At the restaurant, there is no segregation of duties, system of authorizations, independent checks, or physical safeguards to prevent Joel from committing fraud. An increase in revenues accompanied by a decrease in profits may signal a possible fraud.
In this case, as in most cases, a few simple controls could substantially reduce the opportunities for fraud. For example, Bob and Tom could install an automated register into which all sales would be recorded. They could have mystery shoppers eat at the restaurant and pay in cash in order to see if the receipts were recorded.
They could make the deposits and reconcile the bank account themselves. Possible answers might be: Segregation of duties—do not allow Joel to do everything he is doing. System of authorizations. Independent checks. Physical safeguards—such as automated registers. Case 8 The major fraud opportunity in this case was the inability to judge the quality of performance of the optometrist. Another factor was the lack of access to information. The insurance companies had no way of knowing that many of the services being billed for were not actually being performed, or that many of the patients did not even exist.
Case 9 A couple of possibilities may explain the rationalization element of the fraud triangle. The second possibility is that Hammond knew that the accounts were or might be misleading, false, or deceptive. Although he may have thought this, if the other two factors are present, it is easy to rationalize that even though they may be false, they also may be real or genuine. Instead of looking at the situation objectively, he probably rationalized the possibility of it being a legitimate opportunity.
Case 10 1. Reasons why Len should pursue prosecution: a. Prosecution sets precedence within the company that fraud will not be tolerated. Prosecution brings about justice. Prosecution may result in recovery of stolen funds because of ordered restitution payments.
Prosecution will help prevent dishonest employees from defrauding other organizations. Reasons Len might not want to pursue prosecution are: a. Fear that negative publicity will hurt the image of the CPA firm. He might feel badly for the employee or his family. Answers may vary. However, prosecution is probably more beneficial in deterring future fraudulent activities within the firm. Case 11 1. Yes, it is a fraud to charge the company for personal lunches that you submit as business expenses.
Fraud is often defined by the rules of an organization, and charging the company for personal expenses is intentionally not following the rules. In this example, all three elements of fraud may be present: pressure, opportunity, and rationalization.
The opportunity to commit fraud is high, and certainly rationalization is present. It is difficult from the limited facts to know whether a pressure is present. How one responds to the mentor is a subjective answer. If the new employee was aware that such charges represented fraud, she should decline to participate and let the mentor know that she does not agree with charging lunches against company policy. Additional steps could be taken to notify supervisors and suggest that they further educate company personnel regarding company policies.
Case 12 1. Opportunity and pressure are both present in this case. Although the owner of the store maintains close relationships with employees, controls are minimal, and should an employee choose to be dishonest as this example illustrates , he or she would have ample opportunity to steal.
The third ingredient for fraud to occur is rationalization, and given the high pressure and opportunity, rationalization only needs to be low to moderate in this case. In the future, you should be more concerned with internal controls, greater emphasis on segregation of duties, potentially implementing better computer systems and login authorizations, and possibly even surveillance cameras.
Fraud is always less costly to prevent or detect early, and anything you can do to reduce fraud would be wise. Case 13 1. Lauersen could have felt some pressure to make fertility treatments affordable for his patients.
Lauersen perceived that the insurance company did not check carefully on the types of surgeries performed, and therefore it was easy for him to lie about the surgeries. Lauersen may have felt that he was helping women who could not afford to have children. This was the primary factor in his decision to commit fraud. Lauersen could have recommended different insurance companies that covered fertility surgeries. Case 14 1. The fraud triangle includes perceived pressures perceived opportunity, and some way to rationalize the fraud as acceptable.
Perceived Pressure: As a single mother of four, it may be difficult for Nancy to provide for her family. These perceived financial pressures could motivate Nancy to take money from the doctor. Opportunity: Because there is no segregation of duties, Nancy has the opportunity to keep the cash she collects from the customers and write off the account when the books show that all funds have not been collected.
Without appropriate controls in place, Nancy has several opportunities to commit fraud. Rationalization: Nancy does not feel that she is paid enough to meet her current financial needs.
She may rationalize that she deserves an increase in pay to meet her needs. Nancy may rationalize that she is just borrowing the money and will repay it later. As a trusted employee, she may rationalize that the doctor would want her to take a little extra money for her needs; after all, she needs the money much more than the doctor. The critical duties of writing checks, making bank deposits, and reconciling bank statements should be segregated and dual custody control should be implemented.
