Audit Report On Fraud Audit Essay

1732 Words May 5th, 2016 7 Pages
Dage Michael Martinez
Fraud Auditing
May 1, 2016

Fraud Audit Program: Hollate


Fraud: Type/Scheme
Control Opportunity
Occurs/Fraud Scenario
Red Flags
Journal Entry Scheme
The scheme likely occurred due to management override of controls. Strengthen controls to discourage management override may prevent this from happening again.
CFO is creating journal entries to increase company inventories and decrease costs of goods sold.
Internal audit team was required to meet directly with CFO and the CFO required the internal audit team to work on acquisition related projects to keep them unaware about what had been going on.
Internal audit team reports to CFO. Internal audit team focuses mainly on operational controls and doesn’t worry about financial controls. Internal audit team is kept busy with tasks unrelated to their duties. CFO had tough negotiation for compensation package with bonuses linked to revenue results. Fraternity like culture. Stringent debt covenants. CFO didn’t want new external auditor. Code of Conduct was put on the back burner.
The entries inflate company assets while also lowering company expenses to inflate overall net income. This increase in assets and income allows the company to appear financially stable while also appearing to meet the debt covenants required of them. CFO got bonus for high revenues.


The fraud scheme that is most apparent in the case of Hollate is financial reporting fraud. After an…

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