emerged in 2009 after the company’s Chairman, Ramalinga Raju, publicly acknowledged that the company’s financial reports had been doctored. The accounts had been falsified by a staggering $ 1.47 billion (Sanyal & Tiwari, 2009).

Culture of the organizations

At Satyam computer Services, the written down corporate culture reflected what can be found in majority of ethical organizations around the world. However, the actions of the top management were contrary to the outlined corporate culture of the company. Prior to its collapse in 2009, reports had emerged over the top management involvement in unethical behavior such as data theft and bribing employees (Bhasin, 2013). On 23rd December 2008, the company was banned from engaging in any form of business with the World Bank, which was a clear indication that there were fraud issues within the company. Satyam was barred by the World Bank following emergence of details of irregular payments and hefty benefits to staff members. Clearly, the corporate culture at the top engaged in unethical practices such as bribery and corruption. In 2008, a number of directors resigned from the company indicating that all was not well in the company’s leadership. Share price fell by over 14 percent, the lowest price in a span of 4 years. Following the revelation that the company’s financial records had been falsified, the company’s promoters, Ramalinga and his brother Rama, were arrested and charged with bribery, cheating, forgery, breach of trust and criminal conspiracy (Bhasin, 2013).

In 2005 and 2008, American International Group (AIG) was involved in massive financial statement frauds. The frauds by AIG was unmasked following investigations by the Securities and Exchanges Commission (SEC), which possible came to know about the fraud through a whistleblower (Brady & Vickers, 2005). AIG is an American corporation involved in providing insurance services to clients worldwide. The financial statement fraud perpetrated by the top management of the company involved falsifying accounting records. After the investigations into the scandal, the company was forced to restate financial figures for the years 2000 to 2005, which contained gross financial misstatements (“RMS,” 2013). These financial misstatements were part of an elaborate scheme by the top management to portray the company as highly performing while in reality the company was performing poorly. In 2008, the company was on the verge of collapse after years of gross mismanagement.

The corporate culture at American International Group significantly contributed to the financial statement fraud and the subsequent imminent collapse in 2008. The company was however bailed out by the government, preventing a total collapse of the international company. The major cause of this collapse was the company’s corporate culture which had embraced a culture of high-stakes risk-taking investments. The top management as well as employees engaged in highly risky investments which were meant to provide the company with quick revenue.  In 2007 and 2008, AIG engaged in the sales of credit default swaps without securing collateral or hedging the investments (“RMS,” 2013). Such risky investments supported by top management with a high risk appetite resulted in the failure of the company. The corporate culture also rewarded executives who failed in their specific divisions with huge bonuses, encouraging them to take more risks. The company also believed in speculative risk-taking which ultimately led to its collapse. Prior to 2005 fraud scandal, the top management at AIG lacked integrity and honesty, as evidenced by careful financial manipulations of financial statements (Brady & Vickers, 2005).

Causes of financial statement fraud and effectiveness of fraud prevention and detection

Satyam fraud was perpetrated over a period of time, involving the careful and planned manipulation of financial statements. Satyam would create fictitious items in its balance sheets and income statements just to impress analysts. For instance in 2009, Satyam balance sheet indicated that the company had $ 1.04 billion as non-interest-bearing deposits (Bhasin, 2013). Such deposits were of course non-existent. PricewaterhouseCoopers (PwC) had been the company’s auditor since 2000. Over the entire period, the auditors did not suspect anything unusual with the company’s financial statements. What was more appalling is that deposits amounting to $1.04 billion in non-interest-bearing accounts would definitely have raised the red flag that all was not well in the company. Such a huge amount of money would either have been given back to shareholders or invested as interest-bearing deposits. Other cases of fraud involved underreporting of liabilities.

The financial statement fraud at Satyam was thus driven by greed for success, power, competition and money. This drove the chairman, Mr. Ramalinga to engage in unethical practices. Mr. Ramalinga acted with negligence towards the fiduciary duties assigned upon him (Sanyal & Tiwari, 2009). The chairman was in constant pressure to impress all the stakeholders including analysts, investors, shareholders and even the stock market. Clearly, the top management had low moral standards and lacked corporate social responsibility, only acting upon their current needs. Fraud prevention and detection policies at Satyam were not effective. To start with, the there was no effective whistle-blower policy in the company. Fraud perpetrated by the top management can only be reported through a confidential whistle-blower policy. Independent directors may be unable to uncover such frauds. According to reports, the whistle-blower at Satyam was a former director. The company’s auditors, PwC, failed to uncover the massive fraud possibly out of collusion with the top management. PwC had audited the company for over 9 years, fuelling concerns of more than auditor-client relationships.

American International Group fraud in 2005 marked an unprecedented decline in the performance of the company culminating in a financial crisis in 2008. The company had for long been under the leadership of Maurice R. Greenberg, the then chief Financial Officer. In 2005, the company was engulfed in a fraud case involving mutual funds and insurance. There were also instances of corruption and fraudulent accounting practices. AIG’s financial fraud specifically involved reporting a $500 million loan as revenue (Cohan, 2010). This action created the impression that the company had high revenues, while in reality the company had lower revenues. The $ 500 million loan had been obtained from Berkshire Hathaway. On March 30th, Greenberg was forced to acknowledge the fraudulent financial reporting at the company aimed at bolstering reserves. In addition, investigators revealed other accounting frauds which had been committed over time. In addition, the company delayed announcing annual 10-K filings, causing an inflation of its net worth by over $ 1.7 billion (Cohan, 2010).

As seen from the fraud case, the key motivations in the fraud case was solely to bolster revenue figures so that the company could seem to be performing well in the eyes of shareholders, analysts, investors and the stock market. The top management lacked the proper moral and ethical values; hence they decided to deceive the public. Fraud prevention and detection policies at the company were weak. AIG’s board lacked independence from the CEO, Greenberg. Greenberg had been the CEO for quite some years, developing close ties with the board members (Cohan, 2010). New governance regulations and shareholder pressure has forced the directors to become independent. Since the fraud was perpetrated by the top management with the knowledge of directors, it was difficult to detect.

Effectiveness of SEC regulations and improvements needed

The major aims of SEC is to protect investors, develop new capital for businesses and curb against securities fraud. In line with this, SEC also ensures orderliness on securities transactions. One of the failures of SEC is lack of a clear outline of the auditor’s responsibility with regard to fraud prevention and detection. SEC only acknowledged that fraud may exist but placed no direct obligations on the auditors with regard to detecting fraud. As a result, auditors were under no legal obligation to detect various frauds. Majority of frauds perpetrated in organizations are attributed to inadequate audits. This mainly includes the failure to acquire sufficient audit evidence, lack of due professional care, giving a poor audit opinion, and among others. The effectiveness of SEC regulations is also limited when the management is involved in perpetrating fraud. The management can be able to override internal controls in an organization in order to perpetrate fraud.

There are a number of improvements SEC can make to improve on fraud detection.  One of the possible ways is the use of data-mining technology to improve fraud detection in organizations. Data-mining involves the use of quantitative data analysis techniques with the aid of computers to automatically detect fraud. The use of data-mining technology in the fight against fraud is imperative in the modern world where cases of management involvement are on the rise. SEC needs to improve the existing fraud detection procedures. Auditors should not only assess the internal conditions but also collect information from third parties such as customers, suppliers, custodians and others. Lastly, SEC needs to improve the whistleblower policy in all organizations and establish links with insiders in all organizations who can provide evidence in case of fraud.

