Question

1) Describe fraud.

2) What are the three categories of fraud and list an example of each.

3) Describe the fraud triangle.

4) List the key requirements of the Sarbanes-Oxley Act (SOX) 5) List the components of the framework commonly used in corporations when analyzing their internal control systems:

1.

2.

3.

4.

5.

6) List the five common principles of Internal Control and give an explanation and example of each

1.

2.

3.

4.

5.

7) Name two reasons why internal control for cash is important.

1.

2.

8) What does the term “cleared the bank” mean?

9) What are the two basic reasons that a company’s cash records do not balance to the bank statement?

1.

2.

10) Define the following:

1. Bank errors

2. EFT

3. Service charges

4. NSF checks

5. Deposits in transit

Answer 1

Ans=1)Definition of Fraud:

Fraud is defined as the intentional false representation or concealment of a material fact for the purpose of inducing another to act upon it to his or her injury

Ans=2) Employee fraud comes in many shapes and sizes. It goes by several different names, including internal fraud, occupational fraud, or employee dishonesty

There are three basic types of fraud:

(A)Asset misappropriation

(B) bribery and corruption

(C)financial statement fraud.

A) Assets misappropriation fraud: They are the frauds that occur the most often and they’re seems to be the easiest fraud. An assets misappropriation might include things like check forgery, theft of money, inventory theft, payroll fraud, or theft of services.

(B) Bribery and corruption: Bribery and corruption include schemes such as kickbacks, shell company schemes, bribes to influence decision-making, manipulation of contracts, or substitution of inferior goods.

(C) Financial statement fraud: The least common type of fraud is financial statement fraud. Although it occurs least frequently. This type of fraud centers on the manipulation of financial statements in order to create financial opportunities for an individual or entity. Think manipulation of stock price, increased year-end bonuses, favorable loan terms, or other indirect benefits from the financial statement fraud.

Ans=3) The Fraud triangle is a framework designed to explain the reasoning behind a worker’s decision to commit workplace fraud. The three stages, categorised by the effect on the individual, can be summarised as pressure, opportunity and rationalisation.they are:

Step 1 – the pressure on the individual – is the motivation behind the crime and can be either personal financial pressure, such as debt problems, or workplace debt problems, such as a shortfall in revenue. The pressure is seen by the individual as unsolvable by orthodox, legal, sanctioned routes and unshareable with others who may be able to offer assistance. A common example of a perceived unshareable financial problem is gambling debt. Maintenance of a lifestyle is another common example.

Step 2 – the opportunity to commit fraud – is the means by which the individual will defraud the organisation. In this stage the worker sees a clear course of action by which they can abuse their position to solve the perceived unshareable financial problem in a way that – again, perceived by them – is unlikely to be discovered. In many cases the ability to solve the problem in secret is key to the perception of a viable opportunity.

Step 3 – the ability rationalise the crime – is the final stage in the fraud triangle. This is a cognitive stage and requires the fraudster to be able to justify the crime in a way that is acceptable to his or her internal moral compass. Most fraudsters are first-time criminals and do not see themselves as criminals, but rather a victim of circumstance. Rationalisations are often based on external factors, such as a need to take care of a family, or a dishonest employer which is seen to minimise or mitigate the harm done by the crime

Ans=4)

Full name: Sarbanes-Oxley Act of 2002, known in US Senate as the “Public Company Accounting Reform and Investor Protection Act” and in the House of Representatives as the “Corporate and Auditing Accountability and Responsibility Act.” Commonly referred to as Sarbanes’Oxley, Sarbox or SOX.

Key requirements of the SOX are:

SOX is applicable to:

All publically held American companiesAny international companies that have registered equity or debt securities with the U.S. Securities and Exchange Commission (SEC)Any accounting firm or other third party that provides financial services to either of the above

Penalties for non-compliance: Formal penalties for non-compliance with SOX can include fines, removal from listings on public stock exchanges and invalidation of D&O insurance policies. Under the Act, CEOs and CFOs who willfully submit an incorrect certification to a SOX compliance audit can face fines of $5 million and up to 20 years in jail.

Section 302: SOX Section 302 relates to a company’s financial reporting. The act requires a company’s CEO and CFO to personally certify that all records are complete and accurate. Specifically, they must confirm that they accept personal responsibility for all internal controls and have reviewed these controls in the past 90 days. These internal controls include a company’s information security infrastructure inasmuch as its accounting and reporting is performed electronically in other words, for almost all modern businesses there is a clear mandate to ensure high security standards are enforced.

Section 404: Section 404 stipulates further requirements for the monitoring and maintenance of internal controls related to the company’s accounting and financials. It requires businesses to have an annual audit of these controls performed by an outside firm. This audit assesses the effectiveness of all internal controls and reports its findings back directly to the SEC.