...------------------------------------------------- Fraud and forensic accounting in small business’ Tasha S. Barnes ------------------------------------------------- Fraud and forensic accounting in small business’ Tasha S. Barnes Accounting fraud is serious issues for all businesses, but they are especially challenging for small companies that are “cash strapped”. Fraud undermine decision making, lead to financial losses and, in some cases, even force companies to lay off staff or shut their doors. Fraud is a common problem for small businesses. According to the Association of Certified Fraud Examiners (ACFE), 30 percent of all fraud occurs in small companies. That is a disturbing fact considering that the estimated fraud loses for business of all sizes was nearly $2.9 trillion in 2009. Fraud occurs so frequently in small business for a couple of reasons. A common reason is that small companies typically have small or even single-person accounting staffs and limited internal controls; lack of separation of duty. It is typical to have the accountant also be the office manager and receiving clerk. Problems can arise if for no other reason than on one double checks the work. Besides being more susceptible to errors and fraud, small businesses also are less likely to discover them because financial audits are almost never performed. It seems, as though a new scam comes to light every day, with electronic-media inspired frauds such as phishing and spoofing, joining old, low-tech fraud themes. The...
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...The Case of Kay Lemon Detect/Prevent Fraud in Financial Statements Professor K. Day Angela Born March 1, 2015 Case of Kay Lemon Lemon concealed her larceny by using the technique of false debits. These debits were made to the inventory account overvaluing the assets on the books. She used a billing scheme to cover her theft by inflating the amount of payment made to the vendor on the books. Per the books, the vendor was paid a larger amount than the actual invoiced amount and she was able to hide her theft. Her scheme was simple. However, as she continually debited the inventory account, the assets on the books increased year to year. The article stated the lighting store never took a physical inventory. Due to the lack of physical inventory, Lemon assumed she could hide her theft by inflating the inventory balance on the books. Each year, an external CPA prepared the tax returns each year for the small business. It is interesting that the CPA did not call attention to the increasing cost of goods sold compared to sales each year. A major read flag is a sudden increase in cost of goods sold and comparable sales to the year prior. Lemon was able to hide her fraud for eight years without being discovered despite numerous red flags. These red flags should have been readily seen by the CPA preparing the tax returns. The CPA never performed an audit of the company’s financials, but it would be assumed that the CPA would inform the company that their operating...
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...[ABSTRACT] from the analysis of accounting information distortion that is illegal, because the accounting fraud, manifestations and hazards start to analyze the accounting fraud of China's listed companies the motivation to find out the real causes of the accounting fraud, and through drawing and learn from foreign countries in the prevention and treatment of accounting fraud experience, to present my accounting fraud prevention and treatment response. [Keywords:] listed company; accounting fraud; Governance 1, the listed company's accounting fraud and harm the performance of the form (A) the manifestation of accounting fraud 1. Fictitious business activities. Listed companies, the most common means of accounting fraud, namely through the fictitious transactions, increasing sales revenue or other income, and inflated assets. Such methods often need to forge economic contracts to cope with bills, tax invoices, customs declarations and a series of legal documents, which not only had violated accounting rules is contract Law, tax Law and other important economic Laws and regulations of the open defiance and provocation, is of a serious nature economic crime. 2. Manipulation of related-party transactions. Fraud, fictitious companies, apart from economic activity, more by way associated with particular transaction, such as debt restructuring, asset replacement, non-monetary transactions, etc. to achieve the purpose...
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...AN EVALUATION OF THE INTERNAL CONTROLS SYSTEM FOR CASH FOR THE CASE OF NAIROBI SMALL BUSINESSES BY CLEOPHAS MUSINGA A Management Research Project Submitted In Partial Fulfillment For The Requirements Of The Award Of Bachelor Of Commerce (BCOM), School Of Business, University Of Nairobi JULY, 2008 DECLARATION This research project is our own original work and has not been submitted for academic purposes in any institution of higher leaning. Name Number Sign CLEOPHAS MUSINGA D33/6646/05 ………………………….. This research project has been submitted for examination with my approval as the university supervisor Signed……………………………. Date…………………………………………. Mr. Abdulatif Essajee Lecturer University of Nairobi TABLE OF CONTENTS DECLARATION i CHAPTER ONE 1 INTRODUCTION 1 1.1 Background of the study 1 1.2 Statement of the problem 5 1.3 Objectives of the study 6 1.4 Research questions 6 1.5 Scope of the study 6 1.6 Justification of the study 7 CHAPTER TWO 9 LITERARURE REVIEW 9 2.1 Evolution of internal controls 9 2.2 Components of Internal Controls 12 2.4 Relationship between a firm’s age and internal control 18 2.6 Internal controls in small businesses 19 CHAPTER THREE 21 RESEARCH METHODOLOGY 21 3.1 Research design 21 3.2 Population 21 3.3 Sample and Sampling Technique 21 3.4 Data collection methods 22 3.5 Data analysis 22 CHAPTER FOUR 23 DATA ANALYSIS AND FINDINGS 23 4.1 Introduction...
