Fraud Examination
6th Edition
ISBN: 9781337619677
Author: Albrecht, W. Steve, Chad O., Conan C., Zimbelman, Mark F.
Publisher: Cengage,
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Chapter 7, Problem 2SC
To determine
The investigation procedure to be conducted to scrutinize the abnormal loss of inventory.
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1. What does it mean to say that internal control has limitations and what are these limitations?
2. Provide an appropriate response based on the following scenarios.
Assume that the accounting clerk posts a customer’s payment for the wrong amount, giving the customer credit for less than he or she actually paid. How will this error be detected? How might this error have been prevented?
Assume that the employee who opens the mail steals a customer payment. How will this theft be detected? How might this theft have been prevented?
3. What is petty cash and what purpose(s) does it serve?
4. What types of controls should be in place to make sure people in the office don't just take from petty cash (for their own personal use) whenever they feel like it? In your opinion, what is an appropriate amount to have in petty cash?
5. Prepare the necessary journal entries for each of the following:
(a) On March 1, issued a check to establish a petty cash fund of $1,410
(b)…
Collecting Evidence in a Fraud Examination. A fraud examiner was called into a businessbecause of a suspicion of fraud. An assistant manager in a bookstore is taking books off theshelf, bringing them to the return book area, completing a customer return form, and pocketing the money. This is done late in the day when few other employees are in the store and areinvolved in closing activities that occupy them in other areas.Required:a. What are the objectives of the fraud examiner in performing a fraud examination?b. What evidence could the fraud examiner obtain that would help reach the objectives ofthe audit?c. How should the fraud examiner handle the evidence obtained?
Some of the largest business frauds ever perpetrated have involved the misstatement of inventory. Two classics were at Leslie Fay and McKesson Corporation. Feel free to check them out to get a feel for the impact that it has. There is considerable information regarding inventory frauds available on the Internet. Search for information about another instance of inventory fraud at any other company, and prepare an explanation of the nature of the inventory fraud.
Chapter 7 Solutions
Fraud Examination
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Similar questions
- As the lead accountant for a small company, you notice that inventory purchases from a certain vendor have increased dramatically over the past few months, whereas purchases from all other vendors have decreased. You suspect that something may not be right and that there may be a fraudulent relationship between someone in your company and the vendor that is getting increased business. question: Which theft act investigative method would you use to investigate your suspicions? state evidences that you to support suspicions.arrow_forwardA fraudulent sales order was prepared by an order entry clerk in an attempt to steal merchandise from an organization. This fraud would most likely be detected by: Question 6 options: Using pre-numbered sales orders. Verifying that the sales order has been prepared correctly. Requiring that all sales orders by supported by an approved customer purchase order. Proper segregation of duties.arrow_forwardThe fraud triangle asserts that the following three factors must exist for a person to commit fraud.A. Opportunity B. Pressure C. RationalizationIdentify the fraud risk factor (A, B, or C) in each of the following situations. A worker sees other employees regularly take inventory for personal use.arrow_forward
- Your boss knows that you are taking a fraud examina- tion course at a local university. He is interested in learning more about data-driven fraud detection and asks you to prepare a short memo briefly explaining data-driven fraud detection methods and techniques. 1. List three data analysis methods and techniques and briefly explain them.arrow_forwardThe fraud triangle asserts that the following three factors must exist for a person to commit fraud.A. Opportunity B. Pressure C. RationalizationIdentify the fraud risk factor (A, B, or C) in each of the following situations. The business has no cameras or security devices at its warehouse.arrow_forward1. Match the description on the left with the type of theft on the right using Excel spreadsheet. See notes below. 1. Most common type of noncash theft 2. Goods shipped to an accomplice 3. Altering physical inventory counts to cover theft 4. Goods are stolen, then a receiving document is created showing fewer goods received a. Fraudulent write-off b. Unconcealed larceny c. Falsified shipping or receiving report d. Fraudulent shipmentarrow_forward
- Allison 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_forwardResearch a company that had a fraud event happen due to inadequate accounting procedures. Review the fraud event that happened in the company in detail and identify at least two accounting control procedures that were deficient in this event. Propose an internal control system that would have eliminated the fraud, using the ERP system.arrow_forwardForensic Accounting: Assurance Engagement 2: Net Worth Analysis. You can use the computer-based Electronic Workpapers on the textbook website to prepare the net worth analysis required in this problem.Net worth analysis is performed when fraud has been discovered or is strongly suspected and the information to calculate a suspect’s net worth can be obtained (e.g., asset and liability records, bank accounts). The procedure used is to calculate the person’s change in net worth (excluding changes in market values of assets) and to identify the known sourcesof funds to finance the changes. Any difference between the change in net worth and the known sources of funds is called funds from unknown sources, which might include illgotten gains.Nero has worked for Bonne Consulting Group (BCG) as the executive secretary for administration for nearly 10 years. Her dedication has earned her a reputation as an outstanding employee and has resulted in increasing responsibilities. Nero is also a…arrow_forward
- Case 1: Fraud examination Karen, a friend of yours, recently started her own business, The Bike and Boulder Company (B&B). B&B specializes in the sales of mountain bikes and rock- climbing equipment. Karen is putting the finishing touches on her company policies and procedures. She knows you are taking a fraud class and asks you to review what she has completed thus far. You quickly notice that Karen has neglected to address fraud and fraud prevention in her policies and procedure. What policies and procedures would you suggest Karen implement to prevent and detect fraud at B&B?arrow_forwardFor each of the following three independent cases of employee fraud, recommend how to prevent similar problems in the future: Case A: Due to abnormal inventory shrinkage in the audiovisual department at a retail chain store, internal auditors conducted an in- depth audit of the department. They learned that a customer frequently bought large numbers of small electronic components from a certain cashier. The auditors discovered that they had colluded to steal electronic components by not recording the sale of items the customer took from the store. Case B: During an unannounced audit, auditors discovered a payroll fraud when they distributed paychecks instead of department supervisors. When the auditors investigated an unclaimed paycheck, they discovered that the employee quit four months previously after arguing with the supervisor. The supervisor continued to turn in a time card for the employee and pocketed his check. Case C: Auditors discovered an accounts payable clerk who made…arrow_forwardAn auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all: Multiple Choice Cash disbursements. Approved vouchers. Receiving reports. Vendors' invoices.arrow_forward
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