Fraudulent Reporting Memo
The purpose of this memo is to disclose fraudulent reporting I have found in the company’s financial information in relation to product costs. Direct costs of work from private clients are being included in the overhead costs of the company. This increases the total overhead cost that is allocated amongst clients cost of sales, including the Defense Department of the government.
The company has cost-plus contract with government in building and maintaining roads to military bases. In cost-plus contracts we are reimbursed for the direct costs and a portion of the overhead costs. The profit comes from a fixed percent of cost of sales that is added onto the direct and overhead costs as a markup. With the Defense Department, the allocated overhead of the sale is reimbursed and does not take away …show more content…
The penalties of the False Claims Act are between $5,500 to $11,000 in civil penalties and three times the amount the company has overcharged in damages. If changes are not made, the next external audit may find these mistakes and report a lack of compliance with Generally Accepted Accounting Principles. This would cause our customers to learn about this fraud from a source other than the company. This will cause irreversible effect on our reputation with our current and prospect clients.
Suggested solutions to the problem are to first investigate internally to find the employees involved in the fraud. Then disclose the information to our clients to avoid extra damage both legally and with our company’s reputation. Finally, strengthen the internal controls to protect against future opportunities for fraud, specifically under financial reporting.
Overcharging the government by overstating overhead with direct cost of private account is considered fraud. The problem needs to be addressed before any further damage is done to the
The company has cost-plus contract with government in building and maintaining roads to military bases. In cost-plus contracts we are reimbursed for the direct costs and a portion of the overhead costs. The profit comes from a fixed percent of cost of sales that is added onto the direct and overhead costs as a markup. With the Defense Department, the allocated overhead of the sale is reimbursed and does not take away …show more content…
The penalties of the False Claims Act are between $5,500 to $11,000 in civil penalties and three times the amount the company has overcharged in damages. If changes are not made, the next external audit may find these mistakes and report a lack of compliance with Generally Accepted Accounting Principles. This would cause our customers to learn about this fraud from a source other than the company. This will cause irreversible effect on our reputation with our current and prospect clients.
Suggested solutions to the problem are to first investigate internally to find the employees involved in the fraud. Then disclose the information to our clients to avoid extra damage both legally and with our company’s reputation. Finally, strengthen the internal controls to protect against future opportunities for fraud, specifically under financial reporting.
Overcharging the government by overstating overhead with direct cost of private account is considered fraud. The problem needs to be addressed before any further damage is done to the