Fraud Memo to a Firm
Focusing on Major Fraud
Dear forensic audit team, one of the key co values of our audit firm is to make sure the accounts are free from the financial misstatement by eliminating errors and fraud. K- Mart is one of the chains of the departmental store in the America which provides merchandise at price lower than the market rate. Writers who offer auditing assignment help at Edudorm essay writing service notes that in recent years the Kmart has grown very much. As the firm grows its operation a lot of fraud may be involved. I expect a full corporation of employees. There is a lot of fraud which may be associated with this kind of business, which has been discussed below.
1. Management overriding the controls.
In process of identification risk, it is very important to take into account the seniors who can override the system and make it hard to identify fraud. This fraud occurs because some few individuals know how to commit a crime and cover that crime. They normally use their knowledge to commit this crime, for example, a manager with authority to approve new suppliers will make false invoices and submit for payment (Peecher, 1996).
2. Fraudulent financial reporting.
This is a situation where people who are responsible for making financial statement may present a statement which is not true or they do not give a free and fair view of the firm’s position.
Financial statements manipulation will lead to inappropriately revenues reporting, inappropriate expensing, and improper balance sheet.
3. There will be a misappropriation of the asset.
The employees may take advantage and use the asset for their personal use. This fraud mostly occurs where a certain group of individual has given some facilities like vehicles for business purpose but this purpose is diverted for personal interest. This will also include stealing of tangible or intangible asset.
4. Payroll fraud
This will occur when the human resources manager works in collusion with the accountant and misstate the payroll and including dummy employees and ghost workers and the money end up in their pocket.
5. Information Technology Fraud.
Organizations nowadays rely on IT and communication in order to conduct business and proper communication. If an IT department has been poorly designed or improper controlled will lead to fraud. Experts who offer accounting assignment help at Edudorm essay writing service indicates that computer systems are nowadays linked with global networks so will face cyber fraud and other threats like hacking of financial information. Where in the information has been hacked or Web defacement will lead to sabotage of data, unauthorized access of the data (Peecher, 1996).
6. Collusion between employees with customers and suppliers.
Some of the employees collude with suppliers and customers where they make fake invoices, creation of fake payments and theft of stock. Some false expenses can be claimed by the employees from the finance department.
Fraud mitigation
All the above frauds are associated in the business similar to that of K-Mart firm. Below are some the listed ways on how to mitigate this fraud and detect them at an early stage.
Where management is overriding the system a lot of understanding the general risks specific risk to the firm should be analyzed. This will involve getting information mostly from external sources like news, industry, regulatory complaints and so much more. Organization’s business processes need to understand clearly and information gathering. Internal interviewing can be done to obtain this information prevent this fraud (Jans, 2011).
Where the financial statement is being suspected not to give free and fair view the company may involve an external audit to do a thorough audit by tracing back all the relevant information. The sequential asset counting should be done and check the registration details of the business assets.
In the area of preventing fraud on the payroll, there must authorization of more than one person. The person who prepares the payroll should not the same person who authorizes the payroll to be the bank and should be very different from a person who writes and signs the check. The file which contains the letters ointment should be compared with the payroll to identify whether they tally.
The business needs to employ staffs who are qualified with technology that should keep changing the authorization code to limit a unauthorized access. Tutors who offer finance assignment help at Edudorm essay writing service acknowledges that the information control department should be having the different level of authorizing the files. The system should be created in a way that if unnecessary access is done the information will be sent to different departmental seniors.
The staffs who deal with third parties like customers and suppliers should be regularly rotated so as to eliminate familiarity threat. If a customer or supplier become familiar that when they start organizing and creating a way of collusion. Where they conjunct and create wrong payment information.
Overview
A very active approach will be needed when managing fraud risk. Elimination of errors and fraud is one of the key likely uneconomical or unachievable, organizations make constructive steps to limit their exposure. The effective fraud risk governance combination, assessment of fraud risk, detection and prevention of errors should be very strong. It is very important to note that dealing with risk and fraud can be very constructive, and should be forward-thinking. It can also position a firm in a leadership position in the industry it operates.
References
Jans, M. v. (2011). A business process mining application for internal transaction fraud mitigation. Expert Systems with Applications, 13351-13359.
Peecher, M. E. (1996). The influence of auditors’ justification processes on their decisions: A cognitive model and experimental evidence. Journal of Accounting Research, 125-140.
