John Doe, a fraud examiner, has been hired by ABC Corporation to investigate a shortage of cash, which management thinks is being caused by fraudulent behavior. John Doe could spend his time and money pursuing witnesses to the crime or collecting documents that would confirm fraudulent activities. As with most fraud examiners, he chooses to collect supporting documents instead of pursuing witnesses. Explain why John and most other fraud examiners prefer documents over witnesses; then describe elements of good document care.
> Unintentional errors in financial statements are a form of fraud.
> Fraud perpetrators are often those who are least suspected and most trusted.
> The single most critical element for a fraud to be successful is opportunity.
> Power is rarely used to influence another person to participate in an already existing fraud scheme.
> Some frauds are allowed to be perpetrated because victims don't have access to information possessed by the perpetrators.
> Good documents and records are some of the best preventive controls.
> The secretary of state maintains many types of records relating to business and Uniform Commercial Code (UCC) filings.
> A proper system of authorization will help ensure good internal controls.
> An individual who owns his or her own business and is the sole employee needs many internal control activities.
> Appropriate hiring will not decrease an organization's risk of fraud.
> How many different Web sites can you find dealing with fraud auditing and detection? Try a few different search strings in Google, YouTube, the ACFE or another search engine and see what sites are available.
> Go to www.insurancefraud.org and read the information about insurance fraud for consumers. Insurance fraud is a problem that has become increasingly costly for the insurance industry. The Coalition Against Insurance Fraud estimates that insurance losses
> As mentioned in the chapter, the Committee of Sponsoring Organizations produced several reports on internal control One of these relates to internal controls over financial reporting for smaller companies. Visit the website www.coso.org and read how the
> Go to www.fraud.org and learn about the National Fraud Information Center (NFIC). What does it do, and specifically, how does it make it easy for people to report fraud?
> When hiring, it is usually difficult to know which employees are capable of committing fraud, especially without performing thorough background checks.
> Visit the Web site of the National White Collar Crime Center at www.nw3c.org. This site is funded through a grant from the Department of Justice. Its purpose is to assist federal law enforcement agencies in the investigation and prevention of white-colla
> Return to www.IJOwtoinvestigate.com. Read the section entitled "Business Background Checks." a. What does a complete business investigation include? b. Suppose you hire someone to perform some work on your house. Who do you call to find out if the cont
> Go to www.howtoinvestigate.com. a. Identify the different kinds of background checks that investigative professionals provide. b. What information does a basic background investigation provide? c. Credit bureaus gather credit data about individuals fr
> An increasingly common way to commit fraud is to use the Internet. The Department of Justice now devotes an entire page on its Web site to Internet fraud. Visit its site at www.justice.gov/criminal/ fraud/ and identify three types of Internet fraud.
> The Postal Service site contains a great deal of information on the detection of mail fraud and the investigation efforts of the Postal Service. a. Access the U.S. Postal Service Web site at www.usps.gov. Enter into the search box the words "postal inspe
> What are the benefits and drawbacks of the Soundex and n-gram methods of fuzzy matching text?
> What is ODBC? How does it compare with text file import?
> What is "trashing"? In what ways can it (and the electronic form of it) help an investigation?
> What is the Gramm-Leach-Bliley Act? How does it apply to investigators?
> When searching public records, what are the four different types of information sources available to investigators?
> A Ponzi scheme is considered to be a type of investment scam.
> How do these advanced techniques aid in the information-gathering process?
> What are some of the advanced techniques available when searching for information on Google (or other search engines)?
> Why are net worth calculations so valuable?
> How does the Internet assist in determining the net worth of suspected perpetrators?
> How do state, federal, and local public records assist fraud investigations?
> What are the differences between public and private sources of information?
> Why is it important to know how perpetrators convert and spend their stolen funds?
> What are "financial footprints"?
> What are common ways to investigate conversion of stolen assets?
> You serve on the board of directors of a multinational manufacturing company. You have just received a whistle-blower complaint that one of the managers in another country, where a large production facility is located, has been understating manufacturing
> Management fraud is deception perpetrated by an organization's top management.
> Several years ago, Prudential Securities was charged with fraud for late trading. This was the first major brokerage house to be charged with the illegal practice of buying mutual funds after hours. The regulators who accused Prudential Securities charge
> A recent newspaper contained the following story: Publishers Clearing House agreed to pay $34 million in a deal with 26 states to settle allegations the sweepstakes company employed deceptive marketing practices. The $34 million will cover customer refun
> You are the audit committee chair for a large construction company. A year ago you purchased a development company in Europe for approximately $100 million. This company has already lined up a number of large projects in Italy, Germany, and other Europea
> You have received a tip that the manager over the purchasing department of your company is taking kickbacks from one of your vendors. What fraud symptoms might you look for to determine if the manager is actually accepting bribes?
