6.2.1 Fraud can occur for many reasons; some of the causes are as follows.
6.2.2 Poor accounting controls where accounting controls are lapse for example a bank reconciliation signals that a fraud has occurred can be missed.
6.2.3 Complacency, thinking fraud wouldn’t occur in a business, people will take advantage of this attitude.
6.2.4 Excessively complex organisational structure, designed to hide reality from third parties, Enron is a prime example of this.
6.2.5 Lack of clear moral direction from senior management, leadership stems from the top, others will adopt their behaviour.
6.2.6 No independent internal audit department, fraud and its signs are more likely to be hidden.
6.2.7 Excessively generous performance bonuses, the more temptation
…show more content…
6.2.9 Lack of transparency, complex transactions can be used to hide fraud.
6.2.10 Finally, it would be unwise to ignore human nature in other words greed, a common example of this is people adjusting their expenses.
6.3 There are different types of fraud, for example:
• False accounting such as trying to improve the financial appearance of a business to obtain external financing or hiding a loss.
• Theft, for example false expense claims, fiddling time sheets, employees making private phone calls from the organisation or just as simple as direct theft of cash, stock and/or other
…show more content…
6.6 There are ways in which to make an organisation more fraud resistant, below are a few techniques.
7.6.1 The use of fraud staff; these are appointed staff members within an organisation ( they could be ex bank or police workers) to work full time on fraud detection, however, this is costly and often used in very large organisations and is not something a small business like A to Z Vehicle Hire would benefit from using.
7.6.2 Management responsibility, in other words, managers should be given certain areas of responsibility, for example the payroll system, to ensure fraud is kept to a minimum. In A to Z Vehicle Hires’ case it is a smaller organisation with few employees and so the accounts manager will need to oversee the entire systems.
7.6.3 Management supervision, where senior employee oversees and checks activities such as data-entry and other accounting activities on a regular basis. This is a technique A to Z Vehicle Hire could adopt as they have enough senior staff to employees ratio and so is a feasible
4. External audits are performed by Third party agent or outside agents. 5. Audit is performed by an organization free from customer supplier
Using a code for a more expensive service when that was not the service rendered. Another is unbundling. Certain medical services are bundled together under one charge/code in unbundling you code the procedures separately which results in higher reimbursement. One you might not think of as being fraud is under-coding. This is often done to avoid investigation by the OCG.
An employee discovers a loophole in the security whereby the access to personnel records of other employees in the company is open. The personnel records include employee names, addresses, social security numbers, disciplinary actions, annual reviews, and salary information. Busy working on a time sensitive project, the IT administrator do not fix the problem for two weeks. While fixing the problem, it is discovered that several employees have accessed personnel records using the loophole.
The fraud triangle is made up by three distinguished elements. These elements in the fraud triangle consist of pressure, opportunity, and rationalization. The overall representation of the fraud triangle can be seen as the specific model to spot any type of high-risk unethical and fraudulent performances being conducted by a company, in this case Cendant Corporation. Cedant Corporations actions can be analyzed by the fraud triangle by the way that their senior management/top management decisions fell into the three categories of pressure, rationalization, and opportunity. Cendant Corporation had the pressure to comply with their shareholders and to maintain a stable financial status to prove that they were a profitable organization with a bright company image.
Wells Fargo’s “Gutless Leadership” Wells Fargo is one of the largest banks in the United States, with “…more than 8,600 locations [and] 13,000 ATMs” (Wells Fargo Today). Millions of Americans trust them with their finances. However, after a federal investigation, Wells Fargo has admitted to opening up to two million accounts without customers’ permission. While this had financial implications for many customers, this scandal most heavily affected Wells Fargo’s low-level employees.
He also rationalized his fraudulent activities by hiding the customer’s late payment in order to be benefitted himself, but said that he was helping people more than he was helping himself. 2. Given that Mr. Pavlo’s fraud was restricted to an accounts receivable embezzlement scheme, what symptoms might auditors observe?
