Maldives Business School Cover Page

ASSESSMENT BRIEF
Bachelor’s Degree Year 3

The student must fill the relevant parts of the following table.

Student
Student First Name Student Last Name ID Task No. Date submitted Date issued
Aishath Azrath 3539 2 23rd Jan 2022 28th Nov 2021
Statement of authenticity
I, the above named student, hereby confirm that this assignment is my own work and not copied or plagiarized.
It has not previously been submitted as part of any assessment. All the sources, from which information has
been obtained for this assignment, have been referenced in the Harvard format. I further confirm that I have
read and understood the Maldives Business School rules and regulations about plagiarism and copying and agree
to be bound by them.

Assignment summary information

Unit Unit 20 : Forensic Accounting And Finance Modality OL
Specialization Accounting and Finance
Assignment type This is an individual assignment.
Tasks Submit on Do on
Task 1: Examination: LO1, LO2. NA 8 January 2022
th

Task 2: Report: LO3, LO4. 23rd January 2022 NA

An extension must be applied for in writing by individual students and will only be granted
Extensions for valid reasons. (report & examination)
Late submissions Late submissions will be marked for all grades but will incur a fine of MVR 250 per task.
Each report resubmission will be charged MVR 100 & re-sit/retake for examination will be
Resubmissions: charged MVR 250.
Assessor(s): Mohamed Anas Internal verifier: Pro. Sandeep Singh Sikerwar

Assessor(s) please fill the table below AFTER the evaluation.

Assessment criteria Task Maximum Marks Marks Obtained IV Comments
1.1 1 12
1.2 1 12
2.1 1 14
2.2 1 12
3.1 2 10
3.2 2 12
4.1 2 14
4.2 2 14
Total Marks 100
Assessor’s Name Signature Date
__/__/__

This is the cover page for your assignment. Each task must have this cover page. A missing cover page will require you
to resubmit the task and a fee of MVR 100 will be charged. Read the document titled “Additional Guidance on
Assignments” for help on the general report format, general presentation format and referencing. Evidences required
to achieve each criterion are given just below each criterion. End of cover page.

Page | 1
Aishath Azrath
 Aishath Azrath (3539)
Bachelor’s Degree in Accounting and Finance
Maldives Business School
Date: 23rd January 2022
Word Count: 2588 words

Page | 2
Aishath Azrath
Abstract
This report is based on Accounting Fraud Detection in Island Beverages Maldives Pvt Ltd.
This report explains the fraud schemes and their schemers. The types of
misappropriations. And also look into how to search for frauds, the role of source
documents, journal entries, accounting ledgers etc. in searching for fraud and the various
red flags from source documents and the various journal entry symptoms.

Page | 3
Aishath Azrath
Table of contents
Abstract ........................................................................................................................................... 3
Introduction .................................................................................................................................... 5
1. Fraud schemes and their schemers (3.1) ................................................................................. 6
2. Type of misappropriations (3.2) .............................................................................................. 8
3. How to search for frauds. (4.1) ...............................................................................................10
4. The various journal entry symptoms. (4.2) ............................................................................ 12
Conclusion...................................................................................................................................... 14
Bibliography ................................................................................................................................... 15

Page | 4
Aishath Azrath
Introduction

Forensic accounting is the use of accounting skills to investigate fraud, embezzlement

and other irregularities hidden as financial transactions. In many cases, forensic
accounting investigations are used in legal proceedings, but they are also used for
compliance efforts and to prevent crimes. While the duties of forensic accountants mainly
lead them to investigate and analyze, they may also be called upon to serve as expert
witnesses in court. Forensic accountants play a crucial role in examining and investigating
current financial processes and standards, which can help identify more effective and
efficient solutions. Businesses can use forensic accounting to detect anomalies among
their staff and the third parties they’re working with. Dealing with fraud (internal or
external) can be spectacularly disruptive and costly for the business. In an ideal situation,
forensic accountancy can be used to avoid such scenarios from ever occurring by
preventing fraudulent activity.

Internal controls are processes designed to help safeguard an organization and minimize
risk to its objectives. Internal controls minimize risks and protect assets, ensure accuracy
of records, promote operational efficiency, and encourage adherence to policies, rules,
regulations, and laws. Internal control compliance is put in place to mitigate the risks to
give the organization a better chance at achieving its objectives. Well-designed internal
controls keep the organization operating efficiently and effectively and the controls can
help maintain compliance with regulations.

