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If ethics is not encouraged entity-wide, the likelihood of fraud and abuse increases. This affects the engagement's control risk because unethical management working in collusion with one another can override any controls; therefore, increasing the likelihood that misstatements will exceed a certain amount...
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CEC should be encouraged to adopt a Code of Ethics entity-wide, and training on this issue should be required for all personnel to help alleviate this risk. Also, a procedure for reporting fraud should be drafted, implemented and all personnel should be aware of it. There should be a whistle-blower policy to protect those that are reporting fraud from possible retaliation from management or colleagues...
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Potential areas of risk at Capitol Equipment Company
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