Question

Answer the following:

Are rules and regulations established to protect against management fraud effective? If so, why is fraud still so prevalent? What else can be done to prevent/deter fraud?

Answer 1

Managment fraud:  can be defined as a deliberate fraud committed by a firm or company's management that injures investors and creditors through materially misleading financial statements or intentional or egregious conduct whether by act or omission that leads to a material misstatement of financial statement

Rules and regulations for mangment fraud:

Seventy-five of the 150 companies had an occurrence of material financial statement fraud reported during the period 1980-1991. Most of these fraud companies (67 of 75) were identified from a review of Accounting and Auditing Enforcement Releases (AAERs) issued by the Securities and Exchange Commission (SEC). The remaining eight fraud companies were identified from reports of financial statement fraud allegations in The Wall Street Journal.

as per Sarbanes-Oxley Act of 2002 THE SEC and PCOB requires that

1 managmnet perform a formal assesment of its control over financial reporting includes test that confirm the design and effectiveness of controls

2 managment include in its annual report an assessmnet of ICFR

3 the external auditors provide two opninons as part of single intergarted audit of the compoany

a an independendt opinion of the effectivenss of the system id ICFR

b the tarditionl opionion of finanacial statemnet

Audit Integrity's independent findings largely mirror the COSO's conclusions. From our perspective, four important issues stand out:

1. Fraud continues to increase, despite Sarbanes-Oxley.

2. The motivations continue unabated.

3. The methods of committing financial fraud have not materially changed.

4. Traditional measures of corporate governance have no impact on predicting fraud.

why is fraud still so prevalent

Inherent limitations on detecting the fraud

--Fraud will persist until boards of directors are held more accountable for their actions.

--If the economy remains under pressure, fraud will continue to increase.

What else can be done to prevent/deter fraud?

1. Use a system of checks and balances to ensure no one person has control over all parts of a financial transaction

2. Reconcile agency bank accounts every month.

3. Restrict use of agency credit cards and verify all charges made to credit cards or accounts to ensure they were business-related.

4.Provide Board of Directors oversight of agency operations and management

5. Prepare all fiscal policies and procedures in writing and obtain Board of Directors approval. Include policies and/or procedures for the following:

6. Ensure that agency assets such as vehicles, cell phones, equipment, and other agency resources are used only for official business.

7 Protect petty cash funds and other cash funds.

8 Protect checks against fraudulent use.

9 Protect cash and check collections.

10 Avoid or discourage related party transactions.

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