Financial Fraud and Internal Controls in Queensland Health

This assignment analyzes the notorious financial fraud case of Queensland Health, highlighting the organization's internal control deficiencies that led to the scandal. It explores the reactive nature of existing controls and emphasizes the need for proactive measures to prevent future occurrences. The report stresses the importance of robust internal control mechanisms, employee training, and a strong accounting information system in safeguarding organizational assets.

Internal Control and Financial Fraud

Executive Summary
The report revolves around the importance of internal control for detecting and preventing fraud
in organizations. This report covers the famous financial fraud that occurred in Queensland health. In
addition to this the concept of accounting information system and its importance is also discussed in order
to gain a better understanding of the issue.

Introduction
The concept of fraud is not new and one of the most popularize kind of frauds that are often heard
are the financial frauds. They often create a hassle in the stable financial market while hitting the
goodwill and reputation of a business organsation. In today’s competitive world when the access to
information has become an easy task then it is quite important to have a proper control measure so that
the data and financial information can be safeguarded. Internal control has become an efficient tool in
such a time, these are the plans or programs implemented to safeguard the company’s assets and at the
same time ensuring the integrity of accounting records (Draz, 2011). It is quite important to increase the
internal data security in order to remain competitive in the global business environment. The case of
Queensland health is an eye opener for the other organizations regarding their internal security concerns.
The report performs a critical analysis of Queensland health and also discusses about the weakness of the
organization that lead to fraud.
Literature review
According to Mbeba (2007), the concept of internal control has its roots in the older time period.
In the middle ages, people were quite inclined towards controlling their financial documents and accounts
in order to verify the use and misuse of the funds. The administrators at catholic churches were quite
interested to gain detailed and correct records of their transactions, accounts and possible frauds. That is
why a complex hierarchy of the ministry was created in order to tackle the issues (Graham, 2015).
Internal audit and control is the review of economic activity examining financial, accounting and other
operations. This helps the business entity to maintain a check on the financial and other activities. The
internal auditor is one of the most overlooked actors in the financial reporting process. Internal auditors
are the one that have direct access to internal controlling mechanism. They directly take part in the
preparation of balance sheet and financial statements (Mbeba, 2007).
In the views of Joseph and Albert (2015), internal control plays a quite important role in the
prevention of financial frauds. It is up to the management to implement an effective internal control
system in order to tackle and prevent frauds. Internal control mechanism is a significant tool behind the
smooth functioning of a business entity. Frauds are become quite common and in today’s digitized and
globalised world information has become quite vulnerable aspect. The modern tools and techniques can
cause data harm and financial frauds in seconds so in order to be safe, it is important to pay attention
towards internal control mechanism (Joseph and Albert, 2015).

According to Petraşcua and Tieanub (2014), effective internal control measure reduces the risk of
financial frauds and also ensures that the financial statements and balance sheets prepared are up to the
marked standard and do not provide any misleading information to the organsation and its investors.
Financial fraud in an organization can hamper its reputation and goodwill in the entire market. The
investors and stakeholders lack trust in the operations of the organsation which further provide loss to the
entity. The plans, policies, procedures, physical security and organizational design are all part of internal
control mechanism. Internal control refers to proper procedure of recording and authorization. It varies
from one organization to other organization. It is important that internal control mechanism should be
based on systematic and risk oriented approach in order to ensure adequate controls in the areas of high
risk. Internal control mechanism also helps in distinguishing between areas of high and low risk. This
helps in proper allotment of the control measures (Petraşcua and Tieanub, 2014).
In the views of Muslimat and Hamid (2012), internal control mechanism is important however its
implementation is quite complex which supports in the security management. One need to monitor the
quality of internal control on time to time basis as the requirement may change. Internal control plays an
integral role in the success of business organsation. It is quite essential to understand which internal
control regime will suit the functioning of the business entity and how to monitor the control regime.
Both these aspects are quite important as they help in providing better prevention and safeguard to the
organsation and its financial records. Internal control mechanism helps in providing accurate financial
data which lessen the chances of financial frauds. It is the task of the internal auditor to implement
internal control and also train the management to monitor the effectiveness of the control in the dynamic
environment. Internal control and risk management are the two aspects that aids in setting and achieving
strategic, operational compliance and reporting objectives. Internal control mechanism in finance is quite
important as it provide reasonable assurance regarding the achievement of operational objectives and also
helps in providing a shield against financial frauds (Muslimat and Hamid, 2012).
Internal Control Weaknesses in Queensland Health
Queensland health is situated in Australia and in December 2011 the organsation identified a
fraudulent transaction of $11million of public funds which was paid to Healthy Initiatives and Choices.
This was the trading name that was registered in the name of its own employees Hohepa Morehu-Barlow
(Barlow). Further investigation in the matter identified that this was the fraud conducted over a series of
four years, which was started in October 2007. Hohepa Morehu-Barlow with the help of his known
developed a fraud control program. The incident occurred in the Queensland health has raised several
questions related to the internal security concerns of the organization (Fraud, financial management and

