Question

1. Define each of these terms: skimming; kiting; lapping; kickbacks. For each condition, describe—in an appropriate level of detail—a preventative internal control (used by a comp[any to prevent the condition) and a detective internal control (used to detect the condition if it is occurring).

2. What four discrepancies are outlined in SAS No. 99 (PCAOB AS 2401) that indicate the presence of fraud? For each discrepancy, describe—in an appropriate level of detail—a preventative internal control (used by a company to prevent the condition) and a detective internal control (used to detect the condition if it is occurring). Be specific.

Answer 1

1,

(a) Skimming: Skimming involves converting business receipts to one's personal use and benefit, by such techniques as cash register thefts and swapping checks for cash.

(b) Kiting : Kiting involves building up balances in bank accounts based upon floating checks drawn against similar accounts in other banks.

(c) Lapping : Lapping involves recording of payment on a customer's account some time after the receipt of payment.

(d)Kickbacks : kickbacks involve a vendor/supplier and an employee which involves sale of unreported inventory or payment of an inflated price.

2.

(1) Transactions that are not recorded in a complete or timely manner or are improperly recorded as to amount,accounting period,classification,or entity policy.

(2) Unsupported or an unauthorized balances or transactions.

(3) Last-minute adjustments that significantly affect financial results.

(4) Evidence of employees' access to systems and records incosistent with that necessary to perform their authorozed duties.