AutoRecovery save of White Collar Crime a Form of Occupational Fraud.doc

The law the fraud of enron is the story of

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The Law The fraud of Enron is the story of synergistic corruption and as disturbing as it may sound evidence proves that everyone knew what was happening, profited from them and did anything to stop it. So the scheme continued as long as Enron was running the processes. Analyze available data The forensic accountants should perform entity level fraud risk assessment, financial statement analysis and substantive procedures. This will help them identify possible fraud risk indicators, unexpected trends and anomalies or the absence of expected trends in the light of their understanding of the business. Companies with weak governance and internal control environment provide a fertile ground for financial shenanigans. Forensic accountants should therefore perform an assessment of fraud risk at the entity to identify the susceptibility of the entity to fraudulent practices. Financial statement analysis provides circumstantial evidence that there are misrepresentations in the financial statements. The analysis includes vertical and horizontal analysis and ratio analysis. These will identify usual relationships between items in the financial statements and /or the absence of expected relationships which can be investigated further to prove or disprove the existence of misrepresentations in the financial statements. Create hypothesis Based on the information obtained during analysis of available data, the forensic accountant should be able to spot unique characteristics that constitute red flags or indicators of fraudulent activity and develop a hypothesis. For example the forensic account may form a hypothesis that
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WHITE COLLAR CRIME 19 fictitious revenue scheme has been perpetrated in the financial statements based on following red flags; Excessive rapid growth compared to that of other companies in the same industry; Inability to generate cash flows from operations whilst reporting earnings and growth; Unusual growth in the number of days sales in account receivables; and Significant volumes of sales to fictitious entities whose substance and ownership are not known. Test hypotheses This involves a “what if” analysis and testing to prove or disprove the existence of the hypothesis formulated in the previous stage. If the red flags point to the existence of a fictitious revenue scheme, the forensic accountants should perform tests to establish the facts. For example tests to establish the existence of fictitious revenue in the financial statements may include the review of sales to purchase orders, contingent sales, accounts receivable growth to sales growth, sales to production capacity, sales to total assets, company net sales to industry net sales. Refine and amend hypothesis The forensic accountant should review the results of tests performed and evaluate facts to confirm the hypothesis. If the results do not point to fictitious revenue scheme, the forensic accountant has to consider the possibility of other schemes that fit the red flags identified at earlier stage Political Connections
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