LaTonia Gray Southern New Hampshire University Ac 340 Module One Homework Oct 27th, 2021
Module One Homework
The article that I located online is title "Fraud at Waste Management." Waste management is a company that was created in 1968 and the company picks up trash for its customers. In 1990 the company had reach it peak regarding company growth and begin to decline. From 1992-1996 the company committed financial statement fraud to create the illusion to investors that the company was still growing.
1. What items on the balance sheet were affected by this fraud? There were two items on the balance sheet that was affected by this fraud. The first item was the reserves. Waste management inflated the reserves in connection with acquisitions. They did this by booking and allowance for doubtful accounts and changing the estimated amount each period to reduce the overall reserve instead of expensing it out, which then allow for the expense to not be place on the income statement. The second item on the balance sheet that
allow the company to avoid expensing the amount in full in the period they were used and
deferring the amount to the balance sheet as assets.
2. Based on the seven elements of internal control from the lecture, discuss what controls might have been missing? Of the seven elements of internal controls there were 3 that I think were missing. The first one would be the lack of adequate separation of duties. Separation of Duties allows for checks and balances. If duties were properly separated it would have allowed for ones work to be checked and the fraud may have been caught earlier by the company. Next would be the lack of proper procedures for adequate record keeping. The records were intentionally being misstated. If these guidelines were in place alone with separation of duties this fraud could have been
avoided. The last element would be the lack of a staff that can provide independent verification. If internal auditors were used by this company the auditors would have caught the fraud attempt and put in place the necessary actions to address and provided guidelines to avoid this going forward.
3. What steps could have been taken to prevent the fraud that was perpetrated? A good step to take to prevent fraud would be to make sure, to the best of the company's ability, that the right people are hired. Having potential employees agree to a background check can help to prevent fraud. Another step would be to make sure during new hire training that the employees are made aware of how and where to report fraud, as well as all other fraud policy procedures. Another step that could have been taken to avoid the fraud would have been to have auditors do a risk assessment. If a risk assessment is done auditors would be able to see
the potential for fraud. Once this is completed the auditor would then recommend proper controls to prevent the fraud. Ensuri