...COVER STORY: INTERNAL FRAUD CASE STUDY Prepare a two-to-three page case study report on the following case: COVER STORY: INTERNAL FRAUD on pages 104-106 in Chapter 4: Billing Schemes of the Fraud Examination text by Wells. Discuss the coincidences involved in this case study. Use the 2009 Global Fraud Survey (also located in Doc Sharing) for references concerning perpetrator, size of fraud, detection, and controls. This case is about the $4 million embezzlement fraud by an employee of a magazine publisher, and how the fraud was discovered. The type of fraud discovered was a billing scheme that was found on accident. A billing scheme is, “Any scheme in which a person causes his employer to issue a payment by submitting invoices for fictitious goods or services, inflated invoices or invoices for personal purchases.” 1 In this case, it just so happened that the new chief internal auditor decided to stop by the accounts payable department to collect a series of recently submitted invoices so that he could meet with the vice president to understand how the accounting codes work. In doing so, they found that a number of invoices had been forged. According to the 2010 Global Fraud Studies, “11% of the time, victim organizations either had to stumble onto the fraud or be notified of it by a third party in order to detect it.” 2 With coincidence one, the investigation revealed that the forgeries were coming from the painting operations in its facilities department, in which was overseen...
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...Fraud, Governance and Internal Controls What is a fraud What is a fraud? The Financial Accounting book gives us a definition “A fraud is a dishonest act by an employee that results in personal benefit to the employee at a cost to the employer.” The reasons why people commit fraud are various. Fraud triangle can give us a good explanation. Financial pressures, from family or lifestyle, will lead an employee to fraud. Opportunity, which will allure an employee to do fraudulent activities, and Rationalization, which make one feel less guilty to do so, has same effect. How to prevent and detect fraud As fraudulent activities keep happening in every company every year, internal control is indispensable. It has five primary components: A control environment, Risk assessment, Control activities, Information and communication, and Monitoring. There are a lot of methods that we can use to prevent, deter and detect fraud? I think Physical control is probably the straightest one. Just lock inventories in a warehouse, set password in the computer, or put important bills in a safe box can prevent employees from stealing things. Segregation of duties, such as arrange different people to make order, authorize payment, and receive goods, is effective, because it eliminate the opportunities to take advantage in the chain. Documentation procedures are important, because it is a method to keep record of everything. It is the evidence of something occurred. There are also lots of other...
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...THE ROLE OF INTERNAL AUDITING IN FRAUD PREVENTION AND INVESTIGATION. INTRODUCTION. Internal auditing is charged with the overall responsibility of reviewing, evaluating and monitoring the organization’s internal controls to ensure efficiency. Its functions include a detailed testing of transactions and balances, and performing routine or sometimes, random checks as a precautionary measure. During this process, an auditor might uncover fraudulent practices, which would otherwise have gone unnoticed. This paper intends to clarify the difference between auditing and fraud investigation, fraud indicators, highlight the role of audits in fraud prevention and investigation. THEORETICAL FRAMEWORK AND CONCLUSION. Paul A. Rodrigues said, “It has been aptly said that auditors look at the ‘donut’ and fraud examiners look at the ‘hole’” (Auditing vs. Fraud Examination, para. 2). That statement indicates a difference between auditing and fraud investigation; audits are reoccurring (on a regular basis), fraud investigations are not (only when there is sufficient predication); an audits scope is general, that of fraud investigations are specific (allegation based); an audit’s objective is to express a general opinion, a fraud examination’s is to affix blame where an allegation is confirmed (adapted from the ACFE Fraud Examiners Manual). That being said, an internal audit is party to a fraud investigation along side forensic investigators, legal counsel, law enforcement and the lot...
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...“How Internal Controls can be used to prevent fraud” Jonathan Evans Dr. M. A. Turner ACC 455 Auditing 16 October 2011 Abstract This research paper will explain the use of internal control procedures as a way to prevent and or deter business related theft caused by employees. It will feature an introduction explaining what internal controls are, who is responsible for them, and detailing the five components that make up internal controls. Then there will be a number of examples showing how internal control procedures are used in a business, why they are necessary, and what type of fraud they prevent. The end of the report will have a conclusion summarizing the information and my personal opinion on the subject. All sources for the research paper will be referenced on the final page. Introduction Internal controls are policies and procedures designed to help an organization accomplish specific goals or objectives, keep a record of the organization’s resources, and prevent or detect fraud. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) states that internal control has five components: control environment, risk assessment, information and communication, control activities, and monitoring. The control environment is made up of the policies and procedures that reflect the ethical standards of the top management and owners of an organization. Control environment procedures act as the foundation for the other four components of internal...
