Question

1) You observe credits to customer accounts without any supporting documentation. What might you hypothesize for an initial fraud theory?

2) You have been engaged as a consultant by a bankruptcy creditor. Your client believes that the debtor has secretly transferred assets to a sister company. How might you investigate?

Answer 1

1) Credits to customer accounts without any supporting document and approval means misappropriation of assets of the Company. This is a fraud risk area and the person who is passing credit to the customer can take cash from the customer directly. The focus should on proving this to be a fraudulent transaction is through checking the details of gift the accountant has received directly from the customer.

2) In order to check siphoning of money the following the steps should be taken-:

(i) Full listing of related parties ans sister concerns should identified and obtained.

(ii) Transaction with the related parties should be carefully evaluated. The pricing of the transaction should be at arm's length guidelines.

(iii) Agreements should be obtained to check the benefits passed on to related parties.

(iv) Bank transfers entries should be identified and checked in detail.

(v) If possible surprise check at books of account of sister concern should also be made.

Through above investigative approach, we can identify fraudulent transactions with the sister company.