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ACC00718 - Accounting Information Systems and Processes - Southern Cross University
Question: Identify five (5) procedures and checks that would have reduced the risk to the victim company?
Five procedures and checks that would have reduced the risk to the victim company
The below simple procedures can be followed by the accounts payable department of the company to avoid the risk of overpayments to the invoices that has no any value-added services.
1. Invoice Approval
Before getting the approval of the authorized person, accounts payable staff should collect other supporting documents related to the particular invoice such as purchase order if any, agreement with the supplier regarding the fees, records related to the particular service. Authorized person cannot verify that the amount is correct in the invoice without checking other supporting. This may avoid the payments for false invoices.
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2. Cross checking with the company available records
Before making a payment, accounts payable staff should cross check with the records relating to the particular invoice. As per the given scenario, they can follow up by the records available with them to track the number of responses receivedfrom the customer.
3. Cross checking with the supplier on the records of transactions
The best method is that cross check the company available date with the supplier's records. This can be easily done by requesting a record of transactions when the invoice is sent by the customer. In the given case, number of responses can be track with the supplier's database & their manual batch numbers.
4. Appoint a separate staff to review the expenditure relating to promotions
Having a specific accounts payable staff to review payment process regularly and match with the records to avoid such overpayments.
5. Randomly check with the respondents to identify duplicate & false respondents
They can randomly pick up few respondents from the database in the promotion company and perform few procedures such as checking their details, addresses & whether there are any duplicate respondents or false ones created by the promotion company.
Five procedures and checks that would have reduced the risk to the victim company
Frauds in working places and business have become so common nowadays. Anyone can involve in fraud and they cannot be distinguished from others based on their physiological appearance or psychological characters. One should design internal standards for anti-fraud activities in order to identify fraudulent activity. A system which is having good internal standards that can detect and prevent frauds can reduce its vulnerability for fraud to a great extent. Association of Certified Fraud Examiners stated that organizations by following the given methods can prevent themselves from frauds (Marks,T.J.).
Conducting an official Risk Assessment which is related to enterprise-wide:
This involves the identification and giving information to the organization about its state of being attacks by frauds both from internal and external sources. The assessment of risk regarding fraud is an art which is critical when compared with science. What are the things to be evaluated and how they should be evaluated must be planned very carefully in a systematic way by the organization? It is very important to remember that risk assessment on fraud should be a continuous ongoing process rather than a frequent activity. These activities should be monitored continuously every time so that there will be very fewer chances of attacked by fraud. This involves educating, communicating and identification of newly occurring frauds.
Separation of responsibilities: by segregation of responsibilities one can keep check out for the occurrence of frauds because if one person is involved in all the works there will be more chance for that to hide the details of fraud but if the same work is segregated there will be fewer chances for making fraud.
Paying the amounts to the bank timely and reviewing the details related to management:
Reconciliations related to bank help us to know the differences regarding balance sheets as we will have a clear bank statement. By reviewing this one can easily know where the difference is occurring and what steps can be taken to prevent it.
Rechecking regarding the reimbursements on expenses:
One should check the data regarding the money given as reimbursements for the expenses that were done by the management. As per the study conducted by ACFE, it was observed that there are misleading cases where the reimbursements are taken more and the amount which they spend is less these small losses will make a big difference and it leads to chances and betting fraud.
Detection of Fraud by using Technology:
Utilizing technology to identify fraudulent cases is very important for organizations because the frauds which we cannot detect physically can be easily detected by the advanced technology. As per the study conducted by ACFE, it was observed that 50% of the fraudulent cases were reduced by monitoring through data and analysis utilizing technology.
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Question 1) Identify and discuss which internal control could have prevented this fraud and give five (5) examples
1) Internal Controls
i. Familiar with the employees
The initial internal control that might take place within the organization is got to know the employees & this will enable management to identify potential fraud risk observing their behaviours& listening to them. This is a great way to reveal internal issues.
Consider that one of employee in the accounts division know the fraud done by this trade payable clerk. If there is a control that engage management directly with the all employees, then this might be reveal before facing such a huge loss.
ii. Make Employee Aware/ Set up reporting system
This should be done at the initial level & every new employee recruited to the company should be given a proper orientation program including the fraud risk policy of the company. Therefore, every employee of the organization should be aware of the fraud risk policy and its consequences if commits to a fraud. There should be a proper reporting system if some employee aware of such a fraud, then he or she must be able to inform to relevant parties of the organization.
According to given scenario, they had to avoid such a huge loss if they have implemented such a control as there was a high possibility to mitigate this risk.
iii. Segregation of Duties
This is an important part of internal control which can mitigate the risk of frauds. For an example if one employees have assigned to initiate the payment with the invoice & two or more persons to authorize the payments & another person to make the payment through a cash or cheque, this fraud can be prevented for this company.
When relating to this scenario, if there is a separate person to prepare cheques instead of the said accounts clerk & only if he appointed for submitting cheques for the approvals & posting to the system, then this could not be happened. Another critical control that could this company implemented is appointing an another authorise person to cashing the wage cheques, the possibility of such a huge loss could be avoided.
Considering the given case, if there is a control to submit all the supporting& invoices when posting to the system, this fraud done by the clerk could be prevented as in some payments there were no corresponding, but payment has been transferred successfully. Therefore, this company can appoint a responsible person to check & maintain the documents separately apart from the Accounts clerk and other payable staff.
v. Internal control programs or Hire Experts
They can implement an internal control program to monitor & revise to ensure the effective controls within the organization or can hire an expert on establishing anti-fraud policies &procedures.
