Answers Incentives and Pressures While few employees would take the opportunity

Answers incentives and pressures while few employees

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Answers: Incentives and Pressures — While few employees would take the opportunity to commit fraud, adding an element of pressure could sway an honest worker. Pressure may come from the individual’s personal life. In this case, the following incentives / pressures exist: • Management has a focus on the need to reach target profits. • There are falling profits at the company. • Bill also lives paycheque to paycheque and likes to live large. With the fear of losing his job, he may feel pressure to commit fraud to maintain his standard of living. Opportunity — This is where the client has an opportunity to perpetrate a fraud due to weak or non-existent internal controls. • Bill rarely called in sick, and never took holidays. This makes it easier to cover up any fraud that could be taking place. • Lack of segregation of duties. Bill now processes accounts payable, signs cheques, and performs the bank reconciliation. As a result he can make fraudulent payments to himself and cover them up. • With fewer staff now in place to perform the work required, there is likely less focus on internal controls and more focus on getting the job done. Again there is evidence of this with the lack of segregation of duties in the accounting department. This would make it easier to commit fraud and cover it up. Rationalization — This is when fraudsters justify their actions to themselves. In this case as Bill is being asked to do more for the same remuneration, he has an attitude of ‘I deserve more money’ and “they owe it to me” B.3 for 9 marks/ Question B.4 – Risk Assessment Matrix & Risk Based Audit Plan (9 marks: 3 marks for part A; 2 each for parts B to D): Robertson Iron & Steel Powders (RISP) is a major producer of iron and steel powders, with sales in more than 25 countries throughout the world. Its product lines serve all major fields of application: manufacturing parts for the automotive, appliance, electric tool, and lawn and garden industries; welding and alloying; reprography; and the food industry. RISP was formed in 1968 to manufacture iron powder from the high-purity iron produced by another division of the group. It is owned by International Iron Inc., one of the largest minerals and metals companies in the world, which has its bead office in the United States. The mission of RISP is to meet and exceed customers’ specifications through a total quality system. The company constantly puts new products on the market to meet the evolving requirements of the industry. The company has had several problems in the past in meeting the environmental requirements for its industrial waste. The environment department and ecological groups have also complained that the company has polluted the river and caused environmental damage during the last decade. Management’s relationship with its employees and their union have always been tense. The company is thinking about closing its plant and outsourcing its production to vendors located in South America. This option would involve transferring some technological knowledge to vendors and 2
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increasing transportation costs, but would enable the company to reduce toxic waste in Canada.
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