| Course | ACC 423 Detection/Prevention Fraudulent Financial Statements |
|---|---|
| Module | Module 7 |
| Paper type | undergraduate project designing a fraudulent financial reporting prevention program |
| Length | About 1,020 words, 6 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | BS Accounting |
| Updated | October 2026 |
Free sample paper for ACC 423 Module 7
Closing the Gaps: A Fraudulent Reporting Prevention Program for a Composite Water Heater Maker
[Student Name]
Southern New Hampshire University
ACC 423: Detection and Prevention of Fraudulent Financial Statements
Project Two
[Instructor Name]
[Date]
The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.
Closing the Gaps: A Fraudulent Reporting Prevention Program for a Composite Water Heater Maker
Introduction
The review of the water heater maker's fourth quarter found three schemes: shipments to distributors under side letters with unlimited returns, a bill-and-hold the customer did not request, and reserve and capitalization choices that inflated pretax income by roughly ten and a half million dollars. They succeeded because a sales executive could grant terms outside the contract without anyone in finance seeing them, because executive pay depended heavily on a single quarter's earnings per share and because the audit committee did not question what it was shown. This program addresses those causes rather than the symptoms. Rezaee (2005) argues that prevention must work on incentives, opportunities and oversight together, since any one alone leaves the others open.
Part 1: Tone at the Top With Consequences
A culture of accurate reporting is established less by statements than by what happens to people. The CEO will issue a written statement to all employees describing what went wrong and what will change. The sales vice president who signed the side letters has been separated from the company, and the board will apply the company's clawback policy to recover incentive compensation paid to executives on the restated results. Feng et al. (2011) found that CFOs involved in material manipulations were often pressured by powerful CEOs rather than acting for their own gain, which argues for protecting the finance function's independence explicitly: the CFO will meet privately with the audit committee chair each quarter.
Part 2: Incentives That Do Not Ride on One Quarter
Executive bonuses will no longer use quarterly earnings per share. Annual incentives will be based on operating cash flow and return on invested capital, and half of long-term awards will vest over three years on the same measures. Sales commissions will be paid on collected revenue net of returns rather than on shipments. This would have removed the reason for the December shipments: a sales team paid on collections gains nothing from product that comes back in April.
Part 3: Controls Over the Schemes
Table 1. Controls Mapped to Schemes
| Control | Scheme it would have stopped | Owner |
|---|---|---|
| Any term outside the standard contract requires finance approval and is attached to the contract in the system | Side letters granting extended terms and returns | Controller |
| Quarterly sales executive certification that no side agreements exist | Side letters | General counsel |
| Shipments in the last two weeks of a quarter above 150 percent of run rate reviewed by finance before revenue is recognized | Channel stuffing | Revenue accountant |
| Bill-and-hold arrangements require written customer request and segregated storage verified by finance | Improper bill-and-hold | Plant controller |
| Changes in significant estimates, such as warranty rates, presented to the audit committee with supporting data before adoption | Warranty reserve release | CFO |
| Capital projects over $1 million reviewed by accounting to separate equipment from start-up costs | Capitalized start-up costs | Fixed asset accountant |
Part 4: Continuous Analytics
A monthly dashboard prepared by internal audit will track days sales outstanding by distributor, returns as a percentage of prior-quarter shipments, the warranty accrual rate against claims per thousand units, inventory days by product line and capital spending against capacity added. Because receivable and accrual swings rank high among the predictors of misstatement in large-sample research (Dechow et al., 2011), those measures carry alert thresholds that automatically go to the audit committee chair when breached.
Part 5: A Hotline That Reaches the Board
The current hotline routes reports to the general counsel, who reports to the CEO. It will be replaced by an outside provider that sends accounting and financial reporting reports directly to the audit committee chair, with anonymity available and a written anti-retaliation policy. The receivables manager who discovered the side letters had no confidence the old hotline would reach anyone independent; the new one is designed so that the next employee would.
Part 6: Training and Monitoring
All sales, finance and plant managers will complete annual training on revenue recognition basics, side agreements and the duty to report. The board will receive a semiannual report on six measures: hotline reports and their resolution time, nonstandard terms requested and approved, quarter-end shipment exceptions, estimate changes reviewed, analytics alerts and their outcomes, and training completion. If a measure shows no activity at all, that is itself a reason to ask whether the control is working; a hotline that receives no reports in a year is more likely ignored than unnecessary.
Response Plan
Prevention will sometimes fail, so the program also defines what happens next. Any credible report or analytics alert involving revenue, estimates or senior management will go to the audit committee chair within two business days. The committee, not management, will decide whether to engage outside counsel and forensic accountants, and it will inform the external auditors. Employees who reported in good faith will be told that their concern was received and acted on, even when details cannot be shared. And the committee will document each case's outcome, so that the next review can see whether the same weakness recurred. A response plan written in advance avoids the improvisation that let the fourth-quarter schemes run until the auditors found them.
