Question: Consider the three aspects of the fraud

> Green Grass is a small, family-operated company whose core service is in horticultural care and lawn care for customers in the local city. The owner of the company is the father of the family. He has used the company to cover the costs of his children's

> Sampling is the bread and butter of a significant portion of audit work. As a team (or as a class), list several of the most common audit techniques as well as fraud investigation methods. For example, searching for missing invoice numbers or sending acc

> An excerpt from the Fourth Amendment reads: "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supp

> Discount Plus Company has been concerned for some time about its cash flows. Since the company began five years ago, Discount's business has increased steadily, yet cash flows have remained virtually the same every year. You have been hired by Discount P

> You are the new controller of a major U.S. manufacturing firm. In your previous employment, you detected multiple varieties of fraud. The CFO of your new company informs you that top management is concerned about possible fraud in the organization and is

> During the past year, your company has discovered three major frauds. The first was a $3.9 million theft of inventory that had been going on for six years. The second was a $2.8 million kickback scheme involving the most senior purchasing agent. She had

> You work for a small manufacturing firm, where it is clearly too expensive 10 have proper segregation of duties. Because of this lack of control, management knows that opportunities exist to perpetrate fraud within the company. Management is particularly

> Fred is a friend of yours and works with you at the same company. He is a well-respected and trusted employee. He has two young children and is a leader in his community. You have discovered that Fred has embezzled $3,000 over a period of several years.

> This chapter discussed techniques for conversion investigations that involve searching public records to identify changes in lifestyle and the net worth of alleged fraud perpetrators. You recently became a certified fraud examiner (CFE) and have joined a

> In the oil theft case discussed in this chapter, the fraud investigators conducted a week-long invigilation. The results from this period were compared to the results taken during the weeks immediately before and immediately after the invigilation. 1. W

> Manufacturing companies with a profit margin of 10 percent must usually generate about 10 times as much revenue as the dollar amount of the fraud in order to restore net income to its pre-fraud level.

> It is always necessary to involve a federal law enforcement agent when accessing federal databases.

> ABC Company has instituted good internal controls and has never, until last month, had a problem with fraud. But several weeks ago, someone with access to keys entered the controller's office and took two company checkbooks. Since then, several checks ha

> A group of fraud examiners is coordinating an investigation at a local law firm. Several lawyers at the firm are suspected of overbilling clients, possibly creating fake client accounts, and then charging the firm for services "performed" for these fake

> Craig Ferguson, an internal auditor for HHG Online Booksellers, had been investigating a case of embezzlement fraud for nearly two months. After searching personnel and company records, visiting with former employees, employing invigilation tactics, and

> There once was a corporation from Nantucket, Its controls leaked like holes in a bucket. Smelling trouble with the buyer, And with the supplier, They determined to fix it or chuck it. This limerick accurately depicts Bucket Corp., which manufactures

> This chapter included an example of a manufacturing firm that had problems with employee theft of tools. The company decided that it would search every employee's lunch box at the end of each shift. The employees were enraged and caused a work slowdown.

> Enron, one of the largest corporations to ever file for (Chapter 1) bankruptcy protection, was number 7 on the Fortune 500 list of the largest companies in America as ranked by revenues at the time of its bankruptcy. It was alleged that Enron executives

> Assume that you have selected a random sample of 15 checks from a population of 800 checks. The checks you have selected are the following numbers: 664, 789, 650, 136,365,538,800,657, 110, 136, 398, 645, 214, 544,and 777. Based on this sample, evaluate t

> Your friend Mark Ambrose runs a small convenience store. He recently fired an employee who had repeatedly stolen merchandise when closing the store alone. Mark is now looking for a replacement and asks for your advice on how he can make sure he hires som

> You are hired as a consultant to determine if fraud is occurring at Startis Company, a manufacturer of designer makeup. An initial search of the company reveals there are three modern, relational databases and a 30-year-old timecard system that can be se

> While auditing a client, the CEO asks you to look carefully at cash flows. You notice that cash flows have decreased every year. Upon learning of your findings, the CEO remarks, "I seem to bring in more customers every year, but the cash is not there." Y

> One of the most common responses to fraud is disbelief by those around the fraud.

