Question

questions 1-3.

Question (1): When a fraud has occurred within the organization, management must decide what follow up action to take. (a) What are three action alternatives available to organizations? (b) Sometimes when this occurred, why might management decide to avoid taking legal action against fraud perpetrators? What are the perceived benefits of inaction? What are the costs? Question (2): For each of the following, identify whether the evidence would be classified as testimonial exidence documentary evidence, physical evidence, or personal observation. a. Surveillance b. Tire marks c. Honesty test d. Interview e. A computer hard drive f. A financial statement analysis g. A paper report h. Identification numbers on vehicles i. Audit of financial statements j. Check stubs k. Fingerprints 1. Background checks I Question (3) In what ways can organizations conduct proactive fraud auditing?

Answer 1

Q 1:

There are three follow-up alternatives available to organizations once fraud has occurred: Take no legal action,

Pursue civil remedies, and/or

Pursue criminal action against the perpetrators.

Management often avoids taking legal action against fraud perpetrators because of the legal cost and the bad publicity for the company. They justify that the legal costs and time spent are more than the value of what was stolen, and what was stolen is less valuable than the company’s good reputation. They fail to recognize that they are destroying the company’s culture of honesty, and opening themselves up for future, potentially larger, frauds.

Q 2:

a)   Surveillance – personal observation

b)   Tire marks – physical evidence

c)   Honesty test – testimonial evidence

d) Interview – testimonial evidence

e)   A computer hard drive – physical evidence (Some would classify this aS documentary evidence.)

f) A financial statement analysis – documentary evidence

g)   A paper report – documentary evidence

h)   Identification numbers on vehicles – physical evidence

i)   Audit of financial statements – personal observation (Some would classify this as documentary evidence.)

j)   Check stubs – documentary evidence

k)   Fingerprints – physical evidence

l)   Background checks – documentary evidence (Some would classify this as personal observation.)

Q 3:

Proactive fraud auditing is conducted by the organization in number of ways. The major following four steps involves in this auditing are as follows: firstly identification of risk exposures, than identifying the fraud symptoms for each exposure, after that building audit programs that proactively look for symptoms and exposures, and at the end investigating identified symptoms.