Case 1 From the case, it is easy to believe that Mary Blauser, 51, is a trusted employee of the school district. Therefore, as a trusted employee, she became a trust violator because she had a conception that she had a financial problem that cannot be shared with her employers. For this reason, the fraud occurs because the financial trust position is in her hands and therefore she decided to secretly solve it. The school district was correct to perform an internal audit to predict the failures of their finances and turned to the police for help. The three elements of the fraud triangle involved in this case include the perceived unshareable financial needs which forced Blauser to commit the fraud; the perceived opportunity made her able to apply her own conduct to her situation; finally, the rationalization concept is …show more content…
This means that the main goals of the act in enhancing auditor independence in preventing fraud in future are faced with pressures regarding its efficiency. Case 3 Effective fraud control depends on prevention of the following three weaknesses in the internal control system. First is the static nature of internal controls. This means that internal controls might not be fluid in terms of evolution with the changes experienced in technology, business and the fraud environment. Second is the immunity of the internal control systems. For instance, if a company’s internal control system has weak control policies for its procedures and processes, then the company becomes a target for both internal and external criminal activities. Thirdly, are unclear definitions of the roles and responsibilities of ownership. By this it means that if the internal control system is not well defined to the employees, then there will be an assumption that the role of the internal controls is to only perform audits hence they would not be interested in preventing fraudulent
Appendix A.2 also lists several factors that could provide opportunities for management/employees to commit fraud. One factor that could lead to fraud is if, “There is ineffective monitoring of management as a result of: domination of management by a single person or small group without compensating controls.” The auditors should have taken notice of the lack of controls and segregation of duties with respect to Phar-Mor’s
(2000) was able to conclude that Independence together with activity of the Audit Committee is associated with a lower incidence of AAER For control variables, growth of company or the CEO as Chair of the Board resulted in a greater incidence of fraud. Klein (2002b) report of studies carried out on corporate governance mechanism and abnormal accrual in the books established negative relationship between board/audit committee independence and abnormal accruals. No evidence between having all independent audit committee and abnormal accruals. Changes from majority independent boards and/or audit committees result in as significant increase in abnormal accruals. Percentage of CEO holdings is not
There are many rules companies must follow whenever documenting financial information or any other data which is gather during any business transactions. In order for said companies to report financial information internal controls have to be put in place as companies have to adhere to certain laws and regulations. Internal controls can be defined as a process which companies follow in order to ensure all financial reporting is done in a reliable and lawful manner. Some think of it as a system which works within a system as it plays a major role on the success of a company’s accounting system. At the organizational level, internal control objectives relate to the reliability of financial
Auditors have the responsibilities as well as management to report internal controls. The auditors must examine closely management’s claim of effectiveness and also physically test the controls. After the examination, the auditors should express their opinion and any recommendations to fix any internal control weaknesses.
Internal controls represent an organization’s processes and procedures used to meet its goals and objectives and serve as a defense in safeguarding assets and preventing and detecting errors, fraud, and abuse. Effective internal controls provide reasonable assurance that an organization’s objectives are achieved through (1) reliable financial reporting, (2) compliance with laws and regulations, and (3) effective and efficient operations. The passing of the Sarbanes-Oxley Act of 2002, as well as the numerous corporate frauds and bankruptcies over the past decade—including some
The act endorses companies to change the practice and regulations of accounting and auditing. It required them to maintain good financial recorded which were different than the past. The management team is held personally liable for the reliability and accuracy of the financial statements. All publically listed companies must establish a system of internal controls which must be evaluated by management at least quarterly and external auditors are required to conduct independent assessments of company’s in –house internal controls as well as report any fault or fraudulent acts they observe.
