Gulf Travel, Tourism and Cargo Areas of Concern after the Risk Assessment

Areas of Concern after the Risk Assessment

Fraud Risk Inquiry

Management Personnel Interviewed:

xxxxxxxxxxxx Finance Manager xxxxxxxxxxxx Human Resource Manager

xxxxxxxxxxxx Sales Manager xxxxxxxxxxxx IT Manager

xxxxxxxxxxx Assistant Finance Manager xxxxxxxxxxxx Audit Committee Secretary
Based on the responses provided by the above-mentioned persons in a personal interview with each of them, there are three important areas that might present Gulf Travel, Tourism, and Cargo vulnerable to fraud attacks, both internal and external.

• The company has a low system of check and balance as characterized by the way it handles its agents. Travel agents have a big leeway on how much will they ask from clients because the company does not have a clear receipt system. As common in most travel and tourism businesses, the company faces the problem of kickbacks and “tips” for clients to negotiate with their tourism and travel packages. As a result, the company provides for the needs of its clients, but is paid less than it expected of them.
• Instead of negotiating and dealing with customers inside its office, the company allows its agents to negotiate with potential clients outside of the office. This is a potential and a vulnerable area where agents can lie to its clients about some promos and packages of the company. But when clients go to the office to get their tickets or their hotel passes, they don’t get what they expect because the agent mishandled the negotiation just to close a deal and to enjoy the commission.
• The company does not have a strict collection system from its agents. As the agents are allowed to get payments from clients or customers, it is necessary for the company to get the payment from the client. But in the case of Gulf Travel, Tourism and Cargo, the company does not ask agents to send in payments prior to the claim of clients. This allows agents to get away from the collection and the company loses it in the process.

However, it must be noted that the company has no intention of lying or committing fraud against its customers or the government. The company has been honest on the way it handles business with its clients. Yet, in recent years, the company has received complaints from its clients, especially when they don’t get what the agents have promised; and there have been few incidences of clients pushing the complaint to the authorities.

Internally, Gulf Travel, Tourism and Cargo had maintained a good manual on how to deal with customers or clients to avoid any fraudulent act. Yet, externally, the company does not have much control over its agents. As a result, the management has defined that area as a high risk area that poses a problem to the financial and organization’s status of the company. Investigations of the agents’ fraudulent activities can be tied with the company easily. In fact, this poses also a big problem with authorities who check cargoes before the ship leaves the port, or when the ship enters port.

As the management realizes these fraud risks areas, they had implemented a strong collection system and a check and balance with agents through a direct communication with them when clients ask for better packages than what the company offers. As such, agents can communicate with customers, but only the head office can provide details of the travel, or the tourism packages of the company to avoid embezzlement at the lowest level of the company.

Internal Audit Personal Interviewed:

XXXXXX Internal Audit Supervisor XXXXXX Risk Associate

An interview with the Internal Audit Department of the company reveals that Gulf Travel, Tourism and Cargo maintains a periodic report on the vulnerable risks of the company. These reports are categorized into Management, Middle Level, and the Field Operation. The International Audit Department also provides recommendations that can be used by the management to ensure that these risks are addressed immediately. Department heads and directors of the company are provided copies of these reports to keep them updated of what is happening within the organization.

In terms of financial value, the company faces high fraud risk in its Cash, Receipts, and Receivables in contrast to the Expenses and Cash Outflows of the company. Due to the fact that agents may present an understated receipt of a service program of the company, the company has to deal with the problem of Cash and Accounts Receivable understatement and the overstatement of its expenses, thereby understanding the profit of the company. In legal terms, the company has a problem with presenting truthfulness in its accounting records. But it must be noted that these risks or fraud activities are not intentionally directed by the company, rather it is just the result of the fraudulent activities that are happening in the field operations of the company.