In conclusion, financial statement fraud is the most common in organizations. This type of fraud is often perpetrated by the top management and the directors. Most companies engage in this type of fraud in order to bolster their revenues and send the picture that the company is performing well to the public. Companies must develop elaborate fraud prevention and detection policies to prevent such frauds by the top management. An appropriate whistle-blower policy can help prevent and detect such types of frauds.

References

Bhasin, M. (2013). Corporate Accounting Scandal at Satyam: A Case Study of India’s Enron.      European Journal of Business and Social Sciences, 1(12): 25-47.

Brady, D., & Vickers, M. (2005, April 10). AIG: What Went Wrong. Bloomberg Business.           Retrieved from: http://www.bloomberg.com/bw/stories/2005-04-10/aig-what-went-wrong

Cohan, W. D. (2010). Collapse of the house of Hank. Institutional Investor, 44(3): 1-9.

Risk Management Society (RMS). (2013). AIG, Credit Default Swaps and the Financial Crisis.   Retrieved from: http://clubs.ntu.edu.sg/rms/researchreports/AIG.pdf

Sanyal, S., & Tiwari, D. (2009, April 17). Ex-insider blew the lid off Satyam Scam. The   Economic Times.

Acc 578 Financials statement fraud

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Acc 578 Financials statement fraud Essay

Acc 578 Financials statement fraud Essay

Name

Course name and number

Instructor

Date

 

Financials statement fraud is one of the most common forms of fraud that occur in companies. Financial statement fraud involves careful manipulation of the accounting system with an aim of making the financial status of the company appear healthy to investors and the shareholders. Some form of financial statement frauds perpetrated in the past include disguising loans as sales revenue, concealing losses, deliberate omission of financial figures and/or transactions, falsification of figures, lack of adherence to accounting principles, and other forms of frauds. The Sarbanes Oxley Act of 2002 was introduced to deter companies from fraudulent reporting of financial figures. The Act, however, may not be able to deter acts of fraud where the management is involved in perpetrating such cases. This paper will assess two fraud cases related to financial statement fraud, specifically the Satyam Scandal of 2009 and the American International Group fraud which occurred in 2005.

Satyam Computer Services was an Indian-based company with interests in IT services and products. The company was engaged in the fields of system maintenance, engineering design, software development and packaged software integration. The company was publicly traded and its shares listed in India’s stock exchange. In 2009, the company changed its name to Mahindra Group following a takeover by Tech Mahindra. The scandal rocking the Indian IT giant emerged in 2009 after the company’s Chairman, Ramalinga Raju, publicly acknowledged that the company’s financial reports had been doctored. The accounts had been falsified by a staggering $ 1.47 billion (Sanyal & Tiwari, 2009).

Culture of the organizations

At Satyam computer Services, the written down corporate culture reflected what can be found in majority of ethical organizations around the world. However, the actions of the top management were contrary to the outlined corporate culture of the company. Prior to its collapse in 2009, reports had emerged over the top management involvement in unethical behavior such as data theft and bribing employees (Bhasin, 2013). On 23rd December 2008, the company was banned from engaging in any form of business with the World Bank, which was a clear indication that there were fraud issues within the company. Satyam was barred by the World Bank following emergence of details of irregular payments and hefty benefits to staff members. Clearly, the corporate culture at the top engaged in unethical practices such as bribery and corruption. In 2008, a number of directors resigned from the company indicating that all was not well in the company’s leadership. Share price fell by over 14 percent, the lowest price in a span of 4 years. Following the revelation that the company’s financial records had been falsified, the company’s promoters, Ramalinga and his brother Rama, were arrested and charged with bribery, cheating, forgery, breach of trust and criminal conspiracy (Bhasin, 2013).

In 2005 and 2008, American International Group (AIG) was involved in massive financial statement frauds. The frauds by AIG was unmasked following investigations by the Securities and Exchanges Commission (SEC), which possible came to know about the fraud through a whistleblower (Brady & Vickers, 2005). AIG is an American corporation involved in providing insurance services to clients worldwide. The financial statement fraud perpetrated by the top management of the company involved falsifying accounting records. After the investigations into the scandal, the company was forced to restate financial figures for the years 2000 to 2005, which contained gross financial misstatements (“RMS,” 2013). These financial misstatements were part of an elaborate scheme by the top management to portray the company as highly performing while in reality the company was performing poorly. In 2008, the company was on the verge of collapse after years of gross mismanagement.

The corporate culture at American International Group significantly contributed to the financial statement fraud and the subsequent imminent collapse in 2008. The company was however bailed out by the government, preventing a total collapse of the international company. The major cause of this collapse was the company’s corporate culture which had embraced a culture of high-stakes risk-taking investments. The top management as well as employees engaged in highly risky investments which were meant to provide the company with quick revenue.  In 2007 and 2008, AIG engaged in the sales of credit default swaps without securing collateral or hedging the investments (“RMS,” 2013). Such risky investments supported by top management with a high risk appetite resulted in the failure of the company. The corporate culture also rewarded executives who failed in their specific divisions with huge bonuses, encouraging them to take more risks. The company also believed in speculative risk-taking which ultimately led to its collapse. Prior to 2005 fraud scandal, the top management at AIG lacked integrity and honesty, as evidenced by careful financial manipulations of financial statements (Brady & Vickers, 2005).

Causes of financial statement fraud and effectiveness of fraud prevention and detection

Satyam fraud was perpetrated over a period of time, involving the careful and planned manipulation of financial statements. Satyam would create fictitious items in its balance sheets and income statements just to impress analysts. For instance in 2009, Satyam balance sheet indicated that the company had $ 1.04 billion as non-interest-bearing deposits (Bhasin, 2013). Such deposits were of course non-existent. PricewaterhouseCoopers (PwC) had been the company’s auditor since 2000. Over the entire period, the auditors did not suspect anything unusual with the company’s financial statements. What was more appalling is that deposits amounting to $1.04 billion in non-interest-bearing accounts would definitely have raised the red flag that all was not well in the company. Such a huge amount of money would either have been given back to shareholders or invested as interest-bearing deposits. Other cases of fraud involved underreporting of liabilities.

The financial statement fraud at Satyam was thus driven by greed for success, power, competition and money. This drove the chairman, Mr. Ramalinga to engage in unethical practices. Mr. Ramalinga acted with negligence towards the fiduciary duties assigned upon him (Sanyal & Tiwari, 2009). The chairman was in constant pressure to impress all the stakeholders including analysts, investors, shareholders and even the stock market. Clearly, the top management had low moral standards and lacked corporate social responsibility, only acting upon their current needs. Fraud prevention and detection policies at Satyam were not effective. To start with, the there was no effective whistle-blower policy in the company. Fraud perpetrated by the top management can only be reported through a confidential whistle-blower policy. Independent directors may be unable to uncover such frauds. According to reports, the whistle-blower at Satyam was a former director. The company’s auditors, PwC, failed to uncover the massive fraud possibly out of collusion with the top management. PwC had audited the company for over 9 years, fuelling concerns of more than auditor-client relationships.