> As the lead accountant for a small company, you notice that inventory purchases from a certain vendor have increased dramatically over the past few months, whereas purchases from all other vendors have decreased. You suspect that something may not be rig

> The management of AAAA Company has observed that the company's cash outflows have been increasing much more rapidly than its inflows. Management cannot understand the change; from its perspective, it has been "business as usual." Management has asked you

> A man in San Rafael County was discovered committing workers' compensation fraud. He had been observed working while at the same time receiving disability benefits. Surveillance showed the man working at an automobile auction. The investigator interviewe

> You are a fraud examiner who has been hired by Bellevue company to carry out an investigation. Bellevue is a beverage company that has experienced increased shipments of beverages but no increase in revenue. Management suspects that inventory is being sh

> ABC Company is a relatively small dry-cleaning operation that has a very steady level of business. Since the company hired a new employee, however, cash inflows have decreased and the amount of promotional coupon redemptions have increased dramatically.

> As an internal auditor for CRA, Inc., you are assigned to a team working on an ongoing project to identify possible fraud. The project started with time trend analysis of purchase prices of all items in the company. The project was started last year, but

> 1. Compare the first-digit frequency in the transactions in this table below with Benford's Law. What are the results? 2. Could fraud be occurring in this organization? AMOUNT DESCRIPTION CHECK NO. Payment to U.S. West for phone bill $235.65 2001 Joh

> As CEO of your company, you've been going over your financial statements and have noticed something disturbing. You perform a horizontal analysis and find that sales have been increasing at a rate of 3 percent per year, while inventory has risen at a rat

> By ordering unnecessary products at inflated prices, the purchasing manager of XYZ Company defrauded his employer of over $40,000 over a two-year period. 1. How could you have detected this fraud?

> Your boss knows that you are taking a fraud examination course at a local university. He is interested in learning more about data-driven fraud detection and asks you to prepare a short memo briefly explaining data-driven fraud detection methods and tech

> Perpetrators use trickery, confidence, and deception to commit fraud.

> Dennis Jones, an old college friend, contacted you last week Dennis owns several car washes, and he believes that financial statement fraud may be occurring. (He pays each car wash manager a bonus if a certain level of profits is earned and is worried th

> A large manufacturing business has hired you as a fraud detection specialist. The first day on the job your boss asks you the following questions: 1. What is Benford's Law? 2. In what situations is it appropriate to use Benford's Law, and in what situa

> By examining first digits, Company XXX suspects fraud. You are asked to review the sample of invoices shown on the previous page to see if they make sense. You are familiar with several fraud detection methods and are eager to try out Benford's Law. 1.

> Large frauds can often be detected by performing financial statement analysis. Although such analysis can raise areas of concern, not all red flags are the result of fraudulent activities. Reasonable explanations often exist for errors in financial state

> Boxer Incorporated has hired you as a consultant to implement a data-driven fraud detection program in the company. One of the owners, Priscilla Boxer, asks you to give a presentation to several executives on the data-driven approach. 1. What are the pr

> Sally was aware of a fraud being committed by one of her co-workers, but she never reported it. What are some possible reasons for her hesitancy to come forward?

> 1. According to the chapter, which groups (auditors, managers, co-workers, company accountants, or friends) are in the best position to observe fraud symptoms in each of the three elements of fraud? 2. Which group is surprisingly absent in each element?

> Many people feel that it is the job of auditors to detect fraud. What circumstances make it difficult for auditors to detect fraud? Who is more likely to be in a better position than auditors to detect fraud?

> You have been hired by a small firm to analyze its accounts receivable department and assess how susceptible it is to fraud. The company operates a table manufacturing facility. The only employee in accounts receivable is Joanne, an employee of 10 years.

> You are a staff auditor on a very important audit engagement. You are assigned to audit two parts of your client's purchasing department. After several days of studying purchase orders and sales invoices, you notice that three vendors have identical addr

> Fraud losses generally reduce a firm's income on a dollar-for-dollar basis.

> The text states that tips and complaints are not evidence of actual fraud but instead should only be considered fraud symptoms. Do you agree with this statement? Why?

> Joan Longhurst, along with three of her best friends, started her own ranching operation in Hawaii. The business began with two bulls and 20 heifers. After their first year, the partners were turning profits, and everything seemed to be going well. The h

> James Davis owns a small Internet service provider business. Recently, customers have been complaining that they are overcharged and are not receiving timely customer service. Billing rates seem to increase without notice. Five years ago, James used fund

> A “Big 4” accounting firm was auditing a limited real estate partnership that had three general partners (all brothers) and 2,000 limited partners. The limited partnership owned real property that was leased by Arby's, Sizzler, and other restaurants in v

> John Adams is the manager at a local store. The store opened four years ago and has been doing very well. With current business growing, John decided to hire Peter O'Riley to work as an accountant. When Peter started working at the store, he found severa

