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Ethics, Fraud and Internal Control Part 1

This document discusses business ethics and fraud. It covers four main areas of business ethics including equity, rights, honesty, and corporate power. It defines fraud and lists the main types as employee fraud and management fraud. Fraud schemes are categorized as fraudulent statements, corruption, and asset misappropriation. The document also discusses factors that contribute to fraud and various computer fraud schemes such as data collection fraud, data processing fraud, database management fraud, and information generation fraud.

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Angel Ybanez
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Download as PDF, TXT or read online on Scribd
48 views

Ethics, Fraud and Internal Control Part 1

This document discusses business ethics and fraud. It covers four main areas of business ethics including equity, rights, honesty, and corporate power. It defines fraud and lists the main types as employee fraud and management fraud. Fraud schemes are categorized as fraudulent statements, corruption, and asset misappropriation. The document also discusses factors that contribute to fraud and various computer fraud schemes such as data collection fraud, data processing fraud, database management fraud, and information generation fraud.

Uploaded by

Angel Ybanez
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Module 3

Ethics,
Fraud
And
Internal Control Part
1
Business Ethics
Why should we be concerned about ethics in the business
world?
Ethic are needed when conflicts arise – the need to choose.
In business, conflicts may arise between:
o Employees
o Management
o Stakeholders
Litigation
⦿ Business ethics involves finding the answers to two
questions:
How do managers decide on what is right in conducting their business.

Once managers have recognized what is right, how do they achieve it?
Four Main Areas of Business Ethics
Ethical Issues in the Business
⦿

Equity Executive Salaries, Comparable Worth, Product Pricing

Corporate due process, Employee Health Screening, Employee


Rights Privacy, Diversity, Equal employment opportunity, Whistle
Blowing

Employee and management conflicts of interest, Security of


Honesty Organization Data and Records, Misleading Advertising,
Questionable business practices in foreign countries, Accurate
Reporting of shareholder interest.

Political Actions Committee, Workplace Safety, Products Safety,


Exercise of Corporate Environmental Issues, Corporate Political Contributions,
Power Downsizing and Plant Closure
Computer Ethics

⦿ Concerns the social impact of computer


technology (hardware, software and
telecommunications).
Main Computer Ethics Issues
⦿ Privacy
⦿ Security – accuracy and confidentiality
⦿ Ownership of property
⦿ Equity in access
⦿ Environmental Issues
⦿ Artificial intelligence
⦿ Unemployment and displacement
⦿ Misuse of Computer
Definition of FRAUD
⦿ False Representation – false statement or
disclosure.
⦿ Material Fact – a fact must be substantial in
inducing someone to act.
⦿ Intent to deceive must exist.
⦿ The misrepresentation must have resulted in
justifiable reliance upon information, which
caused someone act.
⦿ The misrepresentation must have caused injury
loss.
Factors that Contribute to FRAUD
Types of Fraud

⦿ Employee Fraud
⦿ Management Fraud
Employee Fraud
⦿ Committed by non-management personnel.

⦿ Usually consists of an employee taking cash or


other assets for personal gain by circumventing
a company’s system of internal control.
Management Fraud
⦿ Perpetrated at levels of management above
one which internal control structure relates.
⦿ Frequently involves using financial statements
to create an illusion that an entity is more
healthy and prosperous that it actually is.
⦿ Involves misappropriation of assets, it
frequently is shrouded in a maze of complex
business transactions.
Fraud Schemes
⦿ Three categories of fraud scheme according to
the Association of Certified Fraud Examiners:
● Fraudulent Statements
● Corruption
● Asset Misappropriation
Fraudulent Statement
⦿ Misstating the financial statements to make the
copy appear better than it is.
⦿ Usually occurs as management fraud.
⦿ May be tied to focus on short term financial
measures for success.
⦿ May also be related to management bonus
packages being tied to financial statements.
Corruption
⦿ Examples:
● Bribery
● Illegal Gratuities
● Conflicts of Interest
● Economic Extortion
⦿ Foreign Corrupt Practice Act of 1977:
● Indicative of Corruption in business world
● Impacted accounting by requiring accurate records and
internal controls.
Asset Misappropriation
⦿ Most common type of fraud and often occurs
as employee fraud.
⦿ Examples:
• making charges to expense account to cover theft of
asset (specially cash)
• Lapping: using customer’s check from one account to
cover theft from different account.
• Transaction fraud: deleting, altering or adding false
transactions to steal assets.
Computer Fraud Schemes
⦿ Theft, misuse, or misappropriation of assets by
altering computer-readable records and files.
⦿ Theft, misuse, or misappropriation of assets by
altering logic of computer software.
⦿ Theft or illegal use of computer readable
information.
⦿ Theft, corruption, illegal copying or intentional
destruction of software.
⦿ Theft, misuse or misappropriation of computer
hardware.
Data Collection Fraud
⦿ This aspects of the system is the most
vulnerable because it is relatively easy to
change data as it is being entered into the
system.
⦿ Also the GIGO (Garbage in, garbage out)
principle reminds us that if the input data is
inaccurate, processing will result in inaccurate
output.
Data Processing Fraud
⦿ Program Fraud

● Altering programs to allow illegal access to and/or


manipulation of data files.
● Destroying programs with a virus.

⦿ Operations Fraud

● Misuse of company computer resources, such as using the


computer for personal business.
Database Management Fraud

⦿ Altering, deleting, corrupting destroying or


stealing an organizations data.

⦿ Oftentimes conducted by disgruntled or


ex-employee.
Information Generation Fraud
⦿ Stealing, misdirecting, or misusing computer
output.

SCAVENGING
searching through the trash cans on the computer
center for discarded output (the output should be
shredded, but frequently is not)
END
THANK
YOU

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