Most frauds in a company are relatively simple. It is usually perpetrated by one or more individuals due to opportunity and a weakness in internal controls. The CIO of the company with unrestricted system access sets up a dummy vendor company. Then sets up the dummy vendor’s payment information in the company’s database system. Fraudulent invoices for payment are submitted. Before the audit, the CIO deletes the vendor information for the dummy company, transactions, and the invoices. In order to minimize risk, a thorough review and compare of bank statements and the accounts payable ledger transactions to make sure vendor invoice information is recorded and related payment details. The audit team would have noted when reviewing the weakness in the internal controls regarding those employees with unrestricted access without proper oversight.
Information technology provides a lot of convenience and efficiency when it comes to processing and storing data. However, it also creates serious issues as it can be used in various fraudulent activities. With IT, the most journal entries and adjustments are in electronic forms, and the data can be easily manipulated and presented as if it actually exists when it does not. For example, a company may create a false invoice to generate a false sales. With the help of Internet and editing software, it is not hard to create a fake invoice with a bogus company name and address along with a fake logo. The company will record a sales that did not happen which inflates revenue. This type of fraud is common under a weak control in which a single employee has access to various duties. The auditing firm can minimize its exposure to this type of risk by checking effectiveness of the client’s internal control. It can also mitigate the risk by sending the auditor with IT knowledge or using audit software to compare the electronic data of sales to inventory.
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