ACC 564 Accounting Information Systems

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FRAUD IN THE AIS1ACC 564 Accounting Information SystemsDiscuss the importance of internal controls in preventing fraud within an AccountingInformation System (AIS). Use the case of Fry’s Electronics as a primary example to illustratehowinadequate controls contributed to embezzlement. Based on the insights provided,recommend improvements that could help prevent similar incidents in the future. In your answer,emphasize the role of segregation of duties, documentation practices, and the use of advancedtechnologies.Word Count Requirement:1000-1200 words

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FRAUD IN THE AIS2Fraud in the AISProfessor Daniel AcheampongACC 564 Accounting Information SystemsDecember 15, 2013

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FRAUD IN THE AIS3Fraud in the AISAn effective accounting information system is a key factor in protecting organizationsfrom embezzlement or fraud. The accounting information system should be designed and used asa control tool preventing theft internally or externally.Unfortunately, a case of theft or theaccounting information system fails to prevent embezzlement, happens often. The failure of anaccounting information system occurs due to a flaw in the controls of the system or manipulationof the system by an internal user. According to estimates of the Association of Certified FraudExaminers, the average company loses seven percentof its revenues to fraud, although much ofthis fraud involves external parties, such as shoplifting by customers and cheating by suppliers(Arens el al., 2010).In 2011, Ausaf Siddiqui was convicted and sentenced for a four year embezzlementscheme. Beginning in 2004, Siddiquimanipulated the system by completely bypassing allinternal controls. As an executive for Fry’s Electronics, he convinced suppliers to pay himdirectly for products instead of his employer. Ausaf Siddiqui went to his supervisors andconvinced them he would be able to obtain products at a reduced rate compared to their currentvendors. In actuality, Siddiqui created dummy supplier companies for Fry’s to pay in advance,and thenhe would purchase theproducts from suppliers at a different rate than he reported toFry’s. The scheme was discovered by federal authorities and arrested Siddiqui before hisemployer was even aware of any issues.Fry’s failed to protect the company’s interests in this particular case. Fry’s gave Siddiquithe opportunity to complete the scheme, when he was allowed as vice president of operations andpurchasing to make purchasing decisions while also having authority to approve supplierpayments.Ausaf bypassed the accounting information system completely when he authorized

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