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...Financial Statement Fraud ACCT 710: Assignment 6-2 Shannon Baxley David Welch September 24, 2011 Table of Contents Abstract………………………………………………………………………………………3 Introduction…………………………………………………………………………………..3 Literature Reviews……………………………………………………………………………5 Conclusion…………………………………………………………………………………..16 References…………………………………………………………………………………...18 Abstract This paper describes financial statement fraud (FSF) and how it may occur within companies. The reason of this study was to research FSF detection and prevention. Research was also done to determine any influences that SAS (Statement on Auditing Standards) No. 82 and SAS No. 99 had on audit programs and the analysis from external auditors. Thirteen scholarly journals were reviewed in order to analyze SAS No. 82 and No. 99 and to show ways to detect and prevent fraud. Results found that managers and/or auditors can create fraud intentionally and unintentionally. There are ways to prevent fraud and educating managers and/or auditors is a good way to make sure fraud does not occur. Introduction Financial statement fraud (FSF) involves the premeditated issuing of phony information on a financial statement (financial statement fraud, 2011). FSF occurs when a company exaggerates assets or revenue, or when it devalues liabilities and expenses (financial statement fraud, 2011). The American Institute of Certified Public Accountants or AICPA defines fraudulent financial reporting as “intentional misstatements or omissions...
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...Accounting Ethics Accounting ethics is primarily a field of professional ethics, the study of moral values and judgements which are applied to the accountancy. “Accounting ethics can be defined as a set of distinct guidelines for a business to maintain clean balance sheets, accounting for their profits, losses and expenses incurred and prevent it from mishandling financial reports and statements” (Buzzle 2011). The nature of the work carried out by accountants and auditors requires a high level of ethics. Shareholders, investors, managers, and other users of the financial reports rely heavily on the financial statements of a company in order to make some big decisions and investments. And in the current business world, due to more and more business frauds and corporate collapses came out, attention has been drawn to ethical standards accepted within the accounting profession. In China, I often heard about that many companies act in some immoral ways, for example, preparing three books, overstating/understating their assets or net income, overstating the cost of inventory, and so on. The companies which misstate or hide some financial information may bring some substantial benefits to them in a temporary short time. This is the most obvious reason for the accounting frauds. As far as I know, preparing three books is the most common problem in many small companies. When they want to get a loan from the bank in order to make new investments or enlarge the productivity...
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...There are fraudulent accounting procedures taking place in many businesses all across the world, and many companies have been going a number of years covering up the real financial value of their company. Forensic accountants are becoming much needed as accounting frauds, financial scams, and various economic scandals are beginning to increase globally. This type of accountant does more than the typical accountant of a business or corporation, because their objective is to investigate fraudulent activities being used in the accounting departments of these companies. The amount of fraud being used by companies globally is most likely going to increase in the future as technology is evolving and scammers are getting more creative. This will also lead to a gradual decrease in the investment rates in companies, because the risks of investing in a corrupt business world will outweigh the benefits. Potential investors in companies using creative accounting techniques will increasingly become more at risk if there is no exponential growth in the field of investigative accounting. Accounting scams are becoming a part of the normal occurrence of day to day activities as this type of fraudulent activity is frequently gaining exposure in the daily news worldwide. As owners and managers conceal the financial state of their companies by manipulating their financial statements, the reliability and trust of these statements by investors are decreasing. Illegal accounting procedures are not being...
