Question

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 bakery will be the next big hit in the fast-food business. You take out a business loan for the maximum amount your bank will give you, hire several employees, and open a beautiful store that is designed to look like your grandma’s home. After eight months of hard work and diligence, you are crushed when you realize that your store manager has been stealing from you. One of your recent hires tells you that during her last shift, the manager, Stephanie, voided a sale of two-dozen cinnamon rolls, stamped the receipt as a return, and pocketed the money. Stephanie warned the new hire not to say anything and told her she deserved the money because she didn’t get paid enough. Encouraged by your open- door policy, the employee confides in you.

1. Identify what symptoms this fraud will generate. In addition, identify how this fraud will directly affect your revenue and inventory accounts.

2. Explain the steps you should take to search for each symptom you identified in part (1). In particular, describe the computer queries and transactions that should be searched to find this fraud.

3. After you have identified several symptoms, do you have enough evidence to prove that she is guilty? What other evidence is required or useful in this case?

4. Besides searching for symptoms of the fraud, what other investigative steps can be taken to elicit a confession or otherwise prove the fraud?

5. What steps could have been taken to prevent this fraud from occurring in the first place?

Answer 1

ANSWER:

1. The most obvious symptom would be an increase in returns. Because a sale was voided, there will be a decrease in revenue. In addition, the inventory will go up at the time of the return. However, when inventory is accounted for later in the day or week, it will be lower than originally expected.

1. The owner can run a query to determine when the majority of returns have taken place. Chances are that the majority of the returns will take place when the manager was working. Based on these calculations, the owner can speculate on the extent of the fraud.
2. No, you still do not have enough evidence to prove that she is guilty. However, armed with this information, as well as the other employee’s witness, it should be relatively easy to obtain a confession.

1. The owner could perform an invigilation operation, calculate a net worth analysis, or install a hidden camera to see if it is possible to catch the manager in the act of stealing.

1. The owner could have required that all returns be made to someone other than the person who originally conducted the transaction. Employee training and fraud awareness problems might have prevented the fraud from ever occurring.