Internal Controls are to be an integral part of any organization's financial and business policies and procedures. Internal controls consists of all the measures taken by the organization for the purpose of; (1) protecting its resources against waste, fraud, and inefficiency; (2) ensuring accuracy and reliability in accounting and operating data; (3) securing compliance with the policies of the organization; and (4) evaluating the level of performance in all organizational units of the organization. Internal controls are simply good business practices (Strauss, 2003). And, since internal controls can have many more meanings in the world of accounting, the more we understand what were dealing with, the better we can analyze internal
There could be many reasons why the perpetrator had an opportunity to hide the fraud. It is clear that the internal control system is weak at Larson's Cement. In order for them to properly protect their assets it is important that the signing of checks and the management of bank accounts not be performed by the same individual. While Betty Landrone is the treasurer and the person keeping the checkbook, she shouldn’t supervise and handles the credit approvals, bill payments and collections. Having all these responsibilities assigned to Betty would give her an opportunity to create a dummy vendor. There is a conflict of responsibilities under this scenario and should be separated. Separating the duties among different people will minimize the
Every fraud scheme involves opportunities as it becomes the means for the perpetrators to commit the crime. Perpetrators actively pursue opportunities such as analyzing the circumstances that enable the fraud to be committed without getting caught. Pressures to commit fraud are based on various individual factors; for example, debt, status quo, or greed. The rationalization of the crimes are as demoralizing as the crimes, which relate to the pressure the perpetrator is conduced to in committing the crime. Tax fraud, divorce and bankruptcy fraud can all highly relate to the triangle fraud’s underlying factors in providing the source of the crimes that are presented in judicial court systems despite the notorious organizations or ex-love past
The following case given to me was about a female employee who had committed fraud. My role was to be the new human resource manager of the company. My main tasks in terms of writing were to write a letter to the employee herself Susan Seer and to the employees of the company. I completed these tasks for my manager, Vice President Mike McKay. An anonymous person tipped us off that Ms. Seer might have been working another job while receiving benefits from MedTech while injured. We began an investigation by sending a claim adjuster to Ms. Seer’s second job and found she was in fact completing similar task to those she said she couldn’t complete at MedTech due to injury.
Sarbanes-Oxley Act was enforced in the past but caught everyone’s attention when drastic audit failures from Enron and Worldcom happened. An enhanced act (SOX) was enacted in 2002 improving audit quality. In particular, section 404 provides guidance of assessment to internal control. For an accounting perspective, internal control is a system for internal and external auditors to measure performance and recommend the improvement of the control. It is definitely correct that both enforcement and the system are to address the risks of frauds. In the meantime, a new regulatory agency, the Public Company Accounting Oversight Board (PCAOB) was created to monitor the work of public accountants. Among SOX and the PCAOB, accounting
The point of this article is to inform business owners of the dangers of embezzlement, and heists performed by employees inside the business. Some businesses find corruption within itself. The article provides statistics that state embezzlement is common within a business, and the owner must be careful when trusting other employees. The article is proficient, focusing on the importance of fraud prevention programs.
Rationalization, simply put, is the ability of the perpetrator to justify his crime; to rationalize their offenses as something other than a crime. This is not as simple as it sounds. It involves the ability for individuals to convince themselves that it is okay to do something they know is wrong. A trust violator is usually a first time offender. This particular person would probably go through a lot of internal conflict, a stressful thought process and internal justifications before committing to the fraud. Rationalisation plays a big part in actually completing the offense. Thoughts such as, “I am only borrowing the money” or “I am underpaid anyway” or “I will pay it all back” are the typical thought process that might occur in the
Fraud is defined as a deliberate misrepresentation that causes a person or business to suffer damages, often in the form of monetary losses through deception or concealment. And Occupational Fraud as defined by the ACFE is the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets. Traditional fraud triangle theory by Donald Cressey explains that propensity of fraud occurring in an organization lies on three critical elements which are Pressure, Opportunity, and Rationalization.
The aim of this essay is to study the function of external auditors in order to analyze why it is important to be independent. The primary mission of external auditors is to review and evaluate all the financial records of a company or corporation. They provide an objective opinion on the organization’s financial statement and effectiveness of the accounting polices in order to help management to make decisions. If the independence of the external auditors is impaired, the public will doubt the quality of professional auditing services, and the consequence would be very serious, just like the bankruptcy of Enron led to the disorganization of Arthur Andersen, once a giant accounting company in the world. In order to maintain and increase