Island Beverages Maldives Pvt Ltd

Island Beverages Maldives Pvt Ltd (IBM) was established on 9th December 2002 as a
subsidiary company of Male Water and Sewerage Company Pvt Ltd (MWSC). Since their
inception IBM quickly became the Market leader of the bottled water industry in Maldives
through its flagship product “TaZa” mineralized bottled water. The company holds two
production facilities in the Maldives with one situated in Male’ city and another one in
Khulhudhuffushi. The Male’ Factory produces 5l bottles whereas the Khulhudhuffushi
factory produces 330ml, 500ml and 1500ml bottles. IBM is also known to have one of the
largest dedicated distribution fleets in the industry. (Island Beverage Maldives, n.d.)

Page | 5
Aishath Azrath
1. Fraud schemes and their schemers (3.1)

Fraud Schemes

Financial statement fraud is deliberate misrepresentation of data and information in

financial statements with an intent to misled the user and thus creating a wrongful
impression of financial health. It is done to make performance better than actual (to entice
investments and loans) and to make performance look worse than actual (to lower the tax
liabilities). Some of them are:

Payroll Fraud
Payroll fraud can manifest in a variety of ways. An employee could lie about their
productivity, sales or hours worked to get a higher pay. Some may request for a pay
advance without any intention of paying it back. Others may even take it a step further by
enlisting a co-worker to manipulate their attendance records by clocking in and out for
them.

Inventory fraud
Employees may steal inventory and supplies for personal use or sell the stolen items to
outsiders at flea markets and garage sales. Scrap goods may be stolen and sold to
outsiders. Faked sales can feature unrecorded “sales” or even a charade in which an
accomplice pays the employee a token amount in exchange for a more expensive item.
Kickback schemes often involve a vendor/supplier and an employee who work in cahoots
to underreport inventory or payment of an inflated price. Write-offs to discounts or bad
debts can conceal thefts, and physical inventory counts can be doctored in computer
databases by the technically savvy fraudster.

Accounts payable fraud

Accounts payable is an account that shows that a business owes someone, such as a
vendor. It is estimated that companies pay as much as two percent of total purchases as
duplicate payments. Shell companies may be used to steal through accounts payable. An
employee may create a shell company with the secretary of state, open a bank account,
and send false invoices to his employer. (CRUMBLEY, 2015)

Page | 6
Aishath Azrath
Fraud Schemers

Ponzi Schemes
A Ponzi scheme is a pyramid-type technique in which early investors are paid with new
money collected from later investors, who lose their investments. A Ponzi investing scam
promises high returns with little risk. Ponzi schemes rely on a constant flow of new
investments to continue to provide returns to older investors. When this flow runs out, the
scheme falls apart.

Bribery and corruption

Corruption is dishonest or fraudulent conduct by those in power, typically involving
bribery. Bribery is offering, giving or receiving anything of value with the intention of
inducing a person to act or to reward a person for having acted. Bribery and corruption
encompasses a variety of practices such as skimming/getting kickbacks from projects,
using money to influence major company decisions, and manipulating contracts to favor
some people over others.

Inventory schemes – inflating inventory value

Inventory can be manipulated by adjusting the price of goods in the company’s accounting
system for a variety of reasons other than to boost earnings. For instance, a common
reason to inflate the value of inventory is to obtain higher finance from banks using the
inventory as a security or to cover inventory shortages. This can be accomplished by
creating false journal entries designed to increase the balance in the inventory account.
Another common way to inflate inventory value is to delay the write-down of obsolete or
slow moving inventory also by capitalizing certain expenditures which should have been
expensed out.

Page | 7
Aishath Azrath
2. Type of misappropriations (3.2)

Asset Misappropriation
Assets misappropriation fraud is where third parties or employees of the organization
abuse their position in the company to steal from company through fraudulent activity.
Misappropriation schemes are more common than corruption and cooking the books and
are often less costly. Often misappropriations are accomplished by false or misleading
records or documents, possibly created by circumventing internal controls. It’s mostly
committed by employees, Board of Directors and anyone who is entrusted to hold and
manage the assets. Statement on Auditing Standards (SAS) No. 99 (AU 316) uses the
same three conditions for misappropriation of assets as financial statement fraud:
incentives/pressures, opportunity, and attitudes/rationalizations.

