Question

Simon Blank Construction Company has two divisions. The president (Chris Simon) manages the roofing division. Simon delegated authority and responsibility for management of the modular manufacturing division to John Gault. The company has a competent accounting staff and a full-time internal auditor. Unlike Simon's procedures, however, Gault and his secretary handle all bids for manufacturing jobs, purchase all materials without competitive bids, control the physical inventory of materials, contract for shipping by truck, supervise the construction activity, bill the customer when the job is finished, approve all bid changes, and collect the payment from the customer. With Simon's tacit approval, Gault has asked the internal auditor not to interfere with his busy schedule.

Give this scenario a letter grade based on risk management through internal controls and identify two potential frauds that could occur based on the current structure. Suggest at least one improvement to reduce the risk of fraud.

Answer 1

There are twotypes of Risk that is -

Positive Risk Opportunities

Negative Risk Threats which can be intentional or unintentional

Risk management help to point out these frauds and control is applying measure to get out of these threats

Proper risk management and internal control assist organizations in making informed decisions about the level of risk that they want to take and implementing the necessary controls to effectively pursue their objectives.

Risk management and internal control are therefore important aspects of an organization’s governance, management, and operations. Successful organizations integrate effective governance structures and processes with performance-focused risk management and internal control at every level of an organization and across all operations.

However, risk management and internal control are not objectives in themselves. They should always be considered when setting and achieving organizational objectives and creating, enhancing, and protecting stakeholder value.

Two Potential fraud _

As Gault purchase material without competitive bids there is chance of price overvaluation

Beside this As he maintain inventory by himself chances of manipulation will be there in quantity

All the duties should not be given to one person it should be allotted to different people so internal control can be efficiently made