During the audit of a major client, you notice that revenues have increased dramatically from the third to the fourth quarter and especially over the same periods of last year. You've received tips alleging that the company is overstating its revenues. What steps would you take to examine the legitimacy of management's assertions regarding its reported revenue?
> You have been searching for a job for some time. One day, while searching through some online want ads, you see the following advertisement: Wanted: Persons seeking high paying corporate jobs in the Cayman Islands. Live the life of your dreams as you wor
> Jenny Lanstrom regularly visits her grandfather, Mike Lanstrom, every Thursday night. Jenny's grandfather has been a widower for the past six years. Jenny's grandfather is very intelligent. He is a decorated veteran of World War II, and over the years, h
> On September 24, 2007, Miguel Carcamo was going through his mail. For some reason, Miguel had not yet received his bank statement, which he usually received at the beginning of each month. Although he was concerned, he took no action and decided not to w
> You work as the assistant to the controller of a small, privately owned company. Part of your job is to create weekly reports of the company's inventories. For the past several months, you have been excluding from your report a room full of damaged and/o
> The following paragraph from the FTC's pamphlet "When Bad Things Happen to Your Good Name" describes the headaches for identity theft victims trying to restore their credit. Unlike victims of other crimes, who generally are treated with respect and symp
> 1. Understated revenues and understated net income are among the most common types of financial statement fraud. 2. Two reasons revenue-related financial statement fraud is so prevalent are because revenue recognition can be highly subjective and becau
> Several years ago, a medical device company was charged with improperly recognizing approximately $1.5 million in revenue from bill-and-hold transactions. One distributor placed orders with the medical device company for a total of approximately 15,000 u
> Introduction Home Safety, Inc.'s management has been trying for months to acquire one of its largest competitors in the home security industry- LockIt-Up Company. Before agreeing to the acquisition, Home Safety's board of directors wanted Lock-It-Up's bo
> For many large, international companies that do business in less developed countries, corruption is a part of everyday life. Without bribing public officials, their companies could never build a factory, hire employees, get permission to build infrastruc
> John is a waiter at a local diner. The diner has a policy that tips are to be pooled between the waiters. Accordingly, each night the cash tips are collected, pooled, and divided up between the various waiters. Then, when employees are paid by the diner,
> Every year, Transparency International makes public its "Corruption Perceptions Index," a measure of how corrupt different countries are in relation to each other. Go to http://cpi.transparency.org/cpi2013/ and learn about the index. 1. Which are some o
> Match the following terms with their corresponding definitions: Billing scheme Asset misappropriation Check tampering Disbursement fraud Expense scheme Investment scam Illegal gratuities Lapping Payroll fraud scheme Skimming 1. Scheme in which
> Hank just loves his new job as a sales clerk at the local classy department store, Fashion's My Style•. It's a great way for him to earn a few dollars while attending high school Not only does his job pay quite well, but it allows him to receive discount
> Regina recently landed her dream job at a local clothes outlet. Within a few weeks of working in her new employment, however, Regina began to engage in fraud. Regina committed the fraud by doing the following: When people returned merchandise, Regina wou
> Jill has recently begun working at a local florist. In addition to creating floral arrangements, Jill spends a good deal of her time talking to customers and ringing up sales. Over time, she identifies a weakness in the procedures for ringing up voids. N
> Ken was the only accountant for a small-town land development company. He was terminated when the company fell on hard times. One year later, when the owner of the company was reviewing the payments received from a landowner for development cost, he disc
> 1. Recording fictitious revenues is one of the most common ways of perpetrating financial statement fraud. 2. Most often, the controller or chief financial officer (CFO) of a corporation is the perpetrator of financial statement fraud because of his or
> In its 2001 annual report, investors of Adelphia Communications were startled to find a footnote in its financial statements that reported the company had guaranteed as much as $2.7 billion in loans to a private entity owned by CEO John Rigas and his fam
> Ed Neilson is the purchasing agent for Style, a nationwide high-fashion women's online store. He joined the company after graduating from college five years ago. Over the years, Ed developed a close relationship with one of the company's vendor's owners-
> In a Las Vegas casino, an employee discovered a flaw in the accounting system. The accounts payable clerk discovered that he was able to change the names of vendors in the computer system to his name. As a result, the employee could create false invoices
> ABCDE Technologies, Inc., designs, manufactures, and markets an extensive line of PC cards. The company sells its PC cards primarily to original equipment manufacturers (OEMs) for industrial and commercial applications in a market with intense competitio
> During the audit of a manufacturing client, you are instructed to do vertical and horizontal financial statement analyses. In your analyses, you notice little increase in the client's overall long-term liabilities. However, you remember that a note was e
> The following two comparative balance sheets and statements of income are for XYZ Company for the years 2015-2017: Calculate all ratios needed to determine if XYZ is possibly underreporting accounts payable. If you detect possible fraud, explain why y
> The officers of an oil refiner, trader, and hedger based in New York were arrested by the FBI for committing massive financial statement fraud. The executives used many schemes to perpetuate the fraud, one of which was to hide a $30 million accounts paya
