Concept explainers
To identify the type of fraud in the following cases:
Marcus pays $30 for a baseball of $70 by changing the price-tag.
Craig loses $500 by investing in a multilevel marketing scheme.
A bank employee diverts the amount from a wealthy customer’s account to his personal account. The bank was held responsible for the act of the employee.
A CEO showed profits for the year 2018, when there was a loss of $150 million. The CEO was held responsible and convicted with jail and fine.
The government lost $50 million as it was overcharged by contractor and sub-contractors in the Middle East for fictitious hours and assets.
A student accessed the school computer and changed her school grade to be accepted into graduate school.
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Chapter 1 Solutions
Fraud Examination
- A long-time employee had become such a trusted employee that their bosses had put them in charge of paying bills, balancing bank accounts, and handling other cash management responsibilities. The employee became ill and took sick leave. During their absence, their employer determined they had been stealing company cash for years by forging checks and tamporing with company documents. The stolen cash was used to stoke a gambling habit. In total, the employee stole nearly $320,000. Answer questions in short answers What were the employee's perceived opportunities? What pressure did the trusted employee have to commit fraud? How did the fact that they were a trusted employee give them more opportinity to commit fraud? How do vices motivate people to commit fraud?arrow_forwardColleen Fernandez, president of Rhino Enterprises, applied for a $175,000 loan from First Federal Bank. The bank requested financial statements from Rhino Enterprises as a basis for granting the loan. Coleen has told her accountant to provide the bank with just the balance sheet. Colleen has decided to omit the other financial statements because there was a net loss during the past year. The accountant, Jim Long, only sent over the balance sheet to First Federal Bank Did Jim act ethically or unethically? Why?arrow_forwardYour small business client, Phillip’s Computer Repair Shop, is experiencing financial difficulties and has to lay off one of its four employees in the accounting area. Phillip has asked you to determine what duties should be assigned to the three remaining employees—Abigail, Bryan, and Chris—to maintain the best separation of duties.Required:Assign the following 10 duties to each of the three employees.a. Reconcile bank statement.b. Open mail and list checks.c. Prepare checks for Phillip’s signature.d. Prepare payroll checks.e. Maintain personnel records.f. Prepare deposit and take to bank.g. Maintain petty cash.h. Maintain accounts receivable records.i. Maintain general ledger.j. Reconcile accounts receivable records to general ledger account.arrow_forward
- Mid-Pacific Tennis Courts (MPTC), a small family-held corporation, hired Leroy Jacob as a salesperson. Jacob devised a scheme to defraud MPTC. Using MPTC customer leads, Jacob entered into contracts with potential customers to build tennis courts without informing MPTC. Jacob accepted checks from potential customers made payable to MPTC. Jacob then deposited those checks in his personal bank account with Peoples Bank & Trust Co. (Peoples Bank) without indorsement or permission by MPTC. Jacob took the money and disappeared. When MPTC learned of the fraud and discovered that the checks were accepted for deposit by Peoples Bank in Jacob’s personal account, MPTC sued Peoples Bank to recover the amount of the checks in question. Did Peoples Bank properly accept the checks for deposit? Pick the phrase the completes the sentence The Uniform commercial Code (UCC) has the following requirements for instrument to be negotiable: the instrument must be in writing, the instrument must…arrow_forwardMay 13th, 1998, a Friday that will be remembered by a major Chicago bank. Embezzlers nearly escaped with $69 million! Arnand Moore, who was released after serving for years of his 11 years sentence for a $180,000 fraud, decided it was time to put his fingers and is something a little bigger and better. He instigated a $68.7 million fraud plan. Naming himself as “Chairman,” he assembled Herschel Bailey, Otis Wilson, Neal Jackson, Leonard Strickland, and Ronald Carson to complete the formation of his “board.” Most importantly, the “board” was able to convince an employee of the Chicago bank to provide their “in.” the caper required one month of planning in a small hotel in Chicago and took all of 64 minutes to complete. The bank employee had worked for the Chicago bank for eight years, and he was employed in the