ACC 556 Internal Accountant’s Report to Management

MEMO

TO: Management
FROM: XYZ

Occupational fraud refers to use of a person’s job for individual benefits through the purposeful mishandling or misappropriation of his or her employer’s capital or assets. Organization success in any venture lies in understanding of key elements relating to operational and procedural issues. This memo will cover the effects of occupational fraud and abuse on an organization, government oversight of accounting fraud and its effect on an organization, prospective fraud schemes and recommendation regarding obtaining evidence to assist a financial review.

The Impact of Occupational Fraud and Abuse on the Company

Occupational fraud can have a serious impact with far-reaching consequences. It is internal in nature, which means employees of the organization are part of it and usually include the misapplication of capital or assets. Occupational fraud is at rise and affects practically every organization. Its schemes range from simply pilferage of company supplies to complicated financial statement frauds. The three major categories of occupational fraud are assets misappropriations, corruption, and fraudulent financial statements.
Such kind of fraud results from employees’ dishonest and non-professional attitude that reflects in non-observance of organization’s standard operating procedures and control procedures that management has put in place for efficient flow of normal course of business. It is difficult to determine the true cost of occupational fraud because organization do not often able to detect the concealment right away. In case of weak controls or lack of audits, many occupational frauds go undetected. Calculation of cost by combining all factors involved are just an estimates because absolute cost is indeterminable. Different researches show that approximately 46% of the occupational frauds were committed in small businesses employing less than 100 employees. One major reason of such high percentage in small business is lack of audit and ineffective internal control system. The impact of occupational fraud or abuse is larger than one would imagine. In 2009 the Association of Certified Fraud Examiners (ACFE) completed a study of 1,843 cases and determined that 33% of the cases involved corruption. The study also determined an average loss of approximately $250,000 per company due to corruption (Wells, 2011, p. 239). The statistics show how significant of an impact internal abuse and occupational fraud can have on an organization.

U.S Governmental Oversight of Accounting Fraud and Abuse and its Effect on the
The increase in the occupational fraud result in huge losses to investors and public, especially in public companies. This creates the need of governmental involvement in making the tougher regulation for more transparency to halt such intentional acts. In response to fraudulent activities the government created an organization called the Securities and Exchange Commission (SEC) with primary objective of streamlining accounting practices and creating rules to assist organizations in the proper preparation and reporting of financial statements. This oversight brings in encouraging improvements in the accounting practices and financial reporting procedures. The enactment of accountability factor played a key role in adherence to developed guidelines and prevailing regulations. The SEC’s chairman created detailed action plan to assist in the detection of fraud. The plan involves improvement of accounting framework, enhance external auditing, strengthening audit committee process, encourage culture change with no tolerance to fraud and abuse. This oversight will bring uniformity in accounting practices and financial reporting and management accountability will ensure strong internal controls that reduces the potential fraud to happens at first place or detect them at early stages to reduces losses.

Potential