Introduction
TSU has managed to build a business name in the industry in the past few years and has managed to maintain the name and increase the turnover due to the collective duty of each employee in the workplace. Hence, the success of the firm relies on the activities and actions of the employees as well as how they handle their duties and responsibility and ability to work together as a team. Despite the success of the firm, there exist potential areas that the employees can work together and steal from their employers. These are the areas that fraud could occur, and it is important that the management puts measures to protect against the possibility of the fraud cases happening (Purda & David 1197). The study will identify three areas with a focus on the accounting issues where fraud can occur. It will highlight on the weakness that could lead to the fraud as well as a recommendation which would be a step to reduce the weakness or minimize the problem happening at any given time.
Sales Department
Issue
The sales department is in charge of recording the movement of the goods and products from the warehouse, and they work hand in hand with the receivables department as they give them the list of goods sold. They can then formulate the list of cash expected from the debtors in the form of the customers. According to FASB, there is a difference between the recognition of revenue between when the process of purchasing starts and when an organization receives the payment. According to TSU, they recognize their sales once the client shows interest in making a purchase and has not paid the full amount so that they can own the product.
Problem
It creates a loophole for the department in sales as they have to consider the how to reflect their financial statements. It also means that they have an added advantage of hiding any mistake by either overstating or understating the amount that the customers owe the organization. There is also a high chance in recording a sale once the client shows interest in making a purchase without the actual exchange of money for the country. They may also have the mistake of releasing the goods to the customer before the client and the organization finish up on the sale terms and condition which means that they reflect sales on the statements.
Recommendation
The sales department should record a sale once the customers pick the goods and make a deposit for the goods so that they can show commitment to paying the amount to the organization.
The sales department should provide the right records to the receivables department so that they can be no conflict in the values they reflect; this is the money that the debtors owe the company (Sharma & Prabin 167). It also helps in reducing the number of bad debts that the business records in any financial year.
Record any sale after terms of sale between the client and the business are clear and complete, and the client confirms that they want the goods from the firm in written agreement.
Inventory
Issue:
Stock keeping is an important sector in the business as it helps keep track of the available goods that the production department delivered as well as the movement of the goods from the company to the clients. The issue in this may arise from the misrepresentation of the available stock, there is some inventory considered obsolete, and there is also a huge difference between the periods in X2 and X3 signifying a deeper problem in stock management and records. The work in progress stock may also signify that the uncompleted goods are high in number.
Problem
The store manager may give false reports on the amount of stock available at the premises. Any misrepresentation on paper may have a significant effect on the sales department where a requisition from a client may surpass the amount of stock in the store. It is a problem of under stocking and may lead to a loss of the customer from the business organization to the competitors.
Recommendation
They may need to physically count the number of goods available in the warehouse as a way of confirmation that what is on the paper is what is on the ground. The checks on the store and warehouses are impromptu which the management through other employees, makes sure that stock is available at all times.
The firm should have one person in charge of the inventory department who will also help reduce the number of old stock in the warehouse. They will be in a position to keep track of the movement of goods according to the demand from the market and the trends in the industry as well.
The production department needs to have the balance between the number of finished products and the number of items which are works in progress. It will help in reducing the problem of under stocking.
Accounts receivables
Issue
All the funds reflected in the accounts receivables are money that the firm owes hence they have a right to expect it (Sharma & Prabin 188). They also need to be clear when dealing with the customers of the business as one person in charge of the accounts department may require the input of the sales staff as they record the returns if any so that they can have the right amount reflected in the statements as what to expect from the debtors.
Problem
Sometimes when there is a return inwards, the reflection reduces the number of receivables which affects them in a negative way. There is also the need to highlight the right pricing with the customers to avoid overcharging some customers which may affect the receivables through confusion on the amount expected. Sometimes the person in charge of the sales department may collaborate with the receivables and have them reflect false figures as they stand to gain from the overstated amounts.
Recommendation
Work with the sales department and have them update the receivables on the right amount of the returns from the customers, which will help in reducing the costs and avoid false statements of accounts.
The person in charge of the receivables needs to charge the right amount and avoid making errors in the amount as well as reflect the receipt of payments in the receivables records. It helps maintain the good records at all the times.
All customers deserve a reasonable period of credit days, and the company should also reduce the number of outstanding payments from the clients who have a problem with repaying.
Works Cited
Purda, Lynnette, and David Skillicorn. "Accounting variables, deception, and a bag of words: assessing the tools of fraud detection." Contemporary Accounting Research 32.3, 2015: 1193-1223.
Sharma, Anuj, and Prabin Kumar Panigrahi. "A review of financial accounting fraud detection based on data mining techniques." arXiv preprint arXiv: 1309.3944, 2013: 123-189.
