Case Study Analysis Option #1
Jerry Luck has been placed in charge of a branch of credit union. Included in his duties are accounting tasks of which he and his management team have little experience. Additionally, Mr. Luck’s salary and bonus are linked to the annual profits of the branch of which he is in charge. Most of Mr. Luck’s management team are blood relations or connected by their religious beliefs and practices. Due to new competition and stagnated congregation growth, Mr. Luck’s branch is not on target to reach its expected annual increase of 3% which will adversely affect salaries and bonuses. Though no fraud has currently occurred, the conditions exist for the management team to engage in fraudulent activities.
Risk of Fraud and the Fraud Triangle
Fraud as defined by American Institute of Certified Public Accountants (AICPA) is the intentional act that causes a misstatement of financial statements which are subject to audit (Maddox, 2004). Based upon this definition and the current conditions, Mr. Luck’s
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When applying the fraud triangle to Mr. Luck’s branch of credit union, it is clear that all three conditions are present. The first condition being pressure has been initiated by the managing parties of the credit union corporate office. They have linked, as a large part of Mr. Luck’s salary and bonus, the overall corporate growth goal of 3%. Linking salary to corporate growth goals violates internal controls as it provides the incentive to manipulate financial statements to meet the pressure of such goals and increasing Mr. Luck’s salary in the process (Balsam, Jiang & Lu, 2014). This also leads to rationalization on the part of Mr. Luck as he must meet the goal set forth by the corporate
A collateral interview was conducted with Mr. Jerry Katzoff, paternal grandfather. Mr. Katzoff reported that there are no biologically related family members who have substance use of psychiatric issues. He indicated that his son has never had these issues. He indicated that no one has ever raised concern regarding his son’s use of alcohol. Mr. Katzoff stated that his son does drink at times when they play golf together.
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
The Newham Company is a publicly traded company that recently has had a change in executive management due to an inappropriate bonus structure based on company performance. As this type of bonus structure often leads to material misstatement of facts resulting in falsified financial reports, the new management at Newham has commissioned SNHU INC. to conduct an audit which assesses their risk of misstatement. The audit to follow will be broken down into three parts: Overall business risk, sample audit plan and a report of recommendations based audit results.
Weld, L. G., Bergevin, P. M., & Magrath, L. (2004). Anatomy of a financial fraud. The CPA
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
Ulinski, Michael. "AN ANALYSIS OF SMALL COMPANY FRAUDS AND." American Society of Behavioral Society. Dept of Business, Pace University. 05 Feb. 2008.
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.
Mr. Herbert Lindsay, was seen at his home in Boynton Beach, Florida for individual therapy. During this session, client and therapist took a moment to discuss any present issues and effective ways of resolving problems. The client reported that he met with his attorney earlier in the week regarding his trial. Mr. Lindsay stated that he believed that his plea deal was no longer available to him. He noted that his court date is set for some time in May.
In today’s society, the excessive use and abuse of force is still an existing controversy. In this project the main adjective was to look at two incidents that have occurred in past years and pinpoint if there was any indication of abuse of authority. One which was the controversial Rodney King case that caused uproar in the civil rights activist community and a case that many are not so familiar with such as the Andrew Meyer case. In both cases, it appeared that there was evidence of abuse of authority. In both videos, it showed people of different ethnicity, settings and predicaments that set the tone for each video. Each video can be argued; “Well they should not have resisted”; while others can argue “it was just too excessive for there
He is considering raising wages due to the lack of increase in previous years. Mark spoke with his accountant and constructed a plan to give the employees a raise. With consequences for every decision is made, Mark is not sure what he should do. In this case, there is one goal and it is to keep the business running and to do so, he must keep his employees happy. To achieve this desired outcome he needs to come to a conclusion about raising wages or not. Without a doubt, he wants to reward the ones that deserve. But within a business, managers cannot always pick favorites; therefore he needs to make a decision about wages because in the long run it can affect his
In modern day business, there can be so many pressures that can cause managers to commit fraud, even though it often starts as just a little bit at first, but will spiral out of control with time. In the case of WorldCom, there were several pressures that led executives and managers to “cook the books.” Much of WorldCom’s initial growth and success was due to acquisitions. Over time, WorldCom discovered that there were no more opportunities for growth through acquisitions when the U.S. Department of Justice disallowed the acquisition of Sprint.
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.
For those who do not know what fraud is, it’s basically deception by showing people what they want to see. In business it’s the same concept, but in a larger scale by means of manipulating figures that will be shown to shareholders and investors. Before Sarbanes Oxley Act there was “Enron Corporation”, a fortune 500 company that managed to falsify their statements claiming revenues over 101 billion in a span of 15 years. In order for us to understand how this corporation managed to deceive the public for so long, the documentary or movie “Smartest Guys in the Room” goes into depth by providing viewers with first-hand information from people that worked close with or for “Enron”.
This incentive would inspire the manager to ignore the illegal actions and push the employees to do whatever it took to reach the sales goal (Parnell, 2014). That tactic worked. The self-interest view of ethics drove both Wells Fargo managers and employees to accomplish this failure due to both parties benefited from their actions (Parnell, 2014). Although, the fake bank and credit card accounts did not profit the company much, both manager and employee received bonuses for their accomplished sales goals at the cost of the company’s customers and ultimately the employee and manager position (Levine,
These three elements make up what is known as the fraud triangle. In reference to Bernard Madoff’s Ponzi scheme, pressure existed to continue making his company appear successful to potential investors, in order to gain more clients and keep his Ponzi scheme circulating. Therefore, allowing his own personal income to continue accumulating. In the 1980’s Madoff was showing double digit returns and appealing to investors. Then, the stock market crash of 1987 occurred, this lead Madoff to falsify financial statements to conceal any sign of financial troubles and continue to display big returns.