Question

A council health inspector threatens to close down a restaurant by issuing a fake health violation notice if the owner does not make a financial payment to him. If the restaurant owner does not cooperate, the restaurant cannot be opened for business and the negative publicity will drive customers away. Faced with the potential economic loss, the owner makes the payment. Required:a)What type of fraud is this? b)What controls can be implemented to prevent or detect the fraud?

Answer 1

Part A. Economic Extortion.

Part B. Having an Internal Audit Department and proven whistle-blower policy.

Step-by-step explanation:

Part A. In the Economic Extortion case, the person with power threatens the other party by its undue use against the party. This undue advantage of power forces the other party to fulfill the desires of the party with powers.

Part B. Having effective internal control department and whistle-blower policy can help the company to identify such fraudulent activities going on in the county. An internal audit department would investigate the breaches of the company policies. Furthermore, the whistle-blower policy helps in indicating the misuse of the powers within the organization.