Question

Revenue recording fraud is one of the biggest issues in ascertaining correct revenue.   Your job for this discussion is to be the “criminal or con artist” that may be embezzling (therefore revenue is not being recorded properly) or generating non-existent revenue to make the profit and loss statement look better. Prepare a small brief scenario on how to create revenue recognition fraud. Have some fun. Then respond briefly on what internal controls are needed to prevent this situation from happening again.

Answer 1

A small brief scenario on how to create revenue recognition fraud. are:

• Payroll fraud:

Payroll fraud occurs in 27 percent of all businesses and twice as frequently in small businesses (fewer than 100 employees) their monthly reports. Since payroll complexities significantly increase as a company grows, especially if overtime is a factor, owners have to maintain consistent scrutiny.

• Cash Theft:

Cash has a funny way of disappearing in a small businesses. Can be done through skimming (by taking cash that hasn’t been reported into the accounting system), larceny (by taking cash cash that has been reported) or fraudulent disbursement (by releasing funds that haven’t been authorized by the owner)

• Online banking.

The increased popularity of online banking has also increased the likelihood that funds could be transferred to erroneous accounts. Funds can be easily transferred by the person who handles those account as he has all the information required to do so.

• False invoicing.

It can be done by creating false suppliers or when he pays a legitimate supplier and diverts the cash into an alternative account.

• Invoice email.

One can pose as legitimate suppliers and advise changes to existing payment arrangements and can easily commit fraud

Internal controls are needed to prevent this situation from happening again. Above fraud can be avoided by having a proper internal control in place:

• Payroll Fraud:

Owners must gain a working knowledge of the payroll system and enforce accountability among book keepers in their monthly reports. Since payroll complexities significantly increase as a company grows, especially if overtime is a factor, owners have to maintain consistent scrutiny.

• Cash theft.

Cash theft creates a negatively cumulative impact on the bottom line.From the outset of setting up a business, an owner needs a streamlined cash monitoring process, both for an effective financial process and also to maintain essential supervision of cash within the business.A strict internal control should be placed while handling cash , so that it can be avoided.

• Online banking.

Owners should schedule regular meetings with the accounts team to monitor all transferred money. Cyber crime has never been more sophisticated, and small business owners need to arm themselves with updated information on threats to respond accordingly with their relevant financial institution. OTP should not be shared with employees directly.

• False invoicing.

Business owners must have basic oversight over every vendor in her business because false invoicing is an increasingly popular fraud method. Owners should watch over and should have sound knowledge of their business.

• Invoice email.

The fraud may not be detected until it's too late -- when the business is alerted by complaints from suppliers that payments were not received. Regular account check-ins can help guard against business owners falling victim to this type of fraud.