Fraud Examination Assessment - Assignment Example

Fraud Examination Short Case Studies CHAPTER 6 Short Case Two Question 1: Having been hired by a large manufacturing business to become a Fraud Detention Specialist and on the first day I am asked by my boss to explain the meaning of Benford Law, then I will have to explain that Bedford’s law refers to a rule comprising of data sets . Indeed, the first digits of the natural will start with a one at most times as opposed to a two and a 2 as opposed to a 3 consecutively. Benford’s law is vital because it is capable of effectively and accurately predicting the different types of the financial data sets which the digits from each particular group of numbers in a specific set of numbers that occur naturally will be able to conform or match to specific patterns of distribution (Albrecht, 2002). Question 2 There are various circumstances or situations in which the Benford’s Law can be appropriately be applied or used. For instance, Benford’s law can prove useful in numbers having similar or same items but they have got no predetermined arrangement. On the other hand, there are some situations in which the Benford’s law can prove to be inappropriate or irrelevant like for instance, the law cannot actually be applied in numbers in which the lists have got numbers that have predetermined or built-in minimum pattern. Short Case 5 Question one There are various solutions which are available for Bucket Corp like for instance through carrying out an analysis for the purchasing trends of numerous buyers. There is need for further investigation especially if there is something suspicious regarding the quality of the products manufactured by Harris Lumber. Question 2 The company based on Benford’s Law should actually commence with number one which comprises of approximately 30 percent then by number two comprising of about 17 per cent e.t.c. Harris numbers do not apparently follow such a trend while the other 3 firms actually observe the trend. This is an indicator that Harris invoices may not be after all be genuine. Bucket should therefore investigate this scenario. Case 5 Question One Based on the information given through the numerous invoices in the case study, it can be correctly be ascertained that there are various mechanisms that the CFO could do in order to investigate any potential problems faced by the Bucket Corp’s Procurement Department. For instance, the company can opt to carry out an internal auditing in the company in order to ascertain any fraud instances in the company. Question 2 Based on the records provided from the case study, it can be genuinely asserted that some possible fraud was involved in the case because actually, the cash in some of the invoices do not tally with the total prices. This is clearly evidence that indeed, some form of fraud could have occurred. Based on the Bucket Corp. Case, there are various measures which he companies CFO can carry out in order to investigate any potential problems that the procurement department of the company faces. For instance, the company can perform an analysis of its purchasing trends with its numerous buyers. Case 7 Question 1 Being the Company’s Chief Executive Officer (CEO), there are various strategies which I would adopt in order to investigate if indeed there are potential problems in the company’s procurement department. For instance, the CEO may opt not to make any false accusations since there could be some other non-fraud reasons which may be beyond human understanding. Question 2 Being the company CEO, I will make an order for the acquisition of some appropriate software which will help me in auditing the inventory of the company in order to ascertain other potential factors like for instance the amount of purchases that have been made by each individual buyer, the buyers’ purchases in terms of dollars and the general turnover of the company’s inventory. As a CEO, I might also want to make considerations regarding whether there is any possibility of an inventory overstatement. In addition to that, I will also seek to have access and properly examine the companies recounting inventory and purchasing records to help me ascertain as to whether there was perpetuation of any form of fraud (Chad, et al, 2004). Case Study one In order to ensure that the business objectives of the company are well met, then it is quite definite that the company must not only have an effective plan but it must also have the relevant personnel to ensure that the tasks are well implemented. The company should therefore come up with a very strong innovative team which will include among others, the technology experts, the business experts, fraud investigators, qualified auditors and other relevant or suitable people who might prove to be useful especially when carrying out such processes. The implementation of this process will be highly dependent on the technological tools that will be used. Some of the programs which can be used during this process include among other ActiveData, Microsoft Access, Microsoft Excel, IDEA, ACL or Picalo. However, I strongly agree recommend the use of either IDEA or ACL since apart from being easily compatible and company-supported, they