> Until its involvement as Enron's auditor, Arthur Andersen was recognized as one of the most respected CPA firms in the world. Arthur Andersen, as did other large CPA firms, operated as a limited liability corporation, or LLC. At the time that its involve
> Qwest is the dominant local telephone company in 14 states and the owner of an international fiber-optic network. In 2002, the company was investigated by the SEC for not including certain expense items related to its merger with U.S. West, among other i
> Enron is a large energy trading company that allegedly committed massive fraud. Enron's primary method of committing fraud was to record liabilities in related partnerships, then known as special purpose entities, which were not consolidated, or combined
> 1. Unlike other types of fraud, financial statement fraud is usually not concealed and is therefore relatively easy to spot. 2. Fraud indicators, or red flags, can be caused by fraud or by legitimate, non-fraud, factors. 3. Without a confession, forg
> In 2005, the SEC filed a civil action suit against Samuel Israel III and Daniel E. Marino, managers of a group of hedge funds known as the Bayou Funds. The SEC alleged that Israel and Marino defrauded millions of dollars in investor funds for their perso
> You keep looking over the financial statement to see where your analysis is going wrong, but you can't see any problems-it just looks like inventory is getting larger and larger, but you know that you haven't seen growth in the actual levels of inventory
> David Sutherland, a partner and fraud examiner in Rachin Cohen & Holtz LLP, was driving to a client when he heard a CNN announcement that LucidCom, a newly emerged provider of network infrastructure and connectivity products, reported strong fourthquarte
> In November 2017, Wehav Funds, a profitable engineering firm, signed a Joan guarantee as a third party for No Certainty Company, a newly formed organization focused on pharmaceutical research and development. Because Wehav Funds was a reputed and success
> On a beautiful spring morning in 2015, Stephen Lowber, chief financial officer of Cutter and Buck, Inc., slowly arose from his bed, walked across the bedroom floor, and gazed out the window. It was a surprisingly clear, sunny day in Seattle, Washington.
> John is the manager of a small computer sales and support chain. He has stores located throughout the state of California and is in strong competition with all of the major computer providers within that state. John's company is known for providing quick
> Your auditing firm has just landed a new client a large software company managed by two brothers who together own IS percent of the stock. You learn that the company fired its last auditor. You also notice that the company is involved in a lot of off-the
> Decide whether each situation is or is not a symptom of revenue fraud. Then explain 1. why the situation is or is not a symptom and 2. if it is a symptom, how it would be found using computer queries or traditional methods. Y/N Sales discounts appear
> Tool Co. is a medium-sized company that buys copper rod and plastic materials to produce insulated copper wiring. Tool Co. operates out of a single building of about 500,000 square feet that includes office space (3%), production area (57%), shipping and
> Fraud investigators found that 70 percent of the nearly $!60 million in sales booked by an Asian subsidiary of a European company between September 2006 and June 2007 were fictitious. In an effort to earn rich bonuses tied to sales targets, the Asian sub
> 1. Telling a significant lie and getting away with it during an interview is usually very difficult if the interviewer is well trained. 2. If a suspect continually repeats phrases, words, or your questions, it could be a verbal cue that he or she is lyi
> Perform vertical analysis of the data in the previous table to indicate any potential red flags regarding possible understatement of the COGS. FIVE-YEAR FINANCIAL DATA FOR COMPANY A YEAR I YEAR 2 YEAR 3 YEAR 4 YEAR 5 Sales $100,000.00 $105,000.00 $11
> Perform horizontal analysis of the data in the previous table to indicate any potential red flags regarding possible overstatement of sales. FIVE-YEAR FINANCIAL DATA FOR COMPANY A YEAR I YEAR 2 YEAR 3 YEAR 4 YEAR 5 Sales $100,000.00 $105,000.00 $110,
> The following information is provided for TechnoWorld, a company specializing in providing Internet technology assistance for clients: Perform a horizontal analysis of this balance sheet and identify any accounts that may be questionable. Take into acco
> Thomas is the CEO of a business that just went public. He is feeling intense pressure for the business to succeed because all of his relatives have invested heavily in his company. Since going public, sales have been flat, and Thomas is worried about not
> Although financial statement fraud can be committed in many different ways and by people in different positions, history shows that people in upper management who have added pressures as well as more opportunities to commit fraud commit the majority of f
> Financial statements are the end product of the accounting cycle and are used by investors to make informed decisions. They can be analyzed to help determine if there are any fraudulent activities in the company. As you know, the balance sheet, income st
> Pablo is studying financial statements to decide which companies would be wise investments. Pablo identifies Jawanna Corporation as having abnormally high financial ratios compared with other companies in its industry. Skeptical, he examines the footnote
> Your father-in-law owns a medium-sized air conditioning company in Meza, Arizona. Because of the heat in Arizona, the company has done rather well and the business is continually growing. Your father-in-law has received tips from other employees that one
> After graduating from college with your MBA, you decide to take your grandma's secret cinnamon roll recipe and open up a bakery. You grew up devouring your grandma's rolls. and you have convinced her to give you the secret. You are confident that your ba
> Paying for information is one type of extrinsic reward. Some professionals may require that you pay them for their interview time or information. What concerns does this raise? How might it jeopardize your case? When might it be appropriate or not approp
> 1. Ghost employee schemes usually generate the largest losses among the payroll disbursement fraud schemes. 2. Corruption is divided into four fraud scheme types: (1) bribery, (2) conflict of interest, (3) economic extortion, and (4) illegal services.
