5-1 Final Project Milestone Two: Business Environment and the Industry

ACC 646 Milestone Two Guidelines and Rubric

Overview

Forensic accounting has been identified as the fastest growing area of accounting. Fraud examiners must understand the legal aspects of fraud and what constitutes fraud. To be successful in this industry, they must be able to determine why people commit fraud and how to prevent it from happening. Through this analytical process, examiners may then provide organizations with recommendations for improving their internal controls, thus preventing further financial losses and additional harm to their reputations.

For Milestone Two, you will submit an analysis of the business environment and the industry for your chosen company. Consider the industry-specific challenges, behaviors indicative of fraud, and internal control structure and perform a financial statement analysis for your company.

Prompt

Provide the management team of your selected company with an assessment of the business environment and the industry from the perspective of a fraud examiner.

Specifically, the following critical elements must be addressed:

1. Business Environment and the IndustryWhat are the industry-specific challenges, such as specialization, competition, or growth, this organization is faced with? How do these challenges relate to the company’s business environment?Based on the case study, what behaviors did employees exhibit that were indicative of fraud? Describe the pressures employees faced from management that might have led to the fraud. How could they have been avoided?Assess the strengths of the organization’s internal controls. Where are the weaknesses and how might these lead to fraud?How could you address these weaknesses in order to improve them? What measures could you take to ensure this would improve the weaknesses?What sorts of anomalies were contained within the financial statements or additional financial analysis? How do these anomalies relate to the potential fraudulent activity?

What to Submit

Your analysis must be submitted as a 2–3 page Microsoft Word document with double spacing, 12-point Times New Roman font, one-inch margins, and at least three sources cited in APA format.

Milestone Two Rubric

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Business Environment and the Industry: Industry-Specific Challenges

Business Environment and the Industry: Behaviors

19

Business Environment and the Industry: Internal Controls

19

Business Environment and the Industry: Weaknesses

19

Business Environment and the Industry: Anomalies

19

Articulation of Response

5

100%

Criteria	Proficient (	100%	Needs Improvement (7	5	Not Evident (0%)	Value
Determines the industry-specific challenges the organization faces and how they relate to the company’s business environment	Determines the industry-specific challenges the organization faces but does not determine how they relate to the company’s business environment	Does not determine the industry-specific challenges the organization faces					19
Describes the behaviors employees exhibited in the case study that were indicative of fraud and the pressures employees faced from management that may have led to the fraud and how they could have been avoided	Describes the behaviors employees exhibited in the case study that were indicative of fraud but does not describe the pressures employees faced from management that may have led to the fraud and how they could have been avoided or description is cursory or contains inaccuracies	Does not describe the behaviors employees exhibited in the case study that were indicative of fraud
Assesses the strength of the organization’s internal controls and discerns the weaknesses and how they may have led to fraud	Assesses the strength of the organization’s internal controls but does not discern the weaknesses and how they may have led to fraud	Does not assess the strength of the organization’s internal controls
Determines how the weaknesses could be improved and what measures could be taken to ensure improvement	Determines how the weaknesses could be improved but does not determine what measures could be taken to ensure improvement	Does not determine how the weaknesses could be improved and what measures could be taken to ensure improvement
Determines the sorts of anomalies present in the financial statements or additional financial analysis and directly relates them to the potential fraudulent activity	Determines the sorts of anomalies present in the financial statements or additional financial analysis but does not relate them to the potential fraudulent activity or contains inaccuracies	Does not determine the sorts of anomalies present in the financial statements or additional financial analysis
Submission has no major errors related to citations, grammar, spelling, syntax, or organization	Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas	Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas
Total:

