Accounting information system - Assignment Example

FRAUD AND FRAUDULENT ACTIVITIES By of the of the School Fraud and fraudulent Activities One of the articles on fraud and fraudulent activities was published on ABC news website in which the ex-CEO of Healthsouth Corporation which is based in Birmingham Alabama was ordered by the state court judge to pay the firm’s shareholders a sum of $3Billion U.S dollars. Mr. Richard Scrushy was sued by the shareholders for accounting fraud which had been committed during his term in office. The judge, Mr.

Allwin Horn argued that the fraud committed by the former CEO almost sent the company into bankruptcy despite being acquitted earlier in a federal criminal case o the same nature in which he pleaded not guilty. Mr. Scrushy was accused of unethical dealings by the Alabama suit which he committed at the time when the firm was undergoing broke and complicity in $2.6 billion in fraudulent dealings. The shareholders wanted him to pay for the amount including that which he had taken for his personal gain. Mr. Scrushy denied any involvement in the act and that he had not sought to have the accounting books manipulated in his favour.

Five former finance officers of the company testified against thus implicating him further over the scheme that was aimed at defrauding the company. In his defense, he blamed the former finance chiefs of having personal weaknesses as well as grudge against him (REZAEE, Z., & RILEY, R. 2011). The events at the Healthsouth took place in the year 2002 in which the company’s CEO allegedly instructed the company’s accountants to inflate the earnings by $1.4 Billion so as to create a good impression of the company in a bid to win over the confidence of the shareholders and other stakeholders.

This constituted an accounting fraud which arises when accounting books of records have been manipulated in favour of some parties in the company. Such kind of fraud can be prevented by adopting a strong system of internal controls such as developing checks and balances that will ensure that no single individual has control over all forms of financial transactions (ALBRECHT, W. S. 2012). Preparation of fiscal policies and procedures involving purchasing guidelines, petty cash management, use of firms’ assets and managing conflict of interest will greatly help handling such frauds.

Proper implementation of an Accounting Information System can greatly help in controlling such fraud since it automate and streamline the entire system thus ensuring timely reporting (HALL, J. A. 2013). The second case of fraud and fraudulent activity was published in 26th May 2010 on the examiner.com website about Humboldt Creamery in which the former CEO pleaded guilty of committing financial-statement fraud. The former CEO Richard Ghilarducci admitted that in the years 2007 and 2008 he had provided false financial information with an intention of availing a favourable financial picture of the company so that the firm will receive an extension of an existing loan from its key financiers such as the CoBank and the Agricultural credit bank.

In his defense, he said that his intention was not bent on benefiting him as an individual, a claim that was proved to be true, but he intended to save the current credit position of the company. Several farmers who had filed the suit argued that the events that had transpired under the watch of the CEO had impacted negatively on the image of the creamery making many resulting in many people loosing trust in the firm. One of the most notable farmers was Mr. Dennis Leonardi who claimed that the Mr.

Ghilarducci’s actions had forced him to take up a seven year loan so as to keep his own farm solvent. The actions of the former CEO however violated the Title 18, U.S. Code, Section 1014, which prohibited false financial statements directed to the Agricultural Credit Banks. He therefore faces a sentence of not more than thirty years imprisonment and a fine of about $1 million. The financial statement fraud committed by the former CEO led to wrong representation of the financial position of the company in-terms of its asset thus portraying a false positive image of the firm (HALL, J. A., & HALL, J. A. 2011).

One of the means of mitigating such kind of fraud is to ensure proper auditing of the firm’s financial records from time to time basis by external auditors as well developing stronger internal control systems that will allow order in the company’s operations (ZACK, G. M. 2013). Bibliography ZACK, G. M. (2013). Financial statement fraud: strategies for detection and investigation. Hoboken, N.J., John Wiley & Sons. REZAEE, Z., & RILEY, R. (2011). Financial Statement Fraud Defined. Hoboken, John Wiley & Sons, Inc.

http://www.SLQ.eblib.com.au/patron/FullRecord.aspx?p=456006. HALL, J. A. (2013). Accounting information systems. Mason, OH, South-Western Cengage Learning. ALBRECHT, W. S. (2012). Fraud examination. Mason, OH, South Western, Cengage Learning. HALL, J. A., & HALL, J. A. (2011). Information technology auditing and assurance. Mason, Ohio, Thomson/South-Western. http://www.examiner.com/article/humboldt-creamery-s-ex-ceo-pleads-guilty-to-financial-statement-fraud http://abcnews.go.com/Business/story?id=7876580