Corporate Scandals and Accounting Fraud

Corporate Scandals and Accounting Fraud

If I were overseeing the financial audit of a company where allegations of fraud by a supervisor in the accounting department are made, I would choose to meet the management team and discuss the fraud prevention controls currently in place in the company. Much as I could gain useful information by interviewing other employees in the firm, I feel that meeting the management team would be the more productive option. Interviewing other employees may not yield meaningful results because employees may be scared about the repercussions of divulging any information they know about the alleged fraud. Again, some of the employees may have collaborated with the supervisor in the fraudulent dealings; in such a scenario, I would not expect them to be helpful. Additionally, since the allegations involve a ‘potential fraud’, interviewing employees without a factual basis may have serious consequences for the audit team, especially when it turns out that the allegations are false. It is likely that interviewing employees will only create a notion that the supervisor is a fraudulent person even before this is proved. Evaluating the internal control system with the management would be more effective as it would help the audit team to identify any loopholes and provide the audit team with a reasonable accurate basis for investigation. Precisely, discussing and evaluating the internal controls helps to determine the truth about the suspected fraud, the people involved, and the policies violated (Snook, 2021). On a different note, it would be prudent to assess the internal controls because some people engage in fraud knowing that it will be difficult finding evidence. Such is the case of Turing’s Martin Shkreli who is quoted as saying that investors never lost money, hence no evidence of fraud (Matthews & Gandel, 2015).

Response to Donna

You have very valuable insights about how to handle fraud allegations in an organization. It is true that employees could be highly useful in investigating fraud since they are the people on the ground. While I fully concur with you on the observation that some managers have no clue about what is happening, I feel the difference comes in because the person implicated in this particular case is a supervisor, not a manager. Supervisors are more in touch with employees than manager, meaning that if the supervisor indeed committed fraud, he/she must have done so with a team of employees. Most probably, the deal is well-orchestrated between him/her and the team such that interviewing the team may be a futile exercise.

References

Matthews, C. & Gandel, S. (2015). The 5 biggest corporate scandals of 2015. Fortune. https://fortune.com/2015/12/27/biggest-corporate-scandals-2015/

Snook, A. (2021). How to conduct a fraud investigation: the complete guide. https://i-sight.com/resources/how-to-conduct-a-fraud-investigation-the-complete-guide/