The main risk in the given incident is that ability to cash wage cheques to this accounts clerk even though she was with the company for longer period & maintaining relationships with bank. The best control that they could implemented is that make only transfers directly to the staff's bank account without paying through wage cheques. Therefore, they had to maintain a proper system to track such discrepancies & make payment securely.
1. In the given case the fraud occurred due to the absence of proper documentation and total dependence on one person. If the clerk has maintained documentation in every step and if he has filed all the information time to time this problem must have not occurred and in his absence also someone can take that responsibility as every information is documented the other mistake is over trust on a single person and giving all the duties to the same person. Due to this reason, the segregation of work is very important in the organizations and continuous monitoring of employees should be done by the management in order to prevent the frauds. Absence of an advanced technology which can trace out the frauds is also a reason for this problem. If the proper documentation, monitoring, and technology are present the clerk will not have any chance to fraud the organization. As the clerk knows all the existing defects he easily tried to fraud the organization this is also one of the reason, due to this it is observed that one should not let know the details of defects in an organization to its employees. This will be taken as a chance for them to be getting involved in fraud.
Five examples for this are:
i) One should know about the employees working under them. For example, if the employee is not benefitted by any hike or through other assets there is a chance of change in behavior of the employee which results in doing some fraud to the organization due to this reason completely knowing about the background of employee and his history regarding work experience should be known.
ii) One should not completely rely on one person regarding the work. For example: In a store one manager, salesperson and a cash register employee should be there and when coming to the accounts of three persons should be tallied by doing like this there will fewer chances for fraud.
iii) Proper documentation should be maintained for example if the documentation is not maintained in the absence of that person no one will have information regarding the work and there will be a lot of chances for misleading the situation.
iv) Maintaining the policies regarding fraud risks will also help to reduce the cases for example if any strict policy or legislation against fraud is present then everyone will follow that policy and do not dare to get involved in fraud.
v) Establishing a good technology can also help in reducing frauds for example when fire alarm systems and biometric systems are maintained in organizations employees cannot easily go for doing frauds as it can be easily traced out.
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Question 2: Identify and discuss five (5) procedures could have alerted the auditor to the fraud?
procedures could have alerted the auditor to the fraud
i. Evaluate the status and effectiveness of the anti-fraud control environment.
Auditors of this company could have prevented such a huge loss, if they have concerned the controlled environment earlier as then the can identify the risk areas that can be committed employees for frauds.
When relating to the given scenario, if their internal auditors be aware of that payments are processing & no segregation of duties within the organization, this fraud could be avoided by implementing necessary anti-fraud controls.
ii. Implement a control system over frauds
This can be done introducing policies, awareness practices, tone at the top etc.
Time to time auditors could have ensure the adequacy of preventive & detecting frauds.
In the given company, it seems that there is no any control over the all payment process. Even though there is a requirement of two authorized signatures for payments, the accounts clerk had opportunity to forge the signatures & present to the bank just stamping the reverse side of the cheques with the words "please pay cash". Therefore, only part in the payment processes done by another person other than the accounts clerk, is signing the cheques. Therefore, we can determine that there were no internal controls implemented.
iii. Testing High Risk processes to detect likely frauds.
This may be helped to identify indicators of fraud. For an example, testing employee reimbursement & payroll, reviewing system for duplicate transactions etc.
As per the case, duplicate items have been processed due to the lack of due care of signing persons & the lack of checking system within the organization. There should be a proper system to check the likely frauds.
iv. Consulting Experts
Auditor could be get help from experts to identify potential fraud risk, process reviews& Information Technology applications.
If this company had get advice from an expert to identify & rectify control issue, before happening a such a huge loss, this could be avoided.
v. Considering fraud as part of every audit.
Auditors could be designed procedure that consider the fraudsrisk& evaluating error or discrepancies whether there is any likely fraud in the future.
Auditors of this company could be reviewed the internal control procedures & determine what could go wrong(WCGW) & based on this suggest new controls. They could be identified that there is no segregation of duties, proper documentation, lack of control etc. one of main weakness in the system of this company is that Accounts clerk was given authority to all processes even cancelling an entry in the system. This is a serious control issue that they could be avoided.
The situation where the fraud occurs regarding accounts is a major issue and a very common fraud in many organizations. This can be detected easily only by the auditor a he will be expertise in tallying all the information regarding the accounts. Some important procedures should be followed by an auditor in order to detect the frauds in accounts (Ramos, M.2003). Five procedures that alert the auditor to the fraud are first is to know the different exposures or the situations how and where the fraud has occurred. For example, the CEO of the company forged some of the checks and made them as payable to him. It is important to list the person who carries the immoral act and the fraud when they are creating their list of exposure. The second one is to know the signs of occurrence; this can be done by analyzing the data and tallying with the balance sheet statement and the expenditure statement. Another method is by tallying the data analysis with the vendor master list or check register can also help to know where the difference is happening. Checking expenditures and reimbursement will also assist to know the differences and symptoms of fraud. The third procedure is auditors should be alert regarding the behavioral changes and symptoms which they discovered. Fourth procedure is building audit programs or processes which helps in detection of symptoms of frauds that are taking place, for the auditors to detect frauds it is necessary to add detection of symptoms of fraud in their program of the audit. Generally, managers adopt the preventive steps which help them to escape from the fraud, due to this reason audit programs should be carried out to know the symptoms of fraud. The fifth procedure is by following all the above processes and by analyzing using the data that was obtained from the previous steps will help an auditor to prevent fraud situations (Carmichael, 2018).
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