Fraud Examination Assessment - Assignment Example

Fraud Examination Student’s Name Institution Affiliation Chapter 2 Case 1: Authorization Store managers are supposed to ensure that the authorization policy is adhered to. They should ensure that all requests for approval of new credit customers and large amounts of credits are reviewed. Division of duties and performance checks A person who does not work within the accounting department should perform the task of bank reconciliation. There can be conflict of interest if an insider does this work. That is why an outsider is preferable. Division of duties and Independent Checks Division of duties means that different assignments or tasks should be assigned to many people (Bolton & Hand, 2002). Division of work enhances accountability because each person performs a different process within a chain. For example if two different people did the work of record keeping and handling of physical inventory, chances of theft and pilferage would be reduced significantly. Adequate Document and Records There should be a well-designed document, which should be formatted to ensure that it is handled efficiently and quickly. Case 4 1. Ruth Mishkin was an employee who was in charge of paying bills, handling management of cash, and balancing the company’s accounts. The company trusted her very much. 2. However, she was a gambling addict. Gambling is a money intensive activity, which pressurizes one to commit fraud so that they can have additional cash for gambling. Ruth was not an exception. 3. Since she was so trusted by the company, the company did not see the need of dividing her roles leaving her with one role and giving the two others to other employees. She would pay bills, balance bank accounts, and manage cash (Albrecht et al, 2009). 4. The failure of the company to segregate her duties created a loophole, which she used to commit fraud. Case Study 1. The office manager works single handedly. This gives him immense opportunities to alter the accounts of customers, or books and pocket the cash. Employees who work alone have numerous opportunities they can exploit to make extra cash. One of the opportunities is taking side jobs, and pocketing the receipts (Albrecht et al, 2009). Additionally, they can use office equipment or tools for personal and family use without paying for them. 2. Several symptoms of fraud are quite apparent in this case. One of the symptoms is the limited amount of time that the owner spends with the office manager. The second symptoms are more than required chemicals being used. The third symptom is employees receiving services from the company in their homes without paying for the services (Albrecht et al, 2009). The fourth is the decline of profitability of the company despite increased revenues. Finally, fraud happens when customers give jobs to the company, but employees do the jobs as if they are their private assignments, and therefore pocket the money. 3. One of the methods of sealing fraud loopholes in a company is maintenance of tight checks through monitoring. Regular checking of the accounts by the owner of the company can deter the office manager from committing fraud. If the owner of the company spends more time within the company, he will be able to ensure that employees adhere to laid out rules and regulations (Albrecht et al, 2009). Supplies need to be checked every day to ensure that company assets are not used for personal purposes. The work ethics of employees should also be scrutinized thoroughly. If all this is done, cases of fraud that have affected the profitability of the company negatively will be reduced. Chapter 3 Case 4 1. Auditors rarely engage in whistle-blowing activities. People within an organization detect fraud. In most cases, auditors collude with internal accountants to conceal fraud. This means that companies should not rely on auditors. Empowering employees to detect fraud and engage in whistle-blowing activities is likely to save a company the money lost through fraud and money spent to hire auditors who end up colluding with internal accountants to conceal fraud. 2. Companies create an atmosphere that encourages employees to engage in whistle blowing without fear of retribution. They should put in place a safe platform where employees can report fraud anonymously and confidentially. This will greatly reduce instances of internal fraud Case 10 People have committed fraud in one company can be recruited by another company if background checks are not carried out during the recruitment process. Background checks help to weed out people who have been involved in fraud in the past (Albrecht et al, 2009). Hiring the wrong people can create a corrupt culture in a company, which will encourage fraud. Case Study 1 Pressures for Chris to commit Fraud There are potential pressures for Chris to commit fraud. Chris is paid lowly. He lives on a shoestring budget. His salary cannot meet all his expenses. This scenario creates pressure, which is likely to see him commit fraud (Albrecht et al, 2009). He can also commit fraud to hit back at his employer who has refused to promote him or increase his salary. Potential Opportunities for Chris to Commit Fraud There are several potential opportunities for Chris to commit fraud. First, the little control within the technological company he works for. The working environment in the company can easily conceal fraud. Furthermore, he has not been disciplined for his past actions, which is likely to encourage him to commit fraud. Secondly, he is the most technologically savvy individual in his group. This means that he can easily manipulate the system without anyone discovering what he is up to (Albrecht et al, 2009). Furthermore, he is one of the most trusted employees in the company and has been given a greater leeway in decision-making. He can easily betray this trust and commit fraud without evoking any suspicion. The Rationale Chris could use to justify his actions Chris can use several rationales to justify his actions. First, he can assert that he needs a higher pay because he has contributed to increased team efficiency. He trains most of the people around him. This means that his responsibilities keep expanding, but his pay has stagnated. He can also say that the credit card is fake, meaning that people pay for transactions but the charges are not recognized immediately. He can also say that the money he stole was used to further his education, which would add more value to the company, meaning that the company will end up profiting from his fraud. Potential