Types of Control in Organizations

Types of Control in Organizations Free Essay

Introduction

Employee fraud continues to cost billions of dollars in losses to different organizations. Fraud is expensive; usually, it entails using own position for the individual enrichment through a deliberate misappropriation or exploitation of organization’s resources. One way to control and minimize fraud is through the control management function. Control is the process that allows managers to monitor and regulate the efficiency of an organization and its employees, as well as perform activities that help the staff achieve organizational goals. Even though there is no immunity to fraud in companies, including those with the strongest control systems, research shows that strengthening control policies, processes, and practices reduces organization’s susceptibility to fraud. This assignment uses several case studies of employee fraud in order to demonstrate the role that control, as a management function, plays in addressing and reducing fraud.

Types of Control Lacking in the Organizations

Control in organizations remains one of the most important aspects in regulating their activities. Schermerhorn, Osborn, and Uhl-Bien (2013) assert that control keeps managers informed about activities that occur in key areas. In some case studies, several types of controls are utilized not effectively by the companies; hence, fraud incidences take place from time to time. First is the concurrent control that mainly focuses on the regulation of ongoing activities of an organization. It sets checkpoints that show any deviation from set standards (Davidson et al. 2009). Ana Susan Kosak of the NC independent bookstore probably found it easy to embezzle (Bilski 2009) due to the lack of concurrent control. In the Quest Diagnostic, David Smith embezzled over $1.2 million (Bilski 2009). This situation could occur due to the lack of proper financial controls, which would help managers monitor the money being let out for payments and that received (Robbins et al. 2012). If this type of control were in place, Quest Diagnostics would catch up on companies such as those registered under Smith.

The feedforward type of control is evidently missing in some defrauded organizations from case studies. It focuses on the regulation of inputs and strives to prevent problems beforehand (Schermerhorn, Osborn & Uhl-Bien 2013). Giving specifications to employees of expected supplies, for example, ensures that undesired supplies do not enter the system. Therefore, specific feeding systems with expected sales, revenues, and entries could have helped mitigate the fraud committed by Barry Webne in Block Communications even though he was hired to detect the theft in the company (Bilski 2009). Further, this type of control allows screening employees before providing them with access to any transactions. If the company had run a background check before dispersing money to different accounts created by Smith, the fraud might have been discovered before much loss occurred.

Feedback control was also absent in some companies. This control allows managers to evaluate the efficacy of the transformation process (Davidson et al. 2009). Approaches used include feedback from consumers on the product or service, as well as changes in conduct, or examining the quality of product or service. A feedback system could have informed managers of customer returns; hence, corrective actions could have been taken on time. If this type of control had been in place, the fraud committed by an IKEA employee, Suraj Samaroo (Bilski 2009), might have been prevented. The man’s rampant refunding and alteration of records would have been noticed if the managers had been keen in studying refunds requested by consumers. Lastly, if a proper cybernetic control had been in place, such irregularities as increased transactions by particular employees would have been detected.

Strategies Reflecting Steps in the Control Process

Several major steps exist in the control management function; establishing the control areas, setting up standards, measuring performance, comparing the performance against set standards, providing corrective actions and adjustments of standards (Bartol et al. 2011). These control steps are all imperative in the eradication of the internal fraud. The CEOs of some companies from the case study could have employed different strategies in order to meet set goals and standards. First, in establishing control areas, for the case of Anna Susan Kosak, fraud occurred because of providing one individual with the sole autonomy in handling the company books. Therefore, she could write checks and cash them without any oversight (Bilski 2009). It can be an area of control in the bookstore, in which the control process is supposed to focus on changing or improving. In the case of Quest Diagnostics, screening companies and employees should go first. Next, the CEO should establish the actual performance, including the number of handled clients and signed checks, or changed behavior. It can help establish where employees stand regarding their effectiveness or conduct. In the case of IKEA, returns from customers or refunds to employees for the customer purchase can help measure their performance.

The next strategy considers comparing what results reveal regarding the performance as compared to what the expected standards define. For example, if standards show that refunds from customer purchases are not equal to a set amount every week, the deviance from the same can be a red flag. A change in behavior, for example, increased work hours, can be another area to consider. One more strategy that can be indicative of the fourth stage of the process presupposes the evaluation of the observed performance. For example, if the CEO observes that a certain employee exceeds the expected refunds from purchases in a week or writes checks that raise a red flag, appropriate actions should be taken. In the case of Calgary Transit Employee David Hamilton, the deviance in the number of coins available can be an area of concern (Bilski 2009). Such employees may be transferred to new departments, or other employees can be brought into the office to co-work. Furthermore, employees should not be allowed to handle more than one sensitive activity alone especially those that entail finances (Worth 2015). In addition, organizational checks and balances should be put in place in order to minimize chances of internal fraud. According to Robbins et al. (2012), one of the major roles of control is to limit the accretion of errors and curtail costs and losses associated with such errors. With such strategies in place, the occurrence of internal fraud reduces significantly.

