Module 4 Discussion
1-Answer the initial question (About 250 words)
Please review the video using the following link:http://www.acfe.com/content.aspx?id=4294981086
Discuss the type of frauds that the CFEs found. What internal controls could have been in place to prevent, detect, or correct this issue from happening in the future?
2-Reply to 2 student posts.
Quality response. (About 100 words each) Please refer to the rubrics.
APA reference.
Module 4 Discussion 1-Answer the initial question (About 250 words) Please review the video using the following link: http://www.acfe.com/content.aspx?id=4294981086 Discuss the type of frauds that the CFEs found. What internal controls could have been in place to prevent, detect, or correct this issue from happening in the future? 2-Reply to 2 student posts. Quality response. (About 100 words each) Please refer to the rubrics. APA reference. Student posts: See page 2 (one per page so you can answer following) 1- Reimbursement schemes Maurice Naylon Unfortunately, some extremely well-paid executives occasionally believe they’re not paid well enough, leading to a potentially costly type of fraud – expense reimbursement schemes. These schemes “occur when employees make false claims for reimbursement of fictitious or inflated business expenses” (Wells, 2013, p. 193). In the case of the assigned video, three executives bilked a company of $2.1 million over a two-year span via a specific type of expense scheme, mischaracterized expenses: “an attempt to obtain reimbursement for personal expenses by claiming that they are business-related expenses” (Wells, 2013, p. 193). Specifically, over this time span, these three executives, all of whom were making mid- to high-six-figure incomes, expensed all sorts of personal expenses, from daily drive-through runs to over ten thousand dollars in a single night at a strip club. The above scenario begs the question, how could this situation have been avoided? First, it’s important to understand how the fraud was uncovered. As the corporation where these three individuals worked prepared to go public, the board decided to hire fraud examiners to ensure no “skeletons in the closet” arose during the IPO process. Naturally, these examiners uncovered the mischaracterized expenses – difficult to hide $2.1 million. However, this fraud could have been prevented far earlier by implementing two controls. First, though the video didn’t address it, the company apparently did not have clear-cut guidelines on personal expenses, that is, what was and was not approved. By the end, these three were clearly perpetrating a fraud, though it’s likely this behavior began with only little “abuses” followed by rationalization for larger, more egregious fraudulent expenses. A clear set of guidelines may have prevented this plummet down a slippery slope. Next, the company clearly did not have an effective tip system, as the accounts payable staff had been complaining about these three executives’ expenses for an extended period of time, though no one took action to investigate the fraud. Lastly, and more broad advice than specific control, it is critical to understand that company climate trickles down from the top. As illustrated in theHarvard Business Review “serious leaders understand that, both by design and default, they’re always leading by example” (Schrage, 2016). In the above scenario, the direct reports for these three executives gradually began conducting their own fraudulent expense mischaracterization, despite beginning their time with clean expense reports. For better or worse, leaders set the tone for an organization. In this scenario, that tone just happened to be one that encouraged fraudulent behavior. References ACFE. (2014). A Case of Reimbursement Fraud. Accessed 25 March 2019 at https://www.acfe.com/content.aspx?id=4294981086. Schrage, M. (2016). Like It or Not, You Are Always Leading By Example. Harvard Business Review. Accessed 25 March 2019 at https://hbr.org/2016/10/like-it-or-not-you-are-always-leading-by-example. Wells, Joseph T. Principles of Fraud Examination, 4th Edition. Wiley, 2013-10-14. VitalBook file 2- V. Martinez Victoria Martinez The CFE’s found there was expense reimbursement fraud that took place in the company. There were company employees that started to expense their personal purchases as well as family vacations to the company account. There are a few internal controls and policies that the company could have been more strict on for expense regulations. I believe due to the total of expenses that were charge for the individuals there should have been a previous audit once their expenses hit a certain threshold. If the company were to increase their regulations or commonly audit high expenses individuals, then the individuals may feel they have less of an opportunity for fraud.