are also the known standard technologies that are known to be used widely all over the world. Organizations should also strive to ensure that relevant training is provided to their staff to ensure that quality services are provided. The major techniques that will be vital or important to such a kind of analysis are the summarization or stratification. This is because the stratification of the purchases against the inventory levels by the employees will make it possible for the investigators to clearly ascertain if the levels of the products are reducing at a high rate during a particular shift of a specific worker or employee. Based on the facts presented in the Case of Bucket Corp, it can be ascertained that despite the fact that fraud could actually be happening in the organization, it is not prudent for one to make earlier judgements and conclusions. This is due to the fact that there may be other factors which as to why the inventory has risen to that extent as opposed to the sales. Such factors may include among others an increase in the prices, poor buying policies, stockpiling of the inventory and obsolete prices (Steve, 1993). Chapter 7 The Short Cases Case Two Question one Being a fraud examiner who has just been hired or employed by the Bellevue Company with an aim of carrying out a particular investigation, I will ensure that I effectively use the invigilation or investigative procedure with an aim of coming out with the truth. As a result, it will be prudent to apply some form of invigilation in order to ascertain the reason as to why the Bellevue Company has been unable to record an increase in its revenue despite the fact that the company has actually experienced an increase in its shipments. In order to properly use invigilation as a means of investigation, I will start with the identification or selection of the possible or potential suspects who have an opportunity of embezzling the company property. I would start with the keeping of the relevant records involved in the shipping of the company products then come up with the appropriate controls which are aimed at abolishing any possibility of the occurrence of fraud for a total period of around 2 to three weeks. After terminating my period of invigilation, I would them emerge with a comparison regarding the records which had been kept before invigilation, during the process of invigilation and after the invigilation period. In case there emerges evidence that indeed there have been differences which are quite questionable, I should then definitely consider other forms of investigation like for instance through the use of the “Net worth” process. Case Three Question 1 In a case in which a man was discovered in San Rafael County committing the crime of compensation fraud for the workers, I wholly concur that indeed, surveillance method is the best method that can be used in this particular case. This is because this scenario actually involves the employees’ compensation fraud and therefore it must actually be known by all and sundry that indeed, the worker was not disabled at all and that he lied to the State regarding his physical condition so that so as he can make quick money. In order to best get such type of evidence, then it is highly recommended that covert means like for instance surveillance should be applied in such situations. Question 2 Despite the fact that surveillance is the proper method to be used in this scenario, it should be ascertained that there ought to be restrictions regarding its use. This is because while using surveillance, I must ensure that I do not invade an individual’s reasonable expectations regarding privacy as stipulated under the “Fourth Amendment” towards the constitution. One should also effectively consult the human resources department and the legal counsel for advice before the surveillance method is used in such cases. Case 13 Question One Despite the fact that McKnight is suspected of selling the company property on the EBay, there are various strategic, legal, personal and other concerns which should be put into consideration when investigating him. For instance, it should be noted that one should always put in consideration the company or organizational policies which are related to the right to information stored on the company’s computer. However, it should be noted that almost all business enterprises have polices which stipulate the fact that whether the information held in the company computer are work related or personal, it still remains company property. Question 2: The software to be used It will also be important to make considerations as to whether to seize the computer and clone it or just investigate the computer to ascertain any traces of evidence that could be linked to the suspect. However, seizing of McKnight’s computer will take a lot of time before sufficient efficient can be gathered. Using of other operating system DVDs or CDs may also not provide the much needed evidence. Apart from that, it will also be prudent to use data recovery CDs so as to access any pieces of evidence that might have been deleted to conceal the crime (Beasley, 1996). Question Three Based on the above information, it will be quite difficult