This paper, Coupon Accounting Abuse, declares that the situation in question could not have happened if the company had in place a good control system. Instances of fraud only occur due to the exploitation of the weaknesses in a control system. …
From this paper it is clear that an efficient control environment should have both preventive and detective measures against fraudulent activities. The preventive measures aim to dissuade any chances of fraud or errors and they include the implementation of thorough documentation and authorization practices in the company. In this instance, the company should have had an authorization channel in place such that for one to alter the income statement as Larry did, there had to be proper authorization and documentation to support this. This would therefore ensure that the transactions are accurate and complete, and the proper documentation provides evidence of all transactions. Detective measures would ensure that undesirable activities like fraud are identified. Reconciliation of transactions and their supporting documentation would identify any cases of fraud within the company. This would ensure that financial information is accurate and valid and that any unauthorized alterations of transactions do not occur. Therefore, in Larry’s case, his alteration of the expense estimate for the new coupon would have been detected if proper control measures had been in place.
A company must take preventive steps to protect the company from abuse from its employees and management. Preventive measures require efficient processes and should identify any risks that the company is prone to. There are two fundamental activities that act as deterrents of errors and fraud; documentation and authorization. Documentation is anything that provides evidence of a transaction; it may be in form of paper or electronic communication. This ensures the accuracy and completeness of transactions since the documentation provides a record of all the events and activities that have transpired as well as giving information whenever a discrepancy occurs. ...
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