Association of Certified Fraud Examiners

Question: Discuss about the Association of Certified Fraud Examiners. Answer: Introduction: There have been observed various cases frauds in companies wherein the employees have been found to be involved in misappropriating the business assets. For example, a worker of IKEA was found to be misappropriating companys cash by way of diverting the money from customers refund account (McMenamin, 2008). The study of Association of Certified Fraud Examiners (ACFE) based on the fraud cases experienced in the past reveals that most of the employee frauds are found in the areas such as billing, payroll, and cash payments and receipts (Peel Holland, 2016). Therefore, the management accountant should verify the internal controls in these areas appropriately paying special attention to the authentication mechanism. In the present case, the management account is of the suspicion that the supervisor is involved in diverting the business assets for personal use. In this connection, the management accountant should inquire about the suspected circumstances rigorously and endeavourer the collect conclusive evidences based on which it could be proved that the supervisor is actually involved in misappropriation of the company assets. For this purpose, the management accountant needs to go through the internal control processes and identify the loopholes therein (Coenen, 2009). Each step of the processes that the supervisor is concerned with should be checked with at most care reviewing the authentication procedures and other aspects. The assets that could be diverted for person use should be identified and the concerned authority responsible to take care of such assets should be inquired about. Primarily, the assets such as cash and inventory are more vulnerable to misappropriations, thus, the management account should pay adequate attention on verification of the internal controls in relation to these assets (Coenen, 2009). Lismore Manufacturing Company Cost of goods manufactured schedule for the quarter, march 31 Particulars Amount Amount Direct material used 378,000.00 Direct manufacturing labor 480,000.00 858,000.00 Factory Overhead Indirect materials used 84,000.00 Indirect manufacturing labor 186,000.00 Property taxes on manufacturing plant building 28,800.00 Depreciation of manufacturing equipment 264,000.00 Miscellaneous plant overhead 135,000.00 Plant utilities 92,400.00 790,200.00 Total Manufacturing Cost 1,648,200.00 Add: Beginning WIP 140,400.00 Less: Closing WIP 171,000.00 Cost of goods manufactured 1,617,600.00 Lismore Manufacturing Company Cost of goods sold schedule for the quarter, March, 31 Particulars Amount Amount Cost of goods manufactured 1,617,600.00 Add: Beginning Finished Goods 540,000.00 Less: Closing Finished Goods 510,000.00 Cost of goods sold 1,647,600.00 The costs which are included for inventory valuation are direct material and conversion cost. The conversion cost includes direct labor and manufacturing overheads. The other costs such as selling and distribution and administration overheads are charged to the income statement as period cost. In the present problem, the inventoriable costs are direct material ($378000), direct labor ($480000), indirect material ($84000), indirect labor ($186000), property taxes on manufacturing plant building ($28800), depreciation of manufacturing equipment ($26400), plant overhead ($135000), and plant utilities ($92400). The period costs are Salespersons' company vehicle costs ($12000), depreciation of office equipment ($123600), general office expenses ($305400), and marketing distribution costs ($30000) (Needles, Powers, and Crosson, 2010). The schedule of cost of goods manufactured is of $1,617,600, which indicates the total cost incurred by the company in manufacturing activities. The cost of goods manufactured is adjusted for the beginning and ending inventory of finished goods to get the cost of goods sold. For example, if the cost of goods manufactured is $1,617,600 and finished goods inventory at the beginning and at the end is $540,000 and $510,000 respectively, then the cost of goods sold would amount to $1,647,600 (1,617,600+540,000-510,000). The cost of goods sold is then taken to the income statement