Internal Control at Wipro

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Failures in the Internal Control at Wipro

Establishing a proper level of the internal control and incorporating measures for preventing fraud are very important tasks of the management at any organization. Meanwhile, consequences of failing to do so can be rather severe in terms of the financial impact, deteriorated reputation of a company, and affected internal corporate culture. This case study provides the analysis of the recent instance of fraud that was discovered and made public at one of the leading Indian IT companies, namely Wipro Limited (full name is the Western India Palm Refined Oils Limited). Further, the paper reviews shortcomings in the internal control that led to the possibility of the fraudulent behavior, suggests possible ways for preventing potential fraud at Wipro in the future, as well as related feedback control measures, and lists the consequences of the inadequate control in a business entity.

In 2010, Wipro suffered from a major fraud that was committed by one of the employees of its financial department, who had managed to steal around $4 million from the company’s bank account during preceding three years. After discovering the issue, the organization was able to recover $2 million back but still had to recognize fraud losses of $2 million. Also, it faced an excessive discussion in the media and adverse reaction of its customers and other business partners. It is believed that it was the failure of the Wipro’s internal control system that led to the case.

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The internal control system is defined as the “formal target setting, monitoring, evaluation and feedback systems,” which should enable the company’s management to obtain any necessary information on how the strategy, processes, and structure of an organization perform on the daily basis (Wadell, Jones & George 2012, p. 408). It is generally determined that controls should be established at three main levels: work inputs (for the feed-forward or preliminary controls), work throughputs (for the concurrent controls), and work outputs (for the feedback controls) (Schermerhorn et al. 2015, p. 278). When a company discovers such a notable and long-running instance of fraud it is obvious that the internal control over related processes is weak at every level. First of all, preliminary controls were not sufficient for preventing the accused employee from obtaining the Wipro’s bank account login and password and using them for three years. Besides, the feed-forward control procedures for the authorization of the bank operations and payments were inadequate as the payments could be easily handled without the prior confirmation of the management. Secondly, the concurrent controls at Wipro over the payments and bank operations were weak, as well. In particular, the bank account login data had not been changed for at least three consecutive years; in addition, no rotation had been implemented in the financial department staff. Finally, the poor feedback controls regarding checking the bank statement data with the company’s accounting records resulted in the discovery of the issue only after three years. In fact, the simple reconciliation of two balances and checking of the payments details could enable the company’s management to discover the fraud actions of the Wipro’s employee much earlier.

Suggested Strategies for Preventing the Fraud at Wipro

In order to plan actions and strategies for the fraud prevention, one needs first to understand the essence of this crime. Fraud can be defined as the “intentional act” that is conducted by one or several individuals “among management, those charged with governance, employees or third parties” that lead to obtaining an “illegal advantage,” involving either misstating the financial data or misappropriation of a company’s assets (Eilifsen et al. 2014, p. 105). Wipro faced the fraud in its financial operations; thus, the respective feed-forward and concurrent controls should be enhanced in this field of the company’s operations.

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The feed-forward control includes measures to “anticipate problems before they arise” (Wadell, Jones & George 2012, p. 409). Such controls should be changed and altered according to the company’s external environment and internal processes. In respect to the problem faced by Wipro, the preliminary internal controls should include establishing an automatic system for checking the entrance to the bank account from employees’ IP addresses in order to control any possible use of the login and password by those that are not authorized with this right, changing passwords for entering bank payments on the monthly basis, and conducting the obligatory rotation of the personnel and managers at the internal financial department of the company.

The concurrent control relates to the control measures that are established for monitoring activities of a company in progress (Robbins et al. 2012, p. 362). These controls enable the management to react timely to any detected instances of fraudulent actions and address the problems as soon as they arise. The strategy of Wipro for controlling financial operations at the bank can comprise several important steps. First, the implementation of an automatic system of inquiries is needed in order to obtain confirmations for any payments above a certain limit from the management. Then, it is possible to open separate bank accounts (with a daily limit of money “to be used for a specific purpose”) for defined routine payments that are allocated to different employees (Eilisfsen et at. 2014, p. 530). Finally, the Wipro’s management should assign the responsibility for checking bank statements with the company’s cash book (both in balances and by every transaction recorded) to a person that is not directly involved in the authorization or performing payments at the bank.