> Homegrown Gardens, LLP, is a $10 million nursery and garden retailer in Florida. Homegrown employs about 20 full-time and seasonal employees. The majority of the plants and nursery stock that Homegrown sells comes from Monromio Nurseries, a wholesaler ba
> Steve (Slick) Willy, 45, just got out of jail. As a reformed citizen on parole, Slick decides to go into business for himself. He starts a collections company to help companies collect debts. The terms of his parole stipulate that he pay restitution paym
> Use the following financial data to prepare a comparative net worth assessment: YEAR I YEAR 2 YEAR 3 Assets: Residence $50,000 $50,000 $200,000 Stocks and bonds 10,000 10,000 10,000 Automobiles 15,000 15,000 40,000 Cash 5,000 8,000 20,000 Liabilities
> Mark is a young business student at the XYZ University, who works part time as a financial adviser at a local credit union. Mark has been married a little over two years. Mark's wife is currently taking care of their newborn son, while Mark finishes up s
> A number of years ago, General Motors experienced a $436 million fraud committed by a Long Island automobile dealer. The dealer was borrowing money from General Motors' financing division and using the money to buy vans that didn't exist. Supposedly, he
> The city of Dallas, Texas, is missing 12 city-owned iPads and doesn't know where they went. Answer the following questions: 1. If you were investigating the missing iPads, what kind of theft act evidence might you gather? 2. Who do you think would be in
> When perpetrators are criminally convicted of fraud, they often serve jail sentences and/or pay fines.
> You landed a summer internship with a company that processes dental insurance claims for insurance companies. The company receives the insurance claims from dental offices, achieves authorization from the correct insurance company, and sends payment chec
> The following surveillance log was taken during two fixed point surveillances of an employee suspected of stealing cash from the company while making nightly bank deposits. Required: 1. What is wrong with this surveillance log? 2. Why is it important t
> The balance sheet and income statement for ABC Company for the years 2019 and 2020 are as follows: Required: 1. Perform vertical and/or horizontal analysis of the statements and identify two things that appear to be unusual and could be possible sympto
> Using the financial information in the following tables, compute the required ratios list on the ratio analysis sheet and then complete the horizontal and vertical analyses worksheets. АВС СОМРANY BALANCE SHEET AS OF DECEMBER 31, 2018 ASSETS 201
> In June of a recent year, allegations of fraud regarding repair contracts for work on board U.S. Naval Ships (USNS) were reported to law enforcement agents. The allegations indicated that fraud was rampant and could possibly impact the seaworthiness of t
> You have recently joined the internal audit team at a large company responsible for janitorial work at many different local businesses. Because of the significant number of consumables used in janitorial work, your company has a large purchasing departme
> MHZ, Inc., is a high-tech company that produces miniature computer processor chips. The company is one of the most successful companies in its industry because it is always developing faster and more efficient processors in order to maintain a competitiv
> In his own words, Daniel Jones was ~he Dude." With his waist-long dreadlocks, part-time rock band, and well-paid job managing a company's online search directory- he seemed to have it all. Originally from Germany, Jones, now age 32, earned his doctorate
> Gus Jackson was hired away from a "Big Four" public accounting firm to start a new internal audit function for ABC Company, a newly acquired subsidiary of a large organization. His first task involved getting to know ABC's management and supporting the p
> Identity theft is an example of employee embezzlement.
> You have a cousin who lives in a small town in eastern Kansas. She just told you that her friend has a 4-year-old daughter with cancer- a rare form of leukemia-who needs money for a surgery. She is asking you to make a donation to help pay for the operat
> Biogencyte, a company based in Landover, Utah, is the vanguard of cancer research. Recently, the company has been developing state-of-art antibiotics that potentially cure cancer completely. The drugs are designated to attack cancer cells without causing
> ABC satellite, a satellite television company, sells satellite television service contracts to customers, usually for a 24-month period. ABC satellite is a fast-growing, highpaced company created by aggressive salesmen. The company's success has made its
> Code of Ethics ABC Enterprises has developed the following code of ethics: Corporate Governance Code of Ethics for Financial Professionals This Code of Ethics for Financial Professionals (the "Code of Ethics") applies to the Chief Executive Officer, Chie
> May 13, 1988, a Friday that will be remembered by a major Chicago bank. Embezzlers nearly escaped with $69 million! Arnand Moore, who was released after serving four years of his 11-year sentence for a $180,000 fraud, decided it was time to put his finge
> Derek worked for a reputable global consulting firm. His firm specialized in helping companies analyze their people, processes, systems, and strategy. Derek was hired into the San Francisco office and put through weeks of training to help him understand
> Plutonium was an Internet start-up company founded in 1988 at the beginning of the technology boom. One of the largest problems for Plutonium was developing the technological systems necessary to support the rapidly expanding user base. Furthermore, due
> The following describes an actual investment fraud that occurred. Mr. Armstrong stands accused in a federal indictment for committing one of the most common frauds in the history of finance: making big promises to investors that he couldn't deliver. Mr.
> Johnson Manufacturing, a diversified manufacturer, has seven divisions that operate in the United States, Mexico, and Canada. Johnson Manufacturing has historically allowed its divisions to operate independently. Corporate intervention occurs only when p
> James Watkins, an ambitious 22-year-old, started an entertainment business called Best Club after he graduated from California State University. Best Club initially was a business failure because James ignored day-to-day operations and cost controls. One
> Fraud involves using physical force to take something from someone.
> 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