American International Group fraud in 2005 marked an unprecedented decline in the performance of the company culminating in a financial crisis in 2008. The company had for long been under the leadership of Maurice R. Greenberg, the then chief Financial Officer. In 2005, the company was engulfed in a fraud case involving mutual funds and insurance. There were also instances of corruption and fraudulent accounting practices. AIG’s financial fraud specifically involved reporting a $500 million loan as revenue (Cohan, 2010). This action created the impression that the company had high revenues, while in reality the company had lower revenues. The $ 500 million loan had been obtained from Berkshire Hathaway. On March 30th, Greenberg was forced to acknowledge the fraudulent financial reporting at the company aimed at bolstering reserves. In addition, investigators revealed other accounting frauds which had been committed over time. In addition, the company delayed announcing annual 10-K filings, causing an inflation of its net worth by over $ 1.7 billion (Cohan, 2010).

As seen from the fraud case, the key motivations in the fraud case was solely to bolster revenue figures so that the company could seem to be performing well in the eyes of shareholders, analysts, investors and the stock market. The top management lacked the proper moral and ethical values; hence they decided to deceive the public. Fraud prevention and detection policies at the company were weak. AIG’s board lacked independence from the CEO, Greenberg. Greenberg had been the CEO for quite some years, developing close ties with the board members (Cohan, 2010). New governance regulations and shareholder pressure has forced the directors to become independent. Since the fraud was perpetrated by the top management with the knowledge of directors, it was difficult to detect.

Effectiveness of SEC regulations and improvements needed

The major aims of SEC is to protect investors, develop new capital for businesses and curb against securities fraud. In line with this, SEC also ensures orderliness on securities transactions. One of the failures of SEC is lack of a clear outline of the auditor’s responsibility with regard to fraud prevention and detection. SEC only acknowledged that fraud may exist but placed no direct obligations on the auditors with regard to detecting fraud. As a result, auditors were under no legal obligation to detect various frauds. Majority of frauds perpetrated in organizations are attributed to inadequate audits. This mainly includes the failure to acquire sufficient audit evidence, lack of due professional care, giving a poor audit opinion, and among others. The effectiveness of SEC regulations is also limited when the management is involved in perpetrating fraud. The management can be able to override internal controls in an organization in order to perpetrate fraud.

There are a number of improvements SEC can make to improve on fraud detection.  One of the possible ways is the use of data-mining technology to improve fraud detection in organizations. Data-mining involves the use of quantitative data analysis techniques with the aid of computers to automatically detect fraud. The use of data-mining technology in the fight against fraud is imperative in the modern world where cases of management involvement are on the rise. SEC needs to improve the existing fraud detection procedures. Auditors should not only assess the internal conditions but also collect information from third parties such as customers, suppliers, custodians and others. Lastly, SEC needs to improve the whistleblower policy in all organizations and establish links with insiders in all organizations who can provide evidence in case of fraud.

In conclusion, financial statement fraud is the most common in organizations. This type of fraud is often perpetrated by the top management and the directors. Most companies engage in this type of fraud in order to bolster their revenues and send the picture that the company is performing well to the public. Companies must develop elaborate fraud prevention and detection policies to prevent such frauds by the top management. An appropriate whistle-blower policy can help prevent and detect such types of frauds.

 

References

Bhasin, M. (2013). Corporate Accounting Scandal at Satyam: A Case Study of India’s Enron.      European Journal of Business and Social Sciences, 1(12): 25-47.

Brady, D., & Vickers, M. (2005, April 10). AIG: What Went Wrong. Bloomberg Business.           Retrieved from: http://www.bloomberg.com/bw/stories/2005-04-10/aig-what-went-wrong

Cohan, W. D. (2010). Collapse of the house of Hank. Institutional Investor, 44(3): 1-9.

Risk Management Society (RMS). (2013). AIG, Credit Default Swaps and the Financial Crisis.   Retrieved from: http://clubs.ntu.edu.sg/rms/researchreports/AIG.pdf

Sanyal, S., & Tiwari, D. (2009, April 17). Ex-insider blew the lid off Satyam Scam. The   Economic Times.

Acc 564 Assignment 4 Changing the AIS

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Write a ten to twelve (10–12) page paper in which you:

1. Identify three to five (3–5) factors that contributed to the accounting information system failure within the business that you have identified. Indicate the impact to the business. Provide support for your rationale.

2. Assess senior management responsibility for the failure in question. Specify what the senior management could have done differently to avoid the failure. Provide support for your rationale.

3. Evaluate whether the most significant failure occurred within the system design, implementation, or operational phase of the process. Indicate what the company could have done to avoid the failed outcome. Provide support for your rationale.

4. Evaluate how implementing best practices would have reduced the chances for failure. Provide support for your rationale.

5. Based on your research, develop a list of between four (4) and six (6) best practices that organizations should use today to reduce the chances for failure. Provide support for your rationale.

6. Using the information provided by IBM and others, indicate which of the principles designed to provide insight into effective and efficient strategies on how to best deploy financial management systems, which were outlined within the related article, should serve as an example of what not to do when establishing the foundation for a firm to follow. Your proposed foundation should consist of at least two (2) principles, but no more than six (6). Provide support for your rationale.

7. Use at least three (3) quality resources in this assignment. Note: Wikipedia and similar Websites do not qualify as quality resources.

Successful AIS Implementation

Successful AIS Implementation essay

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Identify three to five (3-4) factors that contributed to the accounting information system failure within the business that you have identified. Indicate the impact to the business. Provide support for your rationale.

Avon is an outstanding international beauty company that was founded over 100 years ago and has over 6 million sales representatives. The organizations require a system that fits well with the evolving changes in the beauty world. The accounting information system doesn’t include much utilization of the machines; the machines are just devices in the system. They are not the key drivers during the whole process (Bucker & International Business Machines Cooperation, 2009).

The accounting system may be traditional or not genuinely agreeable with the administration system, which may cause system disappointments, as these administrative plans are concentrated around the total disappointments of different firms. Example is Enron and other organizations. The mechanized accounting systems are more valued than the manual accounting systems and the organization may embrace the change to modern accounting systems due to expanding profits.

The electronic information system was derived from the internet as the machines system was associated with the web. Lack of harmonization by different organizations in regard with the accounting system is the main reason of system change. Organizations that have been in operations for long need to face changes accordingly, and these results to system change (Hall, 2010). Mechanized systems add harmonization differently and the information might be compared with the modernized information controls. Harmonization is however not achieved by operating the machines as part of business setting, but harmony is realized by operating same measures for the accounting systems. This makes information to be alike with different organizations in the market.

Poor human resource involvement during system implementation process caused accounting errors during operations and this also contributed to the failure in Avon’s accounting system. The human resource used during the whole accounting systems implementation must be well involved from the being. The system will require skills and competent workers, quality data feeds to ensure wrong financial figures. Garbage in garbage out rule will always apply either in the modern or manual accounting (Hall, 2010).

Avon is popular for their innovation and development strategies; along their great policies the organization has acquired change with intentions to change their accounting systems. The accounting systems implemented must be in line with their company use.

Assess senior management responsibility for the failure in question. Specify what the senior management could have done differently to avoid the failure. Provide support for your rationale.

According to Sylan (2014), change in the accounting information systems is not modest; a lot of techniques and alterations will be done. Moving from manual to modern accounting system is complex, administration works will reduce and huge change will be experienced in the control methods. This can bring about danger in the business leading to disappointments in the whole organizations.

