Question

Amazon: Describe the fraud risks (Please be industry specific, you can find this out indirectly by reading more about the company)

Answer 1

A ibusiness ican ilose ia isignificant iamount iof iassets idue ito ifraud. iAt ian iextreme ilevel, ithe ieffects iof ifraud ican ieven ishut idown ia icompany. iConsequently, ia ibusiness iowner ishould imake iongoing iefforts ito icreate ian ienvironment iin iwhich ifraud iis iless ilikely ito iarise. iThere iare ia inumber iof ifactors ithat imake iit imore ilikely ithat ifraud iwill ioccur ior iis ioccurring iin ia ibusiness.

fraud irisk ifactors iinclude:

Nature iof iItems

· Size iand ivalue. iIf iitems ithat ican ibe istolen iare iof ihigh ivalue iin iproportion ito itheir isize i(such ias idiamonds), iit iis iless irisky ito iremove ithem ifrom ithe ipremises. iThis iis ia iparticularly icritical iitem iif iit iis ieasy ifor iemployees ito ido iso.

· Ease iof iresale. iIf ithere iis ia iready imarket ifor ithe iresale iof istolen igoods i(such ias ifor imost itypes iof iconsumer ielectronics), ithis ipresents ian iincreased itemptation ito iengage iin ifraud.

· Cash. iAt ia ilocal ilevel, ia ilarge ibalance iin ia ipetty icash ibox ipresents ia iconsiderable itemptation.

Nature iof iControl iEnvironment

A. Separation iof iduties. iThe irisk iof ifraud ideclines idramatically iif imultiple iemployees iare iinvolved iin idifferent iphases iof ia itransaction, isince ifraud irequires ithe icollusion iof iat ileast itwo ipeople. iThus, ipoorly-defined ijob idescriptions iand iapproval iprocesses ipresent ia iclear iopportunity ifor ifraud.

B. Safeguards. iWhen iassets iare iphysically iprotected, ithey iare imuch iless ilikely ito ibe istolen. iThis ican iinvolve ifencing iaround ithe iinventory istorage iarea, ia ilocked ibin ifor imaintenance isupplies iand itools, isecurity iguard istations, ian iemployee ibadge isystem, iand isimilar isolutions.

C. Documentation. iWhen ithere iis ino iphysical ior ielectronic irecord iof ia itransaction, iemployees ican ibe ireasonably iassured iof inot ibeing icaught, iand iso iare imore iinclined ito iengage iin ifraud.

D. Time ioff. iWhen ia ibusiness irequires iits iemployees ito itake ithe ifull iamount iof iallocated itime ioff, ithis ikeeps ithem ifrom icontinuing ito ihide iongoing icases iof ifraud, iand iso iis ia inatural ideterrent.

E. Related iparty itransactions. iWhen ithere iare inumerous itransactions iwith irelated iparties, iit iis imore ilikely ithat ipurchases iand isales iwill ibe imade iat iamounts ithat idiffer iconsiderably ifrom ithe imarket iprice.

F. Complexity. iWhen ithe inature iof ia icompany's ibusiness iinvolves ivery icomplex itransactions, iand iespecially iones iinvolving iestimates, iit iis ieasier ifor iemployees ito imanipulate ithe iresults iof ithese itransactions ito ireport ibetter iresults ithan iis ireally ithe icase.

G. Dominance. iWhen ia isingle iindividual iis iin ia iposition ito idominate ithe idecisions iof ithe imanagement iteam, iand iespecially iwhen ithe iboard iof idirectors iis iweak, ithis iindividual iis imore ilikely ito iengage iin iunsuitable ibehavior.

H. Turnover. iWhen ithere iis ia ihigh ilevel iof iturnover iamong ithe imanagement iteam iand iamong iemployees iin igeneral, ithe iinstitutional imemory iregarding ihow itransactions iare iprocessed iis iweakened, iresulting iin iless iattention ito icontrols.

I. Auditing. iWhen ithere iis ino iinternal iaudit ifunction, iit iis iunlikely ithat iincorrect ior iinappropriate itransactions iwill ibe ispotted ior icorrected.

A ifraud irisk iassessment iis ia itool iused iby imanagement ito iidentify iand iunderstand irisks ito iits ibusiness iand iweaknesses iin icontrols ithat ipresent ia ifraud irisk ito ithe iorganization. iOnce ia irisk iis iidentified, ia iplan ican ibe ideveloped ito imitigate ithose irisks iby iinstituting icontrols ior iprocedures iand iassigning iindividuals ito imonitor iand ieffectuate ithe iplan iof imitigation.

Fraud iRisk iAssessment iGuidelines

The iassessment ishould ibe iperformed ior iupdated iperiodically idue ito ichanges iin:

· Internal iprocesses iand icontrols.

· Organizational istructure.

· Segregation iof iduties iamong ivarious ipersonnel.

The ifraud irisk iassessment ishould iaddress:

· Asset imisappropriation.

· Financial iand inon-financial ireporting.

· Regulatory icompliance iareas.

· Illegal iacts.

The iassessment ishould ibe iperformed iby imanagement iand imanagers iresponsible ifor ieach isignificant idepartment ior iarea iwithin ithe iorganization iand ithen ishared iwith ithe iBoard iof iDirectors. iJointly, iall iparties ican ithen idevelop iand iimplement ipreventive iand idetective ifraud icontrol iactivities ito imitigate ithe irisks iidentified ibased ion itheir ilikelihood ior isignificance ito ithe iorganization iand iconsidering ithe icontrols ialready iin iplace.

Fraud iRisk iAssessment iComponents

ü Identification iof iexisting ianti-fraud icontrols: iInternal icontrols iin ieffect, ipreventive ior idetective icontrols.

ü Likelihood iof ioccurrence: iBased ion ifrequency i– irare ito ivery ifrequent i– ior iprobability iof ioccurrence i– iremote ito ialmost icertain.

ü Significance ito ithe iorganization: iIncidental ito icatastrophic.

ü Assessment iof icontrol ieffectiveness: iIneffective ito ivery ieffective.

ü Fraud irisk iresponse: iAdditional icontrols ior icorrective iaction iactivities iproposed ito ibe iimplemented.

ü Responsible iperson: iTo iimplement icontrols iand imitigation iefforts.

ü Monitoring iactivities: iTo ibe iperiodically iconducted iand ifrequency iof ioccurrence.

The ifraud irisk iassessment iis ijust ione itool ito iuse iin ideveloping ia icomprehensive iapproach ito imanaging ifraud irisk, iwhich ishould ialso iinclude ithe idevelopment iof ia ifraud irisk ipolicy ias ipart iof iorganizational igovernance, ithe idevelopment iof ipreventive iand idetective ifraud icontrol iactivities, ia ifraud ireporting iprocess i– iwhistleblower ipolicy i– iand ia icoordinated iapproach ito iinvestigation iand icorrective iaction.