A local hank reported that it lost $150,000 as the result of employee fraud. Ray Fairburn is not clear on what is meant by “employee fraud.” Explain the meaning of fraud to Ray and give an example of fraud that might occur at a bank.
Fraud: Fraud is a deliberate and deceptive action of an employee to obtain unlawful gain from the employer.
To define: Fraud with an example
Explanation of Solution
Definition: Fraud can be defined as a deliberate and deceptive action of an employee to obtain unlawful gain from the employer.
Example: A bank employee could transfer the money from any customer deposit account to his personal accounts through computer. This kind of internal embezzlement committed by bank employee, against his employer is referred to as employee fraud.
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Chapter 7 Solutions
FINANCIAL ACCOUNTING:TOOLS FOR BUSINESS
- Assume that brooke miles accounts payable clerk for west coast design inc.stole $48,350 by paying fictitious companies and cashed the checks at a local banks. Describe a control procedure that would have prevented or detected the fraud?arrow_forwardA bank manager’s responsibility was to making loans. Auditors discovered that several loans he made over a five year period had not been repaid. A fraud investigation revealed that the manager had been receiving kickbacks from risky clients in exchange for extending loans to them. His actions cost the bank millions of dollars in uncollectible loans that should never have been made. You have been asked to offer ideas on the following: Which type of records would you search to find information about the manager’s assets? Which records would be the most helpful in this case? Why?arrow_forwardAllison Everhart, an employee in accounts payable, believes she can run a fictitious invoice through the accounts payable system and collect the money. She knows payments are subject to an audit. Which account would be the best place to hide the fraud?a. Inventory.b. Wage expense.c. Consulting service expense.d. Property tax expense.arrow_forward
- Suppose that someone stole your ATM card and withdrew $1,000 from your checking account. How much money could you lose (according to federal legislation) if you reported the stolen card to the bank:arrow_forwardConsider each of the following situations. Is there a potential problem? Which part of the fraud triangle is involved, if any? A. Susan is an accounts payable clerk. She sets up creditors in a financial database and pays invoices as they come in. Last year, she won employee of the year and is a valued employee. Through the grapevine, Susan's boss just learned that Susan's brother has a gambling problem. B. Now suppose that Susan from situation A is now secretary for the head of the marketing department. She keeps track of the vice president of marketing's schedule and handles the correspondence. C. Keith has been employed for 6 months as a teller at a community bank. All is going well, and his cash drawer has had shortages only twice (of less than P500). The shortages were traced and the problems corrected. D. At the company Memorial Day picnic and golf outing last week, Nancy noticed that June moved her ball to a better lie when she thought no one was looking. There…arrow_forwardFraud refers to any intentional act to achieve gain, usually monetary. Committing a fraud isunethical and resulting in bad consequences, not just to the perpetrator, but also others (e.g.shareholders, workers etc.). Several example of fraud scenario are listed as follows:i). Store manager misused company’s car for personal purpose because he is the onlyperson that monitor the movement and usage of the car.ii). The accountant and the store keeper of AAA Enterprise co-operate in stealing thecompany’s inventory and they gain a lot of money from it.iii). The Chief Financial officer (CFO) of ABC Sdn Bhd had reported over $700,000 fakeearnings because he wants to achieve sales target.iv). XYZ Sdn Bhd booked revenues earlier than it should have because it was at risk ofmissing analyst estimates.Required;a. Identify the type of fraud committed in the scenario i). to iv). b. Based on the fraud triangle (i.e. pressure, opportunity and rationalization), identify thecause of fraud happen in the…arrow_forward
- Jane Ellerby and Sam Callison are discussing the recent fraud that occurred at LowRental Leasing, Inc. The fraud involved the improper reporting of revenue to ensure that the company would have income in excess of $1 million. What is fraudulent financial reporting, and how does it differ from an embezzlement of company funds?arrow_forwardWhich of the following scenarios reduces the risk of an employee fraud? Group of answer choices An accountant being responsible for approving payments to a vendor The bank reconciliation being prepared by an accountant Remittance advices being sent directly to the cashier A sales clerk having access to the cash registerarrow_forwardif a manager is incharge of the Credit Right Software Corp department which involves sells leading account sooftare product and two of his employess commited fraud. How should the manager prepare himself to understand what causes individuals to commit fraud and how it happens?arrow_forward
- Rohini works as an accountant with PQR Ltd. She embezzled $20,000 from the company bank account. She was caught in the annual audit of the company. She justified her action saying that her employer has not given any pay rise, so she had to take $20,000 from the account. Explain in your own words the internal control that may have failed in the above situation. Also explain which element of the fraud triangle Rohini is referring to justify her action.arrow_forwardOn February 15, 2022, Kate Collins, owner of Kate’s Cards, asks you to investigate the cash han- dling activities in her business. She believes that a new employee might be stealing funds. “I have no proof,” she says, “but I’m fairly certain that the January 31, 2022, undeposited receipts amounted to more than $12,000, although the January 31 bank reconciliation prepared by the cashier (who works in the treasurer’s department) shows only $7,238.40. Also, the January bank reconciliation doesn’t show several checks that have been outstanding for a long time. The cashier told me that these checks needn’t appear on the reconciliation because he had notified the bank to stop payment on them and he had made the necessary adjustment on the books. Does that sound reasonable to you?” At your request, Kate shows you the following (unaudited) January 31, 2022, bank reconciliation prepared by the cashier: KATE’S CARDS Bank Reconciliation January 31, 2022 Ending balance from bank statement . . . $…arrow_forwardUpon hearing that you are enrolled in a fraud class, a manager of a local business asks, “I don’t understand what is happening with all these major scandals such as the Bernie Madoff scandal, the Goldman Sachs accusations, and the Enron fraud. There are billions of dollars being stolen and manipulated. How can any good auditornot notice when billions of dollars are missing?” How would you respond?arrow_forward
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