Ethics_Situation_Dealing_with_Fraudulent_Acts

Ethics Situation Dealing With Fraudulent Acts Shawn Billger ACC 375 Monday August 15, 2011 Juanita Davis Ethics Situation Dealing With Fraudulent Acts There are many ethical situations in the business world today and fraudulent acts are number one in the accounting business. To have an honest and trustworthy business you need to be able to detect, prevent, and protect your company from doing any type of fraudulent act. Fraud comes in a variety of forms including: fraudulent financial statements, financial fraud, accounting irregularities, environmental and health care violations, or asset misappropriation, just to name a few. Major fraud scandals and dramatic monetary losses resulting from the fraud have led legislators and enforcement agencies to change the federal and state regulatory environment. The top three fraudulent acts in the business world today are skimming, cash larceny, and billing schemes. Skimming is the theft of money before it has been recorded in the books of a business as being received. Skimming sales is the theft of money received from a sale of goods or services before it has been recorded. The two forms of skimming are sales skimming and receivables skimming. Skimming is an easy fraud to commit and may occur anywhere money is received by the business. Skimming money from sales is a common fraud done in the business world. Businesses without proper controls and those that are too reliant upon one or a few employees handling money and recording transactions provide an opportunity for this sales skimming. To prevent billing schemes you should compare levels of recorded sales and costs of sales against budgeted levels and look for unexplained entries in inventory and unexplained inventory shrinkage. Larceny is a cash theft scheme perpetrated after the cash has been recorded in the company's books. Some examples of larceny and can be the stealing of cash from a cash register or the company's daily bank deposit, or the stealing of customer checks received to pay accounts receivable balances. Cash larceny is the theft of cash that has already been accounted for in the books. Since there generally is a paper trail it is considered to be one of the easiest frauds to detect and prevent through the use of internal controls. People that work around and deal with money are the ones that commit cash larceny the most. Register theft creates an imbalance between the cash in the drawer and the transaction totals on the register tape. In order to detect register theft it is necessary to reconcile both cash balances and track individual cashiers to ensure there are not employees that consistently have less cash in the drawer than cash balance on the register tape. Segregation and rotation of duties, along with frequent surprise audits of cash on hand, independent reconciliation of register contents and tapes, and voucher accounting is the prime modes of cash larceny prevention. To prevent fraud in stealing cash from a register, you need to inform employees of the reconciliation, assigning a password protected register to each cashier, and restricting the amount of cash present in the register with cash pickups. Billing schemes are the most costly and mostly used scheme. This is a fraud that attacks the payments system of a business. It is designed to cause the business to make a fraudulent payment to the employee, whilst recording the payment as a legitimate business expense. A billing scheme has three major parts and they are the creation of a false entity to receive the payments. The employee may open a bank account in the name of the false entity, or they may decide to cash the checks in some other manner and not have an account that can be traced if the fraud is discovered. Another one is the creation of the false invoice submitted for payment. The last major part is the manipulation of the payments system so that the false invoice is approved and the payment is made. How this is done will depend on what position the employee has in the business and what influence they can have over the payment process. Checking vendors closely before processing and reviewing credit card billing statements can help to eliminate this scheme. Back in 1986 there was a company named First American Health Care of Georgia that was found guilty of overbilling and making fraudulent Medicare claims and agreed to pay $255 million dollars to make things right. First American Health Care of Georgia agrees to reimburse the federal government for money stolen from Medicare through fraudulent billing practices. The alleged fraud was that First American billed Medicare for costs unrelated to the care of patients in their homes, including the personal expenses of First American's senior management, as well as for the company's marketing and lobbying expenses. A couple of people were found guilty of defrauding Medicare and were sentenced to between 32 and 90 months in prison. This company is still in the business world today but will never be the largest home health care provider again because of the internal fraud that was going on. Business leaders often express an internal struggle about questionable decisions and behavior, but then sometimes choose the path that proves most costly for them and their companies. Sometimes business leaders are exploring pure personal gumption; sometimes they ignore or miss the analysis of the long-term effects of their decisions; and sometimes they are giving in to pressures such as compensation, a tough boss, or a culture that does not support dissent. Business ethics attempt to develop moral points of view that are not based on the economic rationality, but look at all people that take into account the claims of ethical problems. Sometimes in the real world businesses ethical decisions are not always made and this leads to some bad publicity for the company. Some good ways for your company to establish some internal controls surrounding your cash receipts and cash disbursements are to safeguard assets and enhance the accuracy and reliability of your accounting records. You will want to have an establishment of responsibility to everyone. You want to make sure that there is segregation of duties. It will be good to make sure that accurate documents provide evidence that transactions and events have occurred. Watch over physical controls because they relate the safeguarding of assets and watch over the mechanical and electronic controls because the safeguard assets and enhance the accuracy and reliability of accounting records. Having independent internal verification is good because it involves review, comparison, and reconciliation of data prepared by employees. Internal control is used to provide assurance that assets are safeguarded and accounting records are reliable but they are not fool proof from all frauds. Reference (ezine articles accounting, 2011)www.ezinearticles.com (accounting fraud, 1996) www.allbusiness.com/accounting (fraudulent acts 2010) www.csulb.edu/~mdchase/500CashandInternalControl (business ethics 2010) www.managementhelp.org/ethics