Green Office Supply (GOS) is a small, privately owned company. GOS is a retailer in office supplies with 100 retail stores in 10 eastern states in the United States. The company is considering going public by the end of the year. Company executives have been deliberating on the proposed initial public offering (IPO) for over a year. One of the concerns is the high cost of establishing, reviewing, and reporting on internal controls. The company's external auditor found many control weaknesses in the recent annual financial audit. Most of the weaknesses relate to the revenue and collection cycle and the acquisition and expenditure cycle. GOS lacked segregation of duties for some key transactions.
You are the auditor of GOS, and you have been contacted by the CEO, Mr. Foster Jones, to educate the company on the internal control implications of going public. He asked that you consider the following external auditor's findings for the company in the recent annual financial audit:
-Weaknesses related to revenue and collection and acquisition and expenditure cycles
-Lack of segregation of duties for some key transactions
Then, explain the following:
3-5 fraud schemes most often found when both areas of weaknesses and a lack of segregation of duties for key transactions exist in companies such as GOS
-Elements of internal control
-Key areas on which management should focus in addressing internal control weaknesses, including the following:
-Functional tasks, such as authorization to execute payroll transactions, that should be segregated from other functional tasks
Five common fraud schemes most often found where areas of weakness and a lack of segregation of duties exist include cash receipts fraud, fictitious expenses, payroll fraud, accounts receivable or accounts payable fraud, and kickbacks or other vendor related frauds.
In a cash receipts fraud, employees commonly pocket incoming cash and neglect or destroy customer invoices showing payment. In a fictitious expense scheme, employees create documents showing expenses, and request ...
This solution addresses the Green Office Supply scenario. The solution provides explanation regarding the findings of the audit, and also provides 3-5 fraud schemes most often found. All parts of the scenario are fully addressed.