Question

Forensic Accounting Case Study Series – sponsored by Deloitte FAS LLP and the Deloitte

Foundation

Check Fraud – Fun & Games Corporation

Case No. 2-5

1

Fun & Games Corporation Case Study

Overview:
This case study is designed to test the students’ understanding of the materials covered in
their accounting classes, as well as to test for fraud awareness.
Given that first year associates are required to exhibit a certain level of analytical skills, the
case has been developed to test the students’ ability to use Microsoft Excel to analyze
data/patterns and draw conclusions.
The “Overview of the Allegation,” “Company Structure,” “Initial Investigation/Background
Facts,” and “AP Walkthrough” sections have been provided to get students thinking about
how to answer the questions posed to them by Knox LLP in the “Engagement” section.
Research:
The case requires the students to analyze both the information that was provided by Knox
LLP during the meeting and the information that was provided by Fun & Games Corporation
by way of a document request from Knox LLP. The documents received through the
document request were:
1. AP data for all payments/vendors from January 1, 2010 through December 31, 2014 for
the Games department.
2. Games department budget numbers versus actual spend
a. The Company implemented a new budget process in FY 2013 and, therefore,
will only be able to provide budget data for FY 2013 and FY 2014.

Collaboration:
Each team will be comprised of two students. While collaborating with other teams is
encouraged, the final deliverable should reflect the team’s personal work product.
Summary of Findings:
The summary of findings should be summarized in a two page memo to Knox LLP with
exhibits (Font Style- Arial, Font Size- 12, and Line Spacing- 1.5).

Forensic Accounting Case Study Series – sponsored by Deloitte FAS LLP and the Deloitte

Foundation

Check Fraud – Fun & Games Corporation

Case No. 2-5

2
Company Overview
Fun & Games Corporation (“Fun & Games” or the “Company”) is a local toy store that sells all
types of children’s toys and is based in Alexandria, Virginia. The Company has been in business
since 1950 with multiple locations in the DC area. The Company has continued to grow and has
beat its revenue projections for the past few years.
Scenario
You are a Partner at Knox LLP (“Knox”), a boutique forensic accounting firm located in
Washington, D.C. On 1/2/2015 you received a call from your long-time friend Howard Green,
the chief legal officer at the Company, requesting a meeting with you on 1/5/2015, regarding an
alleged fraud scheme committed by Carla Cosgrove, an employee at Fun & Games. During the
meeting, you learned the following facts:
Overview of the Allegation:
1. Two weeks ago, Harold Lewis, CFO of the Company, received a phone call from the
Company’s bank explaining a check drawn on its operating account had been flagged as
potentially fraudulent and an employee of the Company had presented the check for
deposit.
2. The check in question was for $50,000.25 and had been issued to one of Fun & Games’
largest vendors, Buddy the Elf Toy Store.
Company Structure:
1. Fun & Games has multiple departments based on toy type. The departments are as
follows:
a. Games
b. Building Sets & Blocks
c. Action Figures
d. Dolls
e. Stuffed Animals
f. Pretend Play & Dress-Up
g. Outdoor Play
2. Each department furthers breaks down costs based on a cost center or a specific
category within the department.
3. The specific cost center codes and titles for the Games department are as follows:
a. G101 - Card games
b. G102 - Board games
c. G103 - Puzzles
d. G104 - Electronic & interactive games
e. G105 - Magic
f. G106 - Travel games & novelties
g. G107 - Game Rooms
h. G108 - Marketing
i. G109 - Taxes
j. G110 – Telephone
k. G111 – Internet

Forensic Accounting Case Study Series – sponsored by Deloitte FAS LLP and the Deloitte