bank's wire transfer section, which dispatches multimillion dollar sums around the world via computers and phone lines. Some of the bank's largest customers send funds from…arrow_forwardEvidence collection process in a fraud case Instructions 1. Analize the following information: Indirect methods of income from unknown sources Assume that the following information is derived from reliable sources: Net Worth Lifestyle Approach Income from Known Sources Description Amount Asset Liability Sources Application Boat 25,000 Boat Loan 20,000 Boat Loan Payments 5,000 Car 40,000 Car Loan 40,000 Car Loan Payments 2,000 Deposit to bank account 400,000 Dividends reported on Tax Retun 5,000 Down Payment Boat 12,000 Down payment Car 7,000 Down Payment Time share 6,000 Down Payment Vacation home 15,000 House 275,000 Home equity loan 35,000 Home Equity Loan Payments 4,000 Income on Tax Return 1,000 Mortgage 200,000 Mortgage payments 3,000 Mutual…arrow_forward
- Evidence collection process in a fraud case Instructions 1. Analize the following information: Indirect methods of income from unknown sources Assume that the following information is derived from reliable sources: Net Worth Lifestyle Approach Income from Known Sources Description Amount Asset Liability Sources Application Boat 25,000 Boat Loan 20,000 Boat Loan Payments 5,000 Car 40,000 Car Loan 40,000 Car Loan Payments 2,000 Deposit to bank account 400,000 Dividends reported on Tax Retun 5,000 Down Payment Boat 12,000 Down payment Car 7,000 Down Payment Time share 6,000 Down Payment Vacation home 15,000 House 275,000 Home equity loan 35,000 Home Equity Loan Payments 4,000 Income on Tax Return 1,000 Mortgage 200,000 Mortgage payments 3,000 Mutual…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_forwardJames Cooper sells memberships to the Atlanta Symphony Association. TheAssociation’s procedure requires that Cooper prepare and give each customer a receipt for eachmembership sold. The receipt forms are prenumbered. Cooper is having personal financialproblems, and he kept the $500 cash received from a customer for a new membership. To hidehis theft, Cooper destroyed the Association’s copy of the receipt that he gave to the customer.What will alert manager Terry Reynolds that something is wrong?arrow_forward
- The Zett Company experiences the following unrelated events and transactions during Year 1. The company’s existing current ratio is 2:1 and its quick ratio is 1.2:1. 1. Zett wrote off $5,000 of accounts receivable as uncollectible. (Assumes a sufficient amount is provided for in the Allowance for Bad Debts.)2. A bank notifies Zett that a customer’s check for $411 is returned marked insufficient funds. The customer is bankrupt. 3. The owners of Zett Company make an additional cash investment of $7,500.4. Inventory costing $600 is judged obsolete when a physical inventory is taken.5. Zett declares a $5,000 cash dividend to be paid during the first week of the next reporting period.6. Zett purchases long-term investments for $10,000.7. Accounts payable of $9,000 are paid.8. Zett borrows $1,200 from a bank and gives a 90-day, 6% promissory note in exchange.9. Zett sells a vacant lot for $20,000 that had been used in its operations.10. A three-year insurance policy is purchased for $1,500.…arrow_forwardX sent his Y P1,000 via a telegraphic transfer through the Bank of D. The bank's remittance clerk made a mistake and credited Y with P1,000,000 which she promptly withdrew. The bank demanded the return of the mistakenly credited excess, but Y refused. The BIR entered the picture and investigated Y. How much income, if any, does Y earn from the above facts?arrow_forwardD.J. Fletcher, a trusted employee of Bluestem Products, found himself in personal financial difficulties and decide to “borrow” $3,000 from the company and to conceal his theft. As a first step, Fletcher removed $3,000 in currency from the cash register. This amount represents the bulk of the cash received over the counter during the three business days since the last bank deposit. Fletcher then removed a $3,000 check from the day’s incoming mail; this check had been mailed in by a customer, Michael Adams in full payment in his account. Fletcher made no journal entry to the record the $3,000 collection from Adams but deposited the check in Bluestem Product’s bank account in place of the $3,000 over-the-counter cash receipts he had stolen. In order to keep Adams from protecting when his month-end statement reached him. Fletcher made a journal entry debiting Sales Returns and Allowances and crediting account receivables Michael Adams. Fletcher posted this entry to the two general ledger…arrow_forward
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