Kaibin Wang
Week5 Assignment
Fraud Vulnerability Assessment prepared for the Wake County Board of Education
1. Is the report well written and easy to understand from the client’s perspective?
In my opinion, fraud vulnerability of the selected organization had been assessed in a systematic way which helped the auditors in giving constructive suggestions for fraud prevention and detection in this case. The overall approach and methodology is very educative and it could be replicated in other environments too.
2. What are your main concerns after reading the report?
Internal fraud is one of the biggest threats to new businesses. Employee theft is responsible for almost one-third of business failures according to the US Chamber of Commerce. Strong internal controls act as
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What additional information would you add?
The identified no further fraud but did find several areas in which fraud could take place and go unnoticed for a period of time. The section on conflicts of interest is not included in the handbook which need provide to each employee annually. It should be add a separate conflict of interest disclosure which is completed. Each new vendor should complete a Vendor Information Form.
It could be added a brainstorming activity section which identify the agency’s fraud risks. Brainstorming enables discussions of the incentives, pressures, and opportunities to commit fraud; risks of management override of controls; and the population of fraud risks relevant to the agency.
Residual fraud risks could be included in the report. Because high cost and time consuming, some controls may be not using. Fraud risks can be addressed by accepting the risk of a fraud based on the perceived level of likelihood and significance, increasing the controls over the area to mitigate the risk, or designing internal audit procedures to address specific fraud risks. Management needs to implement the right level of controls based on the risk tolerance it has established for the
I believe that asset misappropriation by accounts payable fraud is occurring at Wayland Manufacturing Company due to a lack of proper internal controls. Making the company’s Chief Accountant responsible for additional day-to-day functions provides him with opportunity to commit by creating fictitious vendors with his information and then creating fictitious invoices. Newbaker can then conceal his fraud by approving the invoices for payment. Employees working at an organization for more than five years are more likely to commit fraud. Therefore, Newbaker’s six-year history with the company has made him trustworthy and very knowledgeable, which could indicate involvement in asset misappropriation. The high employee turnover could represent a past fraudster leaving before getting caught or employees refusing to continue with the asset misappropriation. In addition, the varying monthly accounts payable transactions ranging from the lowest being April 2014 and
When it comes to the audit objectives, the public and the auditing profession maintain varying expectations. The public expects the prevention of fraud to be the auditor’s responsibility. However, the auditors believe that they are responsible for fraud detection, but not obliged to find all of it. In addition, the public views the fraud by the characteristics displayed by management and employees. For example, WoolEx Mills’ management wanted to exude a prevailing financial position and to uphold reputations. By committing financial statement fraud, it made the company look successful even though Sales and cash flows were decreasing. The public would view these particular characteristics as pressures to why the company committed fraud. Greed, recognition, and influences also impacted the public’s view of Wool Ex Mills’ fraud scheme. The CEO used authority to influence employees to take part in the fraud scheme. The public would see that the CEO utilized power to manipulate shareholders, which impacted their trust with WoolEx Mills (Cohen, Ding, Lesage, & Stolowy 2015) (Krishnan & Shah
Ulinski, Michael. "AN ANALYSIS OF SMALL COMPANY FRAUDS AND." American Society of Behavioral Society. Dept of Business, Pace University. 05 Feb. 2008.
By getting rid of those employees who don't meet standards the burden of daily tasks is lifted on every other employee in that department. Eighty to ninety percent of business theft is internal (Paranoid
All financial crimes have common elements that are seen throughout them. Employee fraud is just as common as other corporate crimes that take place on a higher corporate level. For this particular assignment, employee fraud of Patton State Hospital employees. The employees had committed an accounting fraud against their employer. According to Verver (2013) employee fraud is not the number one concern for CFOs, CROs, and CAEs but it is considered to have a significant drain on the bottom line along with other negative impacts on an organization. Due to this, organizations need to be diligent in ensuring that employees are not given the opportunity to commit any kind of fraud against the corporation.
