ACCT 320: Deterrence Measure Design

Asset Misappropriation

Lorie Forbes

UMGC

ACCT 320

Asset Misappropriation

Accounting fraud is a common evil vice that has seen down many companies globally. Some companies are operating below the profit margin not because they are not profitable but because some employees have decided to embezzle and drain the pocket of the company to satisfy self-interest through schemes possibly known them only such as false account reporting, preparation of material false account records and journal entries. Asset misappropriation is the fraud explored, where the employees that were entrusted to protect the assets of the company specifically cash decided otherwise, and instead used their position to embezzle and steal to meet their lavish needs. When the red flags were raised and management ordered for the forensic audit of the financial transactions, it was shocking to establish in 3 years, $5.4 million had been embezzled from the company account to two individual accounts.

The principal accountant for the company was the mastermind that drove the entire process, where he established a link with the officer that approves payment and two junior accountants who verified transactions and ascertained whether they are true or not. Ideally, the principal accountant operated a secondary account with the name of his wife and a fictitious business that was deemed to supply products to the company. The principal accountant established when actual deliveries were made and payment processing was done, and at this time, he would link junior accountant to have fictitious orders processed and verified, then transmitted to the payment approval officer to recommend for the payments. When the payment was processed and money wired to the principal accountant, each junior accountant was given a kickback of 10% and while the payment approval officer was given 20%.

To avoid detection, expenses and assets were overstated by the amount that had been paid, and principal account being the one that oversaw the preparation of the financial statements, followed on these fictitious transactions keenly to ensure whatever had been embezzled, had securely been concealed in the balance sheet and income statement hence evading controls put in place in the organization. Additionally, even though separation of duties was a control measure implemented by the organization, the principal accountant used his influence to influence two junior accountants and payment approval officer to bend to his wish, hence circumventing organizational controls.