Health Care Fraud (18 US Code 1347) The Health Insurance Portability and Accountability Act, also known as (HIPAA) was passed by the United States Congress, on August 21st, 1996. Which provides data privacy and security provisions for protecting medical information. The five sections, or titles act, was signed by President Bill Clinton. Due to concerns of health care fraud, “While the Federal False Claims Act provides CMS with regulatory authority to enforce fraud and abuse statutes for the Medicare program, HIPAA extends that authority to all federal and state healthcare Programs”.
Embezzlement is an example of a white-collar crime that can be done by anyone. Embezzlement is improperly taking money from someone to whom you owe some type of duty. The most common example of this is when a company employee that embezzles money from his employer for example by taking out money into a personal account. Embezzlement can take many forms, however. Lawyers who improperly use client funds commit embezzlement.
EXECUTIVE COMPENSATION Executive compensation is a broad term which comprises of financial compensation and non-financial rewards given to an executive from their firm for their services. This package is decided by a company’s Board of Directors (consisting of independent directors). It should be designed in a manner which incentivizes the executives and motivates them to perform in accordance with the company’s goals and its long term growth. These packages generally include a mix of short-term incentives (including salary, annual bonus, benefits, and perquisites) and long-term incentives (including stock options and restricted shares). E.g. Microsoft CEO Satya Nadella received a compensation package of $84.3 million for the software maker’s
Professional scepticism is an important part of auditing as it necessitates the auditor exercising their qualified judgement in dealing with occurrences and circumstances of a countless number. (Auditing and Assurance Standard Board, 2012). Since the global financial crisis, there has been increasing importance placed on applying professional scepticism and many auditors have been criticised for not using scepticism in their valuation and assessments of factors like going concern issues, fair value judgements and related party transactions. (Association of Chartered Certified Accountants, 2015). Additionally, the importance of professional scepticism is essential in reducing the number errors found in financial statements.
Recently Wells Fargo’s scandal of creating phony accounts has raised ethical concerns in the corporate world. Wells Fargo employees opened more than two million unauthorized bank and credit card accounts to meet sales projections. The company was charged with huge fines and earned a bad reputation that will take years to rebuild. According to the Deontological perspective on ethics least some acts are morally obligatory.
Executive Summary Lehman Brothers were an investment bank involved in transactions worth billions of dollars and one of the most powerful investment banks in the world. Lehman Brothers collapsed in 2008 following bad investment in the sub-prime mortgage market and used bad accounting practices called Repo 105 transactions to try and cover up the bad assets. This report sets out the use of the fraud triangle when describing the actions which led to the collapse. The pressure applied on the bank, the opportunity due to the lack of regulation to carry out the actions and the ability of the bank to rationalise their decision making.
This three element fraud is often referred as a fraud triangle by the researchers (Cohen, Ding, Lesage & Stolowy, 2010, p. 276). On the other hand the theory of planned behavior focuses on the intentions behind the planned behavior. Ajzen (1991, p. 188) explains this as “attitude toward the behavior… refers to the degree to which a person has a favorable or unfavorable evaluation or appraisal of the behavior in question”. Cohen, Ding, Lesage & Stolowy (2010) have combined the fraud triangle and theory of planned behavior to understand that how the two theories can be collectively studied to find out the reasons behind the unethical activities that results in corporate frauds. Cohen, Ding, Lesage & Stolowy (2010) in their work studied various organizations including WorldCom and identified following: • WorldCom’s management had an excessive interest in maintaining the entity’s stock price and earning trends (p. 287).
The first type is “neutral” view. In this the auditor neither assumes that management is dishonest nor assumes unquestioned honesty, under (AU 230.09) Second view is "presumptive doubt” view because of the quality of fraud, the auditor’s exercise of professional skepticism is important when considering the risk of material misstatement due to fraud. In this the auditor should conduct the engagement with a mindset that recognizes the possibility that a material misstatement due to fraud could be present, regardless of any past experience with the entity and regardless of the auditor’s belief about management’s honesty and integrity.
One of them is underreporting income. The reason why accountants underreport profits in different firms is so as to avoid paying massive taxes. Underreporting income is illegal, and individuals or companies caught doing so pay large penalties an if the case is extreme they are charged in a court of law. Underreporting income makes the government lose tax revenue that could be used to provide various social amenities to its citizens. The ethical issue in such an instance is the accountant reporting the true financial status of an organization in regards to the profit, liabilities and companies assets.