Question

Background and Content:

The following financial data was collected during a fraud investigation:

                                                                           Year 1                                 Year 2                                 Year 3

Assets:

Residence                           $280,000                            $280,000             $280,000

Automobile                           18,000                                45,000                                45,000

CD                                              5,000                                 15,000                                15,000

Cash                                          8,000                                   8,000                                   2,000

Stock portfolio                      5,000                                 15,000                                15,000

Boat                                                                                      15,000                                15,000

Liabilities:

Mortgage                           100,000                              80,000                                  20,000

Auto loan                              24,000                             60,000                                  20,000

Other loan                                                                         6,000

              

Income:

Salary                                     50,000                                55,000                                60,000

Investment                             2,000                                 5,000                                  5,000

              

Expenses:

Mortgage expense             36,000                                32,000                                18,000

Auto expense                       10,000                                 9,000                                  9,000

Living expenses                   30,000                                30,000                                60,000

Assessment Tasks:

Answer both questions below.

1. Calculate the amount of “unknown income” using the numbers given above.                  

2. Critically explain whether it appears that a possible fraud exists. In your answer, critically explain other possible explanations for the unknown income.

Answer 1

Year 1                                 Year 2                                 Year 3

Assets:

Residence                           $280,000                            $280,000 $280,000

Automobile                           18,000                                45,000                                45,000

CD                                        5,000                                 15,000                                15,000

Cash                                    8,000                                   8,000                                   2,000

Stock portfolio                      5,000                                 15,000                                15,000

Boat                                                                                 15,000                              15,000

Total assets(A) $ 316000   $ 378000 $ 372000

Liabilities:

Mortgage                           100,000                              80,000                                  20,000

Auto loan                              24,000                             60,000                                  20,000

Other loan                                                                      6,000

Total liabilities (B) $ 124000 $ 146000 $40000

Net worth (A-B) $ 192000 $232000 $332000

Change in net worth $ 40000 $ 100000

Add - total expenses $ 71000 $ 87000

Total income $111000 $ 187000

less - known income $(60000) $ (65000)

balance unknown income $ 51000 $ 122000

2) Critically explain whether it appears that a possible fraud exists - here no fraud exist .

, critically explain other possible explanations for the unknown income. - like gift from familiy friend , won lottry