for the eBay company to disclose any confidential information to third parties. Apart from that, it can also be quite apparent that when signing up for the account, it may be that McKnight could have given the EBay company vague or bogus personal information which might eventually prove to be tedious. EBay can therefore be only compelled to become involved towards the end of the investigation unlike during the start. Case Study 2 Question 1 Based on the surveillance logs that are depicted in case study 2 during 2 fixed point surveillance of workers who were suspected of having stolen cash from an organization while they were making their nightly bank deposits, it should be known by all and sundry that indeed, the surveillance logs are not capable of depicting the exact date in which events were recorded and it also fails in depicting the exact time or period when such surveillance were started or even stopped. It can also be correctly be asserted that the surveillance records are not conclusive and therefore they cannot be legally be used as proper evidence in a court of law. Question 2: Why it is important to have detailed notes during covert operations and Surveillance It is always vital or crucial to have detailed notes during surveillance and in covert operations because such notes will or may become admissible in a court of law when they are used as sources of evidence against the purported perpetrators of the crimes committed in the organization. Lack of detailed notes may also reduce the strength of the evidence. By having shoddy notes, no tangible evidence can be deduced from them and as a result, the perpetrators may be set free. Chapter Eight Short Case 2 Question 1 If I checked and ascertained that Check Number 365 was not properly signed and indeed it was paid to a vendor who was fictious, I will definitely assume that or conclude that there was fraud in the entire population. This is because I have found a tangible evidence of fraud which ultimately make me reach to a conclusion that there is existence of fraud. The existence of one case of fraud in the samples is a clear pointer that indeed, there may be other cases of fraud in the entire population. As a result, sampling should be stopped and the whole population should be critically analyzed to ascertain if there may be other cases of fraud. Question 2 On the other hand, if there are no cases of fraud in the sample, then one cannot ascertain the prevalence of fraud thus the need to conduct a thorough investigation of the entire population for consistency. A larger sample should also be taken for investigation to remove any doubts. In addition to that in order to correctly assert that fraud does not prevail in the current sample, I can’t be able to do this without examining all the checks and an even bigger sample to become cocksure that indeed, there is no existence of fraud in the organization. This will be aimed at increasing evidence and also in reducing or minimizing the probability regarding the existence of fraud in the organization. Short Case 3 Auditors and case examiners should actually never underestimate the potential value of the documents in any investigation because they can indeed become more valuable as opposed to the eyewitnesses. Auditors, in case of strong evidence should therefore collect evidence, identify and preserve all necessary documents in good condition, make copies from the original documents which can be used in the investigations as the originals are presented in court. The authorization by one of Enron’s auditor to the employees ordering or instructing them to destroy any documents linked with the work it was doing for Enrol was aimed at destroying evidence so that nothing may be used in a court of law to accuse them of the crimes that have been committed. As a result, it could have been prudent if the personnel of the audit firm could have safely kept their documents in case they suspected the existence of fraud. Case Study 1 Indeed, it has been well ascertained that most of the fraud examiners in the world prefer using evidence obtained from the documents as opposed to witnesses since unlike human witnesses, documents do not actually forget, they cannot be confused by the Attorneys, they can’t be cross-examined, they can’t tell inconsistent stories and they do not commit perjury. However, in some of the circumstances, documents may strongly be used in addition to the witnesses in order to make the evidence to become water-tight. Once the relevant document has been accessed by Doe, it is upon him to not only document it but also maintain its custody. This implies that John Doe must therefore keep a good record of the date he received the document and what has happened to it since he accessed it. In addition to that, the opposing attorneys will ultimately pose questions aimed at discrediting the authenticity, viability and credibility of the document and its related history. The document, upon receipt by Doe should be marked uniquely for easy identification and then be inserted in a transparent envelope indicating the date that it was received. In addition to that, a photocopy of this document should also be made for purposes of investigation while the