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...IMPORTANCE OF IMPLEMENTING FORENSIC ACCOUNTING IN LISTED COMPANIES IN MALDIVES BUSINESS RESEARCH METHODS AIHAM MOHAMED AHMED TP029473 Table of Contents CHAPTER 1 3 1.1 ITRODUCTION 3 1.2 BACKGROUND OF THE STUDY 3 1.3 STATEMENT OF THE PROBLEM. 4 1.4 RESEARCH OBEJCTIVES 5 1.5 SIGNIFICANCE OF THE STUDY 6 1.6 SCOPE OF FEASILBILTY OF THE STUDY 7 1.6.1 SCOPE 7 1.6.2 FEASIBILITY OF THE STUDY 7 CHAPTER 2- LITERATURE REVIEW 8 2.1 DEFINITION OF FORENSIC ACCOUTING. 8 2.2 IMPORTANCE OF FORENSIC ACCOUNTING IN LISTED COMPANIES IN MALDIVES. 9 2.2 FORENSIC ACCOUNTING HELPS TO ELIMINATE CORRUPTION. 10 2.3 FORENSIC ACCOUNTING INFLUENCES THE ORGANIZATIONAL PERFORMANCE 11 2.3 CURRENT SITUATION IN MALDIVES. 12 CHAPTER 3 – RESEARCH METHODOLOGY 14 THEORETICAL FRAMEWORK 14 3.2 TYPES OF DATA 16 3.3 SAMPLING DESIGN 17 3.4 DATA ANALYSIS 17 3.5 HYPOTHESIS TESTING 18 4. CONCLUSION 19 REFERENCE 20 IMPORTANCE OF IMPLEMENTING FORENSIC ACCOUNTING IN LISTED COMPANIES IN MALDIVES. CHAPTER 1 1.1 ITRODUCTION The main purpose for this research to be carried out is to investigate the importance of forensic accounting in the business world, and how important it is to implement a solid forensic accounting system in the listed companies in Maldives. This chapter provides an overview of the study that contains the background of the study, the statement of the problem, research objectives, significance of the study the limitations faced while doing the...
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...Forensic Accounting in Practice Brittany Baskin Dr. John Theodore Contemporary Business November 18, 2012 When you think of the term forensics, what comes to mind? For younger readers CSI probably rings a bell, while the elder crowd would probably think of Quincy. Both TV shows glorified the acts of forensics in a medical sense. But a lesser-known form of forensics has been growing in use around the world. In light of recent accounting scandals throughout the world, investors and regulators have searched for various different methods to improve the safety of investors through more diligent accounting reporting practices. Until recently, detecting fraud was thought to be a part of the responsibility of the accountant. Fraud was something the internal or external auditors were expected to guard against by their periodic audits. We now know that auditors can only check for compliance of a company’s books to the Generally Accepted Accounting Principles (GAAPs) and to company policy; therefore, a new category of accounting had to be established, one which revealed the fraud for companies with suspected fraudulent transactions. This new area of accounting is known as forensic accounting. To fully understand the definition of forensic accounting, we can use parts of the definition of forensic medicine and accounting, both taken from Webster’s Dictionary, to produce a clear definition. Forensic medicine is a “science that deals with the relation and application...
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...Miller Principals of Management 12th, December 2012 Sarbanes-Oxley Act’s Impact on Corporate Business Business scandals, Ponzi schemes and fraud are something we have all heard of. Over the years there have been many accounting scams from companies all over the world. We all remember one of the most publicized cases of fraud, Enron. For many years there has been fraudulent activity in many companies. Sarbanes-Oxley was established to prevent these types of scandals. Some believe it is not as valuable as once predicted, but is anything 100% preventable? Prior to Sarbanes-Oxley Act, the Securities and Exchange Commission was in place since 1934. It was established to police U.S. financial markets. However after years of failure and proof that the Securities and Exchange Commission’s wasn’t enough, the Sarbanes-Oxley Act was born. In 2002 Sarbanes-Oxley Act was created by Senator Paul Sarbanes and Representative Michael Oxley. Several large company failures not only sparked the public on fraud activity, but also these two gentlemen who decided to put into place something that would enforce financial honesty in businesses. There are several layers to the Sarbanes-Oxley Act. ,For example section 404 requires companies to have internal control report with their annual audits. This section of Sarbanes-Oxley also puts accountability and personal liability on the accounting teams of the companies. The infamous Enron scandal unraveled itself in 2001. Enron marketed gas...
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...Corporate Governance, Internal Controls, and Ethics: What Went Wrong? Melanie O. Anderson Slippery Rock University INTRODUCTION THE ACCOUNTING FUNCTION Koss Corporation is a Milwaukee company whose principal business is the design, manufacture, and sale of stereo headphones and related accessories. Michael Koss is the CEO; his father, John Koss, founded the company in 1958. The company has trademarks and patents for its products to differentiate itself from the competition. Koss Corp. has a six-man Board of Directors, including Michael and his father. John is 81 years old and serves as chairman of the Board. Michael is 57 years old and serves as vice chairman, president, CEO, COO, and CFO.1 The other Board members have served 25 years. Neither Michael nor the other Board members have financial backgrounds. Michael graduated college with an anthropology degree. Although Koss Corp. is a multimillion dollar company, it only employs 73 people, which auditors consider a “small business.” Michael has worked for Koss Corp. since 1976, and earns a base salary of $295,000; his total compensation, including options, is over $800,000.2 Selected financial data is presented in Table 1.3 The accounting work was handled by Sujata “Sue” Sachdeva, vice president of finance, secretary, and principal accounting officer—in a small business, employees typically have more than one responsibility. Sue, whose family was from India, had been employed at the company for 17 years...