The management should have developed new control methods that fit in with the new accounting systems. Modern accounting systems require very different internal control methods from those used during the manual system. It was the management responsibility to have noted the required changes and implemented them to reduce the occurrence of accounting errors (Hell, 2010).

It was the management responsibility to ensure that the accounting department is well trained regarding the new system operations. Machines don’t understand the accounting standards thus critical learning levels and skills to enter information are required. Accounting standards must be observed and practiced both in manual and modern systems. The management failed to adequately train them and this facilitated the occurrence of human errors in the company.

The management should have disclosed the kind of dangers that the accounting department is exposed to and also educate the employees on possible solutions to cumber them. Example, The usage of machines for the accounting systems is confounding, whereby it able to build the expertise and sustainability of the organization, however the company is not supposed to over depend on them. Employees should be able to control the machines not vice versa (Sylan, 2014).

All members of the company who were directly involved with the new systems were supposed to be fully involved from the beginning of the project. These employees were supposed to feel as part of the team and participate with ideas during implementation.  According to Hell, (2010), long time involvement with the system would have enhanced their operations with the system. The management was responsible in ensuring those employees are fully involved and this would have improved their performances.

It is the obligation of the administration in the organizations to avoid danger and system disappointments, they must remain in charge and get ways to cumber the situations. They must involve the employees and let the system implementation to be achieved through teamwork.

Evaluate whether the most significant failure occurred within the system design, implementation or operational phase of the process. Indicate what the company could have done to avoid the failed outcome. Provide support for your rationale.

Massive failure occurred during implementation of the modern system. So much has changed with time affecting the accounting regulations; the reasons for change are advancements in knowledge and total change in the business environments. Stricter measures must be put in place as a result of change to reduce frauds and accounting misstatements. The books of accounting are expected to give fair and true information that can be highly relied both internally and externally without misleading (Ulrich & Newcomb, 2010). The company should have ensured accounting standards are followed as per the accounting guidelines. These guidelines would have restricted the accountants and prevented frauds and accounting misstatements.

According to Bucker & International Business Machines Cooperation (2009), the company would have implemented an audit department who keep watch of the accountants. The internal auditor ensures that accounting standards are practiced without any compromises and this reduces frauds. Accounting regulations put in place are the key drivers; example a company had chosen an incorrect depreciation policy, and for this reason there is need for the company to check international standards and the accounting standards. If there is no need to make any changes then the company is free to implement their chosen policy. Guidelines need to be followed in assets valuation of the company as per accepted principles and any accounting compliance necessary. Lack of compliance with the set standards may lead to under or overvaluation of the company assets, affecting the company balance sheets. In this condition, the nature of information is no longer true and fair as per the standards and may be manipulative and true value of the company hidden. (Sylan, 2014). The company should also involve external auditors whose work is to ensure that accounting and audit departments are operating as per the set standards.

The company should have implemented controls methods that are designed to control the modern systems. Different control methods are required when dealing with the computerized systems. Example, old internal controls methods like documentations, invoices, or applications forms can no longer be signed traditionally. The use of computers in the company doesn’t completely out do paper work; the company is still in a position to use them. The computerized information may be printed and properly signed by the right people, in cases of the invoices and requisition forms to reduce on errors (Ulrich & Newcomb, 2010).

The company should have implemented prevention measures on the computers. Computerized data require massive prevention both physical and remote right of entry. Prevention to physical access in the company may be achieved by single entry to the system restricted to authorized personnel only. Restricting on computer access reduces chances of unauthorized person from accessing unauthorized information. This reduces occurrence of intentional errors in the company. Implementation of data safety is necessary; to prevent intentional data access and two is maintenance of the computerized data. (Hall, 2010).

Different conditions can interrupt on the computer storage, example, floods, fire even weather conditions that may affect the computers. These conditions may result to total damage of the systems leading to permanent data loss in the company (Sylan, 2014). The company should ensure that there are safety control measures implemented to reduce such losses and ensure data safety. The unintentional damages are more severe and may cause entire data damages; this may be a tragic loss to the company.

Evaluate how implementing best practices would have reduced the chances for failure. Provide support for your rationale.

Implementing regular system checks will reduce on their level of fails, and this will prevent risks. Internal controls are used to prevent the company from any risks, including the risks associated with the accounting systems. Most companies adopt the modern accounting systems due to competition from their competitors in the same market. Competitive market environment and company harmonization are the main reason for adaptation. During company accounting migrations, the company may transfer the accounting ledgers, customer database and company details to their computerized systems. The computer is able to use the available data and use it in different tasks of the company transactions (Ulrich & Newcomb, 2010).

Computerized systems will make data retrieval to be fast and easy but there are risks associated. Data migration to new system will not increase any new opportunities but it will speed the retrievals and enhance operations. Internal control methods will be different from the old methods used. Data that is intended to remain confidential to an individual will not be accessed by others and will reduce unauthorized use in the company.

Different users will be able to access information from different sources easing operations. Standardization is necessary and will allow information exchange and this may prevent decrease or increase load of information. The computerized systems can fail just like the manuals, but the controls methods required are different from those used in the manuals. Companies should learn to adopt ethics and professional regulations together with quality internal control methods. Control methods will prevent risks, while practicing accounting regulations will reduce legal risk. There are also different practices that companies should practice to reduce risks indirectly (Bucker & International Business Machines Cooperation, 2009).

Based on your research, develop a list of between four (4) and six (6) best practices that organizations should use today to reduce the chances for failure. Provide support for your rationale.

Best practices that companies should practice in order to reduce failures includes:

  • Quality internal controls should be implemented
  • An independent audit department should be set
  • Implementing compliance guidelines
  • Implementing policies in accounts as per the accounting regulations.

Internal controls are the main methods in the companies and they prevent mismanagements which may include frauds, natural risks or criminal acts. Unintentional actions such as human errors and accidents occur often and in large volumes compared to the intentional actions like frauds. Implementation of quality control methods should be used to reduce on both intentional and unintentional acts in the business (Hall, 2010).

Internal audit department will set rules and regulations to be practiced in the company and also ensures that they are followed to the letter. This department will be responsible in assessing the accounting systems, monitor the control systems and also stop any chance of future frauds. Companies should also have external audits that ensure that the accounting and internal audit departments have fully complied with the regulations and every accounting rules are followed as expected.

Implementing regulations in both accounting and technology areas is basically important. It takes time for an accounts obsolescence to occur, but occurs due to lack of the necessary control measures.Accounting policies must be adopted as per GAAP which ensures accounting harmony and reduces on the legal, accountancy and audit risks (Sylan, 2014).

Using the information provided by IBM and others, indicate which of the principles designed to provide insight into effective and efficient strategies on how to best deploy financial management systems, which were outlined within the related article, should serve as an example of what not to do when establishing the foundation for a firm to follow. Provide support for your rationale.

Weaknesses in computerized systems security holds a capable effect to the applications controls that are related to financial management, compliance rules and regulations should be practiced accordingly and internal controls adopted (Hall, 2010). Difference between modern and manual accounting systems should be understood and computerized accounting rules implemented. Internal controls should be used to reduce the associated risks either intentional or unintentional risks.

Companies are deemed to understand the nature of their business, increased business knowledge reduces the associated risks as assessment of risks is highly effective. Internal control implementation is a key factor but the controls must be effectively working.