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...INTERNAL CONTROLS AND FRAUD PREVENTION IN NON-PROFIT ORGANIZATION WRITTEN BY DAVID SANNI Designed to provide information on key areas that can strengthen the internal control system of VI-MID-ISLAND SERVICE (VIMS) Submitted To VANESSA OLTMAN Faculty of Management Vancouver Island University Nanaimo, BC, Canada (Nov/15/2012) Table of Content 1.0 INTRODUCTION 3 2.0 NATURE OF FRAUD IN CANADIAN NON PROFIT ORGANIZATION 3 2.1 TYPE OF FRAUD IN NON PROFIT ORGANIZATIONS 3 2.2 PERPETRATORS OF FRAUD IN NON PROFIT ORGANIZATION 4 2.3 IMPACT OF FRAUD TO NON PROFIT ORGANIZATION 4 3.0 COMPREHENSIVE APROACHE TO REDUCE FRAUD 5 3.1 UNDERSTANDING INTERNAL CONTROL 5 3.2 BENEFIT OF INTERNAL CONTROL 5 3.3 LIMITATIONS OF INTERNAL CONTROL 6 3.4 CONTROL MEARSURES IN PREVENTING FRAUD 6 3.5 SUMMARY AND CONCLUSION……………………….………………….8 4.0 REFERENCE…… ……………………………………………………………9 1.0 INTRODUCTION The Canadian non profit sector has one of the largest populations in the world, accounting for over 7% GDP and creating 2 million full time jobs for Canadians. Further discoveries was made that 78% Canadians donates money to non profit Organization irrespective of all walks of life and income bracket. These donations are received to address core issues...
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...Should external/internal auditors be responsible for detecting client fraud? In 2001 Enron, the seventh largest energy company in 2001, filed for bankruptcy. The event named “Enron Scandal” is considered to be the most shocking incident in American economic history. Bring the country to the edge of disaster, the scandal was basically caused by securities fraud which Enron was charge with. The irrationality of accounting and auditing system encouraged U.S. legislative to respond the scandal, enacting Sarbanes-Oxley Act 2002. SOX Act carried out comprehensive reform of accounting procedures required for publicly held companies, such as promoting and improving the quality and transparency of financial reporting by internal and external auditors. However, there is a controversial issue of whether auditors should be responsible for detecting client fraud. AU Section 110(Responsibilities and Functions of the Independent Auditor) indicates that “the auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.” In other words, auditors are not expected to provide absolute assurance financial statements because auditors do not examine every transaction and event. The public, however, expect auditor to guarantee all material misstatements. While users who use the reported financial statements expect all illegal issues such as fraud to be detected...
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...Fraud and Internal Controls: Business Fraud Case Advanced Accounting Information Systems It’s amazing that in this day and age when technology is supposed to be the most efficient way to run this economy and all its businesses it can still have a major blunder, such as, data breaches that can cause many companies millions and millions of dollars. There are so many data breaches that have occurred lately, one right after the other, such as Sony’s PlayStation, Nintendo, Citigroup, T.J Maxx and even numerous healthcare companies like WellPoint and AmeriHealth. “The problem is that while a company’s data-collecting ability has increased dramatically, network security safeguards, although certainly progressing, have lagged behind, as evidenced by the increased frequency of large-scale breaches. We’ve seen high-profile breaches like Sony and CitiGroup; numerous healthcare companies like WellPoint and AmeriHealth; government agencies such as the VA; universities like UCLA, which lost donor information; and retailers such as TJ Maxx who paid out nearly $41 million a few years ago to banks and VISA because of a massive breach of customers’ credit card data. As information is made digital it becomes very portable and thus easier to lose or steal”. (www.programbusiness.com/News/Interview-The-Digital-Age-of-Data-Breaches-Risk-Management-and-Cyber-Insurance,) In today world everything has to be “digitized” compared to priors years and many corporations or companies are wholeheartedly...
