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You take your car into Ray’s Automotive Repair for your 60,000 mile tune up. After seeing your bill and taking five deep breaths, you call the shop to discuss the $500 “balance” you were carrying on your account. After being transferred four times (twice to the same person), you finally get through to Ray and explain that since you are a first time customer, it is not possible for you to have a balance.
Ray apologizes profusely. “That’s the tenth call this week about a billing error. Yesterday, I got a late payment notice from the credit card company and I have no idea how the garage’s checking account was overdrawn last week. We’re doing better business than ever!”
As an auditor, your interest is piqued. After some tough negotiation, you and Ray work out a barter deal (you make it clear that both you and Ray must include the fair market value of the services in your respective income): You will figure out what is going on in Ray’s accounting department and Ray will change your oil and provide tune ups for the life of your car.
You show up at Ray’s garage on Saturday to get to work. You are shocked by his accounting “department.” Susan, the bookkeeper, eyes you suspiciously when you tell her why you’re there. She explains that everything is in order and that the customers are simply wrong.
Irritated, but undaunted, you tell Susan you need her to show you the books and then you need to meet with the accountant, Phil. As it just so happens, Phil is Susan’s husband.
After five aspirin, six cups of coffee and four long walks to “clear your head,” you put together a list issues you saw on this first visit. You found:
You have an appointment scheduled with Ray to go over your concerns and to provide recommendations, but you are called out of town on an auditing engagement that you know will take at least three months. Rather than put it off and allow the situation at Ray’s to further deteriorate, you decide to create a video presentation. In that presentation, you should cover the following:
Small business fraud and error is the common to see in organization where proper accounts and books are not maintained.
People in organization use these fraud and errors to manipulate the accounts and create blunder in organization
Ideal there are following frauds such as payroll fraud, cash theft, online banking fraud, false invoicing and invoice mails.
Small business owners run their business on small level and they are less occupied with the advanced reporting and accounting control system (Brooks, 2015).
These small business owners have to face high amount of loss due to less effective internal control system and result to payroll fraud, cash theft, online banking fraud, false invoicing and invoice mails (Button, et al. 2014).
How these frauds are identified
These frauds are hard to identify but small business owners after evaluating internal and external factors of business could identify the estimated ups and down of its overall revenue and cash flow of business.
These small frauds could be identified sudden changes in profits and downfall in cash flow of business.
Proper level of accounting and reporting frameworks such as double entry accounting system and following IFRS rules are the best practice (Wells, 2017).
All the passwords and accounting books of organization are kept in open and easy for anyone to manipulate the data.
There is no efficient internal control system and less effective accounting control mechanism.
It is easy for the employees to manipulate the data of the organization and implement payroll fraud, cash theft, online banking fraud, false invoicing and invoice mails.
This control mechanism will help accounting systems of Ray are automotive to control flow of cash and effective recording its financial and accounting data.
Ray could hire two accountants and one certified public accountant who will maintain all the records of financial information.
Installation of internal control system in organization may also increase the overall outcomes and reduce the organization frauds.
Ray could install cyber computing accounting information system in its business process. However, in the initial time it will increase the overall cost of the business but it will also reduce the negative impact or organization frauds such as payroll fraud, cash theft, online banking fraud, false invoicing and invoice mails.
Addressing the Red Flags
This cyber computing accounting information system in its business process adopted by organization will increase the transparency in business and increase the effectiveness of accounting recording frameworks.
This will increase the overall outcomes of business and reduce the chances of organizational negative scams.
Ethical concern to Susan and Phil
The main ethical concern is related to hiring of related party transactions. However, Susan has done right everything at her hand, but due to the management policies she has zero level of security. In addition to this, she cannot allege the wrong doing by Phil in business as he is her husband.
There are several mistakes
Wells, J.T., (2017). Corporate fraud handbook: Prevention and detection. John Wiley & Sons.
Klein, R., (2015). How to avoid or minimize fraud exposures. The CPA Journal, 85(3), p.6.
Brooks, R., (2015). Financial management: core concepts. Pearson.
Button, M., Nicholls, C.M., Kerr, J. & Owen, R., (2014). Online frauds: Learning from victims why they fall for these scams. Australian & New Zealand Journal of Criminology, 47(3), pp.391-408.
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