Companies should implement policies regarding risks in the business in order to reduce them. It is the company’s responsibility to prevent risks occurrence no matter what, they will be held to blame if such occurrence happens. Companies should always be very careful as they transact with their suppliers or the company outsourcing their computer systems. They cannot transfer risk to them, so should always be ready to handle the situations in their business.

 

References

Bücker, A., & International Business Machines Corporation. (2009). Identity management design            guide with IBM Tivoli identity manager. Poughkeepsie, N.Y: IBM, International Technical Support Organization.

Hall, J. (2010). Accounting Information Systems. Boston: Cengage Learning

Sylan, R. (2014). How to Replace Mannual Accounting Information System with Electronic

 

System. Retrieved from: http://smallbusiness.chron.com/replace-manual-accounting-information-  systems-electronic-systems-44735.htm

Ulrich, W. M., & Newcomb, P. (2010). Information Systems Transformation: Architecture-          Driven Modernization Case Studies. Burlington: Elsevier.

Acc 564 Hacking the AIS

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Hacking  AIS

 

Hacking the AIS

Name

Institutional Affiliation

As more businesses lean on technology to support their operations, unexpected challenges are emerging in the technological environment. Hackers, whose identities in most incidences remain anonymous, have become a major threat in the operations of most businesses. On November 2013, a cyber-attack on Target Company threatened to throw the company in a financial crisis, coupled with lack of confidence from majority of its customers. The cyber-attack on Target Company resulted in over 40 million customer accounts becoming compromised (Ziobro, 2014). Hackers were able to gain sensitive information of cardholders following the attack. This attack was discovered three months later, and resulted in loss of customers’ money.

Target Company bears a huge responsibility in terms of effectiveness of its response to the security breach. Reports indicate that Target’s security team had earlier learnt of a breach in their system but downplayed the security warnings (Ziobro, 2014). The lack of follow-up gave hackers the upper hand where they were able to access sensitive data on millions of customer’s cards. Intruders had managed to find their into the company’s security system where they inserted a malware. This occurred on November 12, 2013. The company’s security system detected some of the hacker’s activities. A quick follow-up of this may possibly have enabled the company to stop the hackers. Due to the slow response, the company bears full responsibility of the security breach.

Software providers have limited roles as far as security breaches are concerned. From a legal standpoint, hackers bear the greatest responsibility, although in most cases hackers remain anonymous (Remenyi, 2008). Since it is difficult to know the identity of hackers, the end-user comes second in terms of responsibility. According to the law, it is the duty of the end-user such as Target to put in place adequate countermeasures to ensure that data is not compromised. The end-user must continually update the accounting software to match new product definitions at own cost. In case of new versions, the end-user should acquire them at own cost. The end-user also contributes towards correction of any faults on the product. In connection to this, the end-user bears all the cost of security breaches that may occur with the software (Remenyi, 2008). This clearly shows that the role played by the software providers may have been sidelined.

While making a purchase, the end-user is supposed to sign an agreement stating they agree to the terms and conditions of the software provider. Most of these agreements distance the software providers from any liability in case information systems audit and control association. The current laws do not hold software providers responsible for security breaches suffered by the end-user.  A part of the problem is that currently, there are no set standards that define security and efficacy of software provided by third parties (“International Council of E-Commerce Consultants”, 2010). It is thus difficult to hold software providers responsible for all the vulnerabilities found in the accounting information system. The software provider in Target’s case has little responsibility since it was negligence on the part of the company that resulted to the security breach. However, in case the accounting information system had significant faults, the company can hold the software provider responsible for the security breach.

There is need for more regulation in preventing hacking among businesses. When hacking occurs, much of the blame is passed to the end-user, who may not be in any way responsible for the attack. The current legal framework overlooks the potential liability software providers hold through delivering poor quality products. The role of the software provider need to be revisited and more emphasis placed on the quality of software they provide. Stringent measures should be introduced to ensure that software providers are held accountable for security breach involving their software. These measures should be aimed at encouraging software providers to improve security of their software without placing too much pressure on them. As such, software providers should only be held responsible for security breaches that according to an independent oversight body could have been avoidable (“International Council of E-Commerce Consultants”, 2010).

A number of analysts have suggested the above as a suitable approach in creating a suitable additional regulation. Through advancements in the software or technology, new opportunities for hackers to access data also emerge. Unscrupulous software developers may provide poor quality products to end-users without their knowledge. It is difficult for users to know how a product was developed; whether all the quality standards were met by the provider (“ECIWS” & Remenyi, 2008). In addition, the end-user may not be aware of whether it was tested and whether it met the specific requirements on being tested. An additional regulation that places more responsibility on the hands of the developer may encourage them to produce software which is not easily susceptible to cyber attacks. This will improve security of business accounting systems.

There are a number of ways businesses can use to secure their systems against hackers. Businesses should regularly update their information systems’ firewalls and ensure limited access to sensitive areas (Ryckman, 2012). Regularly updating the software helps in reducing the chances of a malware attack on the company’s system. In addition, the business should acquire new versions of software which are less vulnerable to security attacks. Firewalls are specially designed to prevent outside attacks on a business’s computer network. They also keep in check internal connections, preventing internal users from accessing unauthorized data. Firewalls also enable encrypted communication to remote offices which are in far off locations. Firewalls also have the added advantage of terminating sessions. Outdated firewalls can easily be susceptible to malware attacks from hackers. These measures can tremendously improve network security for a business.

Businesses should invest resources in educating their employees about common tricks that hackers use to gain access to sensitive company data (Ryckman, 2012). Majority of cyber attacks target employees who easily fall prey to the hacker’s tricks. Hackers are able to use encrypted emails that contain harmful malware. Once they send these emails to employees through fishing, they are able to gain access to the company’s data when employees open the emails. Reports indicate that in most cases, malware enters the computer system when employees click dubious email links and attachments. These attachments contain harmful malware that becomes installed in the computers or laptops. Employees should be taught on how to create strong passwords that cannot be easily cracked by hackers. Businesses must provide employees the right training as well as resources to help them manage cyber crime issues effectively.

Businesses should also restrict access to information among employees. Access control gives employee authority to access the information they may need depending on their job description (Ryckman, 2012). In case an employee needs to access information which is inaccessible the system prompts them to submit an application to helpdesk. There are various types of controls which include: physical access controls, logical controls, discretionary access controls, and among others. Physical access controls involves use of physical barriers in order to keep away unauthorized persons. Logical access controls involves use of passwords, account restrictions, and group policies. Employees may not support controls but it important to educate them on the importance of such controls. Most businesses restrict access to social media sites as they have been shown to be a source of malwares and viruses (Ryckman, 2012).

Cyber attacks have become increasingly common leading to huge losses. Businesses should put in place adequate monitoring systems to ensure they reduce the risk of a security breach. Cyber attacks are not only targeted to big businesses, but also to small companies which are more vulnerable due to lack of adequate monitoring systems. End-users often software bears the greatest responsibility in case of a security breach. There are a number of proposals meant to increase the level of responsibility to software providers in case of security breaches. Software providers will bear the risk when it becomes apparent that the security breach could have been avoided. Nonetheless, businesses should put in place adequate measures to reduce incidences of cyber attacks.

 

References

European Conference on Information Warfare and Security, & Remenyi, D. (2008).Proceedings of the 7th European conference on information warfare and security. Reading: Academic     Pub.

International Council of E-Commerce Consultants. (2010). Ethical hacking and    countermeasures. Clifton Park, NY: Course Technology, CENGAGE Learning.

