Coso Method

Fraud: Dishonest, confidentiality-breaking, financially sneaky employees, customers, and business partners exist. One wrong move and the fraudulent person can damage the company's reputation and image to the point of closure.

Depending on the severity of the fraud, the appropriate response can be different from firm to firm. A good way to detect fraud would be to listen to information provided by a disgruntled employee. This holds true unless the employee was disgruntled before the fraud occurred. The information will probably be false and misleading because the employee has held animosity for a while. Regardless, you should take the information seriously when it is first presented to you.

Professional auditing standards discuss the three key “conditions” that are typically present when a financial fraud occurs and identify a lengthy list of “fraud risk factors.”

Another source of a great amount of fraud is the fact that a lot of businesses are careless when they're hiring new employees because they do not do conduct adequate background checks during the hiring process. They also have lack an adequate network and do not have a reliable computer security system in place so that also plays a big factor in to why their business is victim to fraud and cybercrime.

There are various forms of cash fraud. One of the common schemes is cash larceny. Cash larceny refers to employees intentionally taking away cash from their employer without the employer’s knowledge and consent (Wells, 2014). Employees who have direct access to cash are more likely to commit cash larceny (Wells, 2014). Cash larceny is more likely to occur if there are weak internal controls in an organization. Weak internal controls make it difficult to prevent and detect an occurrence of fraud. This paper seeks to evaluate a recent case of cash larceny by a former employee at Glen Aubrey Fire Company.

The best theoretical model of fraud to describe why HealthSouth committed fraud is the fraud diamond not the fraud triangle. Both methods require that these three elements are present for committing fraud: perceived pressure, perceived opportunity, and rationalization. Understanding what motivated HealthSouth’s Chief Executive Officer (CEO) Richard Scrushy to commit fraud, how the accounting staff committed and concealed the fraud, and how the staff justified their participation are crucial. However, anti-fraud professionals believe that changes in social behavior require the addition of a fourth element called capability. Capability includes “personal traits and abilities that play a major role in whether fraud will actually occur” (Fighting Fraud in the Government n.d.). For example, Scrushy’s persuasiveness and Cathy Edward’s position as Michael Vines’ boss increased their capabilities to commit fraud. If capable employees refused to participate, fraud occurrences decrease (Fighting Fraud in the Government n.d.) (Hamilton n.d.).

Corporate fraud was the cornerstone for the strict implementation of the Sarbanes-Oxley Act of 2002 (SOX). SOX implements many compliance regulations, but one of its regulations, specifically Section 404, relates to an organization’s internal control procedures with the purpose of protecting organizational assets and investors’ interest. Consequently, organizations, big or small, private or public, are prone to fraud. SOX’s compliance of internal control procedures is developed through the Committee of Sponsoring Organizations of the Treadway Commission (COSO) known as the COSO framework that consists of the following procedures: control environment, risk assessment, control activities, information and communication and monitoring. Each variable address a layer that builds upon each other by

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) was first implemented in 1985 to support the National Commission on Fraudulent Financial Reporting, as well as working with auditors and the Securities and Exchange Commission (SEC). The committee’s objective was to produce thought leaders for Enterprise Risk Management (ERM), fraud determent, and internal control and financial reporting (ICFR) in 2004; COSO introduced the ERM-Integrated Framework. (COSO, 2015) SOX 404, mandates the use of an internal control framework by the management of publicly traded entities. Since 1992, multiple companies have used COSO’s framework. In May of 2013, COSO updated its Internal Control-Integrated Framework, updating was in response

COSO established an internal control framework is placed into policies, rules, and regulations by numerous businesses and organizations to enhance control over their activities in order to move in a direction to achieve established goals and objectives. The five private sectors making up COSO include the Institute of Management Accountants, The American Institute of Certified Public Accountants, the Institutes of Internal Auditor, and the Financial Executives International. The Theadway commission formed

Employee fraud often takes place when pressure (motivation), opportunity and rationalism are present. In fact, employee perception where failure to meet sales target might leave them unemployed and unable to settle bills for their family (Kelly, 2016). Furthermore, watching other co-worker committing fraud will most likely influence the employee to do the same because their mindset tends to persuade themselves that it is one of a way to meet their quota plus “everyone is doing it.”

The internal control practice of separation of duties failed to prevent the fraudulent reporting since various players were committing the scam. The CEO plus the CFO of the Automation Company were both aware of the controller's false revenues. The company had separation of duties meaning that one person was not doing all the financial reporting for the entire finance department. Nevertheless, more than one individual was checking the financial revenue statements reported to the stakeholders. However, no one did anything to stop the fraudulent information from being disclosed. Regardless of the distasteful outcome business ethics was not enforced nor was the consideration of the Sarbanes-Oxley Act.

source or from an external source, it is also important for a security organisation to reduce the

Some industry-specific factors, such as having valuable near-cash assets, can increase the organization's vulnerability. Also they will need to rationalize the actions as justifiable. The individuals committing the fraud must first convince themselves that their behavior is acceptable or will be temporary. For example, Barry Minkow’s believed that the lies and deceit are for the betterment of his company and that with time everything will eventually return to normal.

Fraud is defined as a deliberate misrepresentation that causes a person or business to suffer damages, often in the form of monetary losses through deception or concealment. And Occupational Fraud as defined by the ACFE is the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets. Traditional fraud triangle theory by Donald Cressey explains that propensity of fraud occurring in an organization lies on three critical elements which are Pressure, Opportunity, and Rationalization.

“It is especially important in the initial notification and evaluation stage to keep the matter as quiet and secret as is legally possible. In many cases, especially in small businesses, the owner-manager’s initial reaction is associated with anger and an overwhelming desire to confront the suspected employee. This temptation must be strongly resisted. Confronting the suspect too soon is one of the most damaging things that can be done in an investigation. It is much better first to secretly gather all the facts and understand the mechanics of the suspect’s fraud scheme.