Question

A. Describe the circumstances that surround a recent major case of fraud within an organization, including but not limited to:

1. Who was involved, financial impact and consequences.

2. Detail nature of how it was perpetrated (i.e. control breakdown, mgmt override, collusion)

3. Were the control breakdowns of "entity-level controls" and/or "process-level controls"?  

4. What role, in any, did the internal auditors and external auditors played. If no involvement, should or could the Internal auditor have detect this fraud? Why or why not?

B. Discuss whether only a small portion of the frauds that occur within a company are ever discovered.  Back up your reasoning with facts, examples or other arguments.

Answer 1

According to the auditing standards, the primary responsibility for the prevention and detection of fraud rests with the governing body and management If any suspicious transactions are being found by the Auditor it is even his duty to report such fraud to the management for further investigation. internal fraud related to asset misappropriation, fraudulent statements and corruption.

PMC Bank Scam:

The ED had looked into loans which were availed of as overdraft by the real estate company between 2008 and 2013, and found that the promoters, in connivance with the accused bankers, allegedly operated masked accounts that were kept out of the bank’s core banking system. Subsequently, more than 21,000 firms were floated to make “accommodative entries” so as to escape the scrutiny of the investigators.The company had also allegedly misled the Registrar of Companies by making “accommodative entries” in its books about the dues to PMC Bank. On ever greening of loans, the ED probe has found instances where the alleged masked loans from PMC Bank were used to meet the debt obligations of other banks

Such type of frauds would lead to process level control breakdowns. Process level controls are those that are designed to mitigate risks to a certain key processes. But here instead of mitigating, they have committed a fraud by operating masked accounts so that there is no record that has been maintained in the banking system.

It is the duty of the Auditor to report any of the fraudulent activities that has been carried out by the Organisation. Here one o the Director of Company has paid a hefty amount as fees to the Auditor for filing Audit report so that return can be filed in his favor

Fraud can be both monetary and non monetary. Hence when a business commits a fraud it is very difficult to measure the amount of fraud that has been committed. It is possible that the company can commit fraud even at the time of incorporation. Hence many of the frauds goes undetectable as well. having a very strong base to analyse the fraud like having surprise audits, installing an anonymous hotline can help Company in finding fraud to a greater extent.