Ryckman, P. (2012, June 13). Owners May Not Be Covered When Hackers Wipe Out A   Business Bank Account. The New York Times, pp, 1A.

Ziobro, P. (2014, March 13). Target Didn’t Follow Up After Hackers Tripped its Security            System. The Wall Street Journal, pp, 1A.

 

Acc 564 Accounting information system class

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Acc 564 Accounting information system

Hacking the AIS Sample Paper

Name

Institutional Affiliation

As more businesses lean on technology to support their operations, unexpected challenges are emerging in the technological environment. Hackers, whose identities in most incidences remain anonymous, have become a major threat in the operations of most businesses. On November 2013, a cyber-attack on Target Company threatened to throw the company in a financial crisis, coupled with lack of confidence from majority of its customers. The cyber-attack on Target Company resulted in over 40 million customer accounts becoming compromised (Ziobro, 2014). Hackers were able to gain sensitive information of cardholders following the attack. This attack was discovered three months later, and resulted in loss of customers’ money.

Target Company bears a huge responsibility in terms of effectiveness of its response to the security breach. Reports indicate that Target’s security team had earlier learnt of a breach in their system but downplayed the security warnings (Ziobro, 2014). The lack of follow-up gave hackers the upper hand where they were able to access sensitive data on millions of customer’s cards. Intruders had managed to find their into the company’s security system where they inserted a malware. This occurred on November 12, 2013. The company’s security system detected some of the hacker’s activities. A quick follow-up of this may possibly have enabled the company to stop the hackers. Due to the slow response, the company bears full responsibility of the security breach.

Software providers have limited roles as far as security breaches are concerned. From a legal standpoint, hackers bear the greatest responsibility, although in most cases hackers remain anonymous (Remenyi, 2008). Since it is difficult to know the identity of hackers, the end-user comes second in terms of responsibility. According to the law, it is the duty of the end-user such as Target to put in place adequate countermeasures to ensure that data is not compromised. The end-user must continually update the accounting software to match new product definitions at own cost. In case of new versions, the end-user should acquire them at own cost. The end-user also contributes towards correction of any faults on the product. In connection to this, the end-user bears all the cost of security breaches that may occur with the software (Remenyi, 2008). This clearly shows that the role played by the software providers may have been sidelined.

While making a purchase, the end-user is supposed to sign an agreement stating they agree to the terms and conditions of the software provider. Most of these agreements distance the software providers from any liability in case information systems audit and control association. The current laws do not hold software providers responsible for security breaches suffered by the end-user.  A part of the problem is that currently, there are no set standards that define security and efficacy of software provided by third parties (“International Council of E-Commerce Consultants”, 2010). It is thus difficult to hold software providers responsible for all the vulnerabilities found in the accounting information system. The software provider in Target’s case has little responsibility since it was negligence on the part of the company that resulted to the security breach. However, in case the accounting information system had significant faults, the company can hold the software provider responsible for the security breach.

There is need for more regulation in preventing hacking among businesses. When hacking occurs, much of the blame is passed to the end-user, who may not be in any way responsible for the attack. The current legal framework overlooks the potential liability software providers hold through delivering poor quality products. The role of the software provider need to be revisited and more emphasis placed on the quality of software they provide. Stringent measures should be introduced to ensure that software providers are held accountable for security breach involving their software. These measures should be aimed at encouraging software providers to improve security of their software without placing too much pressure on them. As such, software providers should only be held responsible for security breaches that according to an independent oversight body could have been avoidable (“International Council of E-Commerce Consultants”, 2010).

A number of analysts have suggested the above as a suitable approach in creating a suitable additional regulation. Through advancements in the software or technology, new opportunities for hackers to access data also emerge. Unscrupulous software developers may provide poor quality products to end-users without their knowledge. It is difficult for users to know how a product was developed; whether all the quality standards were met by the provider (“ECIWS” & Remenyi, 2008). In addition, the end-user may not be aware of whether it was tested and whether it met the specific requirements on being tested. An additional regulation that places more responsibility on the hands of the developer may encourage them to produce software which is not easily susceptible to cyber attacks. This will improve security of business accounting systems.

There are a number of ways businesses can use to secure their systems against hackers. Businesses should regularly update their information systems’ firewalls and ensure limited access to sensitive areas (Ryckman, 2012). Regularly updating the software helps in reducing the chances of a malware attack on the company’s system. In addition, the business should acquire new versions of software which are less vulnerable to security attacks. Firewalls are specially designed to prevent outside attacks on a business’s computer network. They also keep in check internal connections, preventing internal users from accessing unauthorized data. Firewalls also enable encrypted communication to remote offices which are in far off locations. Firewalls also have the added advantage of terminating sessions. Outdated firewalls can easily be susceptible to malware attacks from hackers. These measures can tremendously improve network security for a business.

Businesses should invest resources in educating their employees about common tricks that hackers use to gain access to sensitive company data (Ryckman, 2012). Majority of cyber attacks target employees who easily fall prey to the hacker’s tricks. Hackers are able to use encrypted emails that contain harmful malware. Once they send these emails to employees through fishing, they are able to gain access to the company’s data when employees open the emails. Reports indicate that in most cases, malware enters the computer system when employees click dubious email links and attachments. These attachments contain harmful malware that becomes installed in the computers or laptops. Employees should be taught on how to create strong passwords that cannot be easily cracked by hackers. Businesses must provide employees the right training as well as resources to help them manage cyber crime issues effectively.

Businesses should also restrict access to information among employees. Access control gives employee authority to access the information they may need depending on their job description (Ryckman, 2012). In case an employee needs to access information which is inaccessible the system prompts them to submit an application to helpdesk. There are various types of controls which include: physical access controls, logical controls, discretionary access controls, and among others. Physical access controls involves use of physical barriers in order to keep away unauthorized persons. Logical access controls involves use of passwords, account restrictions, and group policies. Employees may not support controls but it important to educate them on the importance of such controls. Most businesses restrict access to social media sites as they have been shown to be a source of malwares and viruses (Ryckman, 2012).

Cyber attacks have become increasingly common leading to huge losses. Businesses should put in place adequate monitoring systems to ensure they reduce the risk of a security breach. Cyber attacks are not only targeted to big businesses, but also to small companies which are more vulnerable due to lack of adequate monitoring systems. End-users often software bears the greatest responsibility in case of a security breach. There are a number of proposals meant to increase the level of responsibility to software providers in case of security breaches. Software providers will bear the risk when it becomes apparent that the security breach could have been avoided. Nonetheless, businesses should put in place adequate measures to reduce incidences of cyber attacks.

 

 

References

European Conference on Information Warfare and Security, & Remenyi, D. (2008).Proceedings of the 7th European conference on information warfare and security. Reading: Academic     Pub.

International Council of E-Commerce Consultants. (2010). Ethical hacking and    countermeasures. Clifton Park, NY: Course Technology, CENGAGE Learning.

Ryckman, P. (2012, June 13). Owners May Not Be Covered When Hackers Wipe Out A   Business Bank Account. The New York Times, pp, 1A.

Ziobro, P. (2014, March 13). Target Didn’t Follow Up After Hackers Tripped its Security            System. The Wall Street Journal, pp, 1A.