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3-2 Final Project Milestone One: Introduction
Christine Sarkissian
Southern New Hampshire University
ACC-646: Introduction to Forensic Accounting/Fraud Examination
Professor Edward Cho
March 17, 2024
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3-2 Final Project Milestone One: Introduction
Elements of Fraud
In 2001, it was discovered that Enron was involved in an infamous corporate fraud due to
its massive accounting irregularities and fraudulent activities (Jones & Stanton, 2021). The Enron
case was considered a fraud because it encompassed the three characteristic elements namely:
intent, concealment, and materiality. Whereas the first element requires the perpetrator to make
deliberate action to deceive or manipulate another in order to achieve personal gain or cause harm,
the second element requires the perpetrator to conceal the action to avoid detection. The third
element, on the other hand, requires the consequence of the perpetrator’s action to be significant
to the financial statements or operations of the affected entity. The Enron case qualified because
all the three elements were involved. The primary significance of studying fraud lies in enabling
accountants detect fraud and thus, prevent it by employing effective mitigation strategies.
Secondly, the knowledge about fraud enables organizations and stakeholders to protect their assets
by implementing proactive measures and thus, preserving their reputation and maintaining trust.
Thirdly, the knowledge about fraud enables organizations to comply with the relevant laws and
avoid lawsuits from stakeholders and regulatory bodies, thus avoiding fines and other liabilities.
Beyond the field of accounting, the knowledge of fraud benefits the management, employees in
other departments, and regulatory bodies. Whereas the management utilize insights gained from
the knowledge to implement effective corporate governance policies within their organizations,
employees from other departments become aware as they recognize fraudulent activities within
their day-to-day activities, thus avoiding them and reporting them promptly. Regulatory bodies
use this knowledge to identify fraudulent activities within business operations.
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Theories of Crime Causation
The rational choice theory, social learning theory, and strain theory are some of the most
prevalent theories of crime causation (Opp, 2020). After identifying the cause of fraud,
contemporary investigators are in a position to understanding the perpetrator’s impetuses and
techniques. Therefore, their identification enables clear assessment of the crime’s scope and more
informed decision-making. In Enron, for instance, investigators could identify that the company’s
executives made “rational choices” to pursue financial gains. As perpetrators, the executives’
behavior led to fraudulent accounting criminal practices.
Red Flags of Evidence
According to Cressey’s fraud triangle, the three red flags of evidence in fraud include:
incentives such as personal debt or lifestyle pressures; opportunities such as lack of oversight,
availability of sensitive information, and frail internal controls; and rationalizations such as
justifications for inappropriate behavior (Al Sharif et al., 2023). According to the authors, the three
red flags converge to precipitate fraudulent actions in profit and not-for profit organizations.
Regulatory and Legal Factors
The Sarbanes-Oxley Act is one of the major laws that impose stringent accounting and
auditing requirements for organizations with the aim of enhancing transparency and accountability
(Meyer, 2020). The authors add that the Securities Exchange Commission (SEC) is a regulatory
body that is obligated to monitor the compliance of these firms. SEC is an enforcement body that
also investigates any wary operations in organizations to dissuade companies from committing
fraud (Lund & Sarin, 2021). The legal frameworks impose interventions for fraudulent behavior
to deter organizations from committing crime and provide recourse for victims.
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Developments in the Accounting Industry
High profile accounting fraud cases such as that of Enron’s have spurred recent
developments in the industry to improve transparency and accountability. For instance, there have
been reforms in the Sarbanes-Oxley Act to ascertain heightened regulatory scrutiny and guide
stricter reporting standards and controls in contemporary organizations (James, 2023).
Furthermore, there have been notable technological advancements in the areas of data analytics
and forensic software to enhance fraud detection capabilities. These developments seek to stress
on the need to combat financial misconduct through proactive measures and leveraging on
technology.
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References
Al-Sharif, N., Plastiras, A., & Menexiadis, M. (2023). Fraud triangle red flags as a methodology:
Lessons from the greek case. Vie & Sciences de l’entreprise, (6), 324-345.
James, J. (2023). The Need for Sarbanes-Oxley. The Business Lawyer, 78.
Jones, M., & Stanton, P. (2021). Negative accounting stereotype: Enron cartoons. Accounting
History, 26(1), 35-60.
Lund, D. S., & Sarin, N. (2021). Corporate crime and punishment: an empirical study. Tex. L.
Rev., 100, 285.
Meyer, S. (2020). Mother Nature Needs Her SOX: Reviewing the Impetus and Goals of the
Increased Financial Regulations of the Sarbanes-Oxley Act and How They Parallel the
Needs of Today’s Environmental Protection Agency. Wm. & Mary Env’t L. & Pol’y
Rev., 45, 601.
Opp, K. D. (2020). Analytical criminology: Integrating explanations of crime and deviant
behavior. Routledge.