ACC00718 - Analysis of Fraud Prevention in Accounting Systems

This report analyzes fraud prevention and detection mechanisms within accounting information systems, addressing a scenario involving a company overpaying its marketers due to inflated response reports and another scenario involving high freight and travel expenses. It identifies five procedures and checks that could reduce the risk to the victim company, including fostering a strong corporate culture, hiring experts, monitoring vocational balances, ensuring proper documentation, and embracing technology. Furthermore, it discusses internal controls that could have prevented the fraud, such as implementing system checks and balances, agency bank account reconciliation, protection of checks against fraudulent use, protecting petty cash, and avoiding party-related transactions. The report also identifies five procedures that could have alerted the auditor to the fraud, including fraud detection by tip lines, reviewing past fraud reports, journal entry examination, conducting background checks, and performing surprise audits. The document emphasizes the importance of robust internal controls, ethical practices, and proactive auditing techniques to mitigate fraud risks in accounting systems.

ACCOUNTING INFORMATION SYSTEM 1
Accounting Information System
Name
Professor
Institution
Submission Date

ACCOUNTING INFORMATION SYSTEM 2
{1} Identify five (5) procedures and checks that would have reduced the risk to the victim
company?
Live the corporate culture
The first procedure which would have been used by the affected company against
overpaying its marketers as a result of inflated marketing response reports, is by living according
to the corporate culture and also setting a good example. Through the provision of work-friendly
environment workers as well as promoters can be easily prevented to be involved in theft and
fraud. A clear organizational structure, policies, and procedures which are clearly outlined and
fair policy of employment would have reduced the financial fraud the occurred in the affected
company (Bachenheimer, Kemesa Inc, 2013, p.747). Moreover, the company could have adopted
an open door policy which would have protected the fraud due to unrestricted communication.
Hiring experts
The second procedure to avoid such frauds as in the affected company case, hiring
experts can be the best alternative. Experts in the field of marketing and data analysis would
have saved the situation of the company. Moreover, the company could also hire one or two
certified fraud examiners who can be of great help in the detection of fraud as well as in setting
up anti-fraud policies and procedures (Kovács and David, 2016, pp.148-157). The hired experts
can also provide a wide range of services to the company such as a complete audit on internal
controls, basic consultations as well as forensic analysis.
Monitoring of vocational balances

ACCOUNTING INFORMATION SYSTEM 3
Some employees take advantage of loyalty and never miss out of office day after day all
through the whole year. As this can be viewed as an act of loyalty this can also be an act of fear
whereby an employee fears that in cases where someone replaces his vacancy during vacation a
fraud may be detected. Hence it is always good for a company to consider the varying vocational
balances and make sure that there is an equal balance in the term that all the employees go on
vacations (Gil and Goldstraw-White, 2010, pp.100-119). In addition, it is good to embrace
employee rotational method over a period of time.
Proper documentation
Documentation is one of the best internal control which when monitored can help a
company to avoid fraud. The report received from the marketers is supposed to be well
documented and a comparison made on the past and the recent documents. Moreover, through
the documentation, a review committee can be introduced to help during the counterchecking to
identify cases of forgery in the invoiced number of respondents report (Kovács and David, 2016,
pp.148-157). Furthermore, electronic data protection and storage software can be introduced in
the company to ensure that the company can find all relevant materials in cases of fraud
detection or during an audit.
Embracing technology
Moreover, with the improved technology advancement, the company can opt an
electronic feedback system which can be used by the respondents to feed all the required detail
and sent directly to the server (Gil and Goldstraw-White, 2010, pp.100-119). Through this, the
company will have avoided forgery of documents and also introduced a reliable measure to
reduce fraud and other crimes.

ACCOUNTING INFORMATION SYSTEM 4
[2]) Identify and discuss which internal control could have prevented this fraud and give five
(5) examples
The use of a system check and balances to make sure no one is in control of all financial
transactions
Through this internal control all the purchases, payroll and money disbursement are
allocated to a single person. This control also introduces the stage by stage approval process
whereby every single coin that gets paid by the company gets approval from more than five
individuals (Bierstaker, Brody and Pacini, 2016, pp.520-535). Through this fraud will be
eradicated as no person will be able to initiate and at the same time approve a transaction. Also,
this control will require the approval of an employee’s worksheet before the processing of the
payments.
Agency bank account reconciliation
This control requires that the reconciliation be completed by an independent individual
who has no bookkeeping authorities or even the responsibility of check signing. The control
requires that there should be a supervisory review upon the reconciliation process. Moreover, the
control seeks the identification of all the company canceled cheques and makes sure that those
who the cheques were addressed are known and identified for further consultation (Gil and
Goldstraw-White, 2010, pp.100-119). This control also makes sure that all the bank statement
and canceled cheques are examined in order to prevent cash disbursement out of the sequence.
Protection of cheques against fraudulent use

