Assurance and Forensic Accounting - Assignment Example

Name Tutor Course Date Assurance and Forensic Accounting Part A False Assurance Quetion1 The False Assurance movie is an educative piece through acting that tackles issues about fraud, ethical decision making, cyber security and corporate governance in a high pressure corporate environment. The company boasts of a portfolio of up to 400 million dollars (www.iceaw.org). While it seems that everybody is working pretty hard for the sake of the company so much fraud is happening because of poor decisions and systematic issues. The employees as presented in the film are neither that bad nor that good they are just put in difficult situation that lead to financial malpractices in their highly pressurised working environment. For instance the new chief Executive earn huge salary which makes the board to question but again when they weigh his performance they realise that he is driving the mission and vision of the organisation so aggressively. Secondly, the continuous payments to a high intelligent reports supplier called Premintel despite its engagement coming to an end. There is also the issue of corruption where an incompetent audit firm’s contract is renewed on suspicious grounds. The other issue is fraudulent financial reporting that leaves out sales of S1B and S1C therefore creating the impression that the is doing well. The other issue is false reporting on the whether S1B and S1C are linked to the original technology. The CEO also intentionally hides the high intelligent reports that are supposed to be given to the auditors for analysis on the grounds that they are top secret. He also postpones the launch of S1A and keeps the board in the dark about it since he knows his allowances are tight to the share price. He wants to take advantage of the good share price at that time to benefit himself. Additionally a system designer is being awarded a contract to evaluate the same system where he produces a false report about the well-functioning of the system. Question 2 Fraud can be defined as illegal acts and irregularities that are carried out intentionally for personal gain. In simple terms fraud manifest inform of stealing money, supplies, assets, misappropriation of funds or assets or giving false financial reports (Smith et al, 2005). In order to find ways and means of curbing fraud in any given organisation, it’s equally important to understand why it happens. It is therefore the Fraud triangle that gives this explanation (Singleton et al, 2006). This particular triangle highlights three important factors that allow for fraud to thrive in any given organisation or company. They include opportunity, rationalisation and pressure. Rationalisation happens when employees feel that it’s right for them to steal from the organisation (Levi, 2008). In such scenarios they will make argument like they are working so hard but receiving very little; some say that they want to be able to afford a better life as well; some argue that since they haven’t been promoted in years or receive a salary increment for a while, then they have a right to steal (Singleton et al, 2006). For instance as aforementioned the Chief Executive Office of the D- Merton Company was getting quite an amount of pay that even the board members were concerned (False Assurance). But again he felt he deserved it since he was performing pretty well as the executive officer of the company. In fact the king of results he had achieved while in the office made the board to let him have the huge pay. The second factor of pressure implies when desperations sets in then people may act in a desperate manner (Norman and Hesri, 2010). For instance, when Tom uses some compromising pictures to pressure the technological expert to award contracts to incompetent companies. He knows that his reputation is at stake and that’s why he gives in. Pressure may result from intimidation (Reason, 2000). For instance when the lady in the finance raises concern about the continued pay to Premintel she is forced to shut down and withdraw the letter that was to be signed by Richard to declare his connection to the said company. Some pressures could also come from within the organisation where they are faced with unrealistic demands and tight deadlines. For instance so much workload is given to the intern accountants who then work through the night which results in inefficiency. This makes them opt to give fraudulent financial reports(www.iceaw.org). Lastly, its opportunity and this is simply put as the ability to commit fraud (Levi, 2008). It happens when employees have information about how to access assets or the loop holes in the system. They capitalise on that and steal from the organisation. The technology expert uses the information he knows about the company to hack it. All these culminate and make the employees to be creative in devising strategies of survival amidst the pressure and work load. Mr Richard uses his position to award his family’s company some very key contracts that are not delivered but payments are made. He shuts down the auditor when he tries to read the details in the report and asks him to go straight to the recommendations. Despite being aware that the company’s system has security deficiencies he chooses to do nothing so that he can capitalise on it to benefit himself. He acts helpless and irrational putting the company in a financial crisis. S Question 3 When it comes to the auditing of the firm, it is clear that the auditors are negligent. They fail to give a proper appraisal of books of accounts of the D-Merton company.. They seem to forgetful, inattentive, poorly motivated, careless, negligent and reckless. The technological auditors are inconsistent since in the previous years they agreed that there was a link between the original technology and SC3 a decision they change later on. The financial auditors provide fraudulent reports. They seem to ignore the continued payments that are being made to the Premintel Company. Again they fail to highlight the misnomer in the award of contracts to companies that have no prior trading history. There reports don’t provide an explanation why Richard had authorised illegitimate payments under their nose. However while this is the case it’s expected that such a big company should have efficient systems in place that puts in check human weaknesses. The intelligent auditors are compromised since they share close ties with the director. In fact they do not provide any reports at all until the lady accountant raises an alarm. In order to silence her they produce large volumes of cooked reports that are given to an intern to analyse overnight. The truth is that there is no perfect system per se. According to the Swiss model that was propounded by James Reason, the system is bound fail if there are so many loopholes just like in the movie where there are so many ripe chances that makes it easy for the employees to engage in fraud without being found out. PART B Question 1 This is case that was meant to investigate the misappropriation of funds that we meant to develop an online learning portal in Victoria. This initiative was to cost millions of dollar. The