> Cal Smith Jr. is the night manager at a local doughnut shop that is doing very well. The shop sells doughnuts seven days a week, 24 hours a day. Cal runs the graveyard shift by himself because none of the other employees want to work at night. Since open

> Robert was the chief teller in a large New York bank. Over a period of three years, he embezzled $1.5 million. He took the money by manipulating dormant accounts. Unfortunately, Robert was both responsible for handling dormant accounts and for dealing wi

> Mary is the owner of a small flower shop. With only 12 employees, the environment is one of trust. Mary personally knows each employee, and most have worked at the shop since its opening. Although few controls exist, Mary is the only person allowed to si

> Danny has been working at Gant Automobile for two years. He feels forttmate to have held his job for so long, considering his past, which involved being fired for fraudulent activities in two different cases. His boss, Mr. Gant, is generally a pretty col

> Advances in technology have had no effect either on the size or frequency of fraud or on the detection or investigation of fraud.

> Joseph Gonzales recently bought a new business that included a small 20-room motel and coffee shop. He hired a young couple to nm the business and plans to pay them a monthly salary. The couple will live for free in a small apartment behind the motel off

> While performing an audit of TCC Corporation, the audit team noticed something that didn't look right. The company's receivables aging report showed that bank loan eligible receivables were approximately $91 million. The audit team calculated the bank lo

> Nellie works for a large Fortune 500 company. She heads the information systems department and works closely with the accounting department. The company works with many associates. They have many buyer and supplier companies they work with. Nellie knows

> Jason works at a new software development company. The company has been in existence for only two years. Since the company is new, everybody is working extra hours and spending all of their time developing new products that can be sold to customers. Ever

> Because ABC Company suffered large losses from fraud last year, senior management has decided to be more proactive in implementing a fraud prevention environment. In interviewing employees, they found that many employees were unclear about which behavior

> MegaGlobular is a large, private international corporation that has been experiencing problems with fraud. Management has heard of the success other companies have had with whistle-blowing programs mandated by the Sarbanes-Oxley Act and decides to implem

> Jorge recently graduated with his MBA from a prestigious Ivy League school. Lacking extemal financial support, Jorge was forced to finance his MBA with a significant amount of student debt. Unfortunately, he also developed a love of eating out and golfin

> A controller of a small fruit-packing company in California stole $212,000 from the company. When asked why, he said, "Nobody at the company (especially the owners) ever talked to me. They treated me unfairly, they talked down to me, and they were rude t

> Karen, a friend of yours, recently started her own business, The Bike and Boulder Company (B&B). B&B specializes in the sales of mountain bikes and rockclimbing equipment. Karen is pulling the finishing touches on her company policies and procedures. She

> In 2001 the country of Peru was thrown into political turmoil as its president, Alberto Fujimori, was accused of conspiring with the head of the national army to accept bribes and steal money from the government. As a result, Fujimori fled the country to

> The only group/business that must report employee embezzlement is the federal government.

> When a fraud has occurred within an organization, management must decide what follow-up action to take. Briefly describe the three follow-up alternatives available to organizations.

> Predication refers to circumstances that would lead a reasonable professional to believe that fraud has occurred. Why should you not conduct a fraud investigation without predication?

> The text pointed out that it is important to hire employees who are honest and have a well-defined personal code of ethics. Derek Bok, former law professor and president of Harvard University, has suggested that colleges and universities have a special o

> You have recently graduated from college with an MBA. Upon graduation, you start working for Roosevelt Power Plant The boss, Mr. Jones, invites you into his office. Mr. Jones describes to you a large fraud that has recently taken place in the company. He

> Assume that you are the fraud expert for a large Fortune 500 company located in Miami, Florida. In a recent meeting with the executive committee, one of the officers explains that the fraud prevention program, which teaches managers and employees how to

> Fraud detection is an important element of minimizing losses to fraud, especially if frauds can be detected early. Explain why it is important that frauds be detected early.

> The chapter stressed that preventing fraud is the most cost-effective way to reduce losses from fraud. Why is fraud prevention more cost effective than fraud detection or investigation?

> Peter Jones, a senior accountant, and Mary Miller, a junior accountant, were the only accountants for XYZ Company, a medium-sized business. Peter had been with the company for over four years and was responsible for the Purchasing Department. Mary had be

> As a fraud expert asked to investigate possible fraud at a local nonprofit organization, you suspect that one of the workers, Stacey, has been embezzling money. After securing enough evidence to be very confident of Stacey's guilt, you speak with the pre

> According to the text, when one Fortune 500 company changed its stance on fraud from "The CEO is to be informed when someone is prosecuted for fraud" to "The CEO is to be informed when someone who commits fraud is not prosecuted," the number of frauds in

> Many companies try to hide their losses from fraud rather than make them public.