and deducted from the total revenues to get the gross profit. For example, if the total revenues are $2,000,000, then the gross profit would amount to $352,400 ($2,000,000-$1,647,600) (Needles, Powers, and Crosson, 2010). Budgeted manufacturing overhead rate Description Department 100 Department 200 A. Budgeted manufacturing overheads (Given in Question) 57,500.00 62,500.00 B. Budgeted Hours 4000 8000 C. Rate per hour (A/B) 14.38 7.81 Journal Entries for Deptt 100 S.No. Particulars Debit Credit 1 Material control account 110,000.00 Account payable 110,000.00 2 WIP control account 32,500.00 Manufacturing overhead control account 7,500.00 Material control account 40,000.00 3 WIP control account 52,500.00 Manufacturing overhead control account 11,000.00 Wages payable control account 63,500.00 4 Manufacturing overhead control account 17,250.00 Lease payable control account 16,250.00 Utility control account 1,000.00 5 WIP control account 11,500.00 Manufacturing overhead allocation 11,500.00 Total cost of Job A Description Department 100 Direct materials used 32,500.00 Direct manufacturing labor 52,500.00 Indirect manufacturing labor 11,000.00 Indirect materials used 7,500.00 Lease on equipment 16,250.00 Utility 1,000.00 Manufacturing Overheads allocated (800 hrs*14.38+300 hrs*7.81) 13,843.75 Total Cost 134,593.75 The most important factor that determines the overhead allocation base is the cost driver. The cost driver causes the cost to change for a product or service, for example, in a labor intensive company; the cost is primarily driven by the labor hours. In same way a machine intensive company finds the costs being driven by the machine hours. Further, the ease of measurement is also one of the crucial factors that need to be taken into account while determining the cost allocation base (Heisinger and Hoyle, 2016). Computation of Equivalent Units Material Conversion Completion percentage 100% 60% Units manufactured 75000 75000 Normal spoilage 3000 3000 Closing WIP Equivalent units 14500 8700 (14500*60%) Total Equivalent Units 92500 86700 Calcualtion of Cost Per Equivalent unit Material Conversion Total Opening WIP 25,000.00 10,000.00 Cost added during period 113,750.00 55,027.50 [40020+(40020*37.5%)] Total cost 138,750.00 65,027.50 Cost per Equivalent unit 1.50 0.75 2.25 (1.50+.75) Therefore, cost per equivalent unit is $2.25 Production cost worksheet Description Units Cost per unit Total Units completed 75000 2.25 168,752.16 Spoilage 3000 2.25 6,750.09 WIP ending (Only material cost incurred till now) 14500 1.50 21,750.00 Under process costing the cost accumulation is done for a production run, while under job costing the cost is accumulated in relation to a particular job order. The cost accumulation in the job costing is more detailed and specific for a particular job, whereas, in process costing, the cost is accumulated for all the jobs running in a production run (Garrison, 2012). Since, the cost accumulation of various jobs can be done at a time under process costing; therefore, the cost accumulation becomes easier than the job costing method. However, it should be noted that both the methods such as the job and processes costing are applied in different manufacturing organizations. For example, a construction company may use job costing, but it may not be perfect for biscuit manufacturing company (Garrison, 2012). References Coenen, T.L. 2009. Expert fraud investigation: a step-by-step guide. John Wiley Sons. Garrison. 2012. Managerial Accounting 11E W/Dvd. Tata McGraw-Hill Education. Heisinger, K. and Hoyle, J. 2016. Assigning Manufacturing Overhead Costs to Jobs. [Online]. Available at: https://catalog.flatworldknowledge.com/bookhub/reader/4402?e=heisinger_1.0-ch02_s03 [Accessed on: 18 August 2016]. McMenamin, J. 2008. IKEA worker accused of giving himself fake refunds. [Online]. Available at: https://articles.baltimoresun.com/2008-09-10/news/0809090107_1_samaroo-ikea-refunds [Accessed on: 18 August 2016]. Needles, BE., Powers, M., and Crosson, S.V. 2010. Financial and managerial accounting. Cengage Learning. Peel Holland. 2016. Employee Fraud in the Workplace. [Online]. Available at: https://www.peelholland.com/news.html?n=employee-fraud-in-the-workplace- [Accessed on: 18 August 2016].