Biegelman, D. R., & Biegelman, M. T. (2013). Foreign corrupt practices act compliance guidebook protecting your organization from bribery and corruption. Hoboken, N.J., Wiley. http://rbdigital.oneclickdigital.com.
Effective internal control would have detected the fraud the in its initial stage. The most common internal controls that is evidently missing is segregation of duties which is the concept of having more than one person completing a task, therefore, with Marsh being the Chief Financial Officer (CFO), he should not be allowed to write, and sign checks especially without a second authority figure approval (segregation of duties, n.d.). Proper documentation and reconciliation of monthly transactions which are critical internal control that help to reduce fraud was evidently not in place or was not a separate duty. Management must ensure that all documents and transactions such as sales receipts, bank deposits and payments to vendors are monitored and reconciled weekly or monthly. Companies without internal control process or fraud prevention mechanisms will provide opportunities for fraudulent activities, hence the reason Marsh was able to setup and make payments to families and
The Hollate Manufacturing case provided by Anti-Fraud Collaboration has well illustrated how several common issues in an organization contributed to the fraud’s occurrence. These issues can be categorized into two major groups: ethical culture (internal aspect) and internal control system (external aspect). By taking effective actions to enhance these two aspects, an organization can protect itself against the largest frauds, which result in financial and reputational damage.
Kent has a misconception that auditors have no specific duties regarding fraud. Furthermore, Kent also mentions that auditor provides no assurances about fraud because that is management’s job. In fact, auditors do not have duty to detect fraud. However, it is an auditor responsibility to detect material misstatements in the financial statement. Auditors are required to identify and assess the risk of material misstatement due to fraud and design procedures to detect such misstatement.
The principle territory we are planning to address is accounting fraud and how it could impact an organization by answering, the who, what, when and how. Its goal is to increase the awareness of accounting fraud and fraud counteraction. The intriguing thing about accounting fraud is that little disclosure as a rule usually leads to an enormous increase in fraud. A number of categories and sub-categories can be divided up for fraud.
In today’s day and age, there is a lot of news that is related to corporate accounting fraud as companies intentionally manipulate their financial statements to show a better picture of their financial health. The objective of financial reporting is to provide financial information about a company to its various stakeholders such as investors and creditors so that these stakeholders can make decisions accordingly. Companies can show a better image of their financial well being by providing misleading information. This can be done by omitting material information from the books or deceitful appropriation of assets such as inventory theft, payroll fraud, check forgery or embezzlement. Fraudulent financial reporting will have an effect on the This includes but is not limited to; check forgery, inventory theft, cash or check theft, payroll fraud or service theft.
The audit risk is consists of three elements which are inherent risk, control risk and detection risk. The audit model is important to the audit process. The audit risk model provides the basic for the current emphasis on the risk-based audit approach and it assists the auditor in determining the scope of auditing procedures for a particular account balance or class of transactions. Based on the assessed risk, the auditor may determine whether the use of more tests of control or substantive procedures is appropriate to address the
There has a certain situation that will occur this opportunity such as monitoring of management is not effective, complex organisation structure, and internal control components are deficient. In Cendant case, the CUC made various adjustments to incorporate the misstatement into the general ledgers and this causes the opportunity to fraud happens.
Internal control systems (ICS) play key role in streamlining the operations of organizations. It helps organizations meet their visions, missions, and strategic objectives and conform to industry standards. These controls are put in place to provide reasonable assurance about the achievement of the entity’s objectives with regard to reliability of financial reporting; effectiveness and efficiency of operations and compliance with applicable laws and regulations. Internal control is therefore designed and implemented to address identified business risks that threaten the achievement of any of these objectives.
Damages done by the fraud to any organization can be huge if not prevented. The main role of internal auditors in an organization is the detection and then prevention of fraudulent activity that is why the organizations are paying for them. Some fraud activities have happened in the Ajax Export Corporation. The fraud is done by accounts payable clerk with a quantity of $18,000 by writing checks to herself and charging the expense to miscellaneous account/ expense. This process according to the examination has occurred over the period of three years. The issues which are addressed may have the following recommendations.