Fraud Prevention and Management Recommendations

“The control environment sets the tone of an organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure.” The Committee of Sponsoring Organizations of the Treadway Commission (COSO) published the Internal Control–Integrated Framework in 1992. As summarized above one can see the importance of the implementation of an effective control environment, as it sets the foundation for the other 4 components of internal control. The control environment is made up fundamental smaller components. The ones that were particularly relevant to BMIS are the use of board of directors and audit committee, management philosophy and operating style, and human resource policies and practices. If management doesn’t prioritize control, then the rest of the organization will not put precedence on following policies and procedures either. This was clearly evident at Bernard L. Madoff Investment Securities LLC (BMIS), and ultimately led to their downfall.

The design and implementation and objectives of company controls are not adequate to meet the control objectives. The control environment control objective is ineffective. This control objective lacks a written policy on ethical conduct, is lacking oversight from the board of directors and audit committee, lacks a consistent style and philosophy from management, and lacks a strong commitment to competence. The risk assessment control objective is effective but lacks any antifraud program and controls. The information and communication control is ineffective. A virus has been detected and is affecting the files of the company. This control is lacking a strong IT department. The general controls financial reporting control objective is effective but is weak in detecting or preventing material misstatement. The monitoring control objective is ineffective; this control has need of an internal auditor.

1. To have a strong internal control system, a business must have good administrative controls. Administrative controls include: A. B. C. D. the reconciliation of the bank statement. the accuracy of the recording procedures. assessing compliance with company policies. maintenance of accurate inventory records.

Having internal controls is one thing, but how the company evaluates that control is a matter all by itself. Being an independent auditor, it is our job to understand an entity and

An Employee Assistance Program, also known as an EAP, is an employer funded counselling service to help employees deal with social and emotional problems that impact on their well-being and on their work.

It is important to first gain an understanding of the various types of fraud, in order to aid understanding in regards to the prevention of fraudulent activity. This paper begins with a review of the definition of financial fraud, and identification of the different fraud types. Further, included is an examination of what motivates individuals to commit fraud, including an identification of some of the method in which people commit fraud. A discussion of the importance of the fraud triangle, and how rationalization contributes to fraud is a key area of focus. Finally, there is an examination of some controls that prevent and detect fraudulent behavior, including the value and importance of understanding the nature of fraud for

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

Some industry-specific factors, such as having valuable near-cash assets, can increase the organization's vulnerability. Also they will need to rationalize the actions as justifiable. The individuals committing the fraud must first convince themselves that their behavior is acceptable or will be temporary. For example, Barry Minkow’s believed that the lies and deceit are for the betterment of his company and that with time everything will eventually return to normal.

Fraudulent, erroneous, and illegal acts committed by a public company, usually at a managerial or executive level, have been a very serious problem for many years and have prompted development of strict and updated regulations, such as the Sarbanes-Oxley Act, in an attempt to prevent these occurrences. Unfortunately, these new or updated regulations are not enough to prevent these acts from happening, thus not alleviating the auditors of their responsibility to detect fraud. Some methods that management and auditors can employ to prevent and detect fraud, errors, and illegal acts are: improving knowledge, improving skills,

Combating fraud in the private sector is a difficult task. Trying to combat fraud in the public sector is daunting. In 1999 15.7% of the American workforce were employed by a government entity (federal, state, and local).[1] Mirroring society, government will have its share of perpetrators. The difference from the private sector is in the scope of the fraud committed, the loss of the public trust, the blaring headlines from news media, and difficulty in making necessary changes to combat the problems.

The final responsibility for the integrity of an SEC registrant’s internal controls lies on the management team. U.S. companies need to refer to a comprehensive framework of internal control when assessing the quality of financial reporting to determine that financial statements are being presented under General Accepted Accounting Principles, GAAP. The widely used framework is referred as COSO, Committee of Sponsoring Organizations of the Treadway Commission, sponsored by the following organizations American Accounting Association, the American Institute of CPA’s, Financial Executives International, the Institute of Internal Auditors, and the Institute of Management Accountants. COSO’s defines internal control as:

The control environment is what sets the tone for an organization and is the foundation for all other components of internal control. It provides discipline and structure and reflects the ethical values, integrity and competencies of the organization. The control environment is very important to effective internal control over financial reporting to an audit client like WorldCom, because good designs can prevent and detect frauds and errors. But because WorldCom had such a poor control environment, the company would require more testing for an audit. This shows that the board did not exercise oversight responsibilities over financial reporting or internal controls.

A business can not work out without an account system, which includes internal. Internal controls are used by companies to make sure financial information is accurate and valid. Strong internal controls are signs of a financially healthy company and protect the company’s integrity. Strong internal controls can also increase a company’s profitability. There are several types of internal controls that companies used to protect themselves such as: Segregation of duties, asset purchases, supervisor review, internal audits and adequate documents and records. This paper will discuss several topics from a case study about And the Fraud

Effective internal controls protect a company’s assets, maintain compliance, improve operations, prevent fraud, and promote accuracy in financial reporting. In 1992 the