investigative team was particularly concerned with the flawed tendering process in relation to Ultranet as well as the question procurement process during the evaluation process. Mr Fraser who was in charge of the project was accused initiating a fraudulent tendering process that saw a private company being awarded to a private company called CSG Services Limited. The motivation behind this is that some top government officials within the department of education had financial interest in CSG Limited they therefore allowed the system to work in their favour so that they pump money into this project so as to remain viable. Secondly, the investigation team was concerned with the procurement of Alliance Recruitment Pty Limited to steer the evaluation of the Ultranet Project. This was surprising because at that time Alliance Recruitment was in the media for wrong reason. The investigative team went further to delve into the accountability of senior officially, financial management system in place, the procurement process and its controls, and how the existing culture in the organisation made room for the senior officials to engage in fraud. Question 2 In relation to the fraud triangle, two factors come out here clearly. First is the issue of opportunity. Mr Fraser and other senior colleagues used their positions to initiate corruption on the Ultranet Project. They decided to undertake unilateral decision as regards the award of tenders. Even the school teachers were manipulated into venturing into fishy financial schemes that left them in debt. He used his position to manipulate the tendering process by having it awarded to companies that they had interests in. additionally was the fact that they thrived on the flawed system and culture in carrying out the fraudulent acts. They took advantage of the fact that no one would question them about their deed to steal money from the project. Secondly, is the factor of rationalization? For instance when Mr Fraser started having problems with the Ultranet Project he then thought it wise to start up some small private project called Learning Technologies Quality assurance Project so as to rescue the situation. The investigation team later found out even this new small project was a fake. Moreover huge amounts of money were transferred to CSG with the reasoning that it will then have enough money to run the Ultranet Project. Additionally it was found out that the officials were receiving gifts and other rewards in exchange for tenders. They must have felt obligated to return the favour by offering them these tenders in a fraudulent manner. In summary the officials in this case uses their power, position to ride to the weak system to make financial gains. Question 3 In my opinion the auditors did their level best in giving the right advice on the way forward. It’s the personal characteristics of the top government officials that allowed for the advice to be ignored. Again the fact that the internal controls as regards procurement and tendering were flawed makes it impossible for the auditors to much. They can only give financial advice which can only work well if the system is efficiently functioning. In summary auditors are simply advisors , they point out on the loopholes and the expectation is that the management will then make an initiative of implanting whatever has been proposed. However, while there could be no evidence that they were compromised to write a good report; that’s a possibility as well. Especially since the audits were done years for some years. Someone would question why they did not whistle blow the rampant corruption on the project. Question 4 As an auditor of CSG Limited I would be keen on getting all the resources I need to carry out the audit. I will also be thorough in getting the right information so as to make a valid and reliable financial report. Given the reputation damage that the company has suffered in the last financial year I will be keen in my planning process. For instance, I will research to gather all the data I require work with the management and inform them what you expect from them. This is to ensure that the audit process is participatory in nature. There will be need to set realistic objectives that are linked to risk management, governance and internal controls. It will be important to consider the possibility of employing a root cause analysis so as to avoid the mistakes of the past. In order to avoid fraudulent reporting it would be important to set realistic goals and targeted to be achieved during the exercise, explore the available expertise that could be drawn in a need basis, and work on having a timetable of activities so as to have the process flow systematically. It would be important to arrange for a meeting with all the staff and have a brief of the final report one the process is done. This is important because it will keep all the staff in the know about what is happening to their finances and how they can contribute to the fight of fraud. Conclusion In conclusion fraud is a product of human and organisational weaknesses. When an individual lacks integrity and seeks to enrich themselves by taking advantage of the weak organisation systems then that provides the breeding ground for fraudulent activities. The fraud triangle presents three factors that enable fraud to happen. They include opportunity which implies the ability of people to steal, rationalisation means justification for the fraudulent acts and pressure means the existing strenuous working environment that is characterised by unrealistic expectation, lack of motivation, poor decision making, and poor leadership among others. If employees are subjected to any of the above conditions then there are high chances that they might misappropriate assets/funds or give false financial reports. Auditors have a huge responsibility in helping organisation identify areas they need to work on so as to avoid fraud. This is done by ensuring that their recommendations are communicated to the management in an efficient manner. Works Cited Levi, M. Organized frauds and organizing frauds: unpacking the research on networks and organization. Journal of Criminology and Criminal Justice, 2008, (7), 389-419 Normah, B. O. & Hesri, F. M. D. . Fraud Diamond Risk Indicator: An Assessment of Its Importance and Usage, International Conference on Science and Social Research (CSSR 2010), Kuala Lumpur, Malaysia pp. 607-612 Rasha, K., & Andrew, H. The New Fraud Triangle, Journal of Emerging Trends in Economics and Management Sciences, 2012, Vol. 3(3): Singleton, T. W., Bologna, G. J., Lindquist, R. J., & Singleton, A. J. (). Fraud auditing and forensic accounting, 3rd Ed., John Wiley & Sons, Inc, New Jersey, 2006. Smith, M., Omar, N., Sayed, I. S. I. and Baharuddin, I. Auditors' perception of fraud risk indicators: Malaysian Evidence. Managerial Auditing Journal , 2005,Vol. 20, No. 1, 73-85 Reason, H. Human Error Models and management, 2000, 18:320 (7237) 768-770 Dekker, N. Cognitive Engineering and Moral Theology and Whichcraft of Cause, Journal of Criminology and Criminal Justice, 2011, 8: 123-134 IBAC. Corruption within the public service hurts everyone. 9 May, 2017 Read More