Separation of duties is a security measure in order to prevent fraudulent reporting. Certain duties within the financial aspects of an organization are separated in order to prevent conflicting tasks to be conducted by the same user (Lu, Zhang, & Sun, 2009). The internal control practice of separation of duties failed to prevent fraudulent reporting because even though the CEO suspected the fraud he did not do anything about it. In the case study, the CEO and CFO both knew the controller was reporting revenues fraudulently. The CFO knew that meeting the required revenue numbers were important to the CEO; however, he did not prohibit the controller from making up the numbers in order to meet the bonus for himself and the stockholders (Edmonds, Tsay, & Olds, 2011). …show more content…
Opportunity is at the top of the fraudulent triangle because if there was not an opportunity, fraud could not exist (Edmonds, Tsay, & Olds, 2011). The opportunity to commit fraud can happen when there are no controls in place to hold accounting executive accountable. The opportunity to commit fraud is usually a planned behavior, in which the person feels like they can control the situation. If they feel the situation might get out of control, then chances are they will not find the opportunity to commit fraud. (Brown, Hays, & Stuebs, 2017). In the case study, the controller had the opportunity to forge the accounting reports because the CEO and the CFO both looked the other way, knowing what was happening. In order to reduce the opportunity to commit fraud, internal controls should be in place. Internal controls consist of policies and procedures that should be followed in order to reduce the opportunity of fraudulent reporting (Edmonds, Tsay, & Olds,
Financial statement fraud makes up a marginal (less than 10%) percentage of occupational fraud cases, but the median loss is significantly higher at $975,000. A fraud scheme occurring over a significant amount of time will likely result in much higher median losses. For example, a fraud scheme lasting more than five years could result in median losses of $850,000. Larger companies are more likely able to implement strong anti-fraud controls due to size and finances, therefore, smaller companies become more susceptible to fraud schemes due to lack of proper preventive controls. Preventive controls include: implementing internal controls, continually updating the company’s Code of Conduct, rotating jobs/duties, and
Taking a look at Donald Cressey’s hypotheses which is now known as the fraud triangle depicts the certain criteria for the mind frame of the fraudster. The fraud triangle is a theory that consists of perceived pressures, perceived opportunity, and rationalization. It gives us the different pressures placed on individuals that would make them consider “cooking the books.” It also demonstrates where the possible opportunity lies so that we may take precautions to eliminate the opportunity. Last, it demonstrates how a fraudster rationalizes with themselves to make committing the fraud okay. Donald Cressey believes all three elements must be present for fraud to occur. Upper management is usually the focus of financial statement fraud because financial statements are done at the management level. So in this case financial statement fraud was committed by the CEO Gregory Podlucky
Regardless of when financial statement fraud first occurred and the development of technology, it will be infinite. People may believe that as technology becomes more advanced, there will be less opportunity to commit fraud and it is easier to catch, but as technology evolves, so do the fraudulent schemes while weaving in the old ones but with a twist. There are always going to be individuals that feel that they will never be the one to get caught and believe that they are invincible to all. There remains a population that lives by means of entitlement, and therefore, minimizing their actions and rationalize them once given an opportunity and the perceived need equaling greed. As fraud evolves, individuals learn by other's mistakes and develop more complex schemes to provide confusion. According to the Wisconsin Law Journal (2012), “financial statement fraud is an ugly fraud with methods that are complex and often not understood by the average consumer or investor, and its results often aren’t tangible to the average person.” Therefore, by making a complex financial statement fraud, the gain is enormous with the amount of investigation overwhelming to determine a portion of the
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
Assignment of responsibility for certain functions of the bookkeeping and accounting process ensures that when a problem occurs a specific person is accountable. This, in turn, provides an incentive to that person to do their job correctly because any issue or problem will be their sole responsibility. Splitting duties has a similar impact on employees. By providing a system of checks and balances, i.e. one person keeps the records while another keeps the assets, the chance for fraud is greatly decrease and honest mistakes are easily caught. There are many physical, mechanical and electronic controls that provide further safety for a company’s assets. These include passwords, safes, alarms, security cameras, time clocks and locks (Kiesco et.al, 2008). The use of an auditor or other third party to independently verify the bookkeeping and accounting procedures performed by employees adds another layer of safeguarding to a company’s inter...