Nancy should not be collecting, recording, and depositing payments all by herself. An additional employee may need to be hired. Commonly, an outsourced billing office is used as a check and balance. Each of these activities can be given dual custody by both Nancy and another person.
Although this control can often be expensive, it may. Case 15 1. Joe had several financial pressures: his wife just had a fourth child; they had just purchased a new home; and he had experienced a severe drop in commissions earned. His opportunity arose from the fact that the company had poor internal controls over petty cash.
Shortages were usually written off. The company could have prevented the fraud from occurring by having better controls over the petty cash. For example, the company could have had one person be the petty cash custodian requiring anyone with a need for petty cash to go through that person.
There should also have been periodic reconciliations of the petty cash fund. Case Studies Case Study 1 1. The office manager works alone and has significant opportunities to alter the books or accounts of customers and pocket money for himself. Employees working unaccompanied can also take side jobs and pocket the receipts for themselves.
Additionally, they can use the chemicals to provide lawn care to family and friends at no cost. Fraud symptoms that should be looked for or that are evident in this case include: less time with office manager, more chemicals being used than necessary, employee homes receiving unpaid services, and increased revenues with declining profits. Employees may have taken on new customer jobs and pocketed the money because the customers are not entered on the computer system.
The office manager should be monitored more closely, and the accounts should be checked on a more regular basis. The owner will have to spend more time ensuring that the office work is done correctly. Daily checks on supplies may be necessary to make sure employees are not using chemicals for personal gains.
Putting these controls in place will cost more employee time but may provide greater benefit by reducing costs. Case Study 2 1. Pressures: James was heavily in debt. Also, the financial position of Best Club was declining significantly. Controls or actions that might have detected the fraud are: independent checks by the insurance company, investigations of complaints by customers being charged too much, and investigations of the apparently rapid growth of his company.
Case Study 3 1. Johnson Manufacturing does not have a very active board of directors, and there is little monitoring of employees. Case 7 1.
Fraud occurs when individuals intentionally cheat or deceive others to their advantage. In this case, Bob is committing a fraud. Regardless of the magnitude of the charges, he is intentionally charging nonbusiness lunches to his employer.
This is also known as employee fraud, or occupational fraud. Fortunately, in this case nothing has been done that cannot be corrected easily. Since Bob is justifying his behavior by saying the recent memo pertaining to meal expenses does not apply to him because he is an intern, you should try to help Bob see the error of his logic and encourage him to correct the charges.
If Bob is unwilling to change his behavior, the appropriate superior should probably be notified. Case 9 1. Some of the various types of fraud that can affect an insurance company are: a. Employee fraud—individuals involved in the benefits area can create false claims for nonexistent policyholders. The victim is the company, and the perpetrator is the employee. Management fraud—the company can create nonexistent policyholders to make their revenues appear greater.
The victims are the stockholders and other financial institutions that rely on the financial statements. The perpetrators are members of management with the company. Customer fraud—policyholders can create false claims to collect money. The victim is the company, and the perpetrators are the customers.
Case 10 Fraud examiners investigate suspected fraudulent activity, whereas auditors are concerned about the overall fairness of the financial statements. The auditor uses sampling to test the account balances to make sure the accounts are not overstated or understated. Fraud examination cannot be done effectively through sampling.
In fraud examination, each transaction should be reviewed and evaluated. Case 11 1. There are many reasons why Cesar should be terminated from employment. However, one of the most apparent reasons is that organizations that do not work proactively at fraud prevention and detection find themselves as frequent targets of fraud schemes, with the fraud becoming more and more costly.
A message that perpetrators will be prosecuted deters other potential fraud by reducing the perceived opportunity. An individual who commits fraud and is not punished or is merely terminated suffers no significant penalty and often resumes the fraudulent behavior. If prosecuted, the individual suffers significant embarrassment when family, friends, and business. Humiliation is often the strongest factor in deterring future fraud activity.
Case 12 Nancy should be concerned. First, the bank has a mandatory one-week long vacation policy. Bob should not be allowed to be an exception. Bob also fits many of the demographics for a fraud perpetrator: he has a lot of experience with the bank and is in a trusted position, he often works late into the night all by himself, everyone trusts him, and he likes to give the impression that he is tough on credit.
