Criminal Justice Essay Paper on Fraud Prevention and Internal Controls

Fraud Prevention and Internal Controls

The Facts about the Fraud and the Fraud Scheme Type

T.J. Gieseker Farms was involved in a grain fraud where it was obtaining money from new investors to cater for earlier investors at a higher return. The operation of this company assumed that of a pyramid scheme.  On the ACFE Fraud Tree, the fraud can be grouped as a financial statement fraud where the revenues and assets are overestimated. The fraud is expected to cost the farmers approximately $15 million in losses. There are more than 140 farmers affected by this fraud. Mrs. Gieseker, who is the owner of the company, also committed the fraud. The fraud was detected after red flag were raised from the audits carried out on the company. Gieseker was quick to lay the blame for the collapse of her company on Archer Daniels Midland, claiming that she has worked as partners for some time and thus winning the farmers trust. Gieseker even paid the farmers in advance and the farmers attributed this to her contract with Archer Daniels Midland Company, which was a leading grain company dealer. The management of Archer Daniels Midland Company clarified that it had made no contract with Gieseker rather; the grains were sold at spot price.

Fraud Risk Factors

Fraud risk factors related to the Gieseker fraud case includes; nature of grain market, control environment in terms of documentation and business complexity and the pressures emanating from the guarantees that Gieseker made to the farmers. The seizure of T.J. Gieseker company assets by the state authorities placed the farmers who trusted their farm yield on the company at a financial crisis (Stamler, Marschdorf, H.-J, and Possamai 23). Gieseker had promised the farmers high returns but the company could not fulfill this promise in the long term since it used the money from new investors to pay the older one. This finally led to the collapse of the business.   The transaction between Gieseker and Archer Daniels Midland Company could not be ascertained since there was no contract signed between them. The lack of documentation raises many doubts about the future of the company in terms of future supplies and price stability. Most of the farmer did not also have signed agreement with the company as they blindly committed themselves to sell the Gieseker Company their grains. Such farmers would as a consequence lose their money.

Parties that are Directly and Indirectly affected by the Fraud

The parties who were directly affected by the fraud include the grain farmers, Ms Gieseker and the investors. More than 140 farmers would incur losses as a result of the collapse of the company. Some of the farmer feared filing their claims while others requested that their name not be disclosed since they did not want to appear stupid. Many farmers had believed that they were engaging in a profitable business venture before the discovery of the financial frauds.   Archer Daniels Midland Company on the other hand, would indirectly be affected by this fraud since it would lose one its suppliers. The company would however not lose it since there was no signed agreement between it and Gieseker Company. The direct victim, which is the customer, could have protected themselves from these losses as a result of the fraud by entering in a signed contract with Gieseker Company. The investors should also have signed a contract with the company before investing. The advantage of a contract is that the court would have used it in determining the amount of money to be compensated.

Detection of the Fraud

State authorities through routine audits, which raised concerns, detected the fraud on Gieseker. The attorney general and the county prosecutor lodged criminal charges against the company based on the evidence collected. Chris Klenklen, who was an official at the department of agriculture, claimed that there was substantial evidence that indicates that fraud had taken place in the company. In the northeastern Missouri, many folks also suspected that Gieseker was a pyramid scheme that used the new investor’s money to pay the old ones their dew. The farmer also failed to suspect the existence of a fraud despite the fact that they experienced delayed payments since they were not ready to put to an end to the profitable venture. Some farmers were suspicious and also refrained from doing business with her (Stamler, Marschdorf, H.-J, and Possamai 19). The detection method was poor since a single audit on a firm should have revealed the existence of a fraud and thus saving the farmers a lot of money. The authorities should also have launched investigations on the firm immediately the external auditors detected the first fraud.

Controls that the Investors should have used to Prevent the Fraud

The investors should have analyzed the financial statement of the firm before making the investment decision. The investors should also have taken their time in knowing Mrs. Gieseker. This involves the licenses she uses to carry out the business and also her business partners. This could have enabled them to disapprove her claim that she had a contract with Archer Daniels Midland Company. Despite some of these control factors being in place, the investors failed to detect the fraud since they were not ready to let go the profitable business venture. The deal was however too good to be genuine.

Works Cited

Stamler, R., Marschdorf, H.-J, and M. Possamai. Fraud prevention and detection: Warning signs and the red flag system. Boca Raton: CRC Press/Taylor & Francis, 2014. Print.