Analyzing the proposed strategy against steps in the controlling process, one would define the control standard as the absence of any intentional misappropriation of the company’s cash assets in the future. The performance can be measured by the number of detected differences between the bank statements and company’s records. At the third stage, one would expect the best performance with no deviations. Any instance of the future intentional alteration of the financial operations at Wipro would necessitate corrective actions in the accepted policies and procedures.

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Potential Feedback Control Measures for Wipro

In the previous section, it is proposed to establish mainly bureaucratic feed-forward and concurrent controls, which use policies and rules that are provided by external mechanisms and allocating individual responsibility for the actions (Bartol et al. 2011, p. 428). Such proposal is based on the fact that Wipro is a fairly large organization, in which more authoritarian management style should be appropriate. Besides, cash transactions and, especially, payments in the finance department require strict regulations to be imposed and high exposure to the potential fraudulent behavior of employees.

The feedback control checks at Wipro should also be based on the bureaucratic approach. First of all, it is necessary to focus the attention of the internal and external auditors of the company on its cash operations and require additional testing of the established internal controls for the cash payments. Secondly, the management of the financial department could perform own checks on the periodical basis. Such checks would involve the comparison of the bank statements and company’s cash book once or twice a year for a selected category of operations and the vouching of a sample of records in the cash book with the primary documentation of payments (for example, invoices and supplier agreements). Additionally, it would be useful to check the process of the management confirmation for operations and periodically change the bank login passwords as it is required by the internal policies. In addition, it would be crucial to reconcile available management confirmations on payments with the cash book and bank statements for a selected sample of transactions. Special consideration should be given to any unusual transactions including payments to new suppliers, refunds, and charity, for example; they should be forwarded for the approval of the management and assessment of their appropriateness for the organization’s needs. Moreover, employees of the financial department should maintain the process of obtaining external confirmations on the balances with the bank, suppliers, and customers at least once a year.

At the same time, Wipro needs to ensure that all employees of the finance department are familiar with the established policies. This aim can be achieved through annual training programs and testing on the policies and rules. Finally, the top management of the company needs to control the rotation process in the department and ensure that it is maintained properly and continuously. It is believed that such measures coupled with bank checks would enable a company to impose effective controls over the payments and detect any fraud cases in due time.

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Consequences of Poor Control at a Company

Purposes of setting an internal control system at a company are explained by the need to minimize costs and prevent accumulation of potential errors, as well as to enable the organization to adapt to changes in the external environment and cope with the own operational complexity (Davidson et al. 2009, p. 318). Respectively, if poor controls are set in a business entity, it is not able to attain these purposes; as a result, the business suffers. In particular, inadequate internal controls lead to generally higher costs of operations arising due to the excess waste, misappropriation of assets, and administration. Therefore, they can result in the occurrence of a fraud and, as a consequence, lead to related financial losses (as in the case of Wipro), lower trust of the public in the company’s operations and reputation (including deterioration of relationships with customers, suppliers, credit institutions, and trade unions), adverse effects on the internal company morale (it means worsening corporate culture and reputation of an employer), and higher administration costs along with the increased external and internal audit fees (Freedman 2017, p. 1). In such a manner, the company as a whole suffers from poor controls as it loses its market share and receives a weaker financial performance.

An established poor control system has a negative effect on all stakeholders of a company except those obtaining personal benefits from the unethical behavior and fraudulent actions. At this point, the potential impact is the worst in the case of top management being directly interested and involved in such behavior. This situation results from the nature of relationships between managers and owners of a business entity (where they are not the same, for example, in a sole proprietorship or partnership) as the information asymmetry exists and both groups intend to maximize the own wealth only. Also, employees are affected as they either have to continue working at a company with worsened reputation and potential inability to increase sales (due to the lower ability to minimize costs and excess administration and waste expenses) or need to search a new job. Shareholders obtain lower returns on their investment in such organizations and need to spend additional effort and funds for obtaining reliable information on the company’s financial results and position. Lastly, both customers and suppliers might suffer from the necessity to find another business partner, excess payment made or irrecoverable debts recognized, and deterioration of their own business relationships.


To sum up, the occurrence of the publicly discussed instances of severe financial and reputational losses due to the fraud of a certain employee or management of a company provides evidence of the importance of the strong internal control system to be established at every organization. The internal controls should comprise preliminary, concurrent, and feedback checks and measures, as well as focus on the areas where fraud is possible and can lead to negative consequences for the organization. Besides, the internal controls need to be tested periodically by external parties in order to ensure their effectiveness and find potential gaps in them.

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