Fraud Prevention and Detection Policy

Fraud Prevention and Detection Policy
Name
Institution
Due Date
Fraud Prevention and Detection Policy
Anyone who saw that happened in 2001 with Enron Corporation understands why the issue of fraud often elicits knee-jerk reactions from companies. At its peak, Enron had managed to reach heights that many companies are striving to get to. A report on the investigation of the company shows that in August 2000, the company’s shares were peaking at $90.75 (Report of Investigation of Enron). However, in 2001, they opened at $83.13 and continued to spiral downwards. By the fourth quarter, the company’s shares were valued at $0.26 per share. Bankruptcy soon followed, and the once a darling of Wall Street ceased to operate in 2007. The main issue that made the company spiral to its death was accounting fraud. Apparently, some techniques were used to hide the poor performance of the company. Earnings were inflated and liabilities were scrapped off. Such activities eventually led to the company’s death, and the world was made to painfully witness the dangers of fraud. Fraud has taken down giants and costs economies billions of dollars. Families have been left in worse states than before as economies try to adjust. So, for Innovative Hockey Gear, LLC, there is a need to act diligently to make sure instances of fraud are prevented and/or detected if they happen to bypass security. Provided herein is an elucidation of the types of fraud LLC could be exposed to, their consequences, the tools and techniques to prevent and detect fraud, and the roles and responsibilities in the company to prevent and detect fraud.
Types of Fraud
There are two types of fraud LLC could be exposed to. The first one is asset misappropriation. According to the Association of Certified Fraud Examiners (ACFE) (2011), asset misappropriation means the “theft of company assets, such as cash or inventory, and the misuse of company assets, such as using a company car for a personal trip.” In their 2016 report on fraud, ACFE reports that asset misappropriation is the most common fraud today but its losses are dwarfed by the other two types of fraud namely financial statement fraud and corruption. Regardless of the above, asset misappropriation could end up costing companies millions if not billions of dollars if left unchecked. As a hockey equipment distributor, LLC could suffer from normal theft of the equipment. Other examples of asset misappropriation LLC could incur include ghost employees, skimming, made up expenditures, and fraudulent vendor schemes. With ghost employees, the company could end up signing paychecks for employees who do not exist. With skimming and made up expenditures, LLC could find itself low in revenue even after earning more money. The company could be making payments to fake invoices, and thus seeing its expenditures balloon. Kennedy (2018) notes that instances of asset misappropriation could end up hurting a company. Investments could be halted as money for new equipment would be spend elsewhere. As already indicated, asset misappropriation is quite common. So, it is highly likely that LLC could detect a few instances where some of its employees are trying to defraud the company.
The other type of fraud that LLC could be exposed to is financial statement fraud. ACFE (2003) describes financial statement fraud as “overstating assets, revenues and profits, and understating liabilities, expenses, and losses.” What the perpetrators of this particular fraud seek to do is misrepresent the financial position and condition of the company. Instead of providing the correct information, the people in charge intentionally omit or use inaccurate figures. LLC could be a victim of financial statement fraud (FSF). ACFE (2003) states that FSF is used only as a “means to an end rather than an end in itself.” This differentiates it from asset misappropriation which is the end in itself. When employees commit FSF, they do it to hide their fraudulent activities. For example, someone could be trying to offload their shares in the company. So, to make it look favorable to investors, they intentionally omit or use inaccurate figures. In the end, they make profits by selling high. Others could be stealing money from the company and then...