Part 1
Describe two of any of the following: Current catalogs, advertisements, direct mail advertisements, or online offers, that you have received or seen and indicate which ones are Offers and which ones represent Preliminary Negotiations. (See below for descriptions. Number your responses and clearly indicate why it is an offer or a preliminary negotiation.)
VALIDITY OF PARTICULAR KINDS OF OFFERS
A. Offer made in jest: An offer which the offeree knows or should know is made in jest is not a valid offer. Thus even if it is “accepted,” no contract is created.
B. Preliminary negotiations: If a party who desires to contract solicits bids, this solicitation is not an offer, and cannot be accepted. Instead, it merely serves as a basis for preliminary negotiations. (Example: A says, “I would like to sell my house for at least $100,000.” This is almost certainly a solicitation of bids, rather than an offer, so B cannot “accept” by saying, “Here’s my check for $100,000.”)
C. Advertisements: Most advertisements appearing in newspapers, store windows, etc., are not offers to sell. This is because they do not contain sufficient words of commitment to sell. (Example: A circular stating, “Men’s jackets, $26 each,” would not be an offer to sell jackets at that price, because it is too vague regarding quantity, duration, etc.)
1. Specific terms: But if the advertisement contains specific words of commitment, especially a promise to sell a particular number of units, then it may be an offer. (Example: “100 men’s jackets at $26 apiece, first come first served starting Saturday,” is so specific that it probably is an offer.)
2. Words of commitment: Look for words of commitment — these suggest an offer. (Example: “Send three box tops plus $1.95 for your free cotton T-shirt,” is an offer even though it is also an advertisement; this is because the advertiser is committing himself to take certain action in response to the consumer’s action.)
D. Auctions: When an item is put up for auction, this is usually not an offer, but is rather a solicitation of offers (bids) from the audience. So unless the sale is expressly said to be “without reserve,” the auctioneer may withdraw the goods from the sale even after the start of bidding.
Part 2
Fraud is most likely to occur in one of these departments: Accounting, Customer Service, Executive/Upper management, Operations, Sales or Purchasing — according to the Association of Certified Fraud Examiners (AFCE). In fact, in the ACFE’s most recent Report to the Nations on Occupational Fraud and Abuse, some 77% of frauds are committed in at least one of these departments. While most employees won’t even consider fraudulent behavior, others may look at fraud as a great way to get ahead. So, what should you know about conditions that make fraud likely to happen?
Just as fire requires fuel, oxygen, and heat, occupational fraud requires motive, opportunity and rationalization. These are what forensic accountants call the “fraud triangle.” And economic downturns, such as the ones we have experienced in the past, can ignite fraud by fueling all three factors.
As described by J.K Loebbecke, M.M. Eining, and J.J. Willingham, Jr., “Auditors’ experience with material irregularities: Frequency, nature, and Detectability” (Auditing: A Journal of Practice & Theory, Fall 1989), the fraud recipe contains three ingredients: Incentive, Opportunity, and Attitude/Rationalization.
The first ingredient, Incentive, addresses whether executives have a reason to commit accounting fraud. Common reasons include compensation factors (stock options, bonus targets), strong pressure to perform, and expectations analysts place on the company. Putting pressure on executives certainly is a good motivator, but it is important to recognize when the pressure becomes so intense that people resort to fraud to make the numbers.
The second ingredient is the Opportunity to commit accounting fraud. The main deterrent to opportunity is strong internal controls, the focus of section 404 of the Sarbanes-Oxley Act. Controls should address routine transaction processing and asset safeguarding, as well as estimates and assumptions used in preparing the financial statements. If section 404 work improves internal controls, the side benefit should be a reduced risk of accounting fraud.
The third ingredient in the fraud recipe is Attitude/Rationalization. In other words, can someone with a reason to commit fraud and the opportunity to do so explain away such behavior? Is the fraud okay because it saved jobs? Is it okay because it happened only once and will be corrected in the future? Is it okay because the CEO said “make the numbers or else”?
For this discussion, please address the following:
1. What four elements make for the perfect recipe for fraud?
2. How do they apply to every day business?
3. What conditions make fraud more likely to happen? Any thoughts or suggestions on how to prevent fraud from happening? (For full credit on this assignment, please opine to at least one of your classmates’ responses to this 3rd question only. )
PART 3
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