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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?
Accounting Information Systems
Solutions
Accounting Information Systems
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?
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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