The Steinhoff Assets Misappropriation Scandal
Use the Internet to research and identify an organization that was a victim of asset misappropriation. For the assignment you will evaluate the types and causes of the misappropriations, examine how assets were or could have been recovered, assess management's responsibility to share information, and discuss SAS 99 risk factors. You will also discuss how to improve the organization's corporate governance plan, recommend a fraud prevention plan, and discuss its potential impact on the organization and its employees.
Write a 5 page paper in which you:
1. Based on your research, evaluate the type of asset misappropriations that occurred at the organization. Assess the factors that contributed to the misappropriation. Give your opinion on whether poor management or lack of management played a role in the asset misappropriation. Provide support for your rationale.
2. Evaluate the legal mechanisms that could have been used to recover assets through the civil and criminal justice systems. Assess whether the civil and criminal justice systems did an effective job in recovering the organization's assets. Provide support for your rationale.
3. Assess management's responsibility to share information related to the breach with various stakeholder groups, indicating what should be shared and how. Provide support for your rationale.
4. Review AICPA Statements on Auditing Standard (SAS) No. 99, "Risk Factors Relating to Misstatements Arising from Misappropriation of Assets," found within the text. Assess SAS 99 risk factors and discuss if the risk factors were prevalent in the organization you researched. Give your opinion on whether or not organizations should implement a plan that reviews risk factors on a regular basis to determine if fraud has occurred. Explain why or why not.
5. Review the corporate governance plan of the organization you researched, evaluate the effectiveness of the plan, and make suggestions for improvements to protect the stakeholders. Provide support for your rationale.
6. Recommend a fraud prevention plan for this organization. Determine what positive or negative consequences this fraud prevention plan might have on employees’ morale and the public perception of the organization.
7. Provide at least four quality resources. Note: Wikipedia and similar websites do not qualify as quality resources
The Steinhoff Assets Misappropriation Scandal
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The Steinhoff Assets Misappropriation Scandal
Introduction
Asset misappropriation refers to the use of client or company assets for personal gain. It occurred when people entrusted to manage an organization's asset use their power and access to steal from the company or the company's clients through fraudulent activities. According to the ACFE report, asset misappropriation is the most common type of occupational fraud representing 83% of all the reported fraud cases with a median loss of $125,000 for affected companies (1). Common examples of asset misappropriation include misuse of assets and inventory, fraudulent disbursement, and theft of cash on hand and receipts. According to the ACFE report, the more the number of people involved in an asset misappropriation, the larger its losses. Furthermore, the size of the loss is directly proportional to the perpetrators' levels of authority (1). Therefore, the higher the authority, the more a company stands to lose. An example of an asset misappropriation scandal involving top management leads to the loss of billions in South Africa's Steinhoff Plc.
About the Steinhoff Scandal
The company was found to have recorded irregular transactions amounting to $7.4 billion between 2009 and 2017. The fraudulent transactions were done by a group of former senior management executives working with individual third-party outsiders. The said deals substantially inflated the company's asset values and profits, causing it to mislead investors and, in turn, the few individuals earning significantly from their fraudulent actions. As a result, the fraud wiped out all the shareholders' equity and galloped 216 billion rands of its value since December 2017 (2,3).
Types and Causes of Misappropriation
Types of Asset Misappropriation
Two main types of assets fall prey to fraudulent employees and third parties. These include cash and inventory (and all other assets). Often, crooked employees favor cash over inventory (or other assets), with studies indicating that 9 out of 10 cases involve cash-related fraud (4). Apart from cash and assets, fraud can extend to intellectual property or company data. While such fraud can involve limited and isolated cases, such as fiddling of expenses, it may also involve employees or top executives' organized crime. The Steinhoff scandal took advantage of weak internal systems and control processes. Therefore, the two main types of asset misappropriation revolve around inventory and cash. Fraud involving cash may include larceny, skimming, and fraudulent disbursements. Under inventory, the types include misuse and larceny. In the Steinhoff scandal, misuse of inventory was only possible because of the involvement of the company's top executives.
Causes of Misappropriation
There are two major causes or risk factors of asset misappropriation. They include the susceptibility of assets to misappropriation and the strength of internal controls.
Susceptibility of Assets to Misappropriation
These refer to the nature of an entity's assets and the degree to which they can be subjected to theft. As mentioned earlier, cash is the most susceptible of all assets within a company because of the ease with which it can be accessed by those in a position to handle it. Processing large amounts of cash on hand increases the potential of such cash being misappropriated. Another risk factor in this category involves the size, value, and demand level of an inventory. Thirdly, easily convertible assets like diamonds, computer chips, or bearer bonds are high-risk factors that can lead to misappropriation.
Lack of Strong Control
Poor or little internal controls may also lead to employee misappropriation of company assets (4). These controls are designed to prevent or detect asset misappropriation. Therefore. If employees discover that these controls are weak or non-existent, it leads to asset misappropriation. The executives involved in the Steinhoff scandal were able to defraud the company (and clients) the amount of money because they were in a position to understand and navigate the company's internal controls. The risk factors related to controls include poor management oversight, inappropriate separation of duties, poor authorization systems, and lack of mandatory vacations for employees in key positions (7).
Possible Recovery of Assets
Following a major asset misappropriation scandal, one of how a company recovers is through the recovery of assets. In the case of the Steinhoff scandal, no assets were recovered (2). The survival of the company depended on the sale of assets to slim down as a recovery alternative. Whether pursuing assets through criminal or non-conviction-based confiscation, assets r...