Introduction
Fraud is a pervasive threat that inflicts adverse financial and psychological effects on the victims. It can also involve using dubious methods to attain favors, especially in the context of a company. In most cases, fraud results in the destruction of an organization’s reputation. While fraud may go unnoticed for an extended period, when it does, the consequences may hurt the company’s image, leading to its downfall. This essay will analyze the case study “Apperate, Inc.: Recovering from Fraud” by Roman, McGunagle, Zizka, and Clark (2022), as modified for BUSW 604 International Business.
Case Analysis
Daniel’s Lack of Ethical Behavior and Alternative Ethical Choices
Apperate, Inc. experienced a fraud committed by its founder, Daniel. He showed his lack of ethics by lying that he was in the army and deployed to Afghanistan, in addition to being a member of the LGBTQ+ community and the associated challenges he faced by being gay (Roman et al., 2022). He also concealed the company’s transactions, assets, and liabilities through Komputerism, which he used to fool auditors. On the contrary, Daniel should have worked on his business and created a legitimate company that would make growing profits to show the investors the trends in the business.
Auditors’ Responsibilities: Confirmed Transactions, Red Flags, and Evidence of Fraud
Daniel’s tactic to bind the auditors to a non-disclosure agreement worked against them, as they could not verify the information, even when they discovered issues with the books. Red flags should have informed the auditors of a possible scheme to hide the company’s financial information. Confirmed transactions are verified from different sources, while a red flag indicates possible issues that can affect the entire auditing process (Narayana & Ariyanto, 2020). Consequently, professional auditors must dictate the guiding principles of their practice to prevent interference from the companies.
Exploiting International Business Practices and Frameworks for Fraud Prevention
Daniel leveraged the differences in international business conduct by exploiting existing loopholes, different oversight levels, and regulatory gaps to facilitate his fraudulent schemes. He knew the possible lax regulations between countries, thereby utilizing jurisdiction hopping. Incorporating shell companies in Russia helped him evade scrutiny, reducing his chances of being caught (Roman et al., 2022). Fostering international cooperation and sharing information between regulatory and law enforcement bodies across different nations can help reduce fraud (Wang et al., 2021). There are existing international standards, such as Interpol, that can help with such cooperation.
Evaluating Auditor Errors: Negligence, Recklessness, or Fraudulent Behavior
Negligence involves failing to exercise care when performing a professional duty. Recklessness mainly involves disregarding obvious risks or dangers when performing a duty, which later may be detrimental. On the other hand, fraudulent activity primarily involves deception or misrepresentation of facts (Brous, 2020).
The auditors made reckless mistakes since they should have identified issues that negated professional auditing conduct, but disregarded them and were later captured by Daniel. The sole practitioner auditor also exhibited negligence since he needed to understand his duty of scrutinizing all the documents and transactions. Consequently, he was overwhelmed by the large number of files intentionally provided by Daniel to conceal his scheme.
Audit Firms, Ethically Challenged Clients, and a Code of Conduct for Audit Services
The choice of an auditing company to work with another organization is a complicated issue driven mainly by business objectives. While the choice relies on business outcomes, a code of conduct can help organizations make sound decisions. Firstly, the audit should be independent and objective to ensure no biases or undue influence from the client (Khalid & Sarea, 2021). This will ensure that the auditors’ opinion is derived primarily from the findings of the accounting practices and their merits. In addition, an auditing company working for a client should ensure they adhere to professional skepticism, where they should question each process and seek evidence to confirm the information provided by the client.
Conclusion
In conclusion, fraud is a vice involving a pervasive threat with serious consequences for the victims. Apperate, Inc.’s CEO, Daniel, had operated the company for a while and then decided to use dubious methods to get money to become rich quickly. He used an inexperienced auditor to hide his past financial misdeeds. Auditors are supposed to assess the scope of their work and sign only to the task they can deliver effectively and competently to avoid recklessness and negligence. As noted in the case of Apperate, Inc., fraud can lead to the fall of a company.
References
Brous, E. (2020). The elements of a nursing malpractice case, Part 4: Harm. AJN The American Journal of Nursing, 120(3), 61-64. Web.
Khalid, A. A., & Sarea, A. M. (2021). Independence and effectiveness in internal Shariah audit with insights drawn from Islamic agency theory. International Journal of Law and Management, 63(3), 332-346. Web.
Narayana, A. A. S., & Ariyanto, D. (2020). Auditors’ experience as moderating affects investigative abilities and understanding of red flags in fraud detection. International Research Journal of Management, IT and Social Sciences, 7(1), 205-216. Web.
Roman, J. E., McGunagle, D., Zizka, L. & Clark, P. (2022). Apperate, Inc.: Recovering from Fraud.
Wang, S. Y. K., Hsieh, M. L., Chang, C. K. M., Jiang, P. S., & Dallier, D. J. (2021). Collaboration between law enforcement agencies in combating cybercrime: Implications of a Taiwanese case study about ATM Hacking. International Journal of Offender Therapy and Comparative Criminology, 65(4), 390-408. Web.