Cost and Priority
The program's direct cost is modest relative to the damage the schemes caused: an outside hotline provider at about $15,000 a year, one additional revenue accountant at about $95,000, analytics software and internal audit time of roughly $60,000, and training costs of about $20,000. The first priorities are Parts 2 and 3, because incentives and term controls address the root causes; analytics and the hotline follow within six months.
Conclusion
The program addresses all three sides of the fraud triangle: it reduces pressure by changing pay, removes opportunity through controls targeted at each scheme, and makes rationalization harder through visible consequences and reporting channels. Each element is tied to a scheme that occurred, and the board receives measures that show whether the program is operating. The test of the program will come at the next quarter that falls short of guidance, when every part of it is meant to make the honest number the easiest one to report.
References
Dechow, P. M., Ge, W., Larson, C. R., & Sloan, R. G. (2011). Predicting material accounting misstatements. Contemporary Accounting Research, 28(1), 17-82. https://doi.org/10.1111/j.1911-3846.2010.01041.x
Feng, M., Ge, W., Luo, S., & Shevlin, T. (2011). Why do CFOs become involved in material accounting manipulations? Journal of Accounting and Economics, 51(1-2), 21-36. https://doi.org/10.1016/j.jacceco.2010.09.005
Rezaee, Z. (2005). Causes, consequences, and deterence of financial statement fraud. Critical Perspectives on Accounting, 16(3), 277-298. https://doi.org/10.1016/S1045-2354(03)00072-8
What the ACC 423 Module 7 instructions ask for
Project Two in ACC 423 usually asks you to design a fraud prevention and detection program for a company, often one that has experienced or is at risk of fraudulent financial reporting. Expect to address governance and tone at the top, incentive and compensation design, internal controls over the specific accounts at risk, data analytics and monitoring, reporting channels and whistleblower protection, training, and response procedures. Most versions want each recommendation justified and prioritized. Tie every element to a specific risk or scheme from the case, explain how it would prevent or detect it, consider cost and practicality, and propose measures that would show whether the program is working.
How this ACC 423 Module 7 project two example is built
The program has six parts. Tone at the top includes a CEO statement, removal of the sales vice president and a clawback policy applied to the prior year's bonuses. Compensation shifts from quarterly earnings per share to multi-year cash flow and return measures. Controls require finance approval and contract attachment for any nonstandard term, a quarter-end shipment review against run rates and audit committee review of significant estimate changes. Analytics run monthly on receivable days, returns, warranty rates and capital spending. The hotline reports to the audit committee chair through an outside provider. Training and a monitoring plan with measures complete the program. Each element is tied to the scheme it would have stopped.
Where the ACC 423 Module 7 rubric puts the points
Rubrics for ACC 423 Project Two typically score the comprehensiveness of the program, the link between each element and identified risks, the practicality and prioritization of recommendations, the treatment of incentives and culture, monitoring and measures, and the report's organization. Top papers address all three sides of the fraud triangle, explain specifically how each control would have prevented or detected a scheme in the case and consider costs. Graders reward incentive redesign and monitoring measures, which many students omit, and a clear sequence showing what comes first. Common deductions include generic recommendations such as strengthening controls, programs with no link to the case schemes, and plans that offer the board nothing to measure.
ACC 423 Module 7 help: the mistakes that cost points
Prevention programs lose points most often by listing every control in the textbook rather than choosing those that address the case's schemes, and by ignoring incentives, which are often the root cause. Another gap is the absence of measures; a program the board cannot evaluate is a statement of intent. If your case involves asset misappropriation, a nonprofit or a private company without an audit committee, the same structure works with different parts emphasized, and the program can be tailored to it. For each recommendation, write one sentence beginning with this would have stopped; any recommendation without such a sentence probably does not belong, however standard it sounds.
Get ACC 423 Module 7 written to your instructions
Pass along the ACC 423 Project Two guidelines, case and rubric; the program will be built in clear parts, tie each element to a specific scheme or risk, estimate its cost and set measures for monitoring. The first request is free, and most are ready in two days. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
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ACC 423 Module 7 questions, answered
Where can I find a free ACC 423 Module 7 Project Two sample?
This page holds a complete ACC 423 Module 7 Project Two fraud prevention program for a water heater maker, tied to the schemes it would have stopped.
What are the main components of a fraud prevention program?
Governance and tone at the top, incentive design, internal controls over high-risk areas, analytics and monitoring, reporting channels, training and a response plan.
Why does compensation design matter for preventing reporting fraud?
Bonuses tied to short-term earnings targets create pressure to manipulate. Multi-year and cash-based measures with clawbacks reduce that pressure.
What is a clawback policy?
A policy requiring executives to repay incentive compensation awarded on results later restated. Listed companies are now required to adopt such policies.
How can a company tell if its fraud prevention program is working?
By tracking measures such as hotline use and follow-up, control exceptions, nonstandard terms approved, estimate changes reviewed and results of analytics over time.