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FRAUD SCHEME - HEALTH INSPECTOR A city health inspector threatens to close down a restaurant by issuing a fake health violation notice if the owner does not make a financial payment to the inspector. If the restaurant owner does not cooperate, he will not be able to open for business and the publicity will drive away his customers permanently. Faced with a threat of economic loss, the owner makes the payment. Required What type of fraud is this, and what controls can be implemented to prevent or detect the fraud?

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Accounting Information Systems

10th Edition
Hall + 1 other
Publisher: Cengage Learning,
ISBN: 9781337619202

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Chapter
Section
BuyFindarrow_forward

Accounting Information Systems

10th Edition
Hall + 1 other
Publisher: Cengage Learning,
ISBN: 9781337619202
Chapter 3, Problem 1P
Textbook Problem
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FRAUD SCHEME - HEALTH INSPECTOR

A city health inspector threatens to close down a restaurant by issuing a fake health violation notice if the owner does not make a financial payment to the inspector. If the restaurant owner does not cooperate, he will not be able to open for business and the publicity will drive away his customers permanently. Faced with a threat of economic loss, the owner makes the payment.

Required

What type of fraud is this, and what controls can be implemented to prevent or detect the fraud?

To determine

Explain the type of fraud and the control that can be implemented.

Explanation of Solution

Ethics:

Ethics can be defined as a conduct adopted by an individual in making the selection between right and wrong. The ethics in business can be divided into four areas, such as equity, rights, honesty and exercise of corporate power.

Economic extortion is a fraud that is done by the health inspector. Economic extortion is a kind of fraud under which the employees demand money from the owner in order to make decisions in favor of the owner.

It is very difficult to detect the economic extortion fraud because generally companies do not have records of the activities done by the employees. Management and auditors should take a proactive approach to cover the activities that are done by the employees...

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Chapter 3 Solutions

Accounting Information Systems
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Ch. 3 - What are the computer ethical issues regarding...Ch. 3 - What are the computer ethical issues regarding...Ch. 3 - What are the computer ethical issues regarding the...Ch. 3 - What are the computer ethical issues regarding...Ch. 3 - What are the computer ethical issues regarding...Ch. 3 - What are the computer ethical issues regarding...Ch. 3 - What is the objective of Statement on Auditing...Ch. 3 - What are the five conditions that constitute fraud...Ch. 3 - Name the three fraud-motivating forces.Ch. 3 - What is employee fraud?Ch. 3 - What is management fraud?Ch. 3 - What three forces constitute the triangle of...Ch. 3 - How can external auditors attempt to uncover...Ch. 3 - What is lapping?Ch. 3 - What is collusion?Ch. 3 - What is bribery?Ch. 3 - What is economic extortion?Ch. 3 - What is conflict of interest?Ch. 3 - Define check tampering.Ch. 3 - What is billing (or vendor) fraud?Ch. 3 - Define cash larceny.Ch. 3 - What is skimming?Ch. 3 - What are the four broad objectives of internal...Ch. 3 - What are the four modifying assumptions that guide...Ch. 3 - Give an example of a preventive control.Ch. 3 - Give an example of a detective control.Ch. 3 - Give an example of a corrective control.Ch. 3 - What are managements responsibilities under...Ch. 3 - What are the five internal control components...Ch. 3 - What are the six broad classes of physical control...Ch. 3 - What is the purpose of a valid vendor file?Ch. 3 - Give one example of an error that a check digit...Ch. 3 - What are the primary objectives of a batch...Ch. 3 - If all of the inputs have been validated before...Ch. 3 - What is the objective of a transaction log?Ch. 3 - How can spooling present an added exposure?Ch. 3 - What is the purpose of a limit check?Ch. 3 - What is the purpose of a range check?Ch. 3 - What is a validity check?Ch. 3 - What information would a batch control record...Ch. 3 - Distinguish between ethical issues and legal...Ch. 3 - Some argue against corporate involvement in...Ch. 3 - Although top managements attitude toward ethics...Ch. 3 - When a company has a strong internal control...Ch. 3 - Distinguish between employee fraud and management...Ch. 3 - The estimates of losses annually resulting from...Ch. 3 - How has the Sarbanes-Oxley Act had a significant...Ch. 3 - Discuss the concept of exposure and explain why...Ch. 3 - If detective controls signal error flags, why...Ch. 3 - Discuss the nonaccounting services that external...Ch. 3 - Discuss whether a firm with fewer employees than...Ch. 3 - An organizations internal audit department is...Ch. 3 - According to COSO, the proper segregation of...Ch. 3 - Explain the five conditions necessary for an act...Ch. 3 - Distinguish between exposure and risk.Ch. 3 - Explain the characteristics of management fraud.Ch. 3 - The text identifies a number of personal traits of...Ch. 3 - Give two examples of employee fraud, and explain...Ch. 3 - Discuss the fraud schemes of bribery, illegal...Ch. 3 - Distinguish between skimming and cash larceny.Ch. 3 - Distinguish between a shell company fraud and...Ch. 3 - Why are the computer ethics issues of privacy,...Ch. 3 - A profile of fraud perpetrators prepared by the...Ch. 3 - Explain why collusion between employees and...Ch. 3 - Because all fraud involves some form of financial...Ch. 3 - Explain the problems associated with lack of...Ch. 3 - Explain the problems associated with lack of...Ch. 3 - Explain the problems associated with questionable...Ch. 3 - Explain the problems associated with inappropriate...Ch. 3 - Explain the purpose of the Public Company...Ch. 3 - Why is an independent audit committee important to...Ch. 3 - What are the key points of the Issuer and...Ch. 3 - In this age of high technology and computer-based...Ch. 3 - What are the classes of transcription errors?Ch. 3 - What is the purpose of a check digit?Ch. 3 - Does a hash total need to be based on a financial...Ch. 3 - Explain the GFS backup technique. 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