ACCOUNTING INFORMATION SYSTEM 5
This control provides for the protection of petty cash through prohibiting writing cheques
which are supposed to be payable in cash. Secondly, this control seeks to deface and keep all the
voided cheques to avoid fraud in accounting departments. In addition, this control seeks to
increase the number of company signatories in the case where banked money will require
withdrawal, finally, the control provides that all cheque should be locked always (Bierstaker,
Brody and Pacini, 2016, pp.520-535).
Protecting petty cash and other cash funds
This control limits the access of company petty cash access and provides that the cash be
locked in a safe with a different person having the key o every step of unlocking the safe. It also
requires that a clear written document to be produced on the amount that was deposited in cash
and all the cash disbursed which has taken place (Green, 2014, pp.908-1004). A reconciliation
process is also recommended before the petty cash is replenished. Finally, this control requires
that patient funds to be separated from petty cash.
Avoidance of party-related transactions
This requires that the written codes of conduct, as well as code of ethics and conflict of
interest, are updated annually to add on any principle that has been identified in the company.
The control also requires that the related party transactions are disclosed and also approved by
the board of directors. This control also invites for an open bidding and a competitive
procurement process to reduce the cases of corruption and fraud (Biegelman and Bartow, 2012,
p.678). Finally, the controller restricts the transaction with an employee or a board member.
Through this, the conflict of interest which is a main cause of fraud is eliminated.

ACCOUNTING INFORMATION SYSTEM 6
{3} Identify and discuss five (5) procedures could have alerted the auditor to the fraud?
Fraud detection by tips lines
An anonymous tip line is one of the best and most effective fraud detection of an
organization. 40% of the fraud detection cases are attached to the tip lines. For a tip to be
independently investigated and monitored the first procedure is the auditing the internal audit
report, the company auditor and inspector general report and also the legal department of the
company. The tip line provides a well-elaborated disclosure policy (Kirkos, Spathis and
Manolopoulos, 2017, pp.996-1003). Through this, the auditor can be able to detect any fraud in
the company.
Past fraud detected by external auditors
Through going through the past audit report of a company an auditor can be able to
identify the areas of internal control weakness where to start the fraud test. As many fraud
reports are found by in the top management the auditor should conduct the audit independently
without relying on any verbal messages from the top managers (Ramos, 2013, pp.28-36). Past
reports provide an auditor with a clear view of the areas that are prone to fraud in an
organization.
Journal entry examination
An auditor can decide to track all the transactions of the company by starting with the
initial stage of financial recording as well as reporting. Journal entry is the first accountability
document which the auditor will use to easily track fraud in any line of operation of a business.
The filled up ledgers should be verified in the cashbook as well as in the cash flow of the

ACCOUNTING INFORMATION SYSTEM 7
company (Ramos, 2013, pp.28-36). Through a deep assessment of the journals, the journal an
auditor will be able to detect any fraud in the company departments.
Doing a background check
This is another way which will help an auditor before even getting engaged in the
material fact of the fraud detection and access of the company cash flows, a background check of
a senior accountant or any other person or officer in the company who handle the finances of the
company can help the auditor to easily detect the existence of fraud in the company (Kirkos,
Spathis and Manolopoulos, 2017, pp.995-1003). A person who lives beyond his income and has
no other sources of income can be associated with corruption and money loss in the organization
he works with hence through a lifestyle audit among other checks the auditor can have a hint on
the hot point to find fraud.
Surprise audit
As an internal auditor, an individual has the authority to perform surprise audits to any
group where he feels can be affected by corruption or fraud. This can be triggered by a tip line
note which could have alerted the auditor of any fraud in the organization (Nigrini, 2012). This
can be the best technique to detect audit whereby cash transactions are used.

ACCOUNTING INFORMATION SYSTEM 8
References
Bachenheimer, S.I., Kemesa Inc, 2013. Identity theft and fraud protection system and method.
U.S. Patent 8,396,747.
Biegelman, M.T. and Bartow, J.T., 2012. Executive roadmap to fraud prevention and internal
control: Creating a culture of compliance. John Wiley & Sons.
Bierstaker, J.L., Brody, R.G. and Pacini, C., 2016. Accountants' perceptions regarding fraud
detection and prevention methods. Managerial Auditing Journal, 21(5), pp.520-535.
Gill, M. and Goldstraw-White, J., 2010. Theft and fraud by employees. Handbook on crime,
Cullompton, Willan, pp.100-119.
Green, S., 2014. Manager's guide to the Sarbanes-Oxley Act: Improving internal controls to
prevent fraud. John Wiley & Sons.
Kirkos, E., Spathis, C. and Manolopoulos, Y., 2017. Data mining techniques for the detection of
fraudulent financial statements. Expert systems with applications, 32(4), pp.995-1003.
Kovács, L. and David, S., 2016. Fraud risk in electronic payment transactions. Journal of Money
Laundering Control, 19(2), pp.148-157.
Nigrini, M.J., 2012. Benford's Law: Applications for forensic accounting, auditing, and fraud
detection (Vol. 586). John Wiley & Sons.
Ramos, M., 2013. Auditors’ responsibility for fraud detection. Journal of Accountancy, 195(1),
pp.28-36.