To minimize these risks accounts, the Internal Audit Department has provided the following recommendations for the consideration of the management:

• No receipt books should be given or issued to agents of the company, but receipts and tickets or such other service documents of the company will be handled by the head office; and only customers should pay in the head office, provided that they provide the name of the agent or such.
• To avoid the overstatement of the company’s expenses due to wrongful awarding of packages and travel documents, it is necessary to recheck the receipt of the clients before they are awarded with the package or promo of the company.
• To ensure that the company is spending for what it gets, the head office clerks are directed to make a comparative overview of what they receive and what they give. This would show that the company is spending only on what it is gaining from clients.

These recommendations as provided by the Internal Audit Department must be taken into account and consideration by the management of the organization to ensure the smooth operation of the company. However, if the management or the department heads do not implement these recommendations, the Internal Audit Department must send the department heads considerable follow-ups on these issues.

For the past months, the Internal Audit Department had not found out any considerable or any high-risk fraud activities that had been engaged by the company’s employees and agents. There had been petty reports and complaints from customers, but these are not that alarming to the current financial status and reputation of the organization.

Entity Risk Factors

Overall, after the risk assessment of the organization, there are minor risks that must be taken into account by the Gulf Travel, Tourism and Cargo, but there are not high-risk activities that are being engaged by the company. But still, to protect the future of Gulf Travel, Tourism and Cargo, there are important considerations that should be taken into account to ensure that any misstatement of the financial accounts of the company is avoided.

• Outsourcing of a travel agent company to work with the Gulf Travel, Tourism and Cargo than just rely on independent travel and cargo agents to conduct the business of the organization.
• With the recent investigations of the company, it is necessary to severe negotiations and connections with agents who had been complained or reported by customers for fraudulent activities.
• Better relations with customers by placing various branches of the company in major areas of the region, rather than just allowing customers or clients to negotiate with private individual agents.
• Fostering a better management and organizational reputation is very important to ensure that the company’s future will not be blocked as the competition of the tourism industry is becoming steep.
• In competing with major cargo companies in the region, it is necessary for Gulf Travel, Tourism and Cargo to maintain its good report; otherwise, it will lead to reduction of its market share.
• The organization’s primary focus is its cargo division because it provides a bigger revenue share; while it is also necessary for the company to ensure a good market communication with tourists, both business and locals.
• For the company to provide all services and demands of its customers, partnership with several suppliers such as cruise ships, or transportation companies is very crucial
• As the company grows itself, the direction is to make Gulf Travel, Tourism and Cargo to make itself available for further investments from private and public companies.
• To ensure that the financial capability and potential of the company is cemented, it is vital to invest in on-going resources of the company such as new cargo ships or passenger vessels.
• The company must be sure that the expenses of the organization are reviewed and evaluated to see their importance to the overall operations; otherwise, it is necessary to eliminate these unnecessary expenses.
• The direction of the tourism industry is toward a bigger market, for Gulf Travel, Tourism and Cargo to move forward, it is necessary to see new and bigger markets that can be invested on.

Fraud Risk Factors

Due to the problem of the company’s Cash and Accounts Receivable, it is important to take the following into consideration:

Penalty and Reward System

Employees, or agents, will not engage into fraudulent activities if they know well what will happen to them. By pressuring them with warnings of penalties and termination, Gulf Travel, Tourism and Cargo has a certain level of trust that agents and employees will not do any fraudulent acts that may have negative implications on the company.

Rather, by offering a reward system on agents who can bring in more customers to the company with high satisfaction, the company is fostering an honest organizational culture. This culture will help the company to advance in various points of the organization as it continues to expand.

Attitudes of Employees and Agents

With the above-mentioned penalty-reward system, Gulf Travel, Tourism and Cargo can expect its employees to look forward to their job with honesty. This is a very important part of the company’s direction to change the behaviour of employees and agents as they negotiate or conduct the services of the company.

Gulf Travel, Tourism and Cargo had always maintained a strong accounting standard by addressing fraud acts that have effects on the accounting reports of the company, and of course, to the reputation of the company. There are several areas of concerns that had been noticed by the company and they had a pro-active measure on how to address these problems and fraud risks.