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...dramatically. In the past several weeks a former General Electric Capital manager, allegedly in cahoots with a bank vice president, was charged with taking $30,000 in kickbacks as part of a scheme that resulted in $4.5 million of fraudulent loans. A Continental Illinois vice president went on trial charged with approving $1 billion of bad loans in exchange for $585,000 in kickbacks, loans that allegedly cost the Chicago bank $800 million and helped trigger its 1984 collapse. FDIC investigators say internal fraud was the major cause of one-third of all bank failures over the past two years. To some extent the victims have themselves to blame. A company with shoddy financial controls or badly trained internal auditors practically begs employees to steal. Take the case of Albert Miano, a $35,000-a-year middle manager at Reader's Digest, who from 1982 to 1987 embezzled $1 million. The Digest's controls, claims Miano, were woefully lacking. ''I even told them they needed better internal controls,'' he says, ''and they didn't listen.'' Reader's Digest contends its controls, which have since been tightened, weren't all that bad. One...
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...Anatomy of computer accounting frauds A. Seetharaman, M. Senthilvelmurugan and Rajan Periyanayagam Faculty of Management, Multimedia University, Malaysia Keywords Fraud, Corruption, Financial reporting, Whistleblowing, Internal control, Corporate governance Abstract This paper introduces fraud as asset misappropriations (85 per cent of cases), corruption and fraudulent statements. Symptoms include accounting anomalies, lack of internal control environment, lifestyle and behaviour. The most effective tools for fraud detection are internal audit review, specific investigation by management, and whistle-blowing. The paper details the fraud investigation process and the role of auditors as fraud examiners. The correlation of fraud perpetrators’ personality with the size of losses is examined. Personality is analysed into age, gender, position, educational background and collusion. A strong system of internal control is most effective in fraud prevention. Fraud prevention procedures, targeted goals and improvements to system weaknesses feature in the paper. Fraud impacts on accounting transactions in accounts receivable, receipts and disbursements, accounts payable, inventories and fixed assets, and financial reporting. The monetary impact resulting from fraud is analysed by the type of victim and the amount of loss. Internal control and good employment practices prevent fraud and mitigate loss. Computer accounting frauds 1055 Introduction Accounting fraud involves an intentional action...
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...Fraud Schemes and Fraud Investigation Acc 571 Instructor: Dr. Ole Ruankaew Diane Phillips November 22, 2015 Fraud Schemes and Fraud Investigations The problem that organization faces today, are employee fraud. Many organizations feel that long term success of any company comes from the quality of their employees and workers loyalty. While during my research, I discovery that Association of Certified Fraud Examiners, Inc. has shown that organization have lost five percent of their annual revenue each year because of employee fraud. Every organization needs to have a plan in places for fraud detention. In preventing fraud in the work place, a good strategy for any organization is to implement internal control. These are plans; programs and procedures put in place to safe guard the company assets, and ensure the integrity of its accounting records. As prevention fraud is much easier than recovering losses after a fraud has been committed. This study will focus on the case of Stanford Financial Group Company fraud in which Robert Allen Stanford, chairman of Stanford International Bank (SIB), was involved in a Ponzi scheme. Stanford was convicted of orchestrating a 20-year investment fraud scheme in which he misappropriated $7 billion form SIB to finance his personal businesses. The Stanford Financial Group claimed to have pulled in retail, wealthy and commercial investors from 136 countries on six continents. Lopez and Kuhrt was aware of what Stanford ...
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...Non-For-Profit Fraud Authors’ Note This paper was prepared for Advanced Accounting, Summer 2013. OUTLINE 1. Introduction 2. The Reasons of Fraud in Nonprofits. 3. Types of Nonprofit Fraud. 4. Recent Fraud Cases: A. $1,000,000 Charity Scam by John Cody. B. ASPCA International and $27,000,000 Fraud. C. Fraud Committed by Anita Collins, Church Bookkeeper. D. Fraud Committed by Hugh Blackburn. 5. Fraud Prevention in Nonprofit Organizations. 6. Conclusion. Introduction. Most of us are familiar with the organization ASPCA (American Society for Prevention of Cruelty to Animals) and some of us even donate or consider donating money or time. But not many of us know that only 5 cents of every dollar collected by ASPCA goes actually towards the organization’s primary goal, which is helping animals. Just a few months ago a disaster hit NYC and the areas around. It is hard to believe but it gave great opportunity for fraud. Consider the case of the couple John Sandberg and Christina Terrassino, who launched a charity website, The Hurricane Sandy Relief Foundation. According to DCA (Division of Consumer Affairs), they have solicited more than $600,000 from about 2,000 donors. However, less than 1 percent of the money was given to the victims of the hurricane (Rose, 2013). Beside, consider the case of Anita Collins, a 67-year old church bookkeeper. She is known for stealing approximately $1,000,000 from the church she worked in (Huffington...
