Forensic 6 - Question 1 2 out of 4 points FastBuck Company...

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Question 1 2 out of 4 points FastBuck Company has great internal controls, including extremely thorough internal and external programs. The problem is that the credit manager and the accounts receivable manager have been working together to defraud the company out of tens of thousands of dollars in a scheme that involves fictitious customers, fictitious credit reviews, and secret write-offs of the related accounts. The accounts receivable manager has covered up the fraud by not including the related write-offs and overdue accounts in the periodic reports. a. How could such a problem occur in a system with great internal controls? b. How can such schemes be prevented and detected? Answer Selected Answer: A. Because there are risk exposures which include events that can adversely affect the company, such as asset losses due to theft or spoilage, accounting
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errors and their consequences, revenue losses, expense overruns, business interruptions, fraud and embezzlement, fines and penalties, civil liabilities, and losses of competitive advantage. The internal control process is so important for public companies. Internal control focuses on the processes by which the company is run rather than on the outcomes of the processes. Good internal controls permits management to freely make decisions in accordance with the company's risk preferences, but such decisions must be made within some reasonable set of processes for making and evaluating decisions. B. Ensuring the integrity and reliability of the financial reports. Ensuring compliance with applicable laws, regulations, professional rules, and contractual obligations. Promoting strategic, tactical, and operational efficiency and effectiveness. You have to control environment, risk assessment and management, control activities, information and communication, and monitoring. Correct Answer: This problem has occurred because of a breakdown in the segregation of duties between the credit department and the accounting department. Even the best internal control systems can be rendered useless in the face of collusion. Preventing collusion is difficult. Physically segregating departments might help. But detection is certainly possible through a good internal auditing program.
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This note was uploaded on 02/29/2012 for the course FORENSIC 101 taught by Professor ? during the Spring '12 term at Post.

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Forensic 6 - Question 1 2 out of 4 points FastBuck Company...

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