Asset misappropriation fraud may include any of the following:

Procurement fraud
Procurement fraud is a form of white-collar crime. These crimes are usually non-violent
in nature and involve some type of theft, defrauding or other type of crime that is financial
in nature. It can involve nonexistent vendors, kickbacks, product substitution, overbilling
and a wide variety of fraudulent practices.

Larceny of Cash
Larceny of cash schemes involve the numerous types of theft of cash after the cash has
been recorded on the books, such as directly from a cash register or petty cash. Larceny,
in which funds have been documented on a register tape or other bookkeeping method,
differs from skimming, in which funds are stolen that have not entered the company’s
accounting system. Some fraudulent employees place phony refund forms or voided
sales slips in the register to cover the missing funds.

Expense reimbursement fraud

Expense reimbursement fraud is part of asset misappropriation schemes and, according
to studies, is by far the most common type of fraud. Expense reimbursement fraud can
be broken down into four categories:
 Mischaracterized Expenses – Employee submits expenses that do not qualify for
reimbursement under company policies or claims personal expenses as business
ones.
 Overstated Expenses – Employee requests reimbursement in excess of actual
cost, typically through manipulation of records.
 Fictitious Expenses – Employee submits expenses for reimbursement that were
not incurred.

Page | 8
Aishath Azrath
  Multiple Reimbursements – Employee submits the same expense for
reimbursement multiple times. He/she may also submit for reimbursement the
same expense already reimbursed by an external organization or by seeking
another proof for same payment.

Payroll fraud Payroll fraud involves an employee committing theft using the company’s
payroll system, and can include an employee:
 keeping a non-existent employee or ex-employee on the payroll and diverting that
pay to themselves
 requesting a payroll advance and not paying it back
 stealing another employee’s pay cheque and cashing it

Ways to protect the company against misappropriation of assets

Conduct background check of employees

Background searches should be undertaken using public databases and information
sources. These might include directorship searches to ensure there are no potential
conflicts of interest, bankruptcy searches, and media searches. Criminal record searches
might also be considered.

Segregation of Duties
Segregation of duties is a key internal control intended to minimize the occurrence of
errors or fraud by ensuring that no employee has the ability to both perpetrate and conceal
errors or fraud in the normal course of their duties.

Rotate Duties
Routine job rotation is a powerful fraud deterrent and helps prevent other misdeeds such
as sabotage and information misuse as well. It is much harder for a fraudster to cover
their tracks if another employee will be stepping into their shoes.

Conduct audits
Ensure that internal audit is part of the fraud risk assessment and that internal audit
reviews are conducted for high risk areas as well as periodically for lower risk areas.

Page | 9
Aishath Azrath
3. How to search for frauds. (4.1)
Document for red flags
A red flag is like a ray of sunshine in a cloudy day. A forensic accountant or auditor may
have to search numerous source documents to look for red flags. Appropriate source
documents are:
 Cancelled checks/bank statements.
 Employee time cards (or time clock records).
 Employee contracts and buy/sale agreements.
 Sales invoices.
 Shipping documents.
 Expense invoices (e.g., travel and entertainment).
 Purchase documents.
 Credit card receipts.
Red flags from source documents can include:
 Photocopies of missing documents.
 False/changed documents.
 Missing proper authorization.
 Overstated voids/credits.
 Second endorsements.
 White outs and erasers.
 Duplicate payments to same payee or for some product or service.

Journal entry and ledger fraud
The following are common journal entry fraud symptoms:
 Out of balance accounts: Ledger that does not balance; that is, the total of all
debit balances does not equal the total of all credit balances
 Lack of supporting documents: the word of whoever entered the entry that it had
happened
 Unexplained adjustments to receivables, payables, revenues, or expenses.
 Unusual/numerous entries at end of period (e.g., top side entries).
 Written entries in computer environment.
 Many round numbers. Weekend entries.
 Too many beginning 9 digits.
 Entries made by persons who do not normally make such entries - this violates
the security principle of integrity

