Forensic Accounting: Assurance Engagement 1: Expenditure Analysis. Expenditureanalysis is used when fraud has been discovered or strongly suspected and the informationto calculate a suspect’s income and expenditures can be obtained (e.g., asset and liabilityrecords, bank accounts). Expenditure analysis consists of establishing the suspect’s knownexpenditures for all purposes for the relevant period, subtracting all known sources of funds(e.g., wages, gifts, inheritances, bank balances), and identifying the difference as “expenditures financed by unknown sources of income.”The law firm of Gleckel and Morris has hired you. The lawyers have been retained byBlade Manufacturing Company in a case involving a suspected kickback by a purchasingemployee, E. J. Cunningham. Cunningham is suspected of taking kickbacks from MasonVarner, a salesman for Tanco Metals. Cunningham has denied the charges, but LanierGleckel, the lawyer in charge of the case, is convinced the kickbacks have occurred.Gleckel filed a civil action and subpoenaed Cunningham’s financial records, includinglast year’s bank statements. The beginning bank balance January 1 was $3,463, and the ending bank balance December 31 was $2,050. Over the intervening 12 months, Cunningham’sper-month gross salary was $3,600 with a net of $2,950. His house payments were $1,377per month. In addition, he paid $2,361 per month on a new Mercedes 500 SEL and a totalof $9,444 last year toward a new Nissan Maxima (including $5,000 down payment). He alsopurchased new state-of-the-art audio and video equipment for $18,763 with no down payment and made total payments of $5,532 on the equipment last year. A reasonable estimateof his household expenses during the period is $900 per month ($400 for food, $200 forutilities, and $300 for other items).Required:Using expenditure analysis, calculate the amount of income, if any, from “unknown sources.”
Forensic Accounting: Assurance Engagement 1: Expenditure Analysis. Expenditure
analysis is used when fraud has been discovered or strongly suspected and the information
to calculate a suspect’s income and expenditures can be obtained (e.g., asset and liability
records, bank accounts). Expenditure analysis consists of establishing the suspect’s known
expenditures for all purposes for the relevant period, subtracting all known sources of funds
(e.g., wages, gifts, inheritances, bank balances), and identifying the difference as “expenditures financed by unknown sources of income.”
The law firm of Gleckel and Morris has hired you. The lawyers have been retained by
Blade Manufacturing Company in a case involving a suspected kickback by a purchasing
employee, E. J. Cunningham. Cunningham is suspected of taking kickbacks from Mason
Varner, a salesman for Tanco Metals. Cunningham has denied the charges, but Lanier
Gleckel, the lawyer in charge of the case, is convinced the kickbacks have occurred.
Gleckel filed a civil action and subpoenaed Cunningham’s financial records, including
last year’s bank statements. The beginning bank balance January 1 was $3,463, and the ending bank balance December 31 was $2,050. Over the intervening 12 months, Cunningham’s
per-month gross salary was $3,600 with a net of $2,950. His house payments were $1,377
per month. In addition, he paid $2,361 per month on a new Mercedes 500 SEL and a total
of $9,444 last year toward a new Nissan Maxima (including $5,000 down payment). He also
purchased new state-of-the-art audio and video equipment for $18,763 with no down payment and made total payments of $5,532 on the equipment last year. A reasonable estimate
of his household expenses during the period is $900 per month ($400 for food, $200 for
utilities, and $300 for other items).
Required:
Using expenditure analysis, calculate the amount of income, if any, from “unknown sources.”
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