Fraud Examination
5th Edition
ISBN: 9781305079144
Author: W. Steve Albrecht, Chad O. Albrecht, Conan C. Albrecht, Mark F. Zimbelman
Publisher: Cengage Learning
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Chapter 4, Problem 12SC
To determine
What got wrong in the whistle-blowing policy. How to change it to have a response.
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Read the following information and then answer questions a & b below:
Assume you are an internal auditor for a large, multinational, manufacturing organization with a division in Mexico. One of your responsibilities is to investigate allegations made on the company’s fraud hotline. When you arrive at work one morning you learn an anonymous tip was left on the hotline that alleges fraud involving the division manager. “Pat’s significant other is a fraudulent vendor,” was the anonymous tip left on your company’s fraud hotline. Pat is a division manager at your company.
“Wow. I can’t believe this guy is so blatant,” you are thinking as you review some accounts payable invoices while following up on this anonymous tip. A quick search of the AP file reveals a total of three invoices like the one, all for identical amounts but on different dates. The division manager, Pat, has the authority to approve payment of invoices for less than $10,000.
It is obvious to you that the manager has…
Charles Hart, an accounts payable clerk, is an hourly employee. He never works a minute past 5 P.M. unless the overtime has been approved. Charles has recently found himself faced with some severe financial difficulties. He has been accessing the system from his home during the evening and setting up an embezzlement scheme. As his boss, what control technique(s) discussed in lectures network risks and auditing could you use to help detect this type of fraud?
Subsequently Discovered Facts. On June 1, Sidney Faultless of A. J. Faultless & Co., CPAs, noticed some disturbing information about the firm’s client, Hopkirk Company. A story in the local paper mentioned the indictment of Tony Baker, whom Faultless knew as the assistant controller at Hopkirk. The charge was mail fraud. Faultless made discreet inquiries with the controller at Hopkirk’s headquarters and learned that Baker had been speculating in foreign currency futures. In fact, part of Baker’s work at Hopkirk involved managing the company’s foreign currency. Unfortunately, Baker had violated company policy, lost a small amount of money, and then decided to speculate some more, lost some more, and eventually lost $7 million of company funds. The mail fraud was involved in Baker’s attempt to cover his activity until he recovered the original losses. Most of the events were in process on March 1, when Faultless had signed and dated the unmodified opinion on Hopkirk’s financial…
Chapter 4 Solutions
Fraud Examination
Ch. 4 - Prob. 1DQCh. 4 - Prob. 2DQCh. 4 - Prob. 3DQCh. 4 - Prob. 4DQCh. 4 - Prob. 5DQCh. 4 - Why is it important to inform outside vendors of...Ch. 4 - Prob. 7DQCh. 4 - Prob. 8DQCh. 4 - Prob. 9DQCh. 4 - Prob. 10DQ
Ch. 4 - Prob. 11DQCh. 4 - Prob. 12DQCh. 4 - Prob. 1TFCh. 4 - Prob. 2TFCh. 4 - Prob. 3TFCh. 4 - Prob. 4TFCh. 4 - Prob. 5TFCh. 4 - Prob. 6TFCh. 4 - Prob. 7TFCh. 4 - Prob. 8TFCh. 4 - Prob. 9TFCh. 4 - Prob. 10TFCh. 4 - Prob. 11TFCh. 4 - Prob. 12TFCh. 4 - Creating an expectation of punishment causes firm...Ch. 4 - 1. People will often be dishonest if they are...Ch. 4 - Prob. 2MCQCh. 4 - Prob. 3MCQCh. 4 - Prob. 4MCQCh. 4 - Prob. 5MCQCh. 4 - Prob. 6MCQCh. 4 - Prob. 7MCQCh. 4 - Prob. 8MCQCh. 4 - Prob. 9MCQCh. 4 - Prob. 10MCQCh. 4 - Prob. 11MCQCh. 4 - Prob. 12MCQCh. 4 - Prob. 13MCQCh. 4 - Prob. 1SCCh. 4 - Prob. 2SCCh. 4 - Prob. 3SCCh. 4 - Prob. 4SCCh. 4 - Case 5 While performing an audit of TCC...Ch. 4 - Prob. 6SCCh. 4 - Prob. 7SCCh. 4 - Prob. 8SCCh. 4 - Prob. 9SCCh. 4 - Prob. 10SCCh. 4 - Prob. 11SCCh. 4 - Prob. 12SCCh. 4 - Prob. 13SCCh. 4 - Prob. 14SC
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- Charles Hart, an accounts payable clerk, is an hourly employee. He never works a minute past 5 PM unless the overtime has been approved. Charles has recently found himself faced with some severe financial difficulties. He has been accessing the system from his home during the evening and setting up an embezzlement scheme. As his boss, what control technique(s) discussed in this chapter could you use to help detect this type of fraud?arrow_forwardThe best way to enact a broad fraud prevention program is toa. Install airtight control systems of checks and supervision.b. Name an ethics officer who is responsible for receiving and acting upon fraud tips.c. Place dedicated hotline telephones on walls around the workplace with direct communication to the company ethics officer.d. Establish a corporate culture conducive to ethical behavior in the workplacearrow_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
- Match each situation with the fraud triangle factor (opportunity, financial pressure, or rationalization) that best describes it. (a). An employee has check-writing and -signing responsibilities for a small company, and is also responsible for reconciling the bank account. (b) An employee earns minimum wage at a firm that has reported record earnings for each of the last five years. (c) An employee has an expensive gambling habit. (d) An employee's monthly credit card payments are nearly 75% of her monthly earningsarrow_forwardPls explain first how you solve it. Thank you. F COMPANY, organized on March 1, 2021, has a very poor internal control system. Thecompany's cashier is also its accountant. After 9 months of operations, the company's managersuspects that the cashier-accountant has been misappropriating company collections. You havebeen engaged to audit the company's accounts to determine the extent of fraud, if any. You started the audit on November 15. On that date, the cash on hand per your surprise countwas P5,140. Also on that date, the bank confirmed that the balance of the company's currentaccount was P26,328. Your examination of the records reveals that a check for P1,852 wasoutstanding on November 15. The company's markup is 40% of sales. Further examination of the company's records reveals