 

Ethics, Compliance, Auditing, and Emerging Issues

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This is the final assignment essay for Ashford University OMM640 Business ethics and social responsibility. The global risk topic must be one of the following: economic, environmental, geopolitical, societal, or technological. I attached the essay assignment requirements. I must have it within 24 hours from the time of this order so that I can make any final adjustments. Turnitin will be used.

emerging global risk

 emerging global risk Sample paper 

Ethics, Compliance, Auditing, and Emerging Issues

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Describe an emerging global risk for 2015 and beyond

Technology risk is insofar the greatest challenge facing majority of businesses across the world, yet many remain oblivious to the risks they are exposed to. Technology risk includes cyber attacks, data fraud/theft, critical information infrastructure breakdown and misuse of technologies. Technology risk has the greatest financial impact on a company, in addition to time consumption and loss of trust from customers. The impact and likelihood of a cyber attack in the modern business environment is estimated at above average, and the threats are becoming more each day. This is compounded by the fact that businesses have become more hyper-connected, and sensitive personal and consumer data is currently being stored in cloud where hackers can gain access from any part of the world.

Currently, more businesses continue to lean on technology as an integral part of their daily operations. This is due to the realization that businesses can only remain competitive in the modern world by adopting the latest technologies. This has in turn brought about technology-driven threats in the digital world. Emerging technologies such as data mining and cloud computing has created vast opportunities for businesses in terms of data and information gathering, storing and retrieval. Nonetheless, these new technologies present new threats which are often unknown or unanticipated by businesses. Worse still, most managers do not understand how technology poses serious risks in the business. Since they do not want to appear incompetent in matters to do with technology, they often shy away from talking about it.

Hacking is the greatest form of technology risk that businesses face today. About 33% of all technology risk aspects comprise of hacking. This is where malicious programs are used to obtain sensitive business information such as customers’ card details and later used to commit fraudulent transactions. The second risk aspect involves system failure. This accounts for about 30% of all the risks associated with technology. Systems failure may be brought about by hardware failure, utility disruptions and software failures. A number of institutions are at risk of experiencing failures in their computer systems from the larger data they process daily from mobile applications, computer applications, and other virtual devices. New applications present a 29% technology risk while deliberate malicious applications stand at 27% (“ACE Group,” 2015).

Some of the companies which have come under cyber attack include Target Company, TalkTalk in the UK, Orange France and others. In all these cases, customer’s personal data was stolen and used to commit fraudulent transactions resulting in huge losses. Surprisingly, about 90% of the cyber attacks originate from employees – this is through irresponsible online behavior, basic error, carelessness when handling their digital devices and loss of work equipment (“ACE Group,” 2015). There is no easy way out of the risks posed by cyber attacks. In most cases, cyber criminals remain anonymous and the business has little chances of apprehending them.

Discuss the key countries that might be associated with the risk

Ironically, technology risks are mostly associated with countries that rely heavily on technology. In that line, the United States is at a high risk of experiencing cyber attacks than any other country. The U.S. lacks an appropriate defense mechanism against cyber threats, making it a haven for cyber attacks. According to Kakutani (2010), the U.S. is more susceptible to cyber attacks compared to minor countries such as China, Russia, and other smaller nations such as North Korea. The U.S. relies heavily on new technology and storage of data in databases making it highly vulnerable to attacks from all over the globe. Countries lagging behind in technology adoption are less susceptible to cyber attacks. Nonetheless, this does not necessarily mean that countries should not adopt modern technologies – the benefits far outweigh the risks.

The banking system and payment systems involving use of credit cards in the U.S. are greatly exposed to cyber attacks. This is documented by the number of cyber attacks targeting banks and other institutions which keep sensitive consumer data during payments. A string of attacks have hit companies such as Target Company, Primera Blue Cross, Anthem, Sony Pictures, JPMorgan Chase, Home Depot, and others. These attacks led to loss of sensitive customer information, and the trend continues. In 2010, the Cyber Command and the Department of Homeland Security were unveiled to fight cyber crime. However, these agencies were formed to protect the federal government, leaving financial institutions and other retail businesses vulnerable to cyber attacks (Kakutani, 2010). The federal government is yet to establish institutions that can defend banks and other institutions during attacks, making them more vulnerable.

Evaluate the role of ethical decision-making in business organizations

Ethical decision making in business organizations has a key role to play in their success. Ethical decision making in business organizations constitute what is right or wrong decisions or behaviors. Ethical decisions can be described as those which are largely acceptable in the eyes of the law and the community. Business ethics involve the application of moral or ethical principles to solve complex problems that arise in business organizations (Gonzalez-Padron, 2015). Ethical decision making is critical to the viability of business organizations in the modern world. Unethical practices have led to heavy penalties, imprisonment and in worst cases failure of business organizations.

Deducing from above, ethical decision making helps to ensure longevity of the business organization, ensures the well-being of employees, suppliers, directors and individual officers, and helps the organization protect the welfare of the consumers and the society at large. The attitude of the top leadership towards ethical decision making sets the tone in the entire organization. Unethical managers often encourage employees to follow in the same steps and to engage in unethical practices (Gonzalez-Padron, 2015). The specific roles ethical decision-making plays among each of the categories will be discussed in the literature below.

Ethical decision making helps individuals in business organizations decide what is wrong or right, avoiding consequences such as sanctions, imprisonment and fines. During ethical reasoning, employees analyze complex business problems by looking at their duty and the possible consequences of their actions (Miller & Jentz, 2010). In this case, consequences are analyzed in terms of what the law dictates, and the punishment for going contrary to the law. Ethical decision making enables business organizations to be socially responsible in their operations. Social responsibility is an important role of business. In maintain corporate social responsibility, business organizations are responsible for their actions to the community at large. Business organizations are expected to give back to community, ensure responsible utilization of resources, minimize on pollution and ensure least negative impact on the environment.

Ethical decision making enables business organizations to maintain trust with shareholders, suppliers and customers. This is because the relationship among shareholders, suppliers, customers and the business is based on trust (Miller & Jentz, 2010). Customers expect the business to perform its duties accordingly, while suppliers also expect the business to fulfill its contractual obligations and to exercise fair dealings. The business is also expected to act to the best interest of the various stakeholders such as shareholders by focusing on stability and maximizing profits. Ethical decision making enables business organizations conform to the law and other written rules and procedures. The law contains gray areas or legal uncertainties. By analyzing whether the consequences of their actions will be right or wrong, employees are able to decide on correct decisions which do not have legal consequences (Miller & Jentz, 2010).

Impact of business ethics on stakeholder relationships

Stakeholders to a business encompass all individuals who have an interest either directly or indirectly in the organization. Thus stakeholders not only include individuals who receive monetary rewards but also those individuals in the community where the business operates. Examples include customers, suppliers, shareholders, investors, employees, the society and the government. Businesses consider the consumers, employees and shareholders as the most important stakeholders. Business ethics have a significant impact on the shareholders. As a result, most businesses have adopted stringent measures to ensure they act ethically.

Proper business ethics are important in establishing good rapport with various stakeholders. Business organizations which act unethically damage their reputation among consumers, who are among the primary stakeholders (Usnick, L., & Usnick, R., 2013). Consumers often change their perception of firms reported to have instances of ethical misconduct. Negative reputation drives sales down resulting to reduced profits. Unethical behavior among business organizations erodes investors’ confidence. Firms which manipulate their financial statements often erode investor confidence. Investors pull out their investment which leads to decline in shareholders’ value. Such actions increase consumer scrutiny which may result in a negative reputation. Business organizations are legally obligated to give a true and fair statement of their financial position to the public.

