FRAUDD EXAMINATION

Case 4

Stephanie Adkins is an accountant who is trained in forensic accounting. She is an experienced fraud investigator. She was recently hired by Lake Side Hotels, a closely-held corporation, to investigate a company manager who is suspected of taking kickbacks from vendors.

Stephanie gave Lake Side her standard engagement letter stating that the scope of the engagement would be limited to investigating only one suspect. It did not guarantee findings or results.

According to the provisions of Stephanie’s engagement, she was to communicate directly with Bernie James, the company’s controller, and Amanda Peterson, the outside attorney.

At the first meeting of this team, Bernie indicated that Lake Side had received four separate anonymous tips about possible kickbacks. All the tips indicated that Laurie Miller, an evening manager, was taking kickbacks from food vendors. One tip named a particular vendor, the Mid States Beef Source, a company that supplies meat to the hotel’s restaurants.

Stephanie asked if Bernie had any documentation that supports Laurie Miller’s possible involvement in kickbacks. Bernie had no documentation but hoped Stephanie could help them substantiate the information from the anonymous tips. He was concerned that kickbacks would hurt the hotel financially.

Amanda, the outside attorney, said that she had already talked to several hotel employees and was convinced that Laurie was guilty.

Kickback schemes can be difficult to uncover, so Stephanie wanted to proceed cautiously.

Bernie wanted to confront Laurie immediately. He was convinced she would confess if he told her that he had evidence against her.

Stephanie asked what evidence Bernie had. Bernie said, “Only the anonymous tips, but I know she will confess if we bluff.” It was against Stephanie’s professional principles to lie and she said so.

“Detectives do it all the time on cop shows,” Bernie said. Stephanie insisted she would need to run the investigation her way or she wouldn’t be able to undertake this engagement.

In relation to this scenario, write responses to the following:

What steps might Stephanie follow to proceed with her investigation?

What mistakes, if any, have already been made in the investigation?

The Town of Brown has the following financial transactions:

1. The town council adopts an annual budget for the general fund estimating general revenues of $2.0 million, approved expenditures of $1.6 million, approved transfers pf $150,000.

2. The town levies property taxes of $1.5 million. It expects to collect all but 4% of these taxes during the year. Of the levied amount, $50,000 will be collected next year but after more than 60 days.

3. The town orders three new police cars at an approximate cost of $120,000.

4. A transfer of $60,000 is made from the general fund to the debt service fund.

5. The town makes a payment on a bond payable of $50,000 along with $15,000 of interest using the money previously set aside.

6. The Town of Brown issues a $3 million bond at face value in hopes of acquiring a building to convert into a high school.

7. The two police cars are received with an invoice price of $115,000. The voucher has been approved and will not be paid for three weeks.

8. The town purchases the building for the high school for $2.5 million in cash and immediately begins renovating it.

9. Depreciation on the new police cars is computed at $35,000 for the period.

10. The town borrows $120,000 on a 30-day-tax anticipation note.

11. The Town of Brown begins a special assessment curbing project. The government issues $900,000 in notes at face value to finance this project. The town has guaranteed the debt if the assessments collected do not cover the entire balance.

12. A contractor completes the curbing project and is paid $900,000 as agreed.

13. The town assesses citizens $900,000 for the completed curbing project.

14. The town collects the special assessments of $900,000 in full and repays the debt plus $40,000 in interest.

15. The town receives a $20,000 cash grant from a regional charity to beautify a local park. The grant must be used to cover the specific costs that the town incurs.

16. The town spends the first $5,000 to beautify the park.

Question 1. – Please prepare journal entries for the town based on the production of fund financial statements.

Question 2 – Please prepare journal entries in anticipation of preparing government-wide financial statements.

Suppose that a certain country conducted tests of a certain type of bomb in 2009 and 2013?, and another?country'sdefence ministry estimated their power at between 4 and 8 kilotonnes of a certain explosive in 2009 and between 8 and 9 kilotonnes of the explosive in 2013. ?"The power of the? country's bomb tests increased between 2009 and 2013," stated a commentator. Assume that the ranges given by the second?country'sdefence ministry represent the ranges within which the actual power of the tests lies with a probability of 0.8. Also assume that the defence? ministry's estimates are Normally distributed. Complete parts? (a) and? (b) below.

a) What is the probability that the actual power of the 2009 test was greater than 9 kilotonnes of? explosive? (round to four decimal places)

b) What is the probability that the actual power of the test was higher in 2009 than in 2013? (round to four decimal places)

An engineer studying the tensile strength of a composite material knows that tensile strength is approximately normally distributed with σ = 60 psi. A random sample of 20 specimens has a mean tensile strength of 3450 psi.

(a) Test the hypothesis that the mean tensile strength is 3500 psi, using α = 0.01

(b) What isthe smallest level of significance at which you would be willing to reject the null hypothesis?

(c) What is the β error for the test in part (a) if the true mean tensile strength is 3470 psi?

(d) Suppose that you wanted to reject the null hypothesis with probability of at least 0.8 if mean strength μ = 3470 psi. What sample size would be necessary?

(e) Explain how you would answer the question in part (a) with a two sided CI on mean tensile strength.

QUESTION 42

A company has a proposed 2-year project with the cash flows shown below and would like to calculate the NPV of this project so that they can decide whether to pursue the project or not. The company has a target capital structure of 60% equity and 40% debt. The beta for this firms stock is 0.8, the risk-free rate is 4.8, and the expected market risk premium is 6%. The bonds for this company pay interest semiannually and have a coupon interest rate of 9%, 11 years to maturity, a face value of $1,000, and a current price of 1,137.7. If the corporate tax rate is 38%, what is the NPV of the proposed project for this firm? (Answer to the nearest dollar, but do not use a dollar sign).

  

1-Some money was held at a 10-month interest rate with a 15% interest rate. If this money was kept at an interest rate of 340 days with an interest rate of 18%, 1944 lira would provide more interest income. Accordingly, what is the amount of money invested in interest?

2-Some capital was kept in the bank for 225 days with an 18% interest rate. Since the total amount of money in the account is 68507.75 lira at the end of this period, what is the amount of capital invested in interest?

3-42500 Turkish liras was deposited in the bank for 0.8 years with an 18% interest rate. At the end of this period, all of the money in the account was taken and deposited in another bank for 7 months with an interest rate of 21%. At the end of 7 months, how much is the whole money?

Games, Inc. is considering selling tennis racquets. It can use a proven technology to produce the racquets. This method will produce a $24M cashflow next year. The firm could also choose a new experimental method for producing racquets. This method has lower costs if it works. If the new technology works it will produce a cashflow of $28M next year. If it is unsuccessful it will produce a zero cashflow next year. The probability of success is 0.8 and the cashflows are uncorrelated with the market return. Both methods require a $20M dollar investment today. There are no cashflows after next year. The risk-free rate is 10%. The market price of risk is 8.4%.

(a) What is the NPV of the two projects? Which project should an all equity firm choose? Hint. You will have to determine the discount rate for both technologies [5 Marks]

Lack of sleep has been associated with psychological distress in adolescents. In a phone survey from 2013 by the National Sleep Foundation there were about 250 respondents per country aged 25-55 years old. It was found that on average young adults sleep 7.2 hours with standard deviation of 0.8 hour.

1. What is the probability that young adults sleep less than 8.08 hours?

3. What is the probability that young adults sleep more than 8.48 hours?

4. At least how many hours do young adults sleep who are among the 15 % with the longest hours of sleep?

5. About 11 % of young adults sleep fewer hours than ______