Studied by 3 peopleFraud
________ can be defined as an attempt to deceive others for personal gain.
Fraud
________ affects both private and public companies and also has an affect on the economy.
Corruption Asset Misappropriation Financial Statement Fraud
The three categories for employee fraud:
Corruption
Misusing one's position and being dishonest for personal gain, commonly uses bribery.
Asset Misappropriation
Theft or embezzling cash, property, or private business information.
Financial Statement Fraud
The act of creating false financial statements to create a positive depiction of the company.
Incentive Opportunity Rationalization
The three factors that contribute to employee fraud, aka the fraud triangle:
Incentive
Employee has a reason to commit fraud, like making company look better and more appealing to investors.
loan covenant
A ________ requires meeting financial targets. If they aren't met, the company may face multiple consequences.
Opportunity
The employee has a means of committing fraud, may be due to weak internal control.
Rationalization
The employee perceives the misdeed as unavoidable or justified.
both private and public companies
Fraud effects:
Sarbanes Oxley Act (SOX)
The ________ was passed to help protect investors avoid fraud and establish financial regulations for companies.
Counteract incentives Reduce opportunities Encourage honesty
The requirements of SOX:
Internal control
________ involves people within a company enforcing policies to achieve objectives such as operations, reporting, and compliance.
The components of internal control systems
Control environment Risk assessment Information and communication Monitoring activities
These components apply to all divisions in a company (entry level to higher up positions)
control activities
The principles of ________ correlate and strengthen the components of internal control.
The common principles of internal control:
Establish responsibility Segregate duties Restrict access Document procedures Independently verify
Establish responsibility
Giving tasks to individual employees makes it easier to detect errors.
Segregation of duties
________ is giving individual employees separate tasks and responsibilities in a process to avoid mistakes and create equal work. This is the most effective method for record keeping and monitoring those who don't have access to the company's assets.
Restrict access
Assets should be secured and used only to fulfill responsibilities. Physical assets should be locked up and electronic information should require a passcode.
Document procedures
Record activities within documents so they can be referred to later if needed.
Independently verify
Ensure employees are completing their tasks correctly and compare/review financial information.
control limitations
Two examples of ________ include implementing internal controls only to the extent their benefits exceed their costs and human error.
Cash receipts
________ is an internal control to ensure the appropriate amount of cash is gained.
Three important functions for in person cash exchanges:
Amount in transaction should be recorded. Access to cash should be limited. The total of cash sales should be documented.
Process for cash received through mail
Checks are mailed from customers who paid on account and mail clerks lists the amounts received on a cash receipt list.
remittance advice
With the cash mailed in from the customer, there is usually a ________ note that explains the payment.
Checks
________ must be stamped "For Deposit Only" so the bank doesn't exchange it for cash.
electronic funds transfer (EFT)
Cash received from ________ is when a customer transfers money from their bank account to the company's bank account. They also eliminate need for some internal controls.
EFTs
Company's prefer ________ because they are immediate.
Writing a check or completing an EFT to a supplier. Pay employees via EFT. A petty cash system
Cash payments involve:
cash payments
The primary goal of internal controls for all ________ is to ensure the business pays only for properly authorized transactions.
voucher
A(n) ________ system is a process for approving and documenting all purchases and payments made on account. A(n) ________ is a collection of documents prepared at each step in the system.
purchase requisition
Requesting a good or service to be ordered needs a ________.
order documentation
Ordering the goods or services requires purchase ________.
receiving report
Receiving goods or services requires a ________.
supplier invoice
Getting billed for goods or services requires a ________.
EFT transaction number
Writing a check or using an EFT to pay a bill requires a check or an ________.
Robotic process automation (RPA)
________ is a software that combines automation and artificial intelligence to perform certain responsibilities
imprest payroll system
A(n) ________ is used to pay employees and restricts the total amount paid to others by limiting the amount of money available to be transferred.
The special payroll account should be 0 after employees are paid. An error has occurred if the balance is above or below 0.
The total net pay of all employees is moved into a special account, which is later transferred into the individual employee's checking accounts. You can tell there is an error when.....
petty cash fund
A(n) ________ is a system used to reimburse employees for expenditures they may have made on behalf of the organizations.
bank reconciliation
The process of comparing two sets of records creates a report called ________, which provides independent verification of all cash transactions the bank has processed for the company. They are created monthly.
The current balance. A transaction description. Withdrawals made (if any). Deposits made (if any). The overall balance of the account.
The typical format of a bank statement:
Clearing a check.
After the check writer's bank withdraws the amount of the check from the check writer's account, it will be reported as a deduction on the bank statement. This is also known as ________.
increased
Banks account balances are ________ when checks are deposited, interest is earned, and funds are transferred electronically.
decreased
Bank account balances are ________ when service fees are charged and funds are transferred out electronically.
bank's
The bank statement is presented from the ________ point of view.
liability
A company's account balance is considered a(n) ________ to the bank.
Credit memo
Increased liabilities are credited on the bank statement.
Debit memo
Decreased amounts are debited on the bank statement.
Errors made by the bank Time lag Interest EFTs Service charges Company errors/your own errors
The bank reconciliation process involves comparing a company's records to their bank statement to see if they match up. The company's record may be different because:
Deposit in transit
________ refers to depositing a check after "closing time" and will be processed the next day.
Outstanding checks
________ is a type of lag where the bank doesn't know about the company's deposit until the company deposits the check into its own bank, which notifies the other bank.
NSF
________ (non- sufficient funds) checks are checks from your customers that were rejected due to the insufficient balance is the the customers personal bank account.
Deposited cash with banks Petty cash Cash equivalents
Cash on the balance sheet includes:
Cash equivalents
________ are short term and highly liquid investments purchased within three months of maturity. They are readily convertible to known amounts of cash. There is little risk their value will change.
Certificates of deposit (CDs) Money market funds Government Treasury bills Other highly liquid investments
Cash equivalents can include:
Restricted cash
________ is money a company must legally set aside for purposes not related to day to day operations. It is reported separately on the balance sheet.
current asset
Restricted cash used within a year is a(n) ________.
non-current asset
Restricted cash not used within a year is a(n) ________.
Note 
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