Free «Financial Systems Fraud Schemes» UK Essay Paper
Table of Contents
All financial systems are susceptible to fraud schemes. A fraud or fraudulent scheme is an illegal enterprise that illegally takes the profits made by legitimate and legal companies. These schemes seek to extort money from financiers and stall their money making ventures. There are different means through which a fraudster may take money from any financial institution, and this is a research paper that seeks to highlight some of these systems. Apollo shoes is a company that seeks to make profits hence increasing its susceptibility to fraudsters. There are different ways through which the fraudsters can take money or embezzle from the company; ways that this research seeks to uncover and unearth. Various fraudsters use different means and ways to defraud companies of millions of profits. They use financial statements because they can cover their tracks and proceed with their schemes undetected.
There are three dimensions to a fraud scheme; a fraud objective, a fraud method and an execution plan. Fraudsters will use different methods to identify and execute their plans to maximize the money they get from the financial companies. Also, there are identity components that the fraudsters seek to acquire from the companies. One of the identity components that fraudsters might try to access through fraudulent means is pieces of personal and confidential information from the enterprise. These might include personal and business components of the firm’s partners, the manner with which they run their operations or their clientele list and details.
One of the ways of having financial systems fraud schemes in Apollo Shoes is through fictitious revenue. There are different ways through which a company might get revenue. It the legitimacy and legality of these transactions is guaranteed, there is no cause for alarm in the audit process. One of the ways of having fictitious revenue is throughinvolving sales and revenues in the statement that might never be recovered. This might include an unusual increase in assets. Some customers might be missing key data such as physical address and phone numbers this might be an indication that such customers do not exist. There might also be unusual changes in patterns in the company’s ratios. Spikes in revenues without a substantial increase in accounts receivables might be an indication of fraudulent activity and an indication of a fraud scheme (Goldmann, 2010).
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In the audit process, concealed liabilities which include, under-reporting or improper reporting of expenses and other liabilities, might be an indication of fraudulent activities in the company. Shifting expenses into another entity or reclassifying of the asset without proper or due communication to the shareholders might get a company into trouble because such transactions might appear fraudulent. This, especially when done to make the financial position of a company better than it is can lead to involuntary fraudulent activity. Another indication of fraudulent activity or schemes is the use of different audit firms for different subsidiaries and branches. This might indicate that there is some suspicious activity in the subsidiaries, activity that the company does not want to make known. If there are some liabilities or invoices that go unrecorded in the official financial statements and records, fraudulent activity might be taking place in the firm. Writing off loans and failure to record warranty related liabilities might be an indication of fraud.
Inadequate disclosures or use of disclosure notes that are overly complex is an indication of an individual willing to cover up fraudulent financial transactions. Presence of legal contingencies undisclosed in the financial statement is a common trick used to defraud companies of their money. Improper asset valuation is a red flag for a financial company because it is a means of coveering up fraudulent activity (Goldmann, 2010). Some of the ways they might achieve this is through unexplained and unusual increase in the book value of different assets. Odd patterns in the relationship between an asset and its components might be a scapegoat for fraudulent activity. This might include odd and unexplained changes in the asset to receivables ratios. There might be violations in some of the GAAP rules when recording off assets as expenses.
In as much as there is fraudulent activity in the company, the best route to follow is to detect the different methods used by fraudsters and monitor the books of accounts closely. There should be both vertical and horizontal analysis of the financial reports to ensure no loopholes for fraudsters. There should be frequent ration analysis including assessment over the assets and liabilities trends over time. This ensures that a slight suspicious change in trends might be detected, and fraudulent activity stopped (Goldmann, 2010). There should be an assessment of the year-to-year gross margins; growth in sales, levels of receivables and other key accounting ratios is one way to ensure that a company is not susceptible to fraud.
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Ensuring that one audit firm will audit the financial results of all branches and subsidiaries is another sure way of having minimal fraudsters in the company’s financial statements. Also, the company and makers of financial statements have to adhere to the universally acceptable SAS and GAAP rules when writing financial statements for any duration of time. It is evident that any financial company with the aim of making profits is susceptible to fraudsters who wish to acquire the wealth of the company through illegal means (Goldmann, 2010). Apollo Shoes is no different it is a financial company with financial statement released frequently over an agreed upon duration of time. It helps to reduce the illegal activity in the company to improve their financial status.
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