Detection of Embezzlement and Fraud

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Over the course of six financial years

Senior staff members purposefully changed Accuhealth, Inc.'s financial statements. The significant fraud may have been discovered using a few certain audit techniques. The testing of the company's journal entries comes first. Adjustments to a company's financial records are typically needed in order to commit financial statement fraud. The company's controls and procedures could be better understood and fraud could be found by using journal testing. The auditors had the option of choosing significant entries, store managers' and senior management's entries, entries made toward the end of the accounting period, and suspicious entries. The embezzled cash was recorded on a weekly basis by store managers in the store cash report sheet. The journal entry labeled as office was updated on a weekly basis at only two stores and the headquarters which could have raised suspicion among auditors.

The auditors could also have detected fraud by examining the company\u2019s accounting estimates

The subjective nature of accounting estimates makes it possible for the management to influence the estimates to manipulate the final financial statements. The lookback procedure, in this case, could have made the auditors determine whether there had been a change in the methodology of completing estimates over the recent past. The methodology could have changed due to the manipulation of the end-year inventory ranks which suggest manipulation.

The Control Environment

The control environment is the most critical component of internal control since it encompasses standards, processes, and structure that govern the organization in all situations. The attitudes of the management are a major factor in the control environment with factors such as integrity and ethical values, competence, management philosophy and operating style playing a critical role. The actions of the management shape the control environment. In the case of Accuhealth, Inc., the senior officials were the masterminds of the massive fraud. The CEO, Stanley Lepelstat, created the elaborate scheme which had been in action since the inception of the company. The fact that the operation was not concealed with envelopes of cash were delivered to their respective recipients during normal working hours is an illustration of the company's control environment. The management of Accuhealth did not demonstrate integrity or ethical values which is one of the components of the control environment. This essentially made the control environment of the organization non-existent.

William Makadok's Situation

A professional accountant should, on encountering suspected illegal activity, discuss it with the appropriate level of management. If I were in William's position, I could have brought up the issue with the top management of the company. Their explanation could have guided the next step. An inadequate response could have prompted me to report the suspected fraud to the SEC for appropriate action. This is ethically right and could have absolved William Makadok of all blame in the scandal.

February 01, 2023
Subcategory:

Management Economy Finance

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2

Number of words

472

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