Nancy should not assume that Bob has committed fraud; however, she should demand that Bob take a mandatory vacation, and she should be alert for additional signs of fraud. Case 13 While answers may vary, the following is one possible answer: The management frauds to which your friend refers involve much more than just stealing money. They are sometimes simple, sometimes very complicated schemes which misstate financial statements and are intended to deceive the public, but that are also orchestrated so that the fraud is difficult to detect in an audit.
Financial statement fraud can be very difficult to detect because of the sophistication of the perpetrators and their positions of trust and authority in the company. Case 14 As fraud detection methods get more sophisticated, so do fraud perpetration techniques. Fraud examination is one of the fastest-growing and most financially rewarding careers.
It is not part of a financial statement audit but a distinct profession. Case 15 Fraud examiners are hired by many different kinds of organizations. Examples include the government, CPA firms, law firms, insurance companies, public and private corporations, universities and hospitals.
Fraud examiners are hired to do a variety of tasks, and fraud examination is an exciting and intriguing career. Case 16 This is a real investment scam that was perpetrated on an American university campus a few years ago.
Before it was stopped, hundreds of students had invested hundreds of thousands of dollars. If it seems too good to be true, it probably is. This promised rate of return does not make business sense. Making the investment seem complicated is one way perpetrators try to conceal their frauds. You are excited about the investment because several of your friends have invested. Case Studies Case Study 1 1. Jane had suspicions of fraud for several reasons. First, she noticed that the accounts payable checks, which were payable to dual payees, lacked the required endorsement of both payees.
Next, Jane observed that several different people wrote all the checks in similar handwriting. Then, both Jane and Gus realized that each of the five checks had been cashed at the same convenience store less than five miles from the home office, even though the mailing address of one of the payees was over miles away.
Finally, after beginning investigation, Jane and Gus found that there were no existing documents to support the payments made from the checks. Fraud is often caught through inconsistencies in financial data. Therefore, any discrepancy, however small it seems, may have the potential of assisting the auditor in discovering fraud. Some of these motivations might include, but are not limited to, financial pressures, incomeconsuming addictions e. While researching the personnel files of employees, the auditors would be looking for any patterns, characteristics, or past occurrences in the lives of the employees that would indicate any possible motivations for committing fraud.
Case Study 2 1. Fraud occurs when someone deceives someone else through confidence and trickery in order to get gain. This appears to be fraud. By doing so, prosecutors believed that Publishers Clearing House committed fraud. Case Study 3 1. Those involved in the late-trading scheme have committed both a civil and a criminal offense. By performing trades after approved trading hours, the perpetrators have allowed certain traders to trade with perfect information and have prevented other. As such, this case is in violation of civil law.
If proven guilty, the perpetrators will be forced to compensate monetarily for the damages they caused to others. They have also committed a criminal offense by breaking the law that regulates approved trading hours. If proven guilty, the perpetrators could be sent to jail. While the Prudential traders involved in the late-trading scheme realized quick and easy profits, other stock and mutual fund traders were hurt. They had an apparent disadvantage to those traders and brokers who practiced late trading.
The other traders were forced to buy stocks and invest in mutual funds at a higher price and then sell them at a lower price than they would have if there were no fraud involved. Eventually, however, the perpetrators will incur the most damage as they are forced to fulfill their civil obligations and endure tarnished reputations. Case Study 4 This is a real case that happened to a U.
The answers to the questions are as follows: 1. National Geographic again supported the claim. However, it is now obvious that Peary claimed distances he could not possibly have achieved, and it is doubtful that Cooke, who had a history of fraud, ever got even close to the pole.
Byrd flew further north than anyone before, but he did not have the fuel to have made the journey he claimed—his log was falsified. The Great Polar Fraud explores the history of the three men who claimed the pole, their claims, and the subsequent doubts of those claims, effectively rewriting the history of polar exploration and putting Amundsen center stage as the rightful conqueror of both poles.
Skyhorse Publishing, as well as our Arcade imprint, are proud to publish a broad range of books for readers interested in history—books about World War II, the Third Reich, Hitler and his henchmen, the JFK assassination, conspiracies, the American Civil War, the American Revolution, gladiators, Vikings, ancient Rome, medieval times, the old West, and much more.
While not every title we publish becomes a New York Times bestseller or a national bestseller, we are committed to books on subjects that are sometimes overlooked and to authors whose work might not otherwise find a home.
Related Books. Because no other work provides such a comprehensive guide, every fraud fighter should keep a copy in the library.
0コメント