Acct 431/ Managerial Accoun PART A (Internal]Controls) ee ng\(Fall semester, 2016) Capstone Project = Internal auditing is conducted in diverse legal and cultural environments; within organizations that vary in purpose, size, complexity, and structure; and by persons within or outside the organization. The internal auditing standards note that with respect to intemal controls, internal auditors must evaluate the adequacy and effectiveness of controls in responding to risks within the organization’s governance, operations, and information systems regarding the: ‘© Achievement of the organization’s strategic objectives; © Reliability and integrity of financial and operational information; Effectiveness and efficiency of operations and programs; © Safeguarding of assets; and ‘* Compliance with laws, regulations, p ies, procedures, and contracts. You are a senior internal auditor with the North American Trucking Company (“NATC™), headquartered in Arlington, Virginia. The company has a separate Property Division that manages apartment buildings in the larger cities in the United States and Canada. The apartments in these apartment buildings are used by the truck drivers and the in-house truck maintenance personnel (that is, truck mechanics) for short-term sleeping accommodations. The Property Division has its own independent accounting system, accounting personnel, and intemal controls, and it functions as an independent investment center. The chief executive of the division has the authority to lease the apartments to members of the public, and the main performance evaluation metrics are return on investment and a satisfaction metric related to NATC ‘employees being able to rest in comfortable living quarters during a long drive. The corporate controller has asked you to assist the fraud examination function in their design of a fraud detection expert system. The objective of such a system is to emulate the decision-making ability of a human expert. Your job, as a part of the team, is to identify the transactions that you believe have the highest probability of being fraudulent. Fraudulent in this case means that the vendor is attempting to get a payment for goods or services never delivered, or an employee is the actual recipient of the payment in an embezzlement scheme. Scanning is an audit technique that relates to the auditor's use of professional judgment to review accounting data to identify significant or unusual items and then to test those items. Scanning is usually done as an analytical procedure and in the context of an external audit. In this case the scanning will be done in the context of an internal audit.the NATC_Payments file into Eras an ae fie re a nas from September, 2012) that you think are the highest fraud . ‘on has an adequate system of internal controls, so you should not start your analysis with a degree of skepticism that assumes that (say) half of all payments are fraudulent. No 4 organization could function if half of all payments are fraudulent. In reality organizations only lose about 2- 3 percent of their revenue total to fraud. Also, just because a payment is recorded as being made to vendor ABC does not mean that it was ABC that was paid. If the accountant is committing the fraud then the Payment could be recorded as being made to ABC while the payment check is made out in their own name or in the name of a company that they control. An extract from the indictment of Ryan Homa is shown below. Read the last sentence very carefull (© Tees emp ai i 1 pe epi er, Forty et, mien at io ron ih ek Ye ate 8 epi ma ad on gy eh Se Be te met mola wera Mat Sects omoey son ns een Ha ad ‘att decks pte Ma Seis tema hein ka mae pe ‘athe nha md tid we emer Is a ay sr he hak nd een ong en a ein im eee Do not start your analysis by being highly skeptical of the first group of payments and then, because you have 15 “potential frauds” from the first (say) 40 invoices, you then find nothing suspect in the last 160 invoices. Be equally skeptical throughout. Required: (a) Cite the federal law that makes it a felony to bribe a public official. Summarize the federal anti-bribery statute in 100 to 125 words. After your summary state the maximum possible jal time, fine, and other possible penalties stated in the statute (®) Scan the 200 invoices listed in the NATC_Payments file. The invoices are shown in the Invoices. 092012 tab. Select the 15 invoices that you believe are the highest fraud risk invoices. Your selection criteria will be added to the criteria identified by several other experts to form the basis for an automated system that flags high risk payments. Copy and Paste the details in the sheet HighRiskInvoices. ‘Then rank the payments so that your highest risk is shown first (on the second row) and your lowest risk is shown on the 16" row. In the column with the heading Reason, state why you considered the invoice to be high risk, Use consistent words (three to ten words) for your various reasons. If your first reason is“__abedef_” then label all the invoices that were chosen for that reason with the exact same wording, 1. Consider the fingerprints of fraud numbers as discussed in class on November 29, 2016. 2. Fictitious transactions that have some of the attributes that fraudulent payments have been added tothe original data for the purposes of this project. The data also includes some fictitious transactions that have some of the attributes of illegal acts as defined in the auditing standards. 3. Do not focus too much on what seems to be duplications (of say invoice numbers) in the data. The company enters each line item on the invoice as a separate record. So if an invoice has 3 items then it will be shown on three lines in the accounts payable database. Be careful of saying “it seems expensive to pay $x for 4. The descriptions do not give any quantities and so the might have bought a really large quantity of 5. XCORP is the head office and head office transactions might seem strange just because we don’t actually know how the allocation of expenses to the properties is being done. 6. Do not focus too much on the item descriptions. It would be difficult to program an expert system that relies too much on the descriptions because one clerk might write___ and another might write ___ for essentially the same item or service. Ifa description seems to be strange it might be because the text was truncated in the download. 7. Note that a bank can be paid for something that seems like it was a store item or a non-bank service. An employee could have purchased an item using their company purchasing card and the company could pay the bank directly and enter the description of the items that were purchased using the card. 8. Note also that employees can charge restaurant meals to the company. The company would have its ules as to what constitutes a valid meal charge. A meal that formed part of an interview would, for ‘example, be perfectly valid. A meal consumed while the employee was travelling for business would also be a valid meal charge. ‘Type your name in cell QI. Your submission is the Excel file with your selected invoices in the HighRiskinvoices tab. Do not delete the original data. Leave it in the Invoices_092012 tab. Name your Part AExeel file as LastName_Capstoned with you replacing LastName with your actual last name, Windows automatically adds .xlsx to the file name. Send the Excel file with your selected invoices in the HighRiskInvoices tab to me at forensicanalytics@gmail.com. The submission window is from 12:01 a.m. on December I* to 2:15 p.m. on December 2nd. Early or late submissions will attract a penalty. Grading based on your invoice selection and for following instructions. You may not contact the instructor to ask me “what I want to see” or “is this what you want” or “what is the answer” or “I don’t know what ‘you want” or anything along those lines. What I want is to see what you consider to be high risk invoices. You should expect to take more than one full hour to select your invoices and about 15 minutes to be sure that you've followed these instructions and to save and to submit your work. These capstone (Part A and Part B) assignments are individual submissions. If I find identical submissions that look more like a copy of something that someone else submitted, rather than just a coincidence, I will take the matter seriously. See the statement on academic integrity in our syllabus. “One-half of Capstone grade _| _ One-half of Capstone grade Deductions from total