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Fraud and the reasons people commit

Fraud and the reasons people commit - Fraud and the reasons...

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Fraud and the reasons people commit o Fraud- A dishonest act by an employee that results in personal benefit to the employee at a cost to the employer. Reasons for fraud- Opportunity, Financial Pressure, Rationalization Internal controls o Sarbanes-Oxley Act Companies must develop principals of control over financial reporting and continually verify that they are working Independent Auditors must attest to level of internal control SOX created by PCAOB o Internal Controls are methods and measures adopted to: Safeguard assets, Enhance accuracy and reliability of accounting records, Increase efficiency of operations, and Ensure compliance with laws and regulations. o Five Primary Components Control environment, Risk assessment, Control activities, Information and communication, Monitoring. o Segregation and Assigning responsibilities o Physical Controls Safes/Vaults, locked warehouses, pass-coded computers, time clocks, etc. o Independent Internal Verification Records periodically verified by an employee who is independent and discrepancies reported to management. o Human resource Controls Bond employees, rotate employees’ duties and require vacations, and conduct background checks. o Limitations of Internal Controls Costs should not exceed benefits, human elements, and size of business Cash Controls
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o Cash Receipt Controls Establish Responsibility, Documentation Procedures, Independent Internal Verification, Segregation of Duties, Physical, Mechanical, and Electronic Controls, Human Resource Controls Mail Receipts has different procedure (Compare the two on slides 15 and 17) o Cash Disbursement Controls Pay by check, rather than cash Applications: Voucher System, Petty Cash Fund Voucher System: Network of approvals, by authorized individuals, to ensure all disbursements by check are proper. Voucher- an authorization form prepared for each expenditure Petty-Cash Fund- Used to pay small amounts Involves establishing the fund, making payments from the fund, and reimbursing the fund Use of a bank o Bank Statements Debit Memorandum Bank Service Charge NSF (Not Sufficient Funds) Credit Memorandum Collect Notes Receivable Interest Earned Bank reconciliation, book vs. bank o Reconcile balance per books and balance per bank to their adjusted (corrected) cash balances. (Red means Time Lag) o Reconciling Items: Deposits in transit, outstanding checks, bank memoranda, errors. o Electronic Funds Transfer (EFT)- Disbursement systems that uses wire, telephone, or computers to transfer cash balances between locations. Basic Principles of Cash Management
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Increase the speed of receivables collection. Keep inventory levels low.
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