Essentials of Corporate Fraud - Assignment Example

Essentials of Corporate Fraud Question 1 a. There are a number of fraud schemes that such managers may be involved in. Given the observations of the credit manager’s behaviour and his job description, he may have engaged in two fraud schemes. The two fraud schemes are discussed comprehensively as follows Fraud Scheme 1 Bribery; is a fraud committed when someone holding a public office or even a civilian acts out of a corrupt intent (Coenen 2008). It involves issuing or receiving cash or some offer of any kind to get give or get certain favours in various aspects. Bribery involves offering or conferring some form of benefit upon other people so as to influence their vote, judgement. The credit manager may be involved in this action Fraud Scheme 2 Extortion; refers to the deliberate action of a person to commit theft by seeking to obtain property or services through advancing threats to others (Coenen 2008). One specific element of extortion that the credit manager may have participated in is exposing secrets or thought facts, which may be true or untrue with the intention of subjecting anyone to hatred, contempt or mockery or to damage the individual’s credit or business. b. For Fraud Scheme 1(Bribery) Under this scheme, the following distinct sources of evidence can be gathered to establish whether the manager is committing the fraud described or not. The credit applicants can be probed secretly concerning their transactions with the credit manager. Through this they may reveal if the manager has ever attempted to subject them to bribery or not. The manager’s operations can be vetted to detect any instances of fraud. A board of vetting can be hired or instituted to assess the extent of his actions, especially to track his dealings with the applicants. For Fraud Scheme 2 (Extortion) Under this scheme, the following distinct sources of evidence can be gathered to establish whether the manager is committing the fraud described or not. The credit manager’s transactions with the credit applicants can be evaluated through a credit assessment report. It will can a brief description of the two parties’ submission during the process of credit application and evaluation. The report has to be signed by both the manager and the client. It will state whether the client has been subjected to any form of extortion or not. The clients/ customers/ applicants of loans can be given an avenue of reporting their grievances to the company. Such avenues can be in form of a quality check/ control for the services offered to them by the credit manager. Through such avenues, they can reveal instances of extortion or attempts of the same to the company. c. Suppose there was no direct evidence of fraud detected in the credit manager’s operations, there will be no action to be taken on this case, against him. He is well known as very hard worker, who lives close to the branch and frequently works late into the evening. He also has not taken any vacations in three years in spite of the bank policy that all employees take a least a week's vacation every year. His track is also impressive as he is very hard working and dedicated to his job and the bank. The suspicion held before on the manager’s dealings will have to be dropped and the manger perceived as he is. It will be a clear proof that the credit manager’s mode of conduct is out of his orientation and nothing can be done to change that. He will be understood to be that type of manager possessing such a style of work. However, the credit manager’s extreme actions will have to be regulated. His conduct has to remain in line with the state credit procedures and the company’s policies (Gara 2004). He is known to be having a reputation of being conservative and demanding of loan applicants. He usually asks tough questions of applicants before he approves their applications. The credit manager’s main function is to review credit applications and approve or disapprove them should still remain. The bank policy states that credit managers can approve loans up to $10,000 by themselves, I will ensure the credit manager’s powers is limited to that. I being the branch manager I will keep approving larger loans in addition to the credit manager. I will also ensure the bank’s policies that set constraints on the credit manager are followed to the latter. The credit manager will have to run a credit check on the applicant and disapprove any application from someone whose credit score falls below a certain threshold. The credit manager will also have to document each application and the approval process to ensure that they have followed all the bank's policies in approving the loan. Question 2 To influence the book keeper to submit to my ripping plans, the five sources of power may be helpful to me in the following ways; Legitimate Power It comes from the position an individual holds in an organization's leadership rank (Klein 2009). Since the book keeper reports to me directly, I have the power to assign duties to him/ her as my junior. To implement this properly, I will need to ensure that I am seen to have earned it legitimately. Expert power Expert power is obtained from having knowledge or proficiency in a certain area (Klein 2009). Since I have information and know how in the aspects of problem solving and inventory control, I can be deemed highly valuable to Walmart store. My opinions and ideas will be useful even to the assistant and senior manager. Referent Power It comes from the inter-personal associations that one develops with others at the work place (Klein 2009). I can have reference power if my colleagues (my managers and the book keeper) respect and like me. I can therefore use it to influence the book keeper to support me. Coercive Power It comes from an individual’s capability to