accountability in the Queensland public sector, 2016). There are several loop holes in the internal security
mechanism of the organization which has lead to the occurrence of the massive fraud. The internal
control mechanism of the organization was not properly managed and implemented. The organsation has
also recorded cases of theft which shows that the financial operations and their control management were
not properly functioning. The staff of the organization has booked charted flights on a non working trip
which shows that the finances were draining without proper knowledge of the internal auditor.
The allocation of funds was not done appropriately which leads to mismanagement in the
budgeting aspect of the organization. Apart from this, the major aspect of the organization in training
program which was not implemented properly (Petraşcua and Tieanub, 2014). The training regarding
fraud awareness was not given to the staff of the organization. It was given when an incident once
occurred which means it was a reactive training program not preventive one. Queensland health has also
not conducted criminal checks on their staff who were employed before 2006.
The organization paid more attention on the ethical standards as a result of fraud detection work
but it lacked resources which further become an obstacle in the efficient working of the internal control
mechanism. Internal control mechanism is an important aspect of an organization (Petraşcua and Tieanub,
2014). Queensland health was exposed several threats of data loss and financial frauds because its internal
control mechanism was not properly working and hence it has faced the financial fraud of huge amount.
In addition to this the Queensland health failed to manage emergency response team which again shows
ineffective implementation of the internal control mechanism. The management of the organization was
not inclined towards the internal control and security measures.
Internal Control Framework/S That Could Prevent Financial Fraud in Queensland Health
Internal control mechanism is often underestimated in a business organization. Internal control
and audit function is an important aspect and the management should give it utmost importance. The
function of internal audit should be assigned appropriate degree organization independence. The
autonomy to the internal audit staff and department is quite essential so that they can work efficiently
(Biegelman and Bartow, 2012). The autonomy provided to the staff can help them in effectively
monitoring the preparation of the financial statements. To maintain this standard it is quite important to
develop transparency in the working. In addition to this it is also important to develop a sense of
accountability in the staff of internal audit so that they can report to their seniors and proper action can be
taken on time.

In order to remain safe, it is important to maintain an internal audit function in an organsation.
This can help the business entity to reduce the incidences of fraud. It is significant to formulate an
internal audit committee. The internal audit committee would help ensure effective monitoring of
financial statements preparation process which should be free from coercion from potential perpetrators
of fraudulent recording (Cascarino, 2012). Professional certification of internal auditors is required and it
is quite important to lay emphasis on the development of internal audit standards. In addition to this it is
significant that companies and business organization maintain a vigilance committee which keeps an eye
over incidence of frauds. The absence of such committees encourages the incidences of fraud ( Dawson,
2015). In addition to this it is important that committees should review and evaluate the working of the
internal audit and control mechanism. Internal audit and control mechanism helps in preventing frauds in
the organization hence it is significant for the management that they should express their opinion
regarding the adequacy of the internal audit and control mechanism.
Importance of Studying AIS as A Core or an Elective Unit
Accounting information system is typically a computerized accounting program that maintains
the financial records and other data of a business organsation. This accounting principle is adopted in
organization around the world as accounts auditing and financial records management mechanism. The
accounting management system is adopted by the organizations of Finland and United Kingdom. The non
integration of healthcare professional towards the financial aspect often creates hindrance in proper
management of accounts and financial statements (Mancini, Vaassen and Dameri, 2013). In accounting g
information system information is entered into the system and it keeps track of the information and also
helps in organizing the accounting and other financial information a proper way. Accounting information
system is designed to record all the information and transaction of the business. Accounting information
system helps in generating financial records of the business organization in a click. It is important for the
management to provide appropriate training to the internal audit and control department (Hall, 2015).
The accounting information system is a discipline of accounting, in some universities it is being
taught as a core subject while at some places it is being taught as elective subject. In today’s competitive
environment it is important to teach accounting information system as a core subject rather than going for
elective one. Accounting is an important aspect of an organization hence it is important for every
department to have a basic understanding of the accounting functions (Hall, 2015). Due to lack of
appropriate knowledge amongst the staff, financial frauds occur in organsation. Therefore accounting
information system should be treated as a core unit of organsation functioning and hence training program
regarding the same should be imparted amongst the staff of the organization.

Conclusion
Internal control and audit mechanism is an important aspect in the safe functioning of a business
organsation. In today’s dynamic environment, data security has become one of the major concerns of
business organizations working around the world. Financial frauds have become quite common due to
lack of proper internal control mechanism. The report analyzed one of the most famous financial fraud
cases of Queensland health which has shocked all the business organsation of the world. The report has
critically evaluated the weakness of the organization due to which it has become the target of financial
fraud. The organization has not paid required attention to their internal control mechanism. Apart from
this the staff was also not well trained in the same aspect. There was a control mechanism but it was
specifically a reactive one which is performed when the event has already occurred. It is important for the
organsation to take some preventive steps so that such events cannot disturb its functioning in future.
Apart from this, the business organsation should also work on accounting information system to
safeguard its financial and accounting records.

References
Arwinge, O. 2012. Internal Control: A Study of Concept and Themes. Springer Science &
Business Media.
Biegelman, M.T. and Bartow, J.T. 2012. Executive Roadmap to Fraud Prevention and Internal
Control: Creating a Culture of Compliance. John Wiley & Sons.
Cascarino, R.E. 2012. Corporate Fraud and Internal Control: A Framework for Prevention.
John Wiley & Sons.
Dawson, S. 2015. Internal Control/Anti-Fraud Program Design for the Small Business: A Guide
for Companies NOT Subject to the Sarbanes-Oxley Act. John Wiley & Sons.
Draz, D. 2011. Fraud prevention: Improving internal controls.
https://www.csoonline.com/article/2127917/fraud/fraud-prevention-fraud-prevention-
improving-internal-controls.html
Fraud, financial management and accountability in the Queensland public sector. 2016.
http://www.ccc.qld.gov.au/research-and-publications/publications/misconduct/qhealth/
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