Fraud Detection and Internal Controls: ACC00718 Report Analysis

This report examines a case of fraud committed by an accounting clerk and explores the internal controls that could have prevented it. The assignment analyzes a scenario where a company was overcharged by a promotions company due to inflated response numbers. It identifies crucial procedures, such as unique identification codes for customers, continuous auditing, and agreements with punitive measures. Furthermore, the report delves into the importance of internal controls, including the formation of an audit committee, segregation of accounting roles, increased oversight, and third-party financial statement reviews. The report also discusses fraud detection methods employed by auditors, such as including fraud detection in audit programs and reviewing reports for inconsistencies. The conclusion emphasizes the clerk's sole responsibility and recommends forming a strong audit committee, segregating duties, and reviewing financial statements regularly to establish inconsistencies and increase the oversight role to detect possible fraud early. The report also recommends insisting on rotation of employees so that they don’t overstay in one job.

INTERNAL CONTROLS AND DETECTION OF FRAUD
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UNIVERSITY NAME
STUDENT NAME
STUDENT ID
COURSE
DATE.

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Executive summary.
The purpose of this report is to study a case of fraud committed by an accounting clerk who was
responsible for carrying out accounting roles of a company.it also aim at identifying some checks that a
victim company could have done in order to minimize risks of loss as a results of misdeeds of a company
contracted to do a promotional work on its behalf.

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Table of Contents
INTRODUCTION...........................................................................................................................................4
PROCEDURES AND CHECKS THAT WOULD HAVE REDUCED THE RISK TO THE VICTIM COMPANY...............4
INTERNAL CONTROLS..................................................................................................................................4
FRAUD DETECTION BY AN AUDITOR............................................................................................................5
CONCLUSION AND RECOMMEDATION........................................................................................................6
REFERENCES................................................................................................................................................6

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INTRODUCTION
Auditing is an independent examination of books of account of a certain company with an intention of
forming an opinion (Burnett, Cripe, Martin &McAllister, 2012, pg. 1863).
PROCEDURES AND CHECKS THAT WOULD HAVE REDUCED
THE RISK TO THE VICTIM COMPANY.
1) every consumer purchasing the product as results of the promotions could have been assigned a
unique identification code that will be used to track and analyze their purchases.
2) Auditing continuously could have been carried out throughout the promotion period.
3) Agreements that involves refunds because of frauds between the two companies could have been
formulated with punitive measures.
4) The manual batch should have been designed in such a way that it is able to send some messages to
the customers.
5. The victim company could have ensured that every purchase by the customer are properly
authenticated from the head office of the customer automatically through an online platform (Linden,
&Teeter, Validclick, 2012).
INTERNAL CONTROLS.
 Formation of Audit Committee.
The company could have formed audit committee to continuously check on the records and books of
the company to detect this fraud at the very early stage. This audit team have some standards that will
enable them to identify some misstatements because of fraud for example in this case there were no
corresponding invoices on expenditure and the audit committee could have identified this (Aldamen,
Duncan, Kelly, McNamara &Nagel, 2012, pg. 971).
 Segregation of Accounting roles.
This company seems to have relied so much on only one accounts clerk which should not be the case in
an accounting profession. This can make him do anything he wishes since no one is checking on his
deeds. He also prepares invoices which is evident that he has misreported on the expenses to
$33,442.19. this fraud could have been checked by another person if there were segregation of duties.
For example, in this case the clerk prepared all the accounting records alone which created a chance for
fraud (Klamm, Kobelsky &Watson, 2012, pg. 309).
 Increase Oversight
Examination of books of account should be carried out on bank statements, checks and invoices and
reconciliation statements by a different person. They would have identified these errors. For instance,
failure to check specimen signatures in the bank could have been curbed by this oversight function
(Eilifsen& Knivsflå, 2012, pg. 86).
 Financial Statements Reviewed by a Third Party

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Hiring an external person to check on the financial statements. External person will be keen on
identifying some inconsistencies in financial information for example it is said that a cheque already paid
was still paid because of lack of third party checks
 Require Employees to Take Vacation
In our case example under study, management discovered anomaly while the clerk was out of the town.
Fraud need some cover up so that it cannot be detected in the books. Companies must therefore make
it must for accountants to be on leave each year.
FRAUD DETECTION BY AN AUDITOR.
 Including fraud detection in audit programs so that they can interpret the signs and symptoms
of possible fraud (Nigrini, 2012).
 Showing up during odd hours and auditing areas where there are key inconsistencies
 Reviewing reports to detect inconsistencies to see where there is abnormal rise for example in
this case comparison of previous expenses and current.
 Review time reports for trends of steady, upward increases in expenses
 Talking with the employees so that they can get their views regarding various matters in the
company.
CONCLUSION AND RECOMMEDATION.
In conclusion, it is clearly evident that the company left the clerk with a sole responsibility of carrying
out accounting duties alone with no one to check on his action. This led to the commitment of fraud by
the clerk.
Recommendations;
 Form a very powerful audit committee to do regular checks on account.
 Segregate the duties of accountants so that actions of one is checked by another one
 Review of financial statements regularly to establish inconsistencies
 Increase the oversight role so as to detect possible fraud early
 Insists on rotation of employees so that they don’t overstay in one job.
REFERENCES.
Aldamen, H., Duncan, K., Kelly, S., McNamara, R. and Nagel, S., 2012. Audit committee characteristics
and firm performance during the global financial crisis. Accounting & Finance, 52(4), pp.971-1000.
Burnett, B.M., Cripe, B.M., Martin, G.W. and McAllister, B.P., 2012. Audit quality and the trade-off
between accretive stock repurchases and accrual-based earnings management. The Accounting
Review, 87(6), pp.1861-1884.

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Eilifsen, A. and Knivsflå, K.H., 2012. How increased regulatory oversight of no audit services affects
investors' perceptions of earnings quality. Auditing: A Journal of Practice & Theory, 32(1), pp.85-112.
Klamm, B.K., Kobelsky, K.W. and Watson, M.W., 2012. Determinants of the persistence of internal control
weaknesses. Accounting Horizons, 26(2), pp.307-333.
Linden, J. and Teeter, T., Validclick Inc, 2012. Method for performing real-time click fraud detection,
prevention and reporting for online advertising. U.S. Patent 8,321,269.
Nigrini, M.J., 2012. Benford's Law: Applications for forensic accounting, auditing, and fraud detection (Vol.
586). John Wiley & Sons.