Aa205 Risk Management (Fraud)

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11/10/2012

1

2

Junction Falls Finance and Accounting Services

AA205 Risk Management, Control and Ethics

Joe Metros Director

Seminar 7.1: Ethics, Fraud Risk and Communication

Libby Jones –
Chief Accountant

Group 6
Marsee Weston –
Fixed Asset
Manager

Overview

Scott Smyth –
Cash/Debt &
Investment
Manager

Scenario 1

Cathy Elgin –
Accounting
Assistant (A/R)

Scenario 2

Bob Thomas –
Accounting
Assistant (A/P)

Scenario 3

Nora Stewart –
Accounting
Assistant (A/P)

Scenario 4

Scenario 5

Chuck Sanchez –
Accounting
Assistant (Payroll)

Past Fraud
Cases

3

4

Combining Questions 1 & 2

Junction Falls Finance and Accounting Services
Absence of internal audit staff

Identify and discuss fraud factors in each of the scenarios

Audited by Watson & Watson, LLP for past 13 years
Suggest specific steps that should be taken to investigate
if misappropriation or fraud is occurring

Collected $89m in gross operating revenue last year

Overview

Scenario 1

Scenario 2

Scenario 3

Scenario 4

Scenario 5

Past Fraud
Cases

Overview

Scenario 1

Scenario 2

Scenario 3

Scenario 4

Scenario 5

5

Past Fraud
Cases

6

Scenario 1 – Accounts Payable Process
Case Facts
Nora & Bob (A/P clerks) check each other’s
documents for accuracy daily

Scenario 1
Accounts Payable Process

Each Tuesday, Libby (Chief Accountant)
- collects invoices to be paid for that week
- prepares documentation so that checks can
be drawn and mechanically signed

Overview

Scenario 1

Scenario 2

Scenario 3

Scenario 4

Scenario 5

Past Fraud
Cases

1

11/10/2012

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7

Scenario 1 – Accounts Payable Process
Case Facts

Scenario 1 – Accounts Payable Process
Case Facts

Every Wednesday morning, Libby
After Libby got into an accident,
- collects printed checks
- verifies each check with the check register
- confirms all supporting documentation
- sends the checks to mailroom for delivery to
vendors

- Joe (Director) took over her duties.
- After completing the necessary reconciliation,
Joe returned paid invoices to Bob and Nora.

Following which, Libby

Upon receipt of invoices

- forwards daily check register to Scott for bank
reconciliation
- returns invoices to Nora and Bob for filing
- reconciles the AP subsidiary ledger to the
control account
Overview

Scenario 1

Scenario 2

Scenario 3

- Nora discovers unfamiliar invoice & does not
recall processing this invoice.

Scenario 4

Scenario 5

Past Fraud
Cases

Overview

Scenario 1

Scenario 2

Scenario 3

Scenario 4

Scenario 5

Past Fraud
Cases

9

10

Scenario 1 – Accounts Payable Process
Possible Situations

Scenario 1 – Accounts Payable Process
Fraud Factors

Opportunity
Libby may have created a fictitious company.

)
Fraud
Triangle

Libby may have forged fake invoices to make
payment to herself or related parties.

Rationalization

Pressure

Overview

Scenario 1

Scenario 2

Scenario 3

Scenario 4

Scenario 5

Past Fraud
Cases

Overview

Scenario 1

Scenario 2

Scenario 3

Scenario 4

Scenario 5

Past Fraud
Cases

11

12
Opportunity

Opportunity

Opportunity

Pressure

Rationalization

Pressure

Ineffective internal control (Bob and Nora checking
each other’s documents daily is ineffective against
Libby creating fake invoices)

Pressure

Rationalization

No segregation of duties for Libby: custodial,
recording and authorisation roles are not separated.
Too much power assigned to Libby.

Libby was not promoted to Director despite being in the
company for 15 years. Greed for a greater reward.

Unexpected financial needs, personal finance losses

Libby may have established a strong rapport with
external auditor, can easily influence external
auditor

Overview

Scenario 1

Scenario 2

Scenario 3

Scenario 4...
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