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    After analyzing Andragon's financial statements you began to notice that the company's average cash balance is unusually low in respect to its sales and productivity

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    After analyzing Andragon's financial statements and logging several months on the job, you began to notice that the company's average cash balance is unusually low in respect to its sales and productivity. As such, you began to suspect fraud. After several weeks of investigation, you began to suspect that Karen Smith, the company's bookkeeper, is in cahoots with one of the firm's suppliers, whose owner happens to be Karen's brother-in-law. From what you can tell so far, the supplier is submitting bogus invoices for material that was never received by ANDRAGON. Karen, in turn, has been approving the invoices and cutting checks to the supplier in exchange for a "cut." After reporting your suspicions to John Edward, Andragon's CEO, he has instructed you as follows:

    1) Dismiss Karen immediately. Keep the matter quiet, especially in light of the fact that the company is currently looking at the possibility of going public.

    2) Work with an outside group to develop an effective anti-fraud control system for the company.

    As part of your presentation to Mr. Edwards and the management of Andragon, your group is to prepare an 8-12 slide presentation detailing some specific control systems that need to be implemented at Andragon as soon as possible to help reduce or avoid similar incidents.

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    Fraud comes in all sizes ranging from billion dollar cases of corporate fraud to thousand dollar cases of employee embezzlement to employees overcharging their expense reports. Therefore, an effective fraud prevention strategy must be multi-dimensional, considering senior management, employees, and even outside parties such as customers and vendors. An effective fraud prevention strategy must also be adaptable to the ever-changing fraud schemes as internal controls and technology change the operating environments of most companies.

    Work Environment

    An effective fraud prevention strategy begins with creating a work environment that defines and reinforces anti-fraud behavior. This includes how the company treats its customers, employees and suppliers. No matter how many internal control systems or anti-fraud procedures are used, there needs to be the proper "tone at the top" that demands to "always do the right thing no matter what the cost to the company." Without a strong anti-fraud culture, opportunity and rationalization will appear to those individuals with enough pressure to commit the fraudulent act. A key element to an anti-fraud work environment is a clearly written fraud policy. This policy should describe the corporate commitment to the fair treatment of all employees, customers, and suppliers. Any variances from company policy need to be handled according to the written fraud policy. ...

    Solution Summary

    Here is just a sample of what you'll find in this solution:

    "The application of these procedures offers two benefits. The first benefit is the possible discovery of a fraud in progress. This is a direct benefit resulting in..."