Question

Describe fraud.

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

Describe the fraud triangle.

List the key requirements of the Sarbanes-Oxley Act (SOX)

List the components of the framework commonly used in corporations when analyzing their internal control systems:

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

Name two reasons why internal control for cash is important.

What does the term “cleared the bank” mean?

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

10) Define the following:

Bank errors

EFT

Service charges

NSF checks

Deposits in transit

Answer 1

ans 1) A false representation of a matter of fact  whether by words or by conduct, by false or misleading allegations, or byconcealment of what should have been disclosed that deceives and is intended to deceive another so that the individual willact upon it to her or his legal injury.

ans2) main type of fraud are

• asset misappropriation- for example Borrowing a company vehicle for personal use, check forging, and skimming money from the cash drawer are typical examples.
  
• bribery and corruption- for example Employees may also offer unauthorized discounts in exchange for kickbacks.
  
• financial statement fraud- for example Overstating revenue, earnings and assets – along with understating liabilities (or just plain concealing them) are the most common activities found with this type of fraud.

ans 3) American criminologist Donald Cressey developed a theory – known as the Fraud Triangle – that explains the factors that lead to fraud and other unethical behavior. When businesses and organizations understand the Fraud Triangle, they can more effectively combat criminal behavior that negatively impacts their operations.

three factors are-

• pressure
• opportunity
• rationalization

ans 7) Internal control for cash is important reasons are-

1. Liquidity-Cash, checks, money orders and credit card numbers are processed daily by cashiers, clerks and other company personnel. Dishonest employees who work in high-volume retail settings may be tempted to convert cash to their own use through use of a variety of schemes. Simply collecting cash and not recording sales offers a simple method taking money while leaving no record that a sale ever took place. These factors highlight many of the reasons that controls must be implemented to protect cash and make it difficult for employees circumvent the rules.

2. Detection-By its nature, the theft of cash seldom leaves a trail. Overcharging or undercharging for sales are both tactics to obtain funds in excess of what appears on cash registers or point of sale terminals. Observation is extremely important to identify suspicious behavior or circumstances on the part of cashiers. Violations of policy on returns of merchandise or voided sales can result in significant losses. These problems must be observed or detected by establishing ranges of register totals and types of sales. Observe closely and audit cashiers whose sales history differs from others.

ans 8)A check has “cleared the bank” when the amount of a check is withdrawn from the check writer’s bank account and reports it as a deduction on the bank statement.

ans 10)Bank error- Errors made by the bank on a company's bank account. These are usually infrequent but could include an incorrect amount of a check or deposit or a check or deposit recorded in the wrong account.

EFT- Electronic Funds Transfer (EFT) is a system of transferring money from one bank account directly to another without any paper money changing hands. One of the most widely-used EFT programs is Direct Deposit, in which payroll is deposited straight into an employee's bank account.

service charges - A service charge is a type of fee charged to cover services related to the primary product or service being purchased. For example, a concert venue may charge a service fee in addition to the initial price of a ticket in order to cover the cost of security or for providing the convenience of electronic purchase.