Page 112 - JoFA_2022

3. (b) Bid splitting occurs when a procuring Business identity theft
employee splits a large contract into several smaller
contracts to circumvent procurement policies and
perpetrating employee is either receiving a kickback occurs when a fraudster
thresholds. In many bid-splitting schemes, the
from, or possesses a hidden interest in, the preferred
contractor. To help protect against such procure- hijacks a business’s
ment abuse, management should periodically
review and evaluate purchasing activity, looking for
the following: identity to commit
■ Employees who purchased identical items in
different amounts simultaneously or within short
periods.
■ Contracts split by type of work (e.g., one pur- financial fraud.
chase order for labor and another for material).
■ Recurring patterns of activity that fall close to
purchasing thresholds or other policy limits.

4. (a) Among the disclosures required in the implement this component, the COSO Fraud Risk
financial statements are any material related-party Management Guide provides that an effective fraud
transactions (such as those with a company that is risk assessment involves the following:
owned by a director), information about material ■ Including appropriate levels of management as
changes in depreciation calculations, and contingent part of the fraud risk assessment team.
liabilities, such as lawsuits, that are reasonably pos- ■ Analyzing both internal and external fraud risk
sible or estimable. If a lawsuit is under settlement factors and their impact on the achievement of
negotiations, there is a reasonable possibility that organizational objectives.
a loss will be incurred. Thus, even though the final ■ Considering all the various types of fraud that
loss amount may not be known, the lawsuit and the can be committed against or by the organization.
negotiations should be included in the disclosures. ■ Specifically considering the risk of management
If the liability on the lawsuit is probable and the override of internal controls.
amount is estimable, an accrual of the potential ■ Assessing the personnel or departments most
loss should be recorded in the financial statements likely to be involved in fraud based on the pres-
as well. Additionally, according to FASB ASC ence of pressures, opportunities, and rationaliza-
Paragraph 280-10-50-42, companies must disclose tions to commit fraud.
sales to any single customer — including a foreign
government — that account for 10% or more of SCORING
total revenue; thus, sales to a foreign government If you answered fewer than three questions cor-
that account for 5% of total revenue do not need to rectly, you may want to brush up on your knowledge
be disclosed. of fraud risk management and proper investigation
techniques, particularly if you work with small
5. (d) The second principle of fraud risk manage- businesses, which may not have the resources
ment involves performing comprehensive fraud for extensive control measures. Enhancing your
risk assessments. To help organizations effectively understanding of potential fraud and what to do
when it is discovered will help ensure that you are
able to effectively mitigate risk.
AICPA RESOURCES If you answered three or four questions correctly,
you’re on the right track. Continue to build your
Articles knowledge about how to look for potential fraud
“What’s Your Fraud IQ?,” JofA, Aug. 1, 2020 and limit risk.
If you answered all five questions correctly,
“What’s Your Fraud IQ?,” JofA, Feb. 1, 2020
congratulations. Your thorough knowledge will go a
“What’s Your Fraud IQ?,” JofA, Nov. 1, 2019 long way in protecting your clients’ financial assets.
Keep up the good work. ■

journalofaccountancy.com March 2022 | 19