Assurance and Forensic Accounting - Assignment Example

SSURАNСЕ АND FОRЕNSIС АССОUNТING Name: College: Course: Tutor: Date: Аssurаnсе аnd fоrеnsiс ассоunting Part A 1. Summarise the key issues associated with the fraud Cyber attacks on the IT systems at D-Merton had increased considerably although none had been successful. This had created anxiety among the senior management at the company, who were concerned that such occurrences might influence the revenues and future profitability of their company. This anxiety was heightened by the forthcoming launch of their latest system, the S1D in the backdrop of security concerns about the previous versions of the system. The organization commissioned to test the S1A, S1B and S1C systems was the same one that undertook the designing of the defences of the systems. As such, the organization may have lacked objectivity in the assessment of the risks and may have even withheld vital information that would have compromised its future engagements with D-Merton. This may also have exposed the employees and managers in the company to temptations to furnish positive reports that were devoid of any indications of risk, thus pacifying the executives of D-Merton, albeit falsely. The ccontroversy revealed by investigations indicated that all the 3 systems that had been rolled out earlier had and were linked by the orange peel paraboloid, which was baffling. The worry was that if there were security concerns with the previous systems, then any new systems released by D-Merton would face market entry challenges because they would carry with them the same security concerns. However, the accounting department had released the revenue forecasts of the company associated to the performance of S1A market, which were thought to be overstated Conflict of interest with Premintel, the firm providing intelligence reports, was eliciting concerns because a relative of one of the board members (Richard) worked there, although she is said to have resigned. However, the Richard’s brother in law remained a director of the company, making Premintel a related party. In addition, and audit that ran pen tests had revealed 50 serious flows in the defences of all the systems utilised in the group, thus presenting a high risk of loss of intellectual property. Further, the IT systems employed at the company were fragmented (4 systems with different levels of protection), which enhanced the risks of cyber attacks on them However, two options were offered, with the first one, that of system replacement, being capital intensive and taking less time ( months) although it required outsourcing of key IT functions. The second option involved upgrading of the existing IT infrastructure, taking 2 to 3 years and involving no outsourcing. This was an attempt to obscure the fraudulent activities that had been perpetrated by the CEO of D-Merton. Specifically, payment to Premintel continued as it continues to provide underhand services to the management of regarding the D-Merton, with such payments being alleged to be bribes for favourable audits and intelligence reports. In addition, there are allegations of payments made to bogus suppliers in a bid to protect bonuses that were tied to share prices. 2. Using the fraud triangle, explain why the fraud was able to be committed D-Merton was under pressure to maintain its revenues although its products, particularly the new ones, where threatened by security challenges emanating from the risks of cyber attacks. As such, the chief executive officer was under pressure to assure the shareholders of continued profitability of the company through the new systems lined up for release amid system security concerns. In addition, the opportunity to commit the fraud was presented by the auditing and intelligence firm Premintel, which was used to disguise fraudulent payments to phony suppliers to present a case that the information technology project was running out of funds and therefore did not require a major overhaul, which would have been a heavy capital undertaking. Finally, the CEO rationalised the fraud by asserting that he was protecting the future revenues of the company and therefore the interests of shareholders. 3. Consider whether the auditors may have been negligent The auditors were negligent because they did not undertake the required due diligence to confirm reports such as the engagement of a company that was a related party and presented conflict of interest in the CEO. They also overlooked much information that came their way and relied on the word of mouth more than on documented evidence. Part B 1. Summarise the key issues that were considered by investigators One key issue considered by investigators from the independent broad-based anti-corruption (IBAC) included the awarding of a contract to CGS Services Pty Ltd (CGS) by senior officers in the department of education training (DET) formerly DEECD who had financial interests in the company thus accruing irregular personal benefits such as gifts (Cook, Preiss and Jacks 1). The other issue was the injection of finances into CGS as directed by senior CGS executives to keep it economically viable, which was allegedly corrupt and would present a conflict of interest. 2. Using the fraud triangle, describe the circumstances allowed the corruption identified by IBAC to occur The officials in the Department of Education and Training (DET) were pressured to implement and deliver the UltraNet project in order to justify the finances expended in it. In addition, opportunity to commit fraud was presented by the tendering and procurement process, through which senior executives in the Department of Education and Training could benefit irregularly, while seemingly implementing the project. Finally, the accused perpetrators of the fraud rationalised their actions by asserting that such tenders would have accelerated the implementation of the project and saved the State of Victoria further expenditure, considering that the project was already cited as being too expensive. 3. Should the Department’s auditors have done more to identify the weaknesses that led to the corruption? The auditors would have found out whether confidential informational regarding the procurement and tendering processes associated with the UltraNet project was released to contractors by the employees of the department of education and training, both current and previous. The auditors would have also investigated the loopholes in the tendering and procurement processes that were overlooked during the due diligence process. In addition, the auditors would have investigated the governance policies employed at the organization to determine whether they address issues such as the manner in which gifts to senior officials of the company should be handled. This is because the absence of any consideration of gifts to the management or any other employee is a loophole that can be exploited by organizations intending to undertake projects in the organizations involved and particularly in the organization commissioning the project, in this case, the department of education and training. 4. If you were the auditor for CSG Ltd, what steps or procedures would you take, if any, during the planning of the audit for the current year 2017? First, i would require that all employees of CGS declare their interests in projects and organizations commissioning the project as well. Secondly, i would assess the risks that CGS is exposed to and the kind of documentary evidence that would be possessed by the company, particularly regarding the projects in which it is engaged throughout the year. For instance, and understanding of the project undertaken by CGS and an assessment of the risks involved would be helpful for the planning process. Such information would also reveal the potential relationships between CGS employees and the commissioners of the project that are likely to elicit a conflict of interest. In addition, this would help pre-empt the potential areas of weakness that would elicit audit queries and therefore warrant closer inspection. Conclusion Fraud occurs in both private and public organizations, and often involves the top echelons of management. Governance and ethical conduct of senior executives is often compromised when the act in fraudulent ways particularly when dealing with projects in which their organizations have undertaken. Financial impropriety is occasioned when such executives are not transparent in their dealings with contractors and suppliers, and when they do not disclose whether they have a conflict of interest with the said project partners. The two cases evaluated presented cases of top executives engaging in practices characterised by corruption and undue influencing of the tendering and procurement process, which costs their organizations huge amounts of valuable finances, considering that these organizations are strapped for funds. However, auditors both internal and external, need to be familiar with the projects that are undertaken by their clients and perform a thorough risk assessment of projects, which appear to the common avenue for misappropriation of funds for selfish gain. Such auditors should share information among themselves and with the key stakeholders in order to forestall the reoccurrence of fraud in the organizations of their clients. References Cook, H, Preiss, B & Timna Jacks, T 2017, ‘IBAC finds disastrous Ultranet project for schools was a ‘corrupt’ shambles’. The Age. viewed 6 May 2017. http://www.theage.com.au/victoria/ibac-finds-disastrous-ultranet-project-for-schools-was-a-corrupt-shambles-20170126-gtzr67.html. Doyle, J 2015, Digital Dashboard: Status Review of ICT Projects and Initiatives. Victorian Government Printer. Read More