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 so well, you haven't worried about establishing many internal controls. You do set a good example for how you wish your employees to work, you are actively involved in the business, and you provide adequate training to new employees. One day, you become suspicious about an employee at a checkout desk. You fear that he may be stealing from the company by altering the day's totals at his register. He has worked for you for 15 years, and he has always been honest and reliable. After several weeks of investigation, you discover that your fears are correct-he is stealing from the company. You confront him with the evidence, and he admits to stealing $25,000 over several years. He explains that, at first, he stole mainly to pay for small gifts for his wife and young children. But then last year, his wife lost her job, they had another child, and he wasn't sure how to pay all of the bills. 1. What elements of fraud are present in this case? 2. How might you have detected this fraud earlier or prevented it from happening? 3. How will you approach your employee interaction and relationships in the future? 4. Do you feel a better system of internal controls, such as surveillance cameras and an improved computer system, is necessary or justified to prevent future frauds?
> 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
> Consider the three aspects of the fraud motivation triangle. If you were hired by the board of directors to tell them what they could do to prevent fraud, what general activities would you tell them to engage in? List four or more activities for each of
> 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
> 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
> You're telling your boyfriend about your classes for the new semester. He is very interested and intrigued by the idea of becoming a fraud detective, but wants to know whether fraud detectives will have job security and the type of work that is available
> Fellow students in your fraud examination class are having a hard time understanding why statistics on fraud are so difficult to obtain. What would you say to enlighten them?
> For each of the following examples, identify whether the fraud is employee embezzlement, management fraud, investment scam, vendor fraud, customer fraud, or miscellaneous fraud 1. Marcus bought a $70 basketball for only $30, simply by exchanging the pri
> You are having lunch with another student. During the course of your conversation, you tell your friend about your new fraud examination class. After you explain the devastating impact of fraud on businesses today, she asks you the following questions:
> After telling one of your parents that you want to be a fraud examiner after graduation, your father expresses concerns about your career choice. How would you explain to your father the kind of career opportunities you will have as a fraud examiner, the
> While discussing your class schedule with a friend who is an accounting major, your friend describes why she decided not to take the fraud class you are enrolled in: "With advances in audit technology and the increased digitalization of business records,
> Upon hearing that you are enrolled in a fraud class, a manager of a local business asks, "I don't understand what is happening with all these major scandals such as the Bernie Madoff scandal, the Goldman Sachs accusations, and the Enron fraud. There are
> Bob, who works as a credit manager for a large bank, has a reputation for being a very hard worker. His convenient downtown apartment is located near the bank, which allows him to work undisturbed late into the night. Everyone knows that Bob loves his jo
> When is it appropriate to hire a document expert? When is it not required?
> All frauds that are detected by organizations are made public.
> What types of cases should use link analysis software? Is the cost justified in these cases?
> Does concealment investigation change when electronic transactions are involved?
> Why is it more difficult to tell if someone can be trusted on the Internet than in person?
> Ask a friend (who isn’t biased by reading this) to generate 25 numbers between 0 and 100 on a scratch piece of paper. Calculate the distribution of digits in the first position: how many 1s, how many 2s, and so forth? Do the numbers match Benford’s Law?
> What are the relative advantages and disadvantages of ODBC compared with text file import?
> Why is it important to conduct activities that do not arouse suspicion first and interview the primary subject near the end of your investigation? What could occur if you fail to do this?
> How are the six steps in the data-driven approach to fraud detection different from the traditional reactive approach?
> O.J. Simpson was tried for murder both criminally and civilly. He was found innocent in the criminal trial but guilty in the civil trial. Why do you think that is the case?
> It is obvious that controls are important in a business organization to get employees and others to act in a manner consistent with management or the owner’s desires. In what other settings would controls be important?
> What other unusual financial statement relationships may exist in the presence of a fraud?
> There is no difference between a Certified Fraud Examiner (CFE) and a Certified Public Accountant (CPA).
> Investigations of perpetrators' net worth and lifestyles help investigators know what class of society the perpetrators are from.
> Do you agree with the statement that most people are capable of committing fraud? Do you believe that you are capable of committing fraud?
> Do you really believe that having a written code of conduct will reduce fraud and other dishonest acts in an organization?
> Why do you think a fraud perpetrator who is caught would suffer more humiliation and embarrassment than a bank robber or other property offender?
> Why do you think it is easier for top management to manipulate the financial statements than for other individuals in an organization?
> What is the best time during an investigation to calculate the net worth method on your subject?
> What are the best methods of obtaining documentary evidence? Why?
> The Gramm–Leach–Bliley Act protects against the use of false pretenses. In what ways did this act have positive investigative consequences?
> Why are state and local sources of information generally more useful than federal sources of information?
> You own a local pizza delivery store. Cesar Rodriquez has been working for you as a manager for two years and has been a close friend of yours. Cesar has the reputation of being a hard worker and has not taken vacation for the entire time he has worked f
> You are an accounting student at the local university pursuing your master's degree. One of your friends has been intrigued by the numerous frauds that have been reported in the news. This friend knows you are going to pursue a job as an auditor with a l
> The ACFE is a nonprofit organization dedicated to the prevention and dedication of fraud throughout the world.
> Clever, Inc., is a car manufacturer. Its 2018 income statement is as follows: Alexander, Inc., is a car rental agency based in Florida. Its 2018 income statement is as follows: During 2018, both Clever, Inc., and Alexander, Inc., incurred a $1,000 frau
> You are a student at ABC University. You recently read in the school's daily newspaper about a terrific investment opportunity that promises to repay you a 44 percent annual return on your investment. Although you don't understand the complicated nature
> "But I intended to pay it all back, I really did," Joseph Swankie said as he talked to his manager. How did I ever get into this situation, he thought. Two years ago, Joe received the promotion for which he had been working so hard for. In addition, Joe'
> You are the owner of a privately owned, moderate sized company. The business was founded over 20 years ago and has experienced impressive growth and profitability. The only frustrating thing, however, is that you know the company's profits would be signi
> A bank manager's responsibility was making loans. Auditors discovered that several loans he made over a five-year period had not been repaid. A fraud investigation revealed that the manager had been receiving kickbacks from risky clients in exchange for
> After searching public records and other sources, you accumulate the following financial information for John Dough: Given the financial information, determine whether there is a likelihood of fraudulent income. If so, determine the amount. YEAR I YE
> Sarah Welch was hired 15 years ago by Produce-R-Us, an importer of rare and exotic fruits. Produce-R-Us was started by an immigrant family 20 years ago and has grown to a national company with sales of SIO million annually. Although the business has grow
> Tom works for ZYX Company and is suspected of embezzling funds from the company. By searching databases on the Internet, talking with his ex-wife, and searching through his trash, you gather the following information: 1. Use these data to figure out Tom
> Mr. I. M. Bezzle works in the purchasing department for Big Time, Inc. During the 12 years that he has worked there, he has been a trusted employee and has sole responsibility for the company's purchasing function. He started working for the company in 2
> The financial data for this case was collected during a fraud investigation: 1. Without calculating the amount of unknown income, indicate possible red flags or treads you notice in the numbers above. 2. Now calculate the amount of total income and unkn
