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Auditing to Point Out Red Flags

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The CEO of a large corporation was determined to see that an active and effective committee of the Board would perform in an excellent manner. In this stead the CEO, who was also the Chairman of the board, had himself appointed Chairman of the Board audit committee. The CEO asked the board to approve his selection of the other two members. The board approved without discussion his recommendation. The backgrounds on the other two were as follows:

First individual recommended was the CEO of a very large communication company. This individual had been a member of the Board for 7 years.

Second individual recommended was the sole owner of a very successful service company. This individual had been a member of the Board for 1 Year.

Point out those areas that raise a red flag to you?

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Solution Preview

Many areas are red flags. First of all, the CEO appointed himself chariman of the board, when that should have been someone else that is not in such a high and lofty position within the ...

Solution Summary

This solution pointed out areas that are unethical that can go on within an organization.

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fraud red flags

While performing an audit of CCC Corporation, the audit team noticed something that didn't look right. The company's receivables aging report showed that bank loan receivables were approximately $91 million. That audit team calculated the bank loan edible receivables to be approximately $50 million. The client didn't identify specific accounts in witting off bad debts, there was extremely slow credit memo processing, and items the management had not focused on remained uncollectable and ineligible for financing. In addition, over the last two years, the company's credit department has had unusually high turnover--four different people had held the credit manager position under an intimidating CFO. The current credit manager was a friend of the CFO and had worked with him at a previous company. After looking at some invoices and asking about customer information to confirm, the credit manager admitted to creating false documents and arranging fictitious sales with client--all with the knowledge of the CFO.

1. What are some of the red flags that point to the possibility of fraud? Elaborate.
2. What would you say the main problem in this cast that allowed the fraud to occur? Elaborate.

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