Question

A. Please read the following situation statement and answer the questions that follow:

While traveling on business with a co-worker, you spend quite a few evenings having dinner and cocktails with your co-worker’s extended family that lives in town. After each of these meals your co-worker charges the entire meal to his corporate credit card, which he then submits as a business expense as part of his travel expense report. As these meals were not overly extravagant, the total value is small enough to get “lost” in the overall expense report, thus considered to be insignificant from the perspective of your co-worker.

Would the inclusion of these meals on his corporate expense report be considered fraudulent?

Does the low dollar value of these transactions impact your opinion?

If you consider this activity potentially fraudulent, do you have a responsibility to report the activity? If so, to whom?

If you confronted your co-worker and his response was, “You are correct, that was a mistake on my part. I did not realize that I was improperly handling these expenses. I will be sure to pay them with my own personal funds once the bill is received,” would you take further action and report the incident or consider it settled based on the conversation?

B. Please answer each of the following questions in paragraph form providing examples and support from the chapter readings and other sources:

What is the difference between fraud and error?

Is there evidence to support the notion that instances of fraud have increased at a rapid rate? Provide insight into the driver(s) of this issue.

Please provide the description and at least one example of each type of fraud:

Employee embezzlement

Management fraud

Investment scam

Vendor fraud

Customer fraud

Miscellaneous fraud

Answer 1

Would the inclusion of these meals on his corporate expense report be considered fraudulent?

An unethical behavior, conducted by co-worker should be considered fraudulent and it doesn’t matter the amount. The expenses incurred by the co-worker should not be reimbursed upon review of the expense report. Preventive measures can be made to avoid this type of behavior of employees. The policies of expense reports are kept strict amongst all employees equally; this will help in eliminating the fraud in these cases.

Does the low dollar value of these transactions impact your opinion?

As the co-worker has used the corporate credit card, multiple times, the dollar values will add up depending on the amount of times it was done. As the amount spent in meals is small enough still, the co-worker is not using ethical behavior and the procedures should be followed by the company to correctly the same.

If you consider this activity potentially fraudulent, do you have a responsibility to report the activity? If so to whom

Since I do consider this activity potentially fraudulent, I have the responsibility to report this activity. As a professional accountant, I would report this activity to the concerned manager of the co-worker in a responsible manner. After getting the report, the manager will approve the expense report after carefully reviewing manner it. This will also help the company from any fraudulent cases that may be reported by auditor.

d) If you confronted your co-worker and his response was, “You are correct, that was a mistake on my part. I did not realize that I was improperly handling these expenses. I will be sure to pay them with my own personal funds once the bill is received,” would you take further action and report the incident or consider it settled based on the conversation?

I would still take further action, because of the fact that my co-worker was hoping that the meals would be overlooked due to the small value of the total, which is a fraud. I would still report this action to my supervisor what I knew about my co-worker with the expectation that his past expense forms would be re-reviewed for any past occurrences.

B. Please answer each of the following questions in paragraph form providing examples and support from the chapter readings and other sources:

What is the difference between fraud and error?

Fraud may be defined as intentional concealment of facts and figures so as to deceive the other party or users of financial statements. It may also include giving true & fair opinion on the financial statements of the company even after knowing the truth and loopholes. Whereas an error is an unintentional misstatement of the financial statements

Is there evidence to support the notion that instances of fraud have increased at a rapid rate? Provide insight into the driver(s) of this issue.

It is very difficult to measure how much fraud is occurring. Due to this reason it becomes very difficult to get the accurate on fraud. However there is evidence to support the concept that occurrences of fraud have risen at a rapid rate. There are four basic drivers or resources. The resources are government agencies, researchers, insurance companies, and victims off fraud.

Please provide the description and at least one example of each type of fraud:

Employee embezzlement; this is a very common type of fraud .In this type of fraud employees deceive their employer by taking assets .For example; Cash, Inventory etc.

Management fraud; this fraud is committed by the top management by manipulating the financial statements

Enron and WorldCom are recent examples of management fraud.

Investment scam; in this type of fraud fraudulent and usually worthless investments are sold to unsuspecting investors. For example, Telemarketing

Vendor fraud; in this type of fraudulent activities has been committed by the vendors for example. Shipment of inferior goods

Customer fraud; in this type of fraudulent activities has been committed by the customers .for example. Fraud committed by the customers by not paying the full amount for the goods purchased.

Miscellaneous fraud; Fraud that may have been committed for a reason other than financial gain is known as miscellaneous fraud