control others using threats, penalty or sanctions (Klein 2009). Since the book keeper is my junior, I can use this power to have him support me in my theft plots, without him concealing it to the senior management. Reward Power It comes from the capability of someone to manipulate the allotment of incentives in an institution (Klein 2009). An example may be; influencing positive appraisals and promotions. I can use these to influence the deeds of the book keeper and even the immediate assistant manager. Question 3 a) Benford's law. The technique is suitable for detecting infrequent frauds. It involves a systematic digital analysis, which necessitates data collection, organization and analysis. It would, therefore be unsuitable for detecting ongoing frauds. b) Outlier Analysis. The technique is suitable for detecting ongoing frauds. Usually, outliers (figures beyond the limits) can be assessed periodically to ascertain their cause. These figures are usually associated with frauds as they exceed the reasonable boundaries. c) Financial statement analysis to include vertical and horizontal analysis of financial statement line items and ratios. The analysis would best be used to detect ongoing frauds. Usually, financial statements are prepared at the end of the year. The financial ratios are therefore, computed for each year. Since the current year’s figures and ratios are affected by the previous year’s figures, the technique cannot be suitable for detecting infrequent frauds. Question 4 What could be taken? Expensive technological tools like, the latest smart phone and a new personal laptop Who might have the opportunity? Jamie and all the members of the management team (Sylvia’s co-workers). It is because they all interacted with these processes and clients. How could the assets moved? Through Sylvia’s referent power. Through Sylvia’s Coercive power. Through Sylvia’s legitimate power. Through Sylvia’s expert power. How could the theft concealed? Through Sylvia’s referent power. Through Sylvia’s Coercive power. Through Sylvia’s legitimate power. Through Sylvia’s expert power How could the assets be converted? Sylvia being the most technological savvy person on the team might have applied her skills/ brilliance to manipulate the whole process and system to convert the assets. Possible Red flag symptoms? Changes in Sylvia’s behavior. Use of fake usernames and passwords. Possible Pressures Sylvia, feeling guilty for her actions. Jamie and others in the company management team, having to respond to the stock holders and owners of the company. Possible Rationalizations. A short-term probation to investigate the conduct of Sylvia and establish the allegations against her. Sylvia’s intention should be evaluated before a judgment is passed. Sylvia’s pressures and frustrations during the whole process should be considered in making the judgment. Internal controls that might prevent fraud Conducting physical controls. Internal control programs. Fraud awareness Programs. Question 5 Some dental offices have no street addresses. It therefore, means these dental offices lack a valid physical presence to treat patients. Some dental offices do not sequentially numbers their own claim forms. There is an excess in some of the dental work, done on a single patient within a three-month period. It may mean, therefore, that dentists spread the procedures out over time so that the patient can recover from one procedure before they start the next. Some patients tend to use dental offices away. The information about this can be obtained from scanning the files for out-of-state patients. Question 6 Benford analysis can be applied in the case described in question (5 above) to search for possible fraud symptoms. The Benford analysis is a tool used to detect fraud involving the digital analysis of a process. It reveals all the underlying peculiarities in an account or process. It involves choosing an appropriate field/ set of data to be used in the analysis (Nigrini 2007). The fields that would be used for analysis in this case include; The number of dental claims that the company approved for the three-month period in 2008. The Patients that tend to use dental offices, and their proximity to these dental offices. The number of dentist offices, and the information on whether they sequentially number their own claim forms or not. The fields above are the areas where the data for the analysis will be collected. It is because these areas are highlighted in the description of the Dental Insurance Company’s activities, when processing claims of services from these dental offices. The Benford analysis may be associated with some shortcomings as applies to this case. The criteria only tests for fraud on the basis of whether digits are included in specific places in numbers as per the anticipated percentage (Nigrini 2007). A substantial divergence away from the expectations happens in case of two probabilities; When the individual propelling the fraud has either included the observations. When the individual has avoided them on grounds that would not conform to a Benford distribution. If the fraud occurs and the transactions are not recorded (off the book fraud), as common in cases of bribes and asset thefts, Benford’s analysis cannot be used. The digital analysis becomes ineffective in detecting fraud since there are no written documents. References Coenen, T. (2008). Essentials of corporate fraud. Hoboken, N.J.: John Wiley & Sons. Top of Form Gara, J. (2004). Corporate fraud case studies in detection and prevention. Hoboken, N.J.: Wiley. Nigrini, M. (2007). Digital analysis using Benford's law: Tests & statistics for auditors (2nd ed.). Vancouver: Global Audit Publications. Klein, G. (2009). Sources of power how people make decisions (2nd MIT Press pbk. ed.). Cambridge, Mass.: MIT Press. Read More