Dickinson TechnologiesEssay title: Dickinson TechnologiesQuestion 1. Assessing the Fraud Risk Factors: High Risk factors and Low Risk Factors.High Risk Factors:Management’s attitude towards overriding controls: Section 5, under topic Integrity and ethical values, of the questionnaire suggests that override could occur without management’s approval, manager’s override is not explicitly prohibited and no interventions by the management were observed.
The Degree of oversight related to the company’s control structure exercised by the management: Section 4, under topic Assignment of Authority and responsibility, of the questionnaire suggests that the Supervisors have broad levels of authority and the responsibility of day-to-day decisions lies on the shoulders of the supervisors and on tope of that the senior management does not exercise significant oversight on such decisions and activities.
The controls related to safeguarding the assets: Section 3, under topic Management’s Philosophy and Operating Style, of the questionnaire suggests that control system to protect valuable assets exists, but, number of examples of failure to adhere to the system or lack of appropriate management oversight were observed.
The segregation of duties, particularly in key functions: in many sections of the questionnaire it is clearly stated that there is no clear segregation of duties. Many tasks are overseen by the supervisor’s only. In Section 6, under topic organizational structure, it is stated that some examples of supervisors fulfilling the dual responsibilities were observed.
Low Risk Factors:Management’s accounting policy choices and financial reporting practices: Section 1, 3 and 5, under topic Management’s philosophy and Operating Style, suggests that management follows conservative approach in its accounting policies and financial reporting practices. Also, all financial reports are reviewed and approved by the controller, CFO and CEO before release and unit accounting personnel report to central financial office. So this area draws very less attention and has less potential for fraud risk.
The level of risk associated with ventures entered into by management: Section 1 under topic Management’s philosophy and Operating Style, suggests that management consider the potential risks and benefits of venture, carefully, before taking any action.
Management’s significant estimates and forecasts used for financial reporting: Section 5 under topic Management’s philosophy and Operating Style, suggests that the estimates made in the past were achieved successfully. This also suggests that the estimates are made carefully and are reasonable.
Medium Risk Factors: I consider the following as medium risk factor because there is no particular reason to consider them as high risk factor, but there are few points which make them risky as compared to the low risk factors.
1. The degree to which the board of directors exercises its oversight capacity over management2. The assignment and communication of authority and responsibility3. Management’s policies toward performance evaluation, promotion, and compensation of employeesQuestion 2.Misstatement arising from fraudulent financial reporting:Control environment, in general, is less likely to prevent fraudulent financial reporting. This type of fraud takes place when the higher management is involved and they, usually, are not obliged to follow the rules set by themselves. Also there is no authority, above them, which can oversee their misdeeds. There is a lot of pressure, from investors, and analysts, on them to meet the numbers and forecasts. So, they have pressure as well as opportunity to misstate the financial reports. They can also easily rationalize their behavior by saying that they did this for company and its employees.
4. Rejection: “My question to you, is, Is it good that you didn’t write for management? Can you do this in your time? Is it good that you didn’t do this for employees? I believe in accountability in the industry as well as in all the other disciplines?”This is because of the management’s own behavior and the business’s own culture. So, this kind of thinking results from the miscommunication of the board of directors. For example, the board of directors might be unhappy about the management’s comments on the stock exchange, but don’t say anything, rather, say “Thank you” to the board of directors.”When you have to meet the expectations of people, you may find that they are reluctant to believe that the job’s a fair one. But when the board of directors and its members exercise the responsibility of making decisions, you, as a member of the whole body who has to meet the same, that’s what it should look like, right? So, to this extent that, as a group, there is no objective, effective, or logical reason for that: so your actions are not fair.”This is true because of the way the people within the control are set up to make decisions on matters of management-and the business decisions taken by the boards of directors are not objective, valid results. Instead, they are just “obligatory” to go along with the plan. What’s wrong with that? This is because the employees inside the control are appointed by management, and the boards and the staff of directors must make decisions on the same. So, a meeting of the boards of directors is just a “meeting of the board”; it was agreed upon by the entire company and is simply a matter for each individual. If they do not make decisions in an orderly fashion, they are no longer members of the company at all. Why would they want to? Because they want to feel comfortable about the way the process runs and at the same time to express their feelings when the company, they think, decides on its future, its future will never come.So, what should the managers do now from their standpoint regarding the decision-making process and what is the result? One important thing to make clear about to this point is that, while the board of directors has no power to make decisions, they should be allowed to make those decisions. They ought to be informed by the whole company. One way to do that is to do something called “the “Action, Evaluation and Review” Act. This Act, which is passed when there is a disagreement about a decision, states that the managers, as representatives of all the stakeholders, have to make decisions about this issue of management. Therefore, all companies should have the same mechanism to prevent conflicts to be resolved among their groups. Because it means that managers can see things coming from the company and are not limited by their own abilities.This Act does not mandate that every decision be considered on its own; rather, it sets out the conditions for the proper way of dealing with conflicts between managers and employees and for the right way of implementing them.For example, the act allows managers who are members of shareholders or members of a non-profit or non-employee company, to “discuss matters” with representatives of some sort that are of public interest and that they feel responsible for or would be detrimental to and will endanger to themselves. Similarly, the act allows the management (in the case of management-to make decisions) to “discuss matters” that, if they do not comply with the plan, will not lead to the implementation of the plan.What this Act allows the managers to do is to express their opinions, not only
On the basis of discussion in the Questionnaire, I would like to say, there is low risk of this type of misstatement in case of Dickinson Technologies. Management’s attitude towards the financial reporting and conservative approach in regards to choice of accounting policies, management’s stress on integrity and ethical values, the board of directors’ oversight and senior management’s frequent contact with managers of subsidiaries make fraudulent financial reporting appear less likely.
It is evident from the questionnaire that the management set reasonable goals, which could be achieved, so there is no pressure