> Most illegal transactions such as drug deals and terrorist activities are conducted in cash. Why is it important for criminals to get their cash deposited into financial institutions?
> Why do you think the hiding of assets is so common in bankruptcy and divorce fraud cases?
> How could a fraudster use your SSN only to perpetrate a fraud against you?
> Do you think it is possible to completely eliminate identity fraud risks from your life?
> The federal government gives huge rewards for taking action to expose fraud against itself. Under federal law, if you have personal knowledge that an individual, business, city, county, or town has provided false information to obtain money from the fede
> Besides the frauds introduced in the above paragraphs, what other types of frauds against corporations can individuals perpetrate?
> How often do investors review the nonfinancial section of annual reports? Why is it important to read the nonfinancial sections of annual reports or the footnotes to the financial statements?
> Why would so many people invest in a company like AFCO? What could investors have done to have prevented themselves from falling into investment schemes such as this?
> What are some potentially legitimate reasons a company may have high inventory balances?
> What are some potential problems with using anonymous whistle-blowing systems?
> As a result of the system audit performed by one of the Big 4 accounting firms at Deming Medical's corporate offices, it was discovered that Paula, one of the payroll supervisors, had system access rights to transaction codes used by the HR staff. Conseq
> If auditors and investigators modified their typical procedures and regularly used a few unexpected procedures to look for fraud, how would this affect a potential perpetrator’s opportunity to conceal a fraud?
> Had Finn not complied with Monus’s expense manipulation requests early on, would the Phar-Mor fraud have progressed to the extent it did? Also, how would Finn’s career have been different?
> Why is it important to disclose only a portion of the circumstantial evidence you have collected?
> What are the differences between the three types of interviewees: friendly, neutral, and hostile?
> How do you choose between traditional tests, graphology, voice stress analysis, and polygraphs? When is each method best used?
> Skills are required to detect and investigate e-business fraud? What other classes might help you learn these skills?
> During the discovery stage in the legal process, why would opposing sides be cooperative in providing information about evidence they intend to introduce during the trial?
> Why is it good for a witness to be “defensive” in depositions and “offensive” in court?
> Mike Trujillo has been involved in a serious relationship with his high school sweetheart, Bonny, for five years; they have even discussed marriage. One day, Bonny told Mike that she was seeing another man. Obviously, this was very difficult for Mike. Ov
> An accountant for a small business is suspected of writing checks to "dummy" vendors and collecting the money himself. After a thorough investigation of the company, you determine that the company does not require authorization for vendor payments. In an
> You have been talking with your best friend, John, for the past couple of weeks about a crisis in his company. He has just learned that his boss has been embezzling money for the past six months. The day he learns about the alleged fraud, he calls to tel
> Adam Jones, the purchasing manager for ACME Corporation, is under suspicion for committing fraud. His superiors believe he is accepting kickbacks and bribes from various vendors. As the company's fraud expert, you are investigating this possible fraud an
> While auditing the accounts payable of a large clothing manufacturer, you discover that four of the company's vendors have checks sent to a post office (PO) box. After further investigation, you discover that one box is registered under the same name as
> An electronics company that produced circuit boards for personal computers was formed in a small southern town. The three founders had previously worked together for another electronics company and decided to start this new company. They ended up as seni
> It is usually the case that depositions for expert witnesses are much more difficult than the actual trial. Why do you think this is the case?
> You have recently been asked to be a damages expert witness in a large Ponzi scheme. The lawyers have asked you to calculate actual damages, what-if damages, and pre-judgment interest damages. How would you go about preparing to testify?