the following balances at November 15,2021:arrow_forwardResearch consistently shows that there are three elements present when most frauds occur. List these elements and at least three related fraud factors that may exist for each and briefly explain each. Hannah Montana is interviewing with public accounting firms to become an auditor. Hannah does not believe that fraud is a "big deal" in client organizations and argues that most individuals in management of companies are "honest people". She believes that auditors are becoming too cynical. Describe your response to Hannah's attitude and discuss the major types of fraud that occur in companies. The auditor assesses the identified fraud risks after taking into account an evaluation of the client’s programs and controls. How might the auditor respond to the results of the assessment of higher fraud risk? Discuss the auditor’s responsibility to communicate fraud to the audit committee. When is the auditor required to communicate possible fraud to parties other than the audit committee and…arrow_forward
- When auditing with “fraud awareness,” auditors should especially notice and follow up employee activities under which of these conditions?a. The company always estimates the inventory but never takes a complete physical count.b. The petty cash box is always locked in the desk of the custodian.c. Management has published a company code of ethics and sends frequent communication newsletters about it.d. The board of directors reviews and approves all investment transactions.arrow_forwardItem A. Fraud Facts: Susan Green has worked for ABC Company (“ABC”) as the executive secretary in the administrative department for over 10 years. Her apparent integrity and dedication to her work has earned her the reputation of being an outstanding employee and has resulted in increased responsibilities. Her present responsibilities include making arrangements for outside feasibility studies, maintaining client files, working with outside marketing consultants, initiating the payment process, and notifying the accounting department of all openings or closings of vendor accounts. During Susan’s first five years of employment, ABC subcontracted all of its feasibility and marketing studies through Adams and Co. This relationship was subsequently terminated because Adams and Co. merged with a larger, more expensive consulting group. After termination of Adams and Co., Susan and her supervisor selected a new firm to conduct ABC’s market research. However, Susan never informed the…arrow_forwardBelow are several statements about occupational fraud.1. For most large companies, occupational fraud is minimal and internal control procedures are unnecessary.2. Managers have a variety of reasons for manipulating the numbers in financial statements, such as maximizing their compensation, increasing the company’s stock price, and preserving their jobs.3. Internal control procedures include formal policies and procedures related to (1) safeguarding the company’s assets and (2) improving the accuracy and reliability of accounting information.4. “Cooking the books” is a phrase used by accountants to indicate the preparation of financial statements that are free of manipulation.5. Most occupational fraud cases involve misuse of the company’s resources.6. Common types of financial statement fraud include creating fictitious revenues from a fake customer, improperly valuing assets, hiding liabilities, and mismatching revenues and expenses.Required:State whether the answer to each of the…arrow_forward
- John and Kayla, two audit staff associates are discussing potential telltale signs to watch out for during an audit, which may indicate an increased fraud risk. Which of the following would represent an increased fraud risk? The firm they work for has a company policy which dictates that no clients with related parties or related party transactions will be taken on The clients that their firm takes on have robust and effective whistleblowing systems, and the anonymity of the informant is protected throughout. The clients their firm works with have historically had low turnover and strong employee retention in key positions. One of their clients has recently installed a new system of internal control which the client's staff are currently familiarizing themselves with and are not yet fully proficient in.arrow_forwardMAIL ROOM FRAUD AND INTERNAL CONTROLSarat Sethi, a professional criminal, took a job as a mail room clerk at Benson &Abernathy and Company, a large department store. The mail room was an extremelyhectic work environment consisting of a supervisor and 45 clerks. The clerks wereresponsible for handling promotional mailings, catalogs, and interoffice mail, as wellas receiving and distributing a wide range of outside correspondence to variousinternal departments. One of Sethi’s jobs was to open cash receipts envelopes fromcustomers making payments on their credit card balances. He separated theremittance advices (the bills) and the checks into two piles. He then sent remittanceadvices to the AR department, where the customer accounts were updated to reflectthe payment. He sent the checks to the cash receipts department, where they wererecorded in the cash journal and then deposited in the bank. Batch totals of cashreceived and accounts receivable updated were reconciled each night to…arrow_forwardYou are a highly experienced CA financial accountant for a law firm, responsible for all aspects of the financial reporting, from preparing budget reports, reconciling accounts, through preparing annual financial reports. The CEO has suspected that the procurement manager is appropriating funds from the firm's bank accounts. He has asked you to assist him to reviewing the financial records for the firm and identify any fraudulent transactions. The procurement manager is a close friend of yours. What sort of forensic accounting service are you providing? Should you accept the engagement to assist the CEO? What sort of evidence would you collect and review? If required to prepare a report for court proceedings, do you think your evidence will be accepted? Why?arrow_forward
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