> In 1992 General Motors experienced a $436 million fraud committed by a Long Island automobile dealer. Because of this huge fraud, they have asked you to help them install a "framework that would not allow this kind of problem to happen again in the futur

> You are the controller at a start-up company named HyperGiobal created by your friend, Kevin. Your company is growing quickly, and you and Kevin are finding it difficult to hire qualified people fast enough. Kevin suggests over lunch that you should expe

> Assume that you are a consultant for Long Range Builders, a company that specializes in the mass production of wood trusses. The trusses are used in the building of houses throughout the United States, Canada, and Mexico. While implementing a fraud preve

> FCS Fund Management is an investment marketing business with sales of over $10 million and with offices in Norwich, Connecticut; Dubai; and Hong Kong. It sells high-yield investment schemes, offering returns of up to 20 percent. FCS has clients in the Un

> In October 2014, the following case was heard in New Jersey. A former optometrist was sentenced to seven years in state prison for conspiracy, theft by deception, falsifying records, and falsification of records relating to medical care, as part of a mas

> Bob's Country Kitchen, a small family-owned restaurant in northern New York, has seen a drop in profitability over the past three years and the owners want to know why. Bob's has been a local favorite for the past 20 years. Two brothers opened it in the

> Alexia Jones is a worker at a local 24-hour pharmacy. Alexia works the night shift and is the only worker. Because management is cost-conscious and business is slow at night, Alexia has been given the responsibility to do the accounting from the previous

> Full-of-Nature is a vitamin supplement company in New York that makes different herbal pills for gaining muscular strength, losing weight, and living a healthier life. You have been hired to audit Full-of-Nature and soon realize that the company has many

> The following actual fraud occurred in a communications company. What Ruth Mishkin did in her spare time didn't concern the Boca Raton, Florida, public relations firm where she worked very much. "We thought she was just playing cards with the girls," say

> Helen Weeks has worked for Bonne Consulting Group (BCG) as the executive secretary in the administrative department for nearly 10 years. Her apparent integrity and dedication to her work has quickly earned her a reputation as an outstanding employee and

> In civil cases, fraud experts are rarely used as expert witnesses.

> A few years ago, there was a large oil refining company (based in New York) whose top executive was convicted of financial statement fraud. One of the issues in the case involved the way the company accounted for its oil inventories. In particular, the c

> Nancy is the receptionist and office manager at a local doctor's office where you are working as a doctor's assistant. The doctor leaves Nancy to handle all office duties, including collecting cash receipts, billing patients, depositing checks, and the m

> A prominent New York fertility doctor was sentenced to more than 7 years in prison for his insurance fraud conviction. Dr. Niels Lauersen received the 73-month sentence and was ordered to pay $3.2 million in restitution and an additional $17,500 in fines

> You are the owner of a local department store in a small town. Many of your employees have worked for your company for years, and you know them and their families very well. Because your business is relatively small, and because you know your employees s

> As a new staff member in a large national company, you are excited about your career opportunities. You hope senior employees in the company will perceive you as being one of the "rising stars." During your first week of training, you are assigned a ment

> Len Haxton is the owner of a local CPA firm with four separate offices in a medium-size town. He and his wife started the firm 20 years ago, and they now have over 50 full-time employees. Recently, he discovered that one of his employees had stolen over

> As an auditor, you have discovered the following problems with the accounting system of Jefferson Retailers. For each of the following occurrences, tell which of the five internal control activities or procedures was Jacking. Also, recommend how the comp

> Your friend John works for an insurance company. John holds a business degree and has been involved in the insurance business for many years. In a recent conversation, John shares some company information with you. He has heard that the internal auditors

> After receiving an anonymous note indicating fraudulent activities in the company, XYZ Company officials discover that an employee has embezzled a total of $50,000 over the past year. Unfortunately, this employee used an assumed identity and has suddenly

> You are a new summer intern working for a major professional services firm. During your lunch break each day, you and a fellow intern Bob eat at a local sandwich shop. One day, Bob's girlfriend joins you for lunch. When the bill arrives, Bob pays with a

> Most people agree that fraud-related careers will be in demand in the future.

> A bookkeeper in a $3 million retail company had earned the trust of her supervisor, so various functions normally reserved for management were assigned to her, including the authority to authorize and issue customer refunds. She proceeded to issue refund