Forensic Accounting and Fraud Examination Cha3 Discussion Solution

Discussion Questions

1. Fraud prevention is important because it is the most cost-effective way to reduce losses from fraud. Once fraud occurs, there are no winners.

2. Creating a culture of honesty and high ethics helps to reduce fraud in various ways. Management through its own actions can show that dishonest, questionable, or unethical behavior will not be tolerated. By hiring the right kind of employees, management can select people who are less likely to rationalize their illegal or unethical actions as acceptable. By communicating expectations, management can give fraud awareness training that helps employees understand potential problems they may encounter and how to resolve or report them. And by creating an honesty-driven culture, management can help to develop a positive work environment. Research indicates that fraud occurs less frequently when employees have feelings of ownership toward their organization than when they feel abused, threatened, or ignored.

3. Identifying sources and measuring risk means that an organization needs a process in place that both defines areas of greatest risk and evaluates and tests controls that minimize those risks. Risks that are inherent in the environment of an organization can often be addressed with an appropriate system of control. Once risks have been assessed, the organization can identify processes, controls, and other procedures that can minimize risks. Appropriate internal systems include well-developed control environments, effective accounting systems, and appropriate control procedures.

4. Because most frauds increase dramatically over time, it is extremely important that when frauds occur they be detected early. Once a fraud has been committed, there are no winners. Perpetrators lose because they suffer humiliation and embarrassment as well as legal punishment.