Quiz 5: Recognizing the Symptoms of Fraud

Business

1. List the areas of business which are most at risk for the fraud: There are three areas of business which are most at risk for the fraud: • Firstly, it is only Cal Smith who works at the doughnut shop at night. There is none other than him who wants to work at night. So he is not left by choice. He has not missed a single day at work for the last six months since the shop opened. As a result of all these, Cal feels himself overworked and underpaid. So the feeling of satisfaction is not there in him. • The monetary transactions are also at risk. Cal Smith, before going home in the morning, deposits the money. Since there is no one else at work at the doughnut shop during night, the entire monetary transactions rests on Cal Smith. There is a possibility that he might make a fraud during the deposits he makes every morning. • Improper productions are also an area which is at risk in this business. Because of over-baking, the entire batch of traditional placed doughnuts are thrown away once or twice every week. This is also an area of risk. 2. List the symptoms of fraud that appears to exist: • There are various symptoms of fraud that appears to exist at the doughnut shop. Some of them are: • Not getting any employee even after six months from opening of the doughnut shop. This has let Cal Smith to work on his own every night continuously for six months. • He deposits the money every morning before going home. There is a possibility of fraudulent deposits also when everything is left for only one person to handle. • Once or twice every week, all traditionally placed doughnuts are thrown away entirely because of over baking. This has been a repeated affair and there are chances that a fraud might happen in doing it so • Though Cal Smith was hired as a manager because he gets along with everyone and is usually easygoing but recently, it has been observed that Cal has yelled at people on shifts before and after him for seemingly insignificant reasons. • Though he has explained that this has happened because he has not been getting much sleep at night and also there is no interaction with anyone while he works at night but the entire process can also be derived as post effect of fraud. • The biggest example of fraud committed in the doughnut shop has resulted in Cal Smith, one of its employees buying a BMW M3 and taking it to work one day. 3. List the steps to reduce opportunities for fraud: There are various steps which could be taken to reduce opportunities for fraud. Some of them are: Identify alternative employee strength to attain to the doughnut shop at night. • The doughnut shop can only operate during the day time. • Hiring another manager other than Cal Smith. • Giving Cal Smith a break in work to get back his original dedication and hard work.

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The symptoms of fraud help the investigators to identify the perpetrator during investigation. These symptoms may be called as red flags or indicators. After collecting information about the symptoms, the investigators try to figure out whether those are actually linked with fraud or else. Such symptoms are distributed into six groups: 1. Accounting anomalies : Unusual actions in the secretarial scheme originate these anomalies. 2. Internal Control Weaknesses : Apparent pressure and opportunities as well as rationalization are responsible for the occurrence of frauds. Maximum number of fraud occurs when the apparent pressures and opportunities are high and rationalization is low. 3. Analytical anomalies : Unusual changes in the quantity and quality of the products originate these anomalies. 4. Overgenerous Lifestyle : Sudden changes in the life-style of the conspirator indicate that there may be a chance of fraud occurrence. 5. Unusual behavior : Strange attitude signals others that something is going wrong. 6. Tips and Complaints : It is quite complicated to understand that what encourages a person to criticize or offer a tip. That is why they are classified as fraud symptoms.

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