BUS FPX 4068 Assessment 2 Fraud Examination: Theory, Practice, & Methods

BUS FPX 4068 Assessment 2 Fraud Examination: Theory, Practice, & Methods

Student Name

Capella University

BUS-FPX4068 Contemporary Auditing Using Investigative Accounting Practices

Prof. Name:

Date

Case 1: Fraud Detection and Prevention at a Garden Center

Analysis of Fraud Risks and Control Measures

Jacob Kent, general manager of a large garden center in Columbus, manages a multi-departmental operation with control measures in place for cash receipts. Recently, concerns about potential check fraud have surfaced due to returned checks for insufficient funds. Addressing these concerns requires examining possible fraud schemes, implementing robust control measures, and identifying employees who could exploit procedural gaps.

Possible Check Fraud Schemes

• Check Alteration: Employees may alter customer checks to change the payee or the amount.
• Check Forgery: Employees could forge signatures or create counterfeit checks.
• Check Kiting: Exploiting processing delays to fabricate false balances is another potential risk.

Control Processes to Mitigate Risks

• Segregation of Duties: Assigning distinct roles for cash handling, deposit preparation, and account reconciliation reduces collusion risks.
• Mandatory PIN Entry: Requiring a unique PIN for each transaction increases accountability.
• Regular Reconciliation: Comparing sales reports, deposit slips, and bank statements periodically helps detect discrepancies.
• Employee Training: Educating employees on fraud risks and ethical expectations fosters a vigilant workplace culture.

Identifying Employees at Risk

• Cashiers and Department Managers: These roles involve direct access to cash and deposit preparation.
• Salespersons: Employees entering PINs for transactions could misuse access for manipulation.
• General Manager: While less likely, the GM’s oversight role requires vigilance to ensure no fraudulent activity occurs.

Case 2: Financial Reporting Integrity at the Keel Company

Ethical and Accounting Challenges

Heather Lockard, CFO of the Keel Company, is navigating ethical dilemmas after an earnings decline and a shift in ownership structure. Options to stabilize earnings raise questions about compliance with Generally Accepted Accounting Principles (GAAP) and financial statement fraud risks.

Acceptability of Practices Under GAAP

• Increasing Percentage of Completion: Violates GAAP if completion estimates are inaccurate or manipulated.
• Recognizing Revenue on Defaulted Contracts: Premature recognition without collection certainty is a breach of GAAP.
• Mark-to-Market Accounting: Acceptable only if implemented transparently and consistently with GAAP principles.

Potential for Financial Statement Fraud

Options involving premature revenue recognition or manipulated estimates could mislead stakeholders, constituting financial statement fraud.

Recommended Course of Action

• Adhere to GAAP Principles: Ensure accurate and ethical financial reporting by following established standards.
• Communicate Effectively: Transparently disclose the financial situation to stakeholders, including the new trustee.
• Explore Alternatives: Identify sustainable solutions that align with legal and ethical norms for long-term stability.

Case 3: SOX 404 Compliance for a Biomedical Company

Compliance Feasibility

A small biomedical company with a three-member management team plans to go public, requiring compliance with Sarbanes-Oxley Act (SOX) Section 404. Achieving compliance is possible through tailored internal controls and governance measures.

Steps to Achieve Compliance

• Establish Internal Controls: Implement robust systems for financial reporting, emphasizing segregation of duties and process documentation.
• Expand Governance Structure: Include independent board members with relevant expertise to strengthen oversight.
• Engage External Auditors: Independent auditors can evaluate compliance and provide stakeholder assurance.

In summary, all three cases underscore the importance of ethical conduct, adherence to regulatory standards, and implementing effective controls to prevent fraud and ensure financial reporting integrity.

References

Contract Security. (n.d.). Understanding the risks of open-source software [White paper]. Retrieved from https://www.contrastsecurity.com/hubfs/Understanding-theRisks_WhitePaper_042020_Final.pdf?hsLang=en#:~:text=While%20OSS%20can%20energize%20application,from%20components%20with%20code%20vulnerabilities.

William, H., George, Y., & Jay, L. (2011). Forensic Accounting and Fraud Examination (2nd ed.). McGraw-Hill Learning Solutions. Retrieved from https://capella.vitalsource.com/books/1260492990

Santorinichicago. (2022, February 8). How to calculate beverage percent restaurants. Retrieved from https://www.santorinichicago.com/how-to-calculate-beverage-percent-restaurants/

BUS FPX 4068 Assessment 2 Case Studies