ACC 115 GBERMIC

Performance Task (Group work)

Beverly Ann Aguila Josh Gabriel Naadat Mayvel Cyne Santos
Claudine Bernardo Cherrielyn C. Pinlac
Kisha Mae Hesita Jane Ericka Recto
Due date: June 20, 2023
Format: Hard Copy (A4 Size bond paper) & Soft copy (word version)

Type: Essay (10 pts. each)/ Case (5 pts. each)

(1) How do symptoms help in the detection of fraud?

(2) Describe internal controls that help detect fraud.

(3) Why does internal control weakness help detect fraud?

Internal controls often encompass operations that produce, document, or

communicate information and approve or implement transactions, particularly
where funds have been given authorization for expenditure. Internal controls assist
in maintaining transactions going securely, ethically, and lawfully. They
eventually improve financial information reliability and accuracy for business
executives, regulatory agencies, stakeholders, and external auditors.

Throughout an investigation, the signs or indications of fraud assist detectives in

identifying the culprit. After gathering information regarding the signals, the
detectives attempt to determine the true cause of the fraudulent activity. Among
these manifestations is a lack of internal control. The commonality of fraud is
triggered by outward stress and chances as well as justification. When a business's
management mechanism is weak, the number of frauds increases. Individuals
perpetrate fraud as a result of apparent circumstances such as monetary or job-
related strain.

(4) Why do internal control weaknesses give employees opportunities to commit fraud?

Employees who perpetrate fraud usually do it because they have the opportunity,
the pressure, and the rationalization to do so. In most cases, an opportunity is
offered through flaws in internal controls. Inadequate or no supervision, separation
of roles, management approval, and system controls are a few examples. Pressure
can be applied as a result of personal financial troubles; personal vices such as
gambling, drugs, substantial debt, and so on; unrealistic deadlines, and
performance targets. Rationalization takes place when an individual constructs an
explanation for dishonest acts. The justification differs depending on the
circumstances and the individual.
(5) Explain why an organization's ideal internal control system comprises the control
environment, the accounting system, and control procedures (activities)?

The control environment refers to the overall tone and culture set by management,
which influences the organization's approach to internal control. It encompasses
the attitudes, values, ethical standards, and integrity exhibited by management and
employees. A strong control environment establishes a foundation for effective
internal controls by emphasizing ethical behavior, accountability, and a
commitment to compliance. It sets the tone for employees to understand the
importance of internal controls and their responsibility to adhere to them. A
positive control environment fosters a culture where employees are more likely to
follow control procedures and actively participate in maintaining internal controls.

Meanwhile, the accounting system encompasses the policies, procedures, and

software used to record, process, and report financial transactions and information.
An effective accounting system ensures the accuracy, completeness, and reliability
of financial data. It provides a framework for organizing and classifying financial
information, maintaining proper documentation, and facilitating timely and
accurate financial reporting. An ideal accounting system incorporates internal
controls at various stages, such as segregation of duties, authorization and
approval processes, and review and reconciliation procedures. By integrating
internal controls within the accounting system, organizations can minimize the
risk of errors, fraud, and misstatement in financial reporting.

And lastly the control procedures, also known as control activities, are specific
actions and measures implemented within an organization to mitigate risks and
ensure compliance with established policies and objectives. These procedures are
designed to prevent or detect errors, fraud, and unauthorized activities. Control
procedures can include a wide range of activities such as segregation of duties,
regular monitoring and reconciliations, physical safeguards, IT controls, and
documentation and approval processes. These activities provide checks and
balances, promote accuracy and reliability, and reduce the likelihood of errors and
fraudulent activities. Control procedures serve as the operational mechanisms
through which an organization's internal control system is put into practice.

(6) What is the purpose of adopting a code of ethics throughout a company?

A company's code of ethics acts as the primary guideline to support daily

decision-making at work. It clarifies a company's mission, values, and guiding
principles, enabling managers, employees, and stakeholders to understand how the
aforementioned cornerstones are reflected in daily decisions, actions, and behaviors.

Companies adopt a code of ethics in order to outline the company’s standards

for ethical behavior and to provide employees— and even managers— with clear
rules for how they should conduct themselves in the workplace. Through this,
 companies can establish their norms and principles helping to guarantee that everyone
within the company is on the same page and pursuing the same goals. Additionally,
companies establish a code of ethics to serve as a framework for employees and
managers to make ethical decisions when they are faced with ethical dilemmas as well
as a benchmark by which to judge and measure their own people and the company’s
performance. This includes the act of standing against and disclosing any unethical
behavior that violates the established code of ethics and the way it is addressed. In
that manner, a strong ethical culture will develop, attracting and retaining people who
are devoted to the company. Aside to the employee-oriented purpose, companies
adopt a code of conduct to uphold integrity and ideals of ethical behavior that will not
only improve their brand reputation but will also earn the trust of the company’s
stakeholders and foster the success of the company. Moreover, they do this to set out
legal requirements that should be followed and embodied by everyone to ensure that
the company, as a whole, complies with relevant laws and regulations and to reduce
the risk of fraud, legal and reputational harm and other business issues.

Overall, the purpose of adopting a code of ethics throughout a company is

centralized in clarifying the company's cornerstones and cultivating company’s
success through promotion of ethical behavior and employee alignment with the
company's values and goals. Companies do this to establish clear standards of
behavior, provide framework and benchmark, build trust with stakeholders, ensure
compliance with laws and regulations, and mitigate risk, all of which can help

(7) Why are good internal controls essential?

(8) Explain why even a good system of internal controls will often not be completely
effective because of the fallibility of the people applying and enforcing the controls?