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...| Computer Fraud | | By | [Type the author name] | 9/14/2013 | DeVry University’s Keller Graduate School of Management | A University of Oklahoma student was charged with computer fraud on May 16, 2013 by the Cleveland County District Court. The University of Oklahoma student, Roja Osman Hamad, is accused of improperly changing his grades. Roja Hamad now faces five counts of computer fraud. Mr. Hamad was a former student employee of the university’s information technology department. This is where Mr. Hamad was able to access the university’s computer system to change six faculty member’s passwords without the faculty member’s permission. University official’s state, Roja Hamad broke into the university’s computer system and changed his grades. Roja Hamad fits the majority of the profile of the average fraud perpetrator. According to the ACFE, the average fraud perpetrator has no prior fraud charges or convictions and is more likely to be male rather than female. The ACFE states that the offender is commonly between the ages of 31-45. Even though Mr. Hamad is only 24 years old, he possessed the knowledge to commit the fraud. Since Roja Hamad was a student employee of the university, he was probably a trusted employee. As a trusted employee of the University, this gave Hamad an opportunity to perpetuate the fraud. Lack of proper internal controls, failure to enforce controls, and incompetent management personnel enabled Hamad to commit the fraud. The three...
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...The focus on fraud from a business perspective has significantly increased over the last decade. Every business, company or entity is subject to fraud risk; there is no immunity when it comes to fraud. There has been much legislation passed by the government and many new guidelines required by different accounting agencies. The Implementation or addition of an internal audit department has been wide spread. External audit independence, corporate governance and most recently the use of a fraud risk assessment have been a few recent developments of such new legislation and rules set forth. Businesses as well as the public were skeptical of the changes but admitted something had to be done. “The fraud triangle, developed by Donald R. Cressey, tells us that there are three interrelated elements that enable someone to commit fraud: the non-sharable financial need that drives a person to want to commit the fraud, the opportunity that enables him to commit the fraud, and the ability to rationalize the fraudulent behavior. The vulnerability that an organization has to those capable of overcoming these three elements is fraud risk,” (Wells, 2011). A fraud risk assessment is a process designed to proactively assess and correct these vulnerabilities to both internal and external fraud to defend against and reduce the chances of fraud. The objective of a fraud risk assessment is to identify and address these vulnerabilities to reduce that risk of fraud. In a 2008 study by the ACFE...
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...Fraud is a serious problem for most businesses today and often technology compounds the problem. In addition, the role of the independent auditor in the detection of fraud is often questioned. (http://www.swlearning.com/accounting/hall/ais_4e/study_notes/ch03.pdf) Fraud is dishonest activity causing actual or potential financial loss to any person or entity including theft of money or other property by employees or persons and where deception is used at the time, immediately before or immediately following the activity. (http://about.curtin.edu.au/definitions-impact.cfm) * Types of Fraud (http://www.auditsol.com.au/media/Fraudw.pdf) 1. Employee fraud Is internal or employee frauds are when fraud is committed against the company or organization a person is working for. Internal frauds can include: * payment fraud Payment fraud is any fraud that involves falsely creating or diverting payments. Payment fraud can include: * creating bogus customer records and bank accounts so that false payments can be generated * intercepting and altering payee details and amounts on cheques and Payable Orders, then attempting to cash them * creating false payment and financial information to support fraudulent claims for benefits * processing false claims by accomplices for benefits, grants or repayments self authorizing payments to oneself. * procurement fraud Procurement fraud is any fraud relating to a company purchasing goods,...
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...Data Mining for Fraud Detection: Toward an Improvement on Internal Control Systems? Mieke Jans, Nadine Lybaert, Koen Vanhoof Abstract Fraud is a million dollar business and it’s increasing every year. The numbers are shocking, all the more because over one third of all frauds are detected by ’chance’ means. The second best detection method is internal control. As a result, it would be advisable to search for improvement of internal control systems. Taking into consideration the promising success stories of companies selling data mining software, along with the positive results of research in this area, we evaluate the use of data mining techniques for the purpose of fraud detection. Are we talking about real success stories, or salesmanship? For answering this, first a theoretical background is given about fraud, internal control, data mining and supervised versus unsupervised learning. Starting from this background, it is interesting to investigate the use of data mining techniques for detection of asset misappropriation, starting from unsupervised data. In this study, procurement fraud stands as an example of asset misappropriation. Data are provided by an international service-sector company. After mapping out the purchasing process, ’hot spots’ are identified, resulting in a series of known frauds and unknown frauds as object of the study. 1 Introduction Fraud is a million dollar business and it is increasing every year. ”45% of companies worldwide have fallen victim...
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