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...Worksheet — Business and fraud risk identification 511 Page 1 of 7 Entity Period ended Objective: To provide additional guidance on business and fraud risk identification. First identify sources of risk through understanding the entity (Form 510). This worksheet provides some additional sources of business and fraud risk that may be considered along with some typical control procedures. Cross reference the additional risk factors identified to Forms 520/522 (or their equivalent) where the risks can be assessed. This form does not include risks that relate to a particular industry or to a particular engagement. Note: Many business risks also create opportunity for fraud to occur (such as a new accounting system). Record such risks on both Form 520 and Form 522. 1. Corporate governance structure Consider corporate values, direction, major decisions, spending and internal control systems. Business risk factors Poorly skilled or inexperienced directors No audit committee Lack of board members who are independent of management No strategic business plan No code of conduct Infrequent board meetings Poorly skilled or inexperienced audit committee Limited or no internal audit function Management dominated by a single person or a small group Inadequate policies and internal controls over major decisions and expenditures Management roles and responsibilities not clear (no senior management job descriptions) High turnover in board, management or accounting personnel Fraud risk...
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...different accounting records which can be used in MonteHodge: Accounting is a crucial discipline for keeping track of quantifiable factors for a business or individual. Accountants are primarily employed to track the flow of money through an organization. In some cases, they are charged with ensuring legal compliance. In others, they are more specialized in optimizing that cash flow. Accountants also organize and aggregate financial information and produce reports for people less experienced in the discipline. (Source: Purpose of Accounting | eHow.comhttp://www.ehow.com/about_4679149_purpose-accounting_.html#ixzz22YwT2kpu ) The accounting system for your business consists of several types of records. Although there are many types of underlying financial records, such as invoices, journals, and receipts, the major accounting records are types of financial statements that summate the financial status of a business. Each type of accounting record details certain information about your business, and each is used for a different purpose, but each type is also linked to another record in your set of financial statements. Although modern accounting software creates these statements automatically based on transactions you enter, it’s still important to understand how each type of accounting record is used. Income Statement The income statement lists all your business income and expense transactions. It is also known as a profit and loss statement. This type of accounting record...
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...America In discussing the impact of one of the most important laws passed in Congress to legislate the accounting and reporting rules of corporations, I need to give a brief definition and some background information for the Sarbanes-Oxley Act. In 2002, the Sarbanes-Oxley Act was passed into law by the United States Congress. After a series of high profile corporate scandals, such as Enron and WorldCom, the Congress of the United States passed this legislation “to improve and maintain investor confidence. The law requires companies to have more independent board directors (not just company insiders), to adhere strictly to accounting rules, and to have senior managers personally sign off on financial results.” (Bateman, 173). Before the fall of corporations like Enron and WorldCom, there was also far too much corporate fraud during the Internet bubble. According to Stanley Block and his co-authors, “The major accounting firms had failed to detect fraud in their accounting audits, and outside directors were often not provided with the kind of information that would allow them to detect fraud and mismanagement.” (Block, 12). What is the definition, in a nutshell, of the Sabarnes-Oxley Act? This is something that needs to be defined and understood before examining the positive and negative impacts of this law upon corporate America. The Sarbanes-Oxley Act “establishes strict accounting and reporting rules in order to make senior managers more accountable and to improve and maintain investor...
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...1. Justify how the reporting requirements of the PCAOB reduce the chance of financial fraud. Basically, the goal of the Public Company Accounting Oversight Board is to improve quality of audited financial statements, reduce the risk of auditing failures, and increase public trust in financial reporting processes and of the auditing profession. In order for this to happen PCAOB must refocus and remind auditors of the standards required of them regarding fraud and for them to be diligent about their responsibilities relating to fraud. The purpose of auditing a financial statement is to detect material misstatements and false or missing information caused by fraud. The PCAOB reporting requirements place a lot of emphasis on disclosure in financial reporting however the board provides guidance and information that are relevant which should be disclosed within the financial statements. PCAOB also dictates to management and to the auditor their roles and responsibilities in financial reporting. PCAOB requires these standards and duties to be followed reinforces the accounting professionals to be able to reduce fraud in financial reporting at the same time ensuring investors receive accurate financial information. According to Rischall, PCAOB has established auditing, quality control, ethics, and independence standards to be used by registered public accounting firms in the preparation of audited financial statements for publicly traded companies, as required by the Sarbanes-Oxley...
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