Page | 10
Aishath Azrath
To check for ledger fraud symptoms, a forensic auditor should look for: Underlying
assets differences. Subsidiary ledger does not agree with general ledger.
Inconsistencies between control accounts and supporting ledger. Fraud may cause
differences.
Analytical anomalies are another category of fraud symptoms. They are primarily
represented by unusual analytical relationships. These include transactions that happen
at odd times or places, transactions that involve people who would not normally be a
part of the event, transactions that involve amounts that are too small or too big, and
transactions that occur too often or too rarely. Companies should perform financial data
analysis to determine unusual relationships that should serve as “red flags” indicating
possible fraud.
Examples Include:
 Increased expenses without an increase of services provided
 Increased revenues with significant decrease in receivables
 Increased revenues with decreased cash flows
 Increased volume with an increased cost per unit

Page | 11
Aishath Azrath
4. The various journal entry symptoms. (4.2)

Fraud red flags refer to undesirable situations or conditions that consistently contribute
to fraud, waste, and abuse of resources. When an investigator is reviewing a company’s
stocks or financial statements, certain undesirable characteristics may stand out as
fraud red flags contributors to fraud or circumstances that may indicate the presence of
fraud.
All organizations face fraud risk, which can either be internal or external. Internal risks
come from persons within the organization who may use their position to enrich
themselves by misappropriating resources and assets owned by their employer. On the
other hand, external risks are engineered by government officers, customers, and
contractors who may seek to obtain money illegally.

There are several red flags that audit and accounting professionals should look out for.
They include the following:

Inventory shrinkage
Although it’s normal to lose a few items of inventory when moving items, excessive
inventory shrinkage may be an indicator of ongoing fraud. An auditor can detect
inventory shrinkage by looking at the balance sheet, the number of products in stock,
and those sold and then comparing them with previous records and projections. In
certain circumstances, the auditor may do unplanned stock-taking on random days to
detect any unusual inventory characteristics.

Missing documents
An organization may experience frequent cases of reported missing documents that
relate to critical departments. When the frequency of occurrence becomes too often, it
may be a sign of ongoing fraud within the organization. Missing documents that are
fraud red flags include registration of motor vehicles, lists of sales and purchases,
checkbooks, and inventory reports. When such records disappear, it may point to an
undesirable situation that may lead to loss of certain assets or money.

Multiple payments
Individual employees endorse duplicate payments to both genuine and fake companies.
Some employees may even process payments to non-existent companies with the
intention of defrauding their employer. To prevent such errors, all payments should be
monitored and verified that they are going to the intended parties.

Page | 12
Aishath Azrath
Spikes in invoice volume
High number of invoices creates room for fraudulent behaviors, as specific internal and
external parties may seek to profit from the rapid growth of the business.
For example, there can be cases of unrecorded payments, or if they are recorded, they
are understated in volume and amount. The organization should know when spikes
occur and ensure all orders made by customers are recorded and fulfilled on a timely
basis.

Employee Fraud Red Flags

A large proportion of fraud affecting organizations comes from within the organization
itself, mainly from employees. Some of the behavioral signs of employee fraud include:

Lifestyle changes
Employees ought to live within their means, by buying assets and services that are
within their income. However, some employees may change their lifestyle abruptly by
spending more than their paycheck allows. The purchases can be expensive cars,
houses, or luxury goods. Sometimes, the employee’s lifestyle may exceed that of their
superior. Generally, if a pattern of large purchases emerges, this can be a moment to
question if their salary justifies the purchases.

Travel reimbursement irregularities

This area is relatively simple to abuse. If there is little attention paid to such expenses,
employees can falsify their expense records. For example, an employee could easily
add on a few extra company lunches each month.

History of debts
During the hiring process, an organization should conduct background checks to see if
potential employees have a history of debts. When a company hires employees with
debt problems, there is a likelihood that they will find opportunities to get extra income
above their salary to pay debts. It may mean engaging in opportunistic fraud with the
intention of obtaining money that they are not entitled to.

Page | 13
Aishath Azrath
Conclusion
In conclusion, every organization, including those with the most stringent rules, are at risk
for fraud. To prevent fraud from happening, organizations must first acknowledge that
fraud exists and create awareness among the stakeholders. Organizations should start
by training their employees on how to detect fraud at work. They should also implement
policies and procedures that will help them seal the loopholes used by fraudsters to
conduct their activities.

Page | 14
Aishath Azrath
Bibliography
CRUMBLEY, H. ,. S., 2015. Forensic and Investigative Accounting. Seventh Edition ed. Chicago:
s.n.
Island Beverage Maldives, n.d. Taza. [Online]
Available at: http://taza.com.mv/about/
[Accessed 16 January 2022].

Page | 15
Aishath Azrath