Feedback Control Checks

In a bid to curb organizational fraud, managers should not just implement measures and strategies in the control process. In fact, they should monitor the effectiveness of strategies put in place. Feedback control helps determine whether the set strategies have been effective in meeting goals, standards, and objectives of an organization (Waddell, Jones & George 2012). This type of control takes place after predetermined activities are taken. Being the most popular control type, there are some checks that one should use in order to determine whether set compliances are followed. First, increase, decrease, or no change in inventory, employees’ bonuses from customer purchases, and such aspects will demonstrate whether these strategies have been effective. If the amount paid in bonuses to some employees continues to be way higher than the one of the others, the strategies will need to be reassessed. If the numbers meet expectations set by company standards, it is evident that these strategies are effective. Any deviation from set standards will inform about the need for a new plan or pursuance of the one in place. In the case of Anna, a change in inventory in books would demonstrate that working together with other employees, under which different processes are handled by various people were either effective or not. In the case of Barry Webne, if more than one person is involved in the signing company stocks and a decrease in the amount on the same is noted, the strategies might have been effective.

Another check should observe any visible changes in the staff behavior. Assuming that in the case of Anna or Webne, the employee used to work deep into the night, yet this situation changed after the strategies had been put in place. It might be an indicator of some degree of efficacy in curbing the internal fraud. Working together would discourage such behavior as every employee knows that those working with him or her might discover their fraudulent plans. As such, the behavior change is an important check. Lastly, one can consider changes in return on investment, reduction in customer complaints or fraud, a lower number of irregularities noted by a cybernetic system, as well as an increase or decrease in payments made to clients and institutions as an indicator of the effectiveness of strategies put in place. Schermerhorn, Osborn, and Uhl-Bien (2013) assert that if effectively applied, feedback control may help organizations establish better ways of achieving set organizational goals. This idea explains why companies such as Honda, Toyota, and McDonald’s have used this feedback approach for many years (Davidson et al. 2009).

Impact of Poor Control Processes

The case studies demonstrate the impact of poor control processes in an organization. The staff, customers, and companies are all negatively affected when control processes are inadequate. Organizations, for example, end up losing billions of cash because of fraud. When systems, operations, and activities are not monitored closely, an entity will not only lose money but also break customer trust (Worth 2015). When processes are poor, organizations are also likely to slow down their growth and expansion. Goals and objectives that are set for a company may not be achieved since the controlling function of the management monitors where a company goes and how it will get there. Poor control processes may also demoralize employees at work. Control gives a sense of direction to the staff with regards to what each person does. If there are no proper guidelines and controls for the same, employees are likely to become demoralized. Waddell, Jones, and George (2012) assert that control also helps inform managers when promotions or bonuses are required; especially when the feedback control has been complete. When the staff does not receive such incentives, people are likely to be demoralized. Employees are also likely to be less productive when controls are poor. For example, in the IKEA case study (Bilski 2009), employees might have been discouraged to learn that, through fraud, their colleague could have earned much more bonuses than they did. Such poor controls leading to fraud may also create an everybody-is-doing-it attitude to fraud; hence, it will place a company in a precarious position.

On the other hand, customers may lose trust in an organization when fraud occurs in it. For example, if customers know that employees in company X use their (customers’) credit information to make purchases, they may move to competitors. For example, clients might have lost their confidence of IKEA if they had learned of what the employee did. If control processes are poor, the quality of output is likely to be poor, as well. It may consequently push customers to organizations that offer the same products only of a better quality. Organizations, such as those in the case studies, can also be ill-prepared to the occurrence of eventualities or opportunities. As a management function, control has a role in helping organizations cope with organizational complexity and adapt to any change in the environment. When processes are poor, organizations are likely to be ill-prepared to handle any changes that may affect them negatively. Moreover, they may not be in the best position to adapt to new positive changes. Therefore, organizations may be unable to compete effectively or to maintain their best talent or customers.

Conclusion

Control does not mean that one should react to an issue that has been discovered. Control is and should always be a continuous process that regulates activities with the view to ensuring that they conform to standards and goals of organizations. It ensures that employees conduct themselves in ways that support mutual goals while emphasizing acceptable behaviors and discouraging those that are unwanted. Poor control leads to the loss of billions of money through internal fraud; hence, there is the need for companies to take effective control measures. When control processes are poor, all stakeholders are negatively affected.


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