Foundation

Check Fraud – Fun & Games Corporation

Case No. 2-5

3

l. G112 – Electric
m. G113 – Office Supplies

Initial Investigation/Background Facts:
After receiving a phone call from its bank, the Company performed an initial investigation and
uncovered the following facts:
1. Buddy the Elf Toy Store is a legitimate vendor of Fun & Games and the check in
question was a quarterly payment due on Invoice Number 78320 as part of the
Company’s recently updated contract with Buddy the Elf Toy Store.
2. The invoice in question was retrieved from the Accounts Payable (“AP”) department and
had been approved and submitted for payment by Carla Cosgrove of the Games
department.
3. Carla had requested that the check for Buddy the Elf Toy Store should be returned to
her by the AP department once it was issued and she would mail it to the vendor.
4. The Company contacted Buddy the Elf Toy Store and Buddy the Elf Toy Store confirmed
that all other invoices paid to Buddy the Elf Toy Store were legitimate and the funds had
been received.
5. The investigation involved discussions with Buddy the Elf Toy Store and the Company’s
Accounts Payable department. During the internal discussions it was discovered that
Carla often didn’t follow procedures.
6. After finding out that Carla didn’t adhere to procedures, the Company sent her home to
complete their investigation without her present.
7. The Company established that Carla Cosgrove was acting fraudulently and terminated
her from the Company. At the time of her termination her annual salary was $65,000.
8. Carla Cosgrove joined the Company in 2010 and has always been a budget director in
the Games department of the Company.
9. Carla’s regular duties included overseeing the budget process for each of the cost
centers within the department and working with the Company’s Chief Budget Director to
integrate the Games department budget within the overall budget for the Company,
attending quarterly budget meetings and attending the yearly budget presentations to
Company management for approval.
10. In approximately 2011, Carla had been delegated additional responsibilities from the
head of the Games department, Harvey Peacock, to include approving and processing
vendor payments and employee expense reimbursements.
11. Carla was a well-liked employee and had made friends with a number of the staff in the
AP department.
12. The Company learned a number of items about Carla from the initial interviews
conducted with employees, including the following:
a. Carla was an avid traveler and had taken numerous trips in the past few years to
the Caribbean.
b. Carla and her husband had recently built a large home in Kensington, MD.
c. Carla drove a Lexus SUV with a license plate that read “Flowers.”
d. Carla had lots of expensive looking jewelry and designer hand bags, which
employees had assumed were fake.

Forensic Accounting Case Study Series – sponsored by Deloitte FAS LLP and the Deloitte

Foundation

Check Fraud – Fun & Games Corporation

Case No. 2-5

4
13. The Company learned Carla had purchased a floral business in approximately 2013
called Flower Patch Incorporated. Preliminary internet searches listed the address of the
business at 732 Independence Way, Kensington, MD.

AP Walkthrough:
You met with Harold Lewis, the CFO, to obtain an understanding of the AP process.
1. The Company’s Fiscal Year end is June 30.
2. The Company processes all vendor payments on a weekly basis on Thursday. To have
a vendor paid that week, the invoice must be received by AP by Tuesday at noon.
3. The invoice must contain the signature of the authorized signor for each department to
process the invoice. The authorized signor is by default the head of each department;
however, the authority can be delegated. If signatory authority is delegated, the name of
the delegate must be provided to the AP department.
4. The invoice must also contain a cost center code for it to be appropriately allocated in
the system for budget and expense purposes.
5. The invoices are entered into the system and reviewed against the batch sheet by the
Controller for accuracy. Once the Controller signs-off, the checks are issued on Friday
morning and mailed by the AP department the same day.
6. The Company allows departments to request a check be returned to the requestor and
mailed. Harold explains this is not a common occurrence but happens on rare occasions
when the department wants to include correspondence or something else with the
payment.
7. Harold explains in discussions with AP personnel he learned the following information:
a. Carla requested all checks for the Games department be returned to her for
mailing.
b. Carla would at times bring invoices to AP past the deadline for the weekly
processing, explaining there was an urgency for processing and apologize for
missing the deadline.

Engagement:
After the preliminary meetings are concluded, you meet again with Howard and he tells you the
Company is concerned that Carla had submitted other fictitious invoices. You are being retained
to perform a forensic investigation and the Company would like you to answer the following
questions:
1. Identify any red flags that you uncovered during your investigation?
2. If you identified any potentially fraudulent vendor(s), which vendor(s) are they?
3. Quantify the amount(s) identified as potentially fraudulent in the Games Department AP
Data provided?
4. Describe the perceived opportunities that existed (Fraud Triangle) and how the fraud
could have been perpetrated and covered up.
5. What controls could be implemented to help prevent other potential fraudulent activity
from occurring in the future?

Answer 1