Well, you see, even if we have a really good system of internal controls in place, it
may not always work perfectly because people make mistakes. Like, we humans
are not perfect, right? We can forget things, misinterpret instructions, or just have
a bad day. So, let's say we have this awesome system that's supposed to prevent
fraud in a company. But if the person responsible for checking the approvals is
having a rough day or is feeling lazy, they might not pay enough attention and
miss something important. Or maybe they accidentally approve something they
shouldn't have because they didn't read it properly. These little slip-ups can
happen, and they can undermine the effectiveness of even the best system.

Another thing is that people can sometimes intentionally bypass the controls.
They might find loopholes or figure out ways to get around the system. Maybe
they're trying to do something shady or just trying to make their work easier.
Either way, if someone is determined enough, they can find ways to exploit the
system, no matter how good it is. It's also worth mentioning that some people
 might not fully understand the importance of following the internal controls. They
might not realize the consequences of their actions or think that the rules don't
apply to them. So even if they know the controls exist, they might not take them
seriously or bother to follow them properly.

Overall, the fallibility of people is a big reason why even a good system of
internal controls might not be completely effective. We can make mistakes,
intentionally or unintentionally bypass the controls, or not fully understand their
significance. It's just part of being human.

(9) How to create a culture of honesty?

Creating a culture of honesty in a business organization is essential for building

trust, promoting transparency, and fostering ethical behavior. Firstly, leaders must
lead by example, demonstrating integrity, transparency, and ethical decision-
making to set a benchmark for honesty. Secondly, organizations should establish
clear values and ethical guidelines, communicating them effectively to create a
shared understanding and expectation of honesty and integrity. Open
communication channels are crucial to encourage employees to express their
opinions, concerns, and ideas without fear of retaliation, fostering an environment
that values transparency and trust.

Additionally, developing a strong ethical framework is essential. Organizations

should provide training and education on ethical decision-making, integrity, and
the importance of honesty, equipping employees with the necessary tools to
navigate ethical challenges effectively. Recognizing and rewarding ethical
behavior reinforces the importance of honesty, motivating individuals to continue
upholding these values. Furthermore, organizations should establish a confidential
reporting system to encourage the reporting of unethical behavior, assuring
employees that reports will be taken seriously and appropriate action will be taken.

Addressing unethical behavior promptly and consistently is crucial. Thorough

investigations, appropriate disciplinary actions, and transparent communication of
outcomes demonstrate the organization's commitment to upholding honesty and
integrity. Fostering a supportive work environment that encourages teamwork,
collaboration, and mutual respect contributes to a culture where honesty thrives
naturally. Lastly, continuous evaluation and improvement are necessary to sustain
a culture of honesty. Regular assessment, feedback from employees, and
adjustments to initiatives demonstrate the organization's dedication to maintaining
an ethical workplace. Ultimately, a culture of honesty strengthens the organization
internally and enhances its reputation and long-term success.

(10) Cases:
a. Because ABC Company suffered large losses from fraud last year, senior
management has decided to be more proactive in implementing a fraud prevention
environment. In Interviewing employees, they found that many employees were
unclear about which behaviors were ethical and which were not. What could
management do to better educate employees about ethical behavior?

A code of ethics or conduct should be created by senior management and distributed

throughout the organization. Each year, the code should be read and signed by every
employee. It is wise for the organizations to oversee representative training programs
in order to educate the staff about the periphery of moral and exploitative practices.
Knowing which jobs are moral and which are outside the bounds of morality is of
tremendous importance in every field of employment.

The employees' dissatisfaction with particular situations drives them to take action
and push it as far as they can, which is a big explanation for the misinformation that is
filed. With proper guidance and instruction, individuals may learn when to stop, how
to present themselves morally, and, most importantly, how to avoid exploitative
performances. As a result, associations should have structures that teach their
representatives the core values and integrity of the organization and continually
encourage the development of such traits in them.

b. Nellie works for a large Fortune 500 company. She heads the information
systems department and works closely with the accounting department. The company
works with many associates. They have many buyers and supplier companies they
work with. Nellie knows a lot about the company's database systems and accounting
practices. She even works closely with buyers and suppliers to create data
communication lines. Recently, Nellie has become concerned about the integrity and
reliability of the accounting and information systems. The company has grown to a
point where she cannot manage or supervise all the activities performed in these areas.
What proactive steps can Nellie take to ensure systems and accounting integrity and
prevent fraudulent behavior?

Nellie should provide a detailed list of essential measures that must be put in
place to ensure the complete and unimpaired integrity of both the accounting and the
system that will deter fraudulent behavior. Nellie must develop and implement
proactive steps without exception to guarantee the utmost accuracy and security.
Hence, Nellie needs to identify any potential weaknesses in the current system to
ensure accounting and system integrity and to prevent fraudulent behavior.

Since the system is too large for her to manage single-handedly and for her to
manage the accounting and information system effectively, Nellie should implement a
system that integrates all accounting and information system processes. This process
will help validate every transaction and flow of information, thus ensuring the
reliability and integrity of the accounting and information systems of the company,
which is less susceptible to fraudulent activities because the users need to undergo an
authentication process before engaging in any activities within the system or their
accounts.

Additionally, employees should have adequate training on identifying,

preventing, and reporting any instances of fraudulent behavior or activities. This will
ensure that the system and its users are shielded from potential harm caused by
fraudulent actors. By doing this, both the system and its users will be protected
against any damage or risk that fraudulent individuals may cause.

Lastly, the company should develop a comprehensive system that effectively

communicates the measures put in place to prevent fraudulent activities to all
employees. This system is designed to promote transparency and accountability
within the organization, ensuring that all employees are well-informed of the steps
being taken to ensure the integrity of the company's operations. By providing clear
and concise information on the prevention of fraud, the company can foster a culture
of trust and respect among its employees, thereby improving overall morale and job
satisfaction.

***End***