Fraud Examination
6th Edition
ISBN: 9781337619677
Author: Albrecht, W. Steve, Chad O., Conan C., Zimbelman, Mark F.
Publisher: Cengage,
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Two very common ways that employees commit fraud against their employers is the misstatement of reimbursable expense accounts and the misuse of office supplies for personal purposes. Although these schemes are usually not individually significant, their magnitude can be damaging if these practices are widespread. Please comment on these types of fraud (and other examples of employee fraud) and what internal controls they would put in place in an organization to curb this activity.
Cressey’s “fraud triangle” states that three factors—non-shareable financial need, perceived opportunity, and rationalization—are present in cases of occupational fraud. Which of these three factors, if any, is the most important in causing executives, managers, and employees to commit occupational fraud?
In the scenario, where employer has been putting more emphasis on controlling costs for the various businesses. With the slowing of overall spending in one sector, while ordering managers to closely monitor expenses, selling several companies and giving vice presidents greater responsibility for statements of financial positions. Whatpositive and negative consequences might this pose to the company in future fraud prevention? Outline at least three of each type.
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- A code of ethics is an important element of a fraud prevention program. Which of the following would diminish the effectiveness of a company’s code of conduct?a. The establishment of a chief ethics officer.b. The establishment of a hotline for reporting unethical behavior.c. The violation of the code of ethics by senior management.d. The posting of the code of ethics in the company workplace.arrow_forwardRationalization for fraud can fall under two categories: “no harm” and “no responsibility.” Assume an employee is directed by management to reduce recorded expenses at year-end by insignificant amounts individually, but which are material in total. How might the employee justify her actions if questioned by the auditor with respect to no harm and no responsibility? What stage of moral development in Kohlberg’s model is best illustrated by the employee’s actions? Why?arrow_forwardWhat are the perceived elements that need to be present for workplace fraud to occur? motive, preconception, understanding incentive, opportunity, rationalization identity, work, cash people, motive, preconceptionarrow_forward
- The management fraud is committed by a top level management employee? Give an example of those top level employee that can be classified as management fraud?arrow_forwardThe CEO and the CFO of Automation Company were both aware that the company’s controller was reporting fraudulent revenues. Upper-level executives are paid very large bonuses when the company meets the earnings goals established in the company’s budgets. While the CEO had pushed the CFO and controller to “make the numbers,” he had not told him to “make up the numbers.” Besides, he could plead ignorance if the fraud was ever discovered. The CFO knew he should prohibit the fraudulent reporting but also knew the importance of making the numbers established in the budget. He told himself that it wasn’t just for his bonus but for the stockholders as well. If the actual earnings were below the budgeted target numbers, the stock price would drop and the shareholders would suffer. Besides, he believed that the actual revenues would increase dramatically in the near future and they could cover for the fraudulent revenue by underreporting these future revenues. He concluded that no one would get…arrow_forwardThe CEO and the CFO of Automation Company were both aware that the company’s controller was reporting fraudulent revenues. Upper-level executives are paid very large bonuses when the company meets the earnings goals established in the company’s budgets. While the CEO had pushed the CFO and controller to “make the numbers,” he had not told him to “make up the numbers.” Besides, he could plead ignorance if the fraud was ever discovered. The CFO knew he should prohibit the fraudulent reporting but also knew the importance of making the numbers established in the budget. He told himself that it wasn’t just for his bonus but for the stockholders as well. If the actual earnings were below the budgeted target numbers, the stock price would drop and the shareholders would suffer. Besides, he believed that the actual revenues would increase dramatically in the near future and they could cover for the fraudulent revenue by underreporting these future revenues. He concluded that no one would get…arrow_forward
- The CEO and the CFO of Automation Company were both aware that the company’s controller was reporting fraudulent revenues. Upper-level executives are paid very large bonuses when the company meets the earnings goals established in the company’s budgets. While the CEO had pushed the CFO and controller to “make the numbers,” he had not told him to “make up the numbers.” Besides, he could plead ignorance if the fraud was ever discovered. The CFO knew he should prohibit the fraudulent reporting but also knew the importance of making the numbers established in the budget. He told himself that it wasn’t just for his bonus but for the stockholders as well. If the actual earnings were below the budgeted target numbers, the stock price would drop and the shareholders would suffer. Besides, he believed that the actual revenues would increase dramatically in the near future and they could cover for the fraudulent revenue by underreporting these future revenues. He concluded that no one would get…arrow_forwardThe CEO and the CFO of Automation Company were both aware that the company’s controller was reporting fraudulent revenues. Upper-level executives are paid very large bonuses when the company meets the earnings goals established in the company’s budgets. While the CEO had pushed the CFO and controller to “make the numbers,” he had not told him to “make up the numbers.” Besides, he could plead ignorance if the fraud was ever discovered. The CFO knew he should prohibit the fraudulent reporting but also knew the importance of making the numbers established in the budget. He told himself that it wasn’t just for his bonus but for the stockholders as well. If the actual earnings were below the budgeted target numbers, the stock price would drop and the shareholders would suffer. Besides, he believed that the actual revenues would increase dramatically in the near future and they could cover for the fraudulent revenue by underreporting these future revenues. He concluded that no one would get…arrow_forwardBelow are several statements about occupational fraud.1. For most large companies, occupational fraud is minimal and internal control procedures are unnecessary.2. Managers have a variety of reasons for manipulating the numbers in financial statements, such as maximizing their compensation, increasing the company’s stock price, and preserving their jobs.3. Internal control procedures include formal policies and procedures related to (1) safeguarding the company’s assets and (2) improving the accuracy and reliability of accounting information.4. “Cooking the books” is a phrase used by accountants to indicate the preparation of financial statements that are free of manipulation.5. Most occupational fraud cases involve misuse of the company’s resources.6. Common types of financial statement fraud include creating fictitious revenues from a fake customer, improperly valuing assets, hiding liabilities, and mismatching revenues and expenses.Required:State whether the answer to each of the…arrow_forward
- When comparing the auditor's responsibility for detecting employee fraud and for detecting errors, the profession has placed the responsibility Select one: a. on the senior auditor for detecting errors and on the manager for detecting employee fraud b. more on discovering employee fraud than errors c. equally on discovering errors and employee fraud d. more on discovering errors than employee fraudarrow_forwardWhat is the concept behind separation of duties in establishing internal control? a. Employee fraud is less likely to occur when access to assets and access to accounting records are separated. b. The company’s financial accountant should not share information with the company’s tax accountant. c. Duties of middle-level managers of the company should be clearly separated from those of top executives. d. The external auditors of the company should have no contact with managers while the audit is taking place.arrow_forwardThere are two common causes of business and accounting fraud:• A failure of individual character• A culture of greed or ethical indifference within an organizationWrite a brief memo describing how these two factors could lead to accountingfraud.arrow_forward
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