Conducting Fraud Brainstorming and Assessing Fraud Risks - Essay Example

Part IV-conduct fraud brainstorming and assess fraud risks Conducting fraud brainstorming Risk assessment team should do brainstorming activity to determine the causes of fraud risk. It gives discussions of pressure, incentives and opportunities to commit fraud 1. Firm employee reads and saves articles about issues that may affect critical clients. Which the regulations management rely upon to increase sales of solar-electro. Second article claims that pinnacle lack the knowledge and personnel necessary to perform in solar power engine industry. Under this case, the fraud risk is insignificant 2. While on tour to warehouse, it was noticed that a section of engines that don’t look like the ones advertised on Pinnacle website but warehouse manager seems to be not aware of what is happening. The fraud risk is very significant in this situation 3. New computerized manufacturing equipment that has a stamp “product of Welburn manufacturing, Detroit Michigan”. Under this condition, the fraud risk is significant since there is miscommunication. 4. Pinnacle employees constructed a building because of employee idle and to save time. The controller said there was coordination with the construction company responsible for the addition. The fraud risk under this case is very significant since there might be a coalition between the construction company and the controller. 5. Auto-electro accounts for nearly 15% of the companys account receivable balance and the customer has not made payments for several months. The fraud risk under this case can be very significant because it can lead to lose a lot of money. 6. The directors raised a significant amount of debt to finance the construction of new manufacturing plant for solar-electro division and modification to the property on which the plant will be built. The fraud risk under this circumstance is insignificant since there is approval by directors. 7. Pinnacle president while wearing a golf shirt with the words ‘‘Todd-Machine” and repairmen who repair company own by vice president of Pinnacle. The fraud risk is very significant because it seems the vice president has an interest in two competing companies. 8. Significant turnover in the internal audit department. There was a conclusion that the turnover is only present at the higher level positions. The fraud risk under this case is significant because high turnover is a bad sign 9. While review debt agreements, It several restrictive covenants was identified ,two requirements are to keep the current ratio above 2.0 and debt below 1.0 at all times. This is normal business adjustment, and the fraud risk is insignificant 10. CPA notification that Brian Sioux will be visiting pinnacle facilities to investigate an ongoing dispute between the internal revenue service and pinnacle. Under this case, the fraud risk is insignificant 11. Member of CPA asked if I know anything about the recent intercompany loan from Welburn to solar-Electro. The fraud risk, in this case, is insignificant. Assessment fraud risks as significant, insignificant or very significant 1) Insignificant 2) Very significant 3) Insignificant 4) Very significant 5) Very significant 6) Insignificant 7) Very significant 8) Significant 9) Insignificant 10) Insignificant 11) Insignificant We assess fraud risks as insignificant, significant, or very significant because even though pinnacle has more than 35 years, but it has very few people who have knowledge to excel jobs Assess fraud risks Case No Description Fraud risks Account Affect Fraud response 1 Leakage of strategic articles Used of the classified information by competitors Non Securing all the vital information in avery secured place 2 The warehouse manager’s attitude of careless of the engines may reflect the overall attitudes of top management It may cause misappropriation Of assets Misuse of assets Equipment The manager should be well monitored 3 Product of Welburn Manufacturing--‐transactions Between parent and Subsidiary departments Risk of conflict of interest Notes payable And Long--term debt; Splitting there operation in to two. 4 Employees constructing the building Risk of not able to calculated the amount of time spend Human resource Encouraging, management to used single labour. 5 One customer, Auto--‐Electro which Accounts for nearly 15% of the company’s account Receivable balance, Has not made any payments for several months Loss of 15% of the company’s account sales and Accounts Receivable In future ,companies should not allowed Accounts for nearly 15% of the company’s account 6 Considerable investment in modifications To the property non routine transactions or Complex property Prioritizing spendings 7 Vice president Owens a company And some of the Workers of the company worked In the plant earlier Expenses on salaries, general Repair expenses; salaries or related expenses Separation of labour between the two companies 8 Turnover in Accounts department Human resource Coming up with retention plan for all workers 9 Two requirements Are to keep the current Ratio above 2.0 and debt--‐equity ratio below 1.0 all the times Accounts Fraud in the finance Accounts payable; other payables; equity N/A 10 Ongoing dispute between IRS And company Miss used of the assets N/A Solve the dispute amicably 11 Recent inter company Loan from Welburn To solar-Electro Loan default Long-term debt; Notes payable Following the stipulate repayment period Assess fraud risks Case No Description Fraud risks Account Affect Fraud response 1 Leakage of strategic articles Used of the classified information by competitors Non Securing all the vital information in avery secured place 2 The warehouse manager’s attitude of careless of the engines may reflect the overall attitudes of top management It may cause misappropriation Of assets Misuse of assets Equipment The manager should be well monitored 3 Product of Welburn Manufacturing--‐transactions Between parent and Subsidiary departments Risk of conflict of interest Notes payable And Long--term debt; Splitting there operation in to two. Assess fraud risks Case No Description Fraud risks Account Affect Fraud response 4 Employees constructing the building Risk of not able to calculated the amount of time spend Human resource Encouraging, management to used single labour. 5 One customer, Auto--‐Electro which Accounts for nearly 15% of the company’s account Receivable balance, Has not made any payments for several months Loss of 15% of the company’s account sales and Accounts Receivable In future ,companies should not allowed Accounts for nearly 15% of the company’s account 6 Considerable investment in modifications To the property non routine transactions or Complex property Prioritizing spendings 7 Vice president Owens a company And some of the Workers of the company worked In the plant earlier Expenses on salaries, general Repair expenses; salaries or related expenses Separation of labour between the two companies 8 Turnover in Accounts department Human resource Coming up with retention plan for all workers 9 Two requirements Are to keep the current Ratio above 2.0 and debt--‐equity ratio below 1.0 all the times Accounts Fraud in the finance Accounts payable; other payables; equity N/A 10 Ongoing dispute between IRS And company Miss used of the assets N/A Solve the dispute amicably 11 Recent inter company Loan from Welburn To solar-Electro Loan default Long-term debt; Notes payable Following the stipulate repayment period Read More