original document is preserved for trial. It is always preferable to protect documents since photocopies are normally admissible in a court of law. Original document should be preserved at all times because photocopies can only be admissible in a court of law under certain circumstances like for instance when the original documents have either been destroyed or been lost without the fault or intent of the party that seeks to introduce the photocopy as a secondary evidence., when such original documents is in the custody of adverse parties who have failed to have it produced even after being a notice to do so or when they are outside the court’s jurisdiction, when such a document is in the possession of any public office or when such original documents are too much voluminous to an extent that they cannot allow for careful examination and a summary of its contents can be acceptable. Apart from that information, it should also be ascertained that there is dire need for John to have a consistent organizational scheme of this vital document either through the date, transaction or through a witness. This is because through such an organized scheme, it will be relevant to accommodate the voluminous amount of documents which can be accumulated using the process of investigation. Chapter Nine- Case 2 Question 1 When auditing a bank and an individual gives me a tip about a possible embezzlement of funds from the bank, there are various ways through which I can detect such an allegation. There are various reasons as to why workers depict changes in their behaviour and in why they also undergo an increase in their unknown incomes. Such reasons include the passing away of a family member who ultimately gives out money to another worker. It is always difficult to ascertain the reasons for the increase in the unknown income and also for the change in emotions. Question 2 Based on the above information, it cannot be correctly ascertained that indeed, the suspect could have committed fraud since there are no tangible evidence to point towards this. In essence, it is quite difficult to make conclusions from such facts and prove that fraud has been committed by the fraud since conversion evidence is normally very circumstiantial. Given the fact that there is always need to prove in order to convict someone accused of fraud, circumstantial evidence can aid in getting confessions but it is not however sufficient. Fraud can only be proved through an effective confession and therefore, it is quite apparent that that numerous fraudulent actions, fraudulent documents cannot be proved if there is lack of confessions. Case 6 Question 1 One should always be on the lookout for any changes in the baking patterns or relationships and also in the spending behaviour. Janet’s attitude should also be observed at close range and compute he net worth in order to ascertain if there is extra income emerging from sources which are unknown. Any income that arise from sources which are unknown is a clear pointer that indeed, fraud may have occurred in the organization. Question 2: Resources to be used in conducting the research Banking activities and credit histories can better be found in public databases and from the internet. The ban which Janet uses could also be a good source of such information and the net worth procedure will be better suited in ascertaining if indeed, Janet is living beyond her standards or means. The use of the net worth method will greatly help in ascertaining whether Janet has been living beyond her own means (Asare, et al, 2004). Case Study 2 A net worth analysis of Slicks Assets End Year 1 End Year 2 End Year 3 Residence 50000 50000 200000 Stocks and Bonds 10000 10000 10000 Automobiles 15000 15000 40000 Cash 5000 8000 20000 Total 80000 83000 270000 Liabilities Mortgage balance 40000 30000 0 Auto Loan 8000 5000 0 Student’s loan 10000 8000 0 Total liabilities 58000 43000 0 Net Worth 22000 40000 270000 Change in Net worth 18000 230000 Plus Total expenses 26000 230000 Total 44000 253000 Less known income 36000 41000 Total from Unknown sources 8000 212000 References Albrecht, Conan C., “Proactively Detecting Fraud, “Financial Post (July 2001): 13–15., “Root Out Financial Deception,” Journal of Accountancy (April 2002): 30–36., and J.G. Dunn, “Can Auditors Detect Fraud?” Journal of Forensic Accounting (January–June 2001):1–12., and , “Conducting a Pro-Active Fraud Audit: A Case Study,” Journal of Forensic Accounting (December 2001): 203–219. , Chad Albrecht, and T. Williams, “Conducting Ethical Investigations,” Security Management,(November 2004). Albrecht, W. Steve, and J. J. Willingham, “An Evaluation of SAS No. 53: The Auditor’s Responsibility to Detect and Report Errors and Irregularities,” The Expectation Gap Standards: Progress, Implementation Issues, Research Opportunities (New York: AICPA, 1993). Beasley, M. S., “An Empirical Analysis of the Relation between the Board of Director Composition and Financial Statement Fraud,” The Accounting Review (October 1996): 443–465. Asare, S. K., and A. M. Wright. “The Effectiveness of Alternative Risk Assessment and Program Planning Tools in a Fraud Setting,” Contemporary Accounting Research (Summer 2004): 325–352. Read More