Unethical behavior that harms the community may result in strained relationship between the community and the organization. Communities are more concerned with the impact of the business organization to the natural environment. For instance in China, there have been violent community protests as people hold demonstrations against construction of companies which are viewed as heavy environmental pollutants (Arredy, 2014). Unethical conduct also attracts sanctions and hefty fines or penalties from the government and other relevant bodies.

It is absolutely necessary for businesses to design an ethics program, conduct training, and engage in compliance auditing. Ethics programs are meant to instill employees with sound decision making skills (Gonzalez-Padron, 2015). Many people are guided by personal morals and values. However, these play a minor role in helping the employee make the right decisions in the complex business environment. Employees find themselves in complex dilemmas involving the need to make decisions on hiring and dismissal, pollution control, pricing, advertising and other challenges. The little ethical knowledge they gained at school, church, and home may not provide them with a sufficient guideline on how to act when confronted with such issues. This necessitates creation of an ethics program.

An ethics program helps employees recognize ethical issues which arise in business (Usnick, L., & Usnick, R., 2013). Training enables the employees know how to solve such issues. Training also enables employees learn how they can cultivate ethical behavior within the business organization. Compliance auditing is important to a business organization since it helps to determine whether employees conform to certain processes or applicable rules. If the auditor detects laxity in employee conformance to rules or procedures established by the organization, the auditor may determine the course of action or put in place mechanisms to ensure employees comply. One of the roles of the auditors is to determine whether transactions or processes adhere to standards.

Training plan

The following training plan is intended to create a general awareness among employees of the various security threats related to technology risks. The plan details the necessary standards of conduct and compliance to be achieved by all the employees.

  1. Introduction

The application of modern technology in every aspect of business organizations is inevitable in the current competitive global market. The use of modern technology enables firms to gain a competitive edge in the market. Currently, more businesses are adopting the use of technology in all areas of their business operations – from security, processing transactions, maintaining client files, and other confidential customer data. Data stored in digital format is easy to retrieve, update, search, transfer, erase, and takes less space. Nonetheless, the use of modern technology has exposed businesses to cyber attacks which results in losses worth millions of dollars. Statistics indicate that about 90% of the cyber attacks originate from employees (“ACA Group,” 2015).

  1. Ethics and codes of conduct review

Employees should review the ethics and codes of conduct manual to increase their knowledge. Discussion will take place around the following key areas:

  • Basics in the code of conduct
  • Ethical behavior
  • Fraud and misappropriation
  • Conflicts of interest and ethical decision making
  • Accountability in individual actions
  • Reporting identified policy violations
  • Impact of unethical decision making to the employees and the organization
  1. Common technological risks

The following are the most common aspects of information technology risks that businesses are currently facing.

  • Hacking – hacking is one of the most high risk technology risks. Cyber attacks conducted on businesses can cause immeasurable losses within days.
  • Systems failure – This may occur in form of software failures, hardware problems and utility disruptions.
  • Viruses and other malware programs, prevention and detection – employees play a critical role in malware detection and prevention. Irresponsible and careless use of the internet has been associated with cyber attacks.
  • Data theft by staff and third parties – data theft by employees is also common in some institutions. Fraudulent company employees have in the past been associated with incidences of data loss. However with proper internal controls, these incidences can be minimized.
  • New technological advancements which disrupt the existing business models – new technology advancements have disrupted business models which most businesses were familiar in. For instance, the rise of Uber has disrupted the traditional taxi model.
  1.  Malware and virus prevention

In this section, employees will watch videos of two other employees prowling the internet and discuss the following:

  • How can employees differentiate e-mails from authentic senders and those from unknown sources?
  • What are the dangers of clicking links and pop ups from unknown sources?
  • What are the risks of using social media and online gaming sites to the organization?
  • What are the risks of making downloads from the internet?
  1. Best practices in the workplace

Employees will be trained on the best practices to adopt while using computers in the workplace.

  • Importance and need for physical security measures
  • Security of passwords
  • Virus and spyware protection
  • General computer use policy
  1. Proactive responses to cyber attacks

The final phase of the plan will include detailed training on how employees ought to respond to suspected cyber attacks. Employees will be briefed on common hacking scenarios and the appropriate responses they should make in case of such incidences. This part will cover issues such as reporting, public relations, investigation, initial response and law enforcement.

Explain how the program will be implemented

Training must be carefully implemented so that the goals and objectives can be achieved. Training helps employees gain new knowledge or learn new ways of doing things. The first step in implementation will involve defining the goals and objectives to be achieved in a clear and concise manner. Objectives are derived from needs assessment. The next step is the implementation of the training program which takes into account the educational and experience level of employees. The best option in this case is short term training courses since employees are well educated and can easily grasp the new knowledge. Short term courses can be offered to employees at their workplaces by scheduling training programs preferably in early mornings.

A variety of techniques will be employed during training. Some training sessions will involve direct verbal interaction where employees will take notes. Visual stimuli will also be used in learning to make the program lively and interesting. Videos will be used to show employees how cyber criminals can gain access to computers remotely. Evaluations will be conducted during training though question and answer basis. This will enable the trainers to monitor the progress of employees. At the end of the training program, employees will be expected to sit for a written evaluation to gauge their overall understanding of the issues. At the end of the training, employees should demonstrate the skills learnt through safe use of digital gadgets in the office.

Key considerations

There are a number of considerations which must be in place prior to commencing the training program. These can be divided into institutional and individual considerations. The institutional considerations include systems capacity, supervisory capacity, structural capacity, availability of necessary facilities, and the amount of workload. Individual factors include performance of the employees and their availability for the training program. In addition to the above, relevant teaching materials must be available before teaching can commence. These materials include manuals and guides for both trainers and employees. Instructors conducting the training programs must have adequate knowledge in their respective teaching areas.

Availability of time must also be taken into consideration before training begins. Training should be conducted when employees have less workload at hand. It may not be wise to conduct training at a time when a business organization receives a great number of customers. In some cases, training can be scheduled during Saturdays when employees have less workload.

 

References

ACE Group, (2015). Emerging Risks Barometer 2015. Retrieved from        http://www.acegroup.com/global-assets/documents/Europe-Corporate/Risk-     Briefing/2015-07-07-Emerging-Risks-Barometer-final–PUBLISHED.pdf

Arredy, J. (2014). Police, Villagers Clash in Eastern China Over Waste Incinerator. The Wall       Street Journal.           http://www.wsj.com/news/articles/SB10001424052702303851804579555673333103480  ?mg=reno64-wsj

Gonzalez-Padron, T. (2015).Business ethics and social responsibility for managers[Electronic     version]. Retrieved from https://content.ashford.edu/

Kakutani, M. (2010, April 26). The Attack Coming From Bytes, Not Bombs. The New York         Times. http://www.nytimes.com/2010/04/27/books/27book.html?pagewanted=all&_r=0

Miller, R. L. R., & Jentz, G. A. (2010). Fundamentals of business law: Excerpted cases. Mason, OH: South-Western Cengage Learning.

Usnick, L., & Usnick, R. (2013) Compliance program auditing: The growing need to insure that compliance programs themselves comply. Southern Law Journal, 13(3), 1 – 327.

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