Internal Accountant's Report to Management
The company is preparing for an upcoming government contract bid and it is necessary to perform a full financial status review prior to releasing the bid. The reasons for review will be discussed in this report including the impact of occupational fraud and abuse on the company and potential corruption schemes to look for within the company. The report will provide information on U.S. governmental oversight and the effects on the company. Recommendations will be made on the types of evidence and how it is gathered to support the financial status review.
Impact of Occupational Fraud and Abuse
Occupational fraud and abuse causes companies to lose ...view middle of the document...
The Act states that publicly traded companies must have an independent audit committee to oversee the company and auditor relationship. SOX also provides protection for whistleblowers so they may provide pertinent information on fraud without suffering any backlash. The Act states that more severe penalties and punishment for violating the Securities Exchange Committee (SEC) rules and regulations will be instituted including longer jail terms and larger fines for offenders. The enactment of the law has placed financial burdens on companies to comply, mostly in the area of audits both internally and externally but has also been an aid in deterring offenses (Coates IV, 2007).
Potential Corruption Schemes
There are several corruption schemes a company should be aware of. The schemes include bribery, economic extortion, conflict of interest, and illegal gratuities. Bribery includes invoice kickbacks and bid-rigging. Conflicts of interest include purchasing and sales schemes. The most common of these schemes is kickbacks involving an internal and external party working together. Most cases involve an overpayment for goods or services to a vendor who in turn shares the overpayment with the internal party involved. Bid-rigging also involves an internal party, who has insight on the company’s bid requirements and uses that advantage for an external party, who can present a very competitive bid just to gain the contract. Once the contract is acquired they can enter amendments and change orders to the agreement to increase their fees. Illegal gratuities include premiums offered to influence a business decision such as extravagant gifts or vacations if a certain purchase is made. Economic extortion is the opposite of bribery in which the employee of a company demands a payment from a vendor so the vendor can be promised the contract. Purchasing schemes usually involve an employee who has an ownership or employment interest in an outside firm that will be submitting an invoice. Sales schemes include under billing where goods or services are sold for less than market value to a vendor who has a hidden interest. Writing off legitimate sales invoices and business and resource diversions are all part of sales...