What is Accounting Fraud Risk
A fictitious company ‘Cademic Circuits’ just hired a fictitious bookkeeper, we’ll call her Joan. Joan’s responsibility as the bookkeeper is of gatekeeper of the firm’s accounting system and the first person in line in monitoring the internal controls. Joan handles all of the money and credit transactions and adjusts the ledger everyday against the journal entries. Joan knows where every penny is and is the accountable person with regard to performing the internal audit. One day Joan doesn’t show up to work nor does Joan call in to work to address her absence. The owner of the firm decides to let the absence slip.
A few days pass by and there is still no presence of Joan. The accounting manager decides to call Joan at home and via mobile to no avail as there is no answer. The company manager becomes concerned for Joan’s well-being and decides to report Joan as a missing person. During this period the accounting manager is keeping track of the bookkeeping in the interim and begins to notice there is uncharacteristically more money coming into the business immediately after Joan’s disappearance.
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In fact, he believes the accounting has been underreported and there could be much more revenues to be accounted for. The manager’s first thought is – Who was providing checks and balances to be accountable for Joan? The accounting manager handles the reporting for the company and does not deal with cash flow and credit nor does the manager directly track the per unit sales against the sale price and does not account for returns and other accounts receivable and accounts payable issues. The realization of having been robbed by Joan crosses their mind.
The external auditor would check the bookkeeping entries to check and see if Joan was recording the correct inventory turnover figures against the requisite sales price per unit sold. A forensic audit would be performed by the auditing firm to determine what fraud was committed and where specifically in the reporting cycle Joan started to manipulate the figures.
- ACFE – Association of Certified Fraud Examiners. (n.d.).�Fraud Risk Assessment. Retrieved November 6, 2013, from�http://www.acfe.com/
- Wells, J., & Gill, J. (2007). Assessing Fraud Risk.�Assessing Fraud Risk. Retrieved November 6, 2013, from�http://www.journalofaccountancy.com/
