Question

You are a, CFE, you were approached by at Stars and Supply Co. to conduct an investigation into possible fraud in the companies accounts receivable.

• John a regular costumer had lunched several complainants about his account balance.

• Alex an accounts receivable employee has lost a big amount of funds due to the financial market crisis

• Marta an employee in the accounts receivable department although hard working was not promoted while others in the same positions received a promotion

• Lili a clerk in the accounts receivable department lives beyond his means and recently purchased a BMW 780

• All employees have access to cash and records

• Marta is single mother with a son who is sick and need expensive medical care

You started to review the information you were given you discovered the flowing:

• There are several complaints regarding costumer balances

• Amounts of write offs are higher than normal in similar companies

Required

1. is there predication to start an investigation, Explain why

2. Apply the fraud investigation theory to the case

The following hints could be helpful

A. Documents you need

B. Fraud triangle

C. Interviewing order

Explain your steps in 2 above

3. What is your conclusion

a. What is the fraud scheme if any

b. Who do you thing committed it

c. What is your advice to the company

Answer 1

Q.1

Yes, predication is there to start an investigation. we can see many of the instances in our points, for example all employes have an access to cash and records this could be a biggest problem in a company as if every one can have access any one can change the data and also manipulate the data. An also a clerk has purchased a BMW this is quite uncommon because clerk generally have low salary then how could he managed to buy a BMW car. Thus there is serious need to examine companies records and investigate employees in order to prevent the liquidation of company in long run.

Now we will go point wise analysis of data and see wheather there is any chance of loss to the company due to it, if yes neccessary steps to be taken to overcome it.

Point 1-Alex an accounts receivable employee has lost a big amount of funds due to the financial market crisis. Here if we see Alex is an employee of account receivable department and has lost huge funds. Here there could be 2 posibilities of fraud i.e, First one- There could be instance that amount losed by the employee was stolen from the company. Hence we need to check from where employee brought such huge amount for this his/her Bank statement could be seen(All bank accounts of employee) and check wheather there is any situation that such huge amount can be affordable by him/her. If any supicious transaction is founf or there is no change that financially he/she could bring such a huge amount then we need to investigate her/him and if she/he found guilty she/he could be handed over to police. In second one- There could be chance that she could have lost her own money from his/her savings but to over come his/her present situation she may do any fraud to the company. however this can be prevented if she/he dont have access to books & cash.

Point 2- Marta an employee in the accounts receivable department although hard working was not promoted while others in the same positions received a promotion. Here also there could be possibility of fraud in the company. The main reason is personal feelings of employee, here an employee gets frastrated when he/she doesnt get proper appreciation for the workings. There could be possibility that she recieve the amount from costomer but in recorded in books(Missappropriation of assets). There may be also chance that she may increase eligible limit of credit for any costomer for bribe. However same could be rectified if company have records of names of emplyee giving the credit eligibility and also names of employee passing entry in Books. This alos could be solved by Having proper Documents issued to costomers and keeping only a person responsibile for recieving amount larger than certain amount(depends on materiality concept). If already such frauds are commited then such employee should be terminated and handed over to police.

Point-3-Lili a clerk in the accounts receivable department lives beyond his means and recently purchased a BMW 780. Usually salary of clerk salary is very low hence how could he able to purchase the BMW and live beyond his life. First we need to know that lilis financial capability, if he have enough property from inheritance then it is ok but if not and there is suspicious amounts in his bank accounts there is a high chance that he has done fraud perosnal introgation must be done and she should bne handed over to police. However this could be stopped if he cant access Books and cash.

Point 4-Marta is single mother with a son who is sick and need expensive medical care. Here also there could be possibility of fraud because of her financcila status. Here marta may take bribe and allow large credits for costomers and also manipulate accounts for cash due to her finacial data. She should be personally introgated. If she's found good then she can be given any loans as per company norms for recovery from financila crisis which gives employees boost do work for office. However this could be avoided if access to books and cash are not given to every employee.

Point 5-All employees have access to cash and records. This is the major reason for any fraud occurance. If books and cash access is given to everyone there coyuld be hihh probability that employee may manipulate the records and above all points are someof the instances for this. Hence only a particular employee must have access to books and other particular person should have acces to cah and also if there is any huge transactions then permission from branch head or any other high priority member should be taken amd regular audit of books and reconciliationss of books and cash should be done in order to keep copmany sageguard from any possibilities of fraud.

Point 6-John a regular costumer had lunched several complainants about his account balance. as we have diisccsued earlier there may be any fraud in his records fro which he is asked to pay much more amount than acctual. Here John must be instructed to give money to a particular person only who has acces to receive cash and ask to take a document for thr proof. There is also possibility that he was lying hence reconciliation must done between our books and costomer books if any differences identified then dicuss with him and see the possibilities of fraud if any. However if Books and cash accses are not given to everyone this mistake can be rectified.

Point 7- Amounts of write offs are higher than normal in similar companies. Here there may be case that actually money was received from the costomer but wantedly written off by employees. Hence authority of writing off large amounts(basing on materiality) should be given to particular person. and internal audit must be conducted once a every quater.

Point-8 There are several complaints regarding costumer balances.Here above are some of the reasons of possibility of frauds, if yes then as discussed earlier possibile actions would be taken, but if those are due to reasons other than specified above than further chceking of such transactions should be done.

By this risk of possibility of fruad or error can be minimised to much lower extent