symptoms of fraud There are some potential symptoms of fraud in this case. First, Chris’s lifestyle has changed despite its remaining stagnant. Secondly, his mannerisms in the office have changed. He has shifted his computer monitor to a position where no one can see its screen (Albrecht et al, 2009). Finally, he has created multiple usernames in his computer for his purposes of testing. How Jonathan could have reduced the possibility of fraud Jonathan should have reduced opportunities for fraud by creating stricter control measures that would deter his employees from engaging in fraud. Secondly, he should have created a professional code of ethics to be followed by every employee, complete with consequences of not following the code. Finally, he should have created a platform that would enable employees report fraud without fear of victimization or retribution. Chapter 4 Case 5 1. In this case, the client has problems such as slow credit memo processing that can compromise the validity of the whole process. The turnover within the credit department is high, and the Chief Financial Officer is quite patronizing creating pressure within the working environment (Albrecht et al, 2009). The Chief Financial Officer is a friend of the current credit officer. This means that collusion is highly likely in such a context. This likelihood is increased by the fact that the two used to work for the same company before they moved to this company, and a red flag about their activities had been raised in their previous workplace. 2. The main issue in this case is that the top management is not setting a good example. If the managers at the top engage in fraudulent activities, it is highly likely that those working below them will also engage in such activities. Top managers should have a higher level of competence and integrity if fraud is to be stamped out of an organization. Case 6 1 & 2 This couple has a lot of control over this business, which can create a loophole for fraud. The couple is tasked with the role of handling cash, making deposits, and recording cash receipts. The work of making daily deposits could be delegated to a part time employee in the company. The couple also does the work of hiring part time employees. Since there is no formal employment policy, they could end up hiring friends, cronies and members of their family, and collude with them to defraud the company (Albrecht et al, 2009). To avert this, the owner of the restaurant should do recruitment and hiring work on his own. He should ensure that they make daily records of the meals that have been served, rooms that have been rented, and all the payments that have been received. Occurrence of fraud can be avoided if there division of labor. Case Study 1 1. The hardest fraud to prevent is one that involves collusion. This is because the colluding parties conceal all possible avenues of detecting fraud. Measures such as checks and balances, and internal controls can do little to prevent collusion fraud. However, in this case, there are glaring anomalies that made it easier for fraud to occur. First, huge transfers were made over the phone. It is important for the company to put a limit for funds that can be transferred at a time using any method. Approvals from the management are necessary to deter fraud Chapter 5 Case 1 1. Lack of separation of duties creates a business risk (Albrecht & Schmoldt, 2008). Smith works alone during the night. In the morning, he does the accounts and deposits the money. 2. One of the major pointers of fraud in this case is Smith’s change of lifestyle despite his salary remaining stagnant. Recently he bought a car that is beyond his means, meaning that he is getting extra money from a source that needs to be explained to cast out doubts. 3. To ensure that Smith does not commit fraud, he should not be left alone at night. His work should be divided. For example, he can collect cash, but someone else deposits it in the morning. His pay also needs to be reviewed. A satisfied employee does not have a lot of pressure to commit fraud. Case 6 There is a very high potential for fraud in this case because the task of collecting and depositing cash and adjustment of the balances in the accounts is undertaken by a single person. Lack of division of labor increases the potential for fraud (Sadka, 2006). If there is division of labor to ensure that tasks carried out by Joanne are carried out by two or more people, the likelihood for fraud can be reduced. Case Study 2 1. There are major pointers that indicate that Jones could be committing fraud. Lately, his consumption trends and behaviors have changed. He is now driving top of the range cars. The number of cars he has bought in a short period clearly indicates that there is something wrong somewhere. 2. There are several positive and negative consequences. Tighter controls by managers are likely to deter fraud (Galbraith, 2007). When managers are in control and take ownership of their areas of responsibility, they are likely to exercise more oversight, which is likely to deter fraud. However, negative consequences include the temptation of managers to commit fraud. 3. Pressure: In this case, John had an urge to drive a decent car and live a luxurious life. This motivated him to engage in fraud. Opportunity: There were little or no controls in the company. Approval was needed only for software over $1,000. Jones was aware that there were no enough checks and balances since he was in charge of a confidential project. 4. Regardless of the amount of time a company spends to create a culture of transparency and accountability, nothing can be achieved if a company does not have a professional code of ethics to guide employees in the performance of their duties. This company does not have enough checks and balances that are likely to deter employees from engaging in fraud. Furthermore, there is not a culture of disciplining errant employees. Creating such a culture will impose deterrence measures that will reduce fraud significantly. References Albrecht, S. W., & Schmoldt, D. (2008). Employee Fraud. Business Horizons, 31 (4), 120-125 Albrecht, S. W., Albrecht, O. C., Albrecht, C. C., & Zimbelman, M.F (2009). Fraud Examination. Boulevard: Cengage Learning Bolton, R., & Hand, D. (2002). Statistical Fraud Detection: A Review, Statistical Science, 17 (2), 110-119 Galbraith, J. K. (2007). A Short History of Financial Euphoria. London. Penguin Books Sadka, G. (2006). The Economic Consequences of Accounting Fraud in Product Markets. Economics Review, 8 (6), 37 Read More