Audit Fraud Questions
Question Description
1.
You just
started your own roofing business, and you have hired 10 new employees. Two of
the new employees are responsible for taking care of all of the administrative
functions of the company. Because this is a very competitive business, these
persons will also be responsible for bidding on new business. The other eight
employees are divided into two different work groups of four that will go to
different job sites and replace old roofing material with new material. You are
aware that fraud prevention is necessary because fraud is likely to occur in
any company. Because you have never operated your own business before, you are
unsure of
where to begin in order to protect your assets from being stolen. You decide to
search the Internet in order to discover the types of opportunities that exist
for employees to steal assets.
Identify and discuss the different types of opportunities that exist for
employees to steal assets from your company. What can you do to eliminate these
fraud risks?
2. Answer the following questions regarding the
Sarbanes-Oxley Act of 2002 ("Act").
1.
Do you feel that the Act was too little, too late, is adequate to accomplish
its intended goals, or otherwise?
2.
Why or why not should the Act be expanded to include all companies, whether
large or small, publicly or privately held? Be sure to adequately defend your
positions.
3.
Jonas Fritz, owner
of Careful Construction Inc., had a perplexing problem. Although his company
always had enough work to keep the employees busy, company profits were falling.
In fact, Careful Construction Inc. will have difficulty meeting its payroll
this year. Mr. Fritz compared Careful Construction Inc.'s materials costs with
the company's overall revenues for the past 3 years, and he noticed that
materials costs were rising at a significantly greater pace than were revenues.
Mr. Fritz could not understand why materials costs were rising so rapidly,
especially since his other costs were remaining relatively constant. Mr. Fritz
showed these results to his friend, Larry "Calculator" Mason, who had
conveniently just taken a continuing education course in fraud recognition and
prosecution.
Mr. Mason
peered out from under his green eyeshade and said, "Well, Jonas, you might
have a fraud here! Maybe one of your employees is stealing from you!"
Mr. Fritz
interrupted, "But how would employees get their hands on that much cash?
I'm not a bank; I don't have much cash in the office—and my three office
employees have worked here for years. We're like family!"
Mr. Mason
replied, "I'll explain—the employee, if it is an employee, probably is not
walking out of here with $20 bills. Let's look at your purchasing invoices and
employee records and see what we can find. But first, read this paragraph on
employee cash theft. I got this booklet at the last seminar I attended, and
this paragraph will help you understand what we will be looking for."
1.
Using what you know about how employees steal company cash, respond to the
following.
A. Who is likely committing fraud at Careful Construction?
B. Name two possible ways that this individual could commit fraud.
2.
Name three steps Mr. Fritz should take in order to verify his suspicions about
who is committing fraud.
3.
What are at least two controls Mr. Fritz could institute to prevent this type
of fraud from happening again?
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