Question

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

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

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

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

• Jubran 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

• Maha 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

1. Documents you need

2. Fraud triangle

3. Interviewing order

Explain your steps in 2 above

3. What is your conclusion

   1. What is the fraud scheme if any

   2. Who do you thing committed it

   3. What is your advice to the company

Answer 1

Accounts receivable is a thief’s paradise due to the influx of money at all times. Accounts receivable fraudsters take advantage of the trust they’ve built with clients, using their professional position to line their pockets.

Accounts receivable fraud can ruin a company financially. The fraud itself is harmful for the company’s finances, but the negative impact on its reputation and relations with customers is where the real damage lies. Plus, those involved will face civil and criminal penalties.

“Refreshed” Receivables - In order to mask rising account receivable balances (including known or suspected uncollectible balances) while avoiding increasing the bad debt provision, a company may “refresh” the aging of receivables and improperly represent A/R balances as being current in nature instead of showing the true age of the receivables. This may occur with exchange transactions with customers, where customers can receive “credits” to their accounts and allowed to repurchase goods where little, if any, physical transfer of merchandise occurs. Some schemes may simply modify or edit dates of invoices in the A/R system that results in a “restart” of the aging process for the modified receivables. Schemes may involve the falsification or improper modification of accounting documentation (invoices, purchase orders, change orders, shipping reports, etc.) to cover up the fraud scheme.

All the facts of the case make us to start an investigation on the same. Reason behind starting a case -

1. Customer complaining about account balance

2. Non-promotion of an employee and promotion of other employees of same class.

3. All people in the company having hands on cash and records.

4. Amounts of write offs are higher than normal in similar companies

Documents needed -

1. Complaints Filled

2. Invoices on account of complaints

3. Cash Slip of payments

4. Cash Register / Bank Transaction Summary

5. Cross Checking of account with the other party

6. Direct Inquiry to other receivables

7. Bank account details of employees to check transactions

Interview to be conducted in the flow of money. From the collector to the recorder of cash.

Conclusion: Either of Jubran or Maha can be guilty because Maha needs lots of money for medical expenses and Jubran who is living above the standard.

Advice to the company

The company should focus on the following areas:

1. Hiring Practices

2. Behavioral Red Flags

3. Education and Training

4. Have Insurance

5. Implement and Enforce Controls

6. Be Alert