Sarbanes-Oxley contains eleven titles and covers a wide range of topics from the implementation of new compliance requirements to the criminal penalties of any violations of the rulings. One very important aspect touched upon in Sarbanes-Oxley is auditor independence. Auditor independence and the part an auditor plays in corporate financial reporting in the wake of all the corporate scandals have become extremely important. It has become increasingly important in the training and professional ethics of an auditor. The objective of auditor independence is to have the auditor “be unbiased and impartial with respect to the financial statements and other information they audit”0. There are three aspects of practical auditor independence, programming independence, investigative independence and reporting independence.
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.
The accountants in this case who faced ethical dilemmas were Russell Smith, Cardillo’s controller, Helen Shepherd, Touche Ross audit partner, Roger Shlonsky, KMG audit partner, and audit subordinates of both Shepherd and Shlonsky. First, Smith received a request from the company’s attorney, Riley, to sign an affidavit regarding the nature of a transaction with United Airlines, which he knew to be recorded incorrectly. Russell was aware that signing this affidavid would result in a misrepresentation of Cardillo’s revenue. Each of the auditors faced ethical dilemmas when pressured by key executives of Cardillo, including the COO, CEO and vice president of finance, to accept the adjusting entry as booked correctly. Without further investigation of this transaction, the auditors would have violated professional standards of integrity and ethical requirements if they had accepted Cardillo’s explanations for the “secret” transaction with United Airlines.
Fraud can be perpetrated by anyone within an organization. Where the blame lies is dependent upon who commits the fraud, and the length of time it goes undetected. IN the case of Phar-Mor, the fraud the inevitably resulted in the destruction of the company was perpetrated by Mickey Monus, the COO, but is he solely to blame? Not in this case. Yes, he utilized his authority to perpetrate the fraud, however his CFO, not only agreed to comply with Mr. Monus’ instructions, he was later assigned the job of continuing to falsify the financial statements. Furthermore, Mr. Anderson, the accounting manager also became embroiled in the fraudulent activities.
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.
Accounting fraud refers to fraud that is committed by a company by maintaining false information about the sales and income in the company books, when overstating the company's assets or profits, when a company is actually undergoing a loss. These fraudulent records are then used to seek investment in the company's bond or security issues. By showing these false entries, the company attempts to apply fraudulent loan applications as a final attempt to save the company by obtaining more money from bankruptcy. Accounting frauds is actually done to hide the company’s actual financial issues.
The Tyco accounting scandal is an ideal illustration of how individuals who hold key positions in an organization are able to manipulate accounting practices and financial reports for personal gain. The few key individuals involved in the Tyco Scandal (CEO Kozlowski and CFO Swartz), used a number of clever and unique tactics in order to accomplish what they did; including spring loading, manipulating their ‘key-employee loan’ program, and multiple ‘hush money’ payouts.
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.
Jewish opposition to the gospel has not subsided. Even today many Christians deal with the backlash of preaching the Gospel just as Paul did with the Jewish people of his time. As Paul preached in the synagogues, people began to believe in and receive Jesus Christ, causing much of the Jewish community of the time to resist the teachings of Paul. Paul’s response to the Jewish resistance was to simply preach to the Word of God to all that would hear it, including Gentiles. The more people that the Gospel would be preached to, the more the Word of God would begin to spread.
Dowd (2016) runs above and beyond with the clarification to state accounting fraud incorporates the change of accounting records in regards to sales, incomes, costs and different components for a profit motive, for example, boosting organization stock prices, getting ideal financing or maintaining a strategic distance from obligation commitments. Dowd is of the feeling that covetousness, absence of straightforwardness, poor administration data and poor accounting interior controls are a couple of explanations behind accounting fraud. (Dowd,