Raquedan, Christine Joyce G.

5.67. Fraud Opportunities

Simon delegated to John Gault the responsibility for the management of the modular manufacturing
division. As a managing authority, John Gault should practice his job according to the standards and
policies established by the construction company. Gault is responsible for recruiting qualified personnel
for the jobs in the manufacturing division and should not be the one performing tasks in the operations
because he is assigned to supervise it. Part of strengthening internal controls is simply a matter of
defining, or clarifying, ownership roles and responsibilities. Here are red flags that should be considered
because they represent fraud risks. Firstly, Gault asking the internal auditor to not interfere. The role of
an internal auditor is important because they assess and evaluate the established controls whether they
are properly designed, implemented , are working effectively and make recommendations on how to
improve internal control. If Gault would resist the internal auditors responsibility, it is probable that the
internal controls would be ineffective and fraud may exist. Secondly, Segregation of duties is only
limited to Gault and his secretary. One person should not have the sole authority to initiate a
transaction, authorize or approve a transaction and complete the transaction without appropriate sign
off processes and differing levels of management approval. The lack of proper segregation of duty
policies is most often the root cause of many fraud.