Question

You have been hired as the new Director of Internal Controls and Oversight for the Clueless Corporation, in part because you took this Fraud Examination class. Clueless produces jet engines for numerous private and public clients (including the military), employs about 40,000 people nationally, has facilities in 6 states, and revenues exceed $5B per year. Clueless has recently been in the press because a former contract manager had been prosecuted for taking kickbacks from an engine parts supplier from Taiwan. About 5 years ago, a salesperson had been prosecuted for attempting to bribe an Air Force General to award a new engine contract to Clueless. From time to time, federal investigators have investigated other allegations of wrongdoing, but none of these investigations led to prosecution. Last year, Clueless hired a private fraud examination firm to look into possible inventory thefts based on an analysis done by the Clueless purchasing department. Apparently, an analysis of inventory on hand, inventory used, and inventory purchased indicated that some facilities should have been well-stocked with parts. This was not the case. The fraud examiners concluded that theft occurred but could not identify the individuals involved. The President of Clueless asks you to write a paper to present to the Board of Directors. The paper is intended to convince the Directors to support a comprehensive Fraud Control Program (FCP). New contracts with the U.S. Department of Defense require the creation of an FCP and the President is very concerned about these recurring investigations, possible thefts and how these might impact client perception and an ability to get future contracts. Clueless currently relies on its annual financial audit process as the primary anti-fraud program. Clueless does not have an internal audit function, but does have a compliance and quality control program to ensure engine quality, and contract, and regulatory compliance. The Compliance, Oversight, and Professional Standards (COPS) department is composed of staff that has been promoted through the ranks and includes engineers, accountants, lawyers, and other technical and non-technical staff. They are essentially overseeing work they used to themselves perform. The annual financial auditor has identified control weaknesses in its management letters for many years. These weaknesses have not been fully addressed.

In a clear and well-thought out paper, the President asked you to address the following:

1) A clear rationale for introducing an FCP with supporting third-party support. (For example, ACFE or other professional support for an FCP).

2) The details of the FCP as follows: a. The components/structure of the program. b. What components will prevent or deter fraud? How? c. What components will detect fraud? How?

3) What type of staff will you need to hire? (Just a description of the credentials or experience staff will need).

4) Where should the FCP fit into the organizational structure? Is the FCP one unit or multiple units?

5) How could you use existing Clueless resources within the FPC? Should you?

6) What is your plan of action given the current state of affairs and the President’s concerns? In other words, after establishing the FCP, what do recommend it and/or Clueless do in the short term (say within a year) and the long term (say within 3 to 5 years.)?

7) Include anything else you believe is relevant to your case.

Answer 1

1. ANSWER

Adoption of a fraud control program in clueless corporation can help the company to reduce the current issues facing by the company .company now relies on the annual financial audit as the primary anti-fraud program but this is not enough to control the fraudulent activities happening in company .the company should adopt fraud control program .unless you have introduced a fraud prevention program we cannot find out the vulnerable areas of the business .the process of introducing and implementing a fraud prevention program will help the company by preventing future frauds .

· By introducing Fraud control program the company will be able to identify the vulnerable areas of the business and will be able to focus more on such areas which will help in detecting unusual practices.

· Fraud may lead company to huge losses .the inventory theft and other fraudulent practices occur in the company can lead the company to losses .in order to avoid this adoption of a fraud control program is necessary.

· The fraud examining organizations like ACFE( Association of certified fraud examiners )founded organizations are losing some portion of their revenue due to fraudulent practices so a good fraud control program can identify the fraudulent activities in company

2. ANSWER

COMPONENTS OF THE PROGRAM AND HOW IT WILL DETECT AND PREVENT THE FRAUD

· The screening of the employees in the organization

It will help to identify whether the employee has the potential to assign for new roles in business. And it will help to identify the who and all should be excluded and there by helps to prevent the fraud

· Trading to employees

Employees should be provided with proper traing and it will helps in creating transparency in organization. And helps to identify the suspicious activities and helps in preventing frauds

· Continuous evaluation of employees

The employees in the organization should be strictly monitored .their overall performance should be evaluated so that any malpractices from them can be detected easily and such people should be excluded and it helps in preventing fraud in future

· Internal control of transactions

The program may help to monitoring the all transactions of the company and if any suspicious activity occurs in company it will be easily detected and immediate action can be taken to prevent the fraud.

3. Answer

Types of staff

The fraud prevention program staffs should consist of:

· Expert consultant who should have knowledge in fraud prevention

· Legal personnel with proper knowledge in legal requirements and application of fraud detection programs.

· Risk management team: there should be a risk managing team to forecast about the future uncertainties and challenges to the program.

· Analyst: to analyses to gather information regarding frauds and interpret and to take actions to improve the program

4.ANSWER

ORGANISATIONAL STRUCTURE

All employees in the organization should be aware of the fraud control program

The program should include all levels of management.

· .BORD OF DIRECTORS

· AUDIT COMMITTEE

· INTERNAL AUDITORS

· TOP MANAGEMENT

· GOVERNING BODIES

1. ANSWER

Adoption of a fraud control program in clueless corporation can help the company to reduce the current issues facing by the company .company now relies on the annual financial audit as the primary anti-fraud program but this is not enough to control the fraudulent activities happening in company .the company should adopt fraud control program .unless you have introduced a fraud prevention program we cannot find out the vulnerable areas of the business .the process of introducing and implementing a fraud prevention program will help the company by preventing future frauds .

· By introducing Fraud control program the company will be able to identify the vulnerable areas of the business and will be able to focus more on such areas which will help in detecting unusual practices.

· Fraud may lead company to huge losses .the inventory theft and other fraudulent practices occur in the company can lead the company to losses .in order to avoid this adoption of a fraud control program is necessary.

· The fraud examining organizations like ACFE( Association of certified fraud examiners )founded organizations are losing some portion of their revenue due to fraudulent practices so a good fraud control program can identify the fraudulent activities in company

2. ANSWER

COMPONENTS OF THE PROGRAM AND HOW IT WILL DETECT AND PREVENT THE FRAUD

· The screening of the employees in the organization

It will help to identify whether the employee has the potential to assign for new roles in business. And it will help to identify the who and all should be excluded and there by helps to prevent the fraud

· Trading to employees

Employees should be provided with proper traing and it will helps in creating transparency in organization. And helps to identify the suspicious activities and helps in preventing frauds

· Continuous evaluation of employees

The employees in the organization should be strictly monitored .their overall performance should be evaluated so that any malpractices from them can be detected easily and such people should be excluded and it helps in preventing fraud in future

· Internal control of transactions

The program may help to monitoring the all transactions of the company and if any suspicious activity occurs in company it will be easily detected and immediate action can be taken to prevent the fraud.

3. Answer

Types of staff

The fraud prevention program staffs should consist of:

· Expert consultant who should have knowledge in fraud prevention

· Legal personnel with proper knowledge in legal requirements and application of fraud detection programs.

· Risk management team: there should be a risk managing team to forecast about the future uncertainties and challenges to the program.

· Analyst: to analyses to gather information regarding frauds and interpret and to take actions to improve the program

4.ANSWER

ORGANISATIONAL STRUCTURE

All employees in the organization should be aware of the fraud control program

The program should include all levels of management.

· .BORD OF DIRECTORS

· AUDIT COMMITTEE

· INTERNAL AUDITORS

· TOP MANAGEMENT

· GOVERNING BODIES