> To help you understand the material discussed in the chapter, do the following: 1. Give at least three characteristics of a grand jury. 2. Without looking at the list in the chapter, list at least three dos and don'ts that an expert witness should keep
> Your friend recently attended a local mail fraud trial. In your conversation about the case, she described the cross-examination of the expert witness as follows: After his counsel's questioning was done, expert witness Matthew Little was composed and ga
> Mr. Oaks has worked as the CEO of Turley Bank for the last three years. This past year, the outside auditor discovered some fraudulent Joan activity in which Mr. Oaks was circumventing internal controls to lend money to friends and family. After a thorou
> The FBI is on the trail of a drug supplier in Pineville, USA. The Feds believe that the supplier works at OHS Manufacturing, the employer of 75 percent of Pineville's citizens. The FBI asks OHS Manufacturing to assist in the investigation of one of its e
> John was recently convicted by a jury of committing fraud against his employer. After the trial, it was revealed that some key evidence against John used in trial was obtained through his employer's records and John's workstation computer. Before searchi
> You are an internal auditor at Dunder Company. An employee of Dunder has phoned in an anonymous tip that a fellow worker, Jane, might be embezzling money. Jane has been a trusted employee of the company for 13 years; she quickly moved through the ranks o
> Bobby Jones, an accountant for ABC Corporation, has been suspected of committing fraud. Some information already gathered about the fraud points to Bobby Jones as the most likely perpetrator. In his scheme, Bobby supposedly stole more than 55 million ove
> You are involved as an expert witness in a case of alleged fraud by top management against the corporation. Supposedly, working in collusion, top management defrauded the company of $5 million over two years. The allegations suggest that the fraud involv
> Answer the following two questions: 1. After being named as a defendant in a corporate fraud case, the XYZ accounting firm was found guilty of negligence and fined $25 billion. As a partner for the firm, what would you recommend as the next course of ac
> You are a manager for a large department store. It has recently come to light that a receiving clerk has been stealing merchandise. About 55,000 has been stolen. The clerk has stopped stealing, and the faulty internal control weaknesses that were determi
> When O. J. Simpson was tried for the murder of his wife, Nicole Simpson, he was ruled not guilty in the criminal court hearings. However, when Nicole Simpson's family sued Simpson civilly, he was ordered to compensate Nicole's family several millions of
> Briefly research a recent publicized fraud to become familiar with the major facts involved. Identify ways that a fraud investigator could add value in the 1. investigation, 2. legal follow-up, and 3. implementation of controls to prevent similar prob
> In June 2000, the SEC brought civil charges against seven top executives of Cendant Company. The SEC alleged that these officials had, among other things, inflated income by more than $100 million through improper use of company reserves. These proceedin
> A Wall Street bond trader turned on the television one day and saw a news report accusing him of committing a large securities scam. This trader learned that his employer had accused him of creating $300 million of phony profits and, as a result, getting
> Mr. Bill is the sole proprietor of a small play-dough production company. Over the last few months, he noticed revenues dropping and started wondering what is going on. After giving it much thought, he realizes that his accountant, Mr. Pringles, has been
> 1. Using a subtly different Internet host name to mimic another business is known as: a. Spoofing. b. Sniffing. c. Web-visit hijacking. d. Falsified identity. 2. Passwords and biometrics are both: a. Authorization controls. b. Independent check co
> Jim has been a faithful employee of Daddy's Denture, Inc. (DO) for four years. He has held various positions where he handles receipts, credit memos, and other accounting records. Along with recently added responsibilities, Jim has discovered more opport
> 1. Which of the following is not a fraud risk unique to e-business transactions? a. Innovative technologies where security lags process development. b. Selling new products. c. Complex information systems. d. Removal of personal contact. 2. E-busin
> 1. The retention of a fraud investigator in a bankruptcy proceeding must be approved by the bankruptcy judge unless: a. The debtor's estate pays the investigator. b. The trustee pays the investigator. c. The creditors' committee pays the investigator.
> 1. Which of the following is not a type of tax fraud? a. Using a false SSN. b. Overstating income. c. Keeping two sets of financial books. d. Claiming a dependent when you do not have one. 2. Which of the following describes a Chapter 13 bankruptcy
> 1. Consumers should provide credit card numbers or bank account information over the telephone only when: a. They initiated the call and are purchasing a legitimate product. b. They are asked to give the information. c. The entity receiving this infor
> 1. Phishing is the method of: a. Using e-mail or other Internet applications to deceive people into disclosing valuable personal information. b. Convincing a person to divulge personal information over the telephone. c. Hacking into another's computer
> 1. Which of the following types of disbursement fraud occurs least frequently? a. Expense tampering. b. Payroll schemes. c. Register disbursement schemes. d. Billing schemes. 2. Which of the following results in the highest loss per case? a. Expens
