Bcfi 421 Exam

STUDENT NUMBER: BCOMM/LMR/2416/17
UNIT CODE: BCFI 421
UNIT TITLE: FRAUD DETECTION AND MNAGEMENT
DATE OF EXAM: 7/12/2023
QUESTION ONE (a)

Public sector entities use different measurement bases to declare their financial information, this
measurement bases make the difference in the recognition and valuation in different entities.
Public entities use the following measurement bases:
Historical cost – in this measurement base the elements of an entity are recorded at the price and
value at which they were bought at, this measurement base is widely used for assets like land and
buildings.
Current cost – in this measurement base is used by entities to value their elements at the amount
at which is required to return the assets ability of service, it can be used to represent the changes
in the assets value over time
Realizable settlement value – this refers to the amount that the public entity can be paid in order
to settle a liability, this is often used in relation with the financial obligation of an entity and its
assets.
Present value – this measurement base is used by public entities to look at the current value of
future cash flows by looking at the time value of money, this is used by the entities for items like
long term liabilities.
Fair value – this refers to the amount that is paid in an orderly transaction between two entities in
the same market where an asset belonging to either of them is sold or a liability is transferred to
the other, this majorly deals with investments.
QUESTION ONE (b)
Abnormal sales patterns – this is when there is a sudden increase or decrease that are out of the
usual trends that were observed before.
High credit sales percentage – this shows that there may be a likelihood of fake sales if a
disproportionately large percentage of sales are made on credit.
If the company records a continued increase in sales while the competitors are struggling then
this might show the company is fabricating revenues.
Lack of customer verification may also indicate fabricated revenues, where there is difficulty in
confirming the existence of customers by the auditor then may raise a red flag.
Incomplete records and missing documents, if some of the required documents cannot be found
or there is missing information in the documents then this comes up as a warning
QUESTION TWO (a)

Cash Payments: - this involves the exchange of physical money to the person being bribed
Shell Companies - this usually involves creating fake businesses or using business that already
exist s to make payments this helps in hiding the real source of the money and where it is going.
Changing the value of invoices for goods or services - This allows money to be transferred
covertly by inflating or deflating invoice amounts
Kickbacks and Commissions: This refers to unethical payments that are made when doing
business, this payments are hidden as illegal contributions as service fees or commissions
Using Agents or Intermediaries – this involves the hiring agents or intermediaries to help in
making the corruption payments.
By use of charity – this involves using charitable organizations to make corruption payments.
Political contributions – this is whereby corruption is made using political donations posing as a
legit political donation
QUESTION TWO (b)

Process of Payroll Fraud Involving a Ghost Employee:
Ghost employee's creation, this whereby in the business's payroll system, the fraudster creates a
ghost employee.
Integration to payroll System, this is where the official payroll records are updated to include the
phantom employee.
Timekeeping and attendance fraud, this is where the fraudster creates a fake attendance and work
hours for the ghost employee.
Authorization of payments, this is whereby the fraudster authorizes payments to the ghost
employee.
Issuance of paychecks, this is where paychecks are issued to the ghost employee, the fraudster
uses the company's payroll e to process and pay paychecks.
Delivering and cashing the paychecks, this is whereby the fraudster tracks the employees mailing
address or hijack the paycheck and then cashing it out personally.
Covering tracks, this is where the fraudster covers up the scheme so as to not be caught.
Controls:
Allocation of different Duties, this is done by separating responsibilities of creating, approving,
and processing payroll records. This will then reduce the risk of one person using the entire
payroll process for own benefit.
Employee verification, this involves conducting background checks and verifying new
employees, ensures that only real employees are added to the payroll system and there is no
ghost workers.
Conducting regular audits and reviews, this is done by conducting regular audits of payroll
records, including a review of personnel files, which helps identify ghost employees, through
cross-checking records.
Biometric or Access Controls, Implementing biometric systems to use for timekeeping and
attendance, this reduces the likelihood of faking timekeeping records by ensuring that only
employees can check in and out.
Regular Reconciliation, this is done by reconciling payroll records and personal data including
their financial data.
QUESTION THREE. (a)
i. Unusually close association with vendors and customers:

Fraudsters take advantage of relationships with external parties for personal gain. Unusually
close associations shows a conflict of interest or potential collusion.
ii. Unwillingness to Share Duties:
People unwilling to share responsibilities or resisting checks and balances may be trying to hide
fraudulent activities.
iii. Living beyond means Attitude:
Employees living beyond their expected means may suggest the use of funds for personal use.
iv. Wheeler-dealer attitude:
Individuals with a wheeler-dealer mindset may be more likely to engage in fraudulent schemes,
such as unauthorized transactions or deals.
v. Divorce and Family problems:
Personal financial difficulties can be related to divorce or family problems, can encourage
individuals to commit fraud to fight financial stress.
vi. High employee turnover in important financial departments:
Frequent turnover in finance-related positions creates opportunities for fraud, as new employees
do not know about internal controls.
vii. Complaints or disputes from vendors, customers, or employees:
Complaints from customers or internal disputes may indicate that there are fraudulent
activities
viii. Addiction Problems:
Substance abuse or addiction issues can influence individuals to commit fraud to support their
habits.
ix. Past legal issues and criminal record:
Individuals with a history of legal issues and criminal records are more likely to engage in fraud.
x. Frequent mistakes and lack of attention to detail:
Constant errors and lack of attention to detail can be used by fraudsters to change financial
records without being known.
QUESTION THREE (b)

Roles of Stakeholders in Corporate Governance:
1. Shareholders:
Role: Owners of the company who elect the board of directors and vote on important corporate
decisions.
2. Board of directors:
Role: Responsible for managing the company on behalf of the shareholders and setting strategic
objectives.
3. Management and executives:
Role: Responsible in running daily company operations and implementing the objectives set by
the board.
.
4. Employees:
Role: they are responsible for the use of company resources to generate income, follow corporate
policies, and report any unusual behavior.
5. Regulators and Government Authorities:

Role: make rules and regulations to ensure legal compliance and ethical behavior.
6. Customers and Suppliers:
Role: conduct fair and transparent business deals with the company.
7. Creditors:
Role: Provide loans and resources to the company and expect responsible financial management
in return.
.
8. Auditors:
Role: Independently check financial statements and internal documents to ensure they are
accurate and comply with the laws.
9. Community and Society:
Role: Expect companies to contribute positively to the community and reduce negative social
impacts.
10. Advisory Bodies and Consultants:
Role: Offer guidance to improve corporate governance practices and prevent errors in
accountability.

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STUDENT NUMBER: BCOMM/LMR/2416/17

UNIT CODE: BCFI 421

UNIT TITLE: FRAUD DETECTION AND MNAGEMENT

DATE OF EXAM: 7/12/2023

QUESTION ONE (a)

QUESTION ONE (b)

QUESTION TWO (a)

QUESTION TWO (b)

i. Unusually close association with vendors and customers:

QUESTION THREE (b)

5. Regulators and Government Authorities:

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