Fraud Examination - Assignment Example

Fraud Examination 2: Case Studies Analysis Student’s Name Institutional Affiliation Fraud Examination 2: Case Studies Analysis Chapter 6: Case Study 1 Question 1 Step1: Understanding the business at hand is the initial step of the entire proactive detection approach. This is due to the fact that many businesses operate different even when they share a common industry. At this stage, the examiners are introduced for purposes of comprehending business processes and procedures. Also, such personnel as fraud detectors, database experts and other finance experts should be involved in this stage in order to perform such activities as visiting the business, departments, evaluating competition, interview significant key personnel and also, observe the existing employees while they conduct their routine duties. This step can take between 3-5 weeks and related costs might include; service costs and other travelling and lunch allowances that might add up to about $ 10,000-14,000. Step 2: Identifying the possible levels of frauds that might be in existence. For this step, the people involved are examiners who detect any possible symptoms exhibited that could result to fraud. Examiners will interview personnel that are associated with different business functions like manufacturing, debt collection etc. Examiners should be, at this step, able to categorize fraud types and players. The step should take a maximum of about 2 weeks and a budget of up to $ 7,000. Step 3: Cataloguing possible fraud symptoms. At this stage, the symptoms as they relate to red flags are analyzed and their potential harm uncovered. The symptoms might be posed as accounting anomalies, internal control procedures and unusual behaviors. The people involved at this stage are the fraud examiner and potential whistleblowers. The related costs might mount to $ 3,000-$ 4,000 in a 3-4 weeks period. Step 4: Application of technology to gather informational data in respect to the symptoms being manifested. The purpose of this step rests on matching previously found symptoms with a given set of informational data. The people involved at this stage are the fraud examiners and the computer programmers. The related costs might amount between $ 2,000 and $3,500 in a period of 3-5 weeks. Step 5: Analyzing the given set of results. At this stage, fraud examiners engage in the analysis of the already proven anomalies and fraud symptoms using either traditional or conventional methodologies. However, computer algorithms are encouraged over the traditional approach given their efficiency. Individuals involved at this stage are both fraud examiners and computer experts. Related costs might range between $3000 and $4,500 in a month’s period. Step 6: Investigate possible symptoms attributed to the fraud. Investigators are encouraged to continue using computer analyses models to provide reliable and relevant results. This is a distinctively enormous task and might consume about 3-4 months hence translating to a cost of about $10,000-$15,000. Question 2 The most imminent software package for this process is the ACL Audit Analytics. This is because it is used globally hence the familiarity element. It is considered stable, reliable and powerful tool for any given data analysis process (Albrecht, Albrecht, Albrecht & Zimbelman, 2011). It contains a fraud module that might come in handy with the user in conducting tasks effectively. The ACLScript is a programming language of the software that aid with easier automation of processes. Question 3 The most promising techniques that could be used in steps 4 and 5 is both the customized Structured Query Language (SQL) and computer algorithms methodologies due to the fact that they enhance data analysis in an effective and efficient manner. Chapter 6: 2, 5 and 7 Short Case 2: Benford’s law is the immediate frequency of a given distribution of digits in most but not all of the real-life sources of informational data. Benford’s law is likely appropriate in the following occasions; first, whenever a given set of digits that are as a result of mathematical combination of numbers is derived from two distribution frequencies. Second, in cases where there is transaction-level data so that there is no need for a sample data (Albrecht, Albrecht, Albrecht & Zimbelman, 2011). Third, it can also be used in cases where there is large data sets in order to enhance a substantial number of observations. It is not appropriate whenever it is ascertained that the given data set of made-up of assigned numbers. Also, it cannot be used in cases where the numbers are likely influenced by intense human thinking and subsequently, when there is no recording of any given transactions. Short Case 5; 1) The CFO should first conduct an extensive interview process with the key personnel within the procurements division in order to determine the likelihood of collusion with suppliers. He can also go ahead and conduct an extensive review of the documentation processes adopted by the procurement division in an effort to find whether they are engaged in anomalies. 2) Yes, I think there might be fraud involved given that a single supplier seems to enjoy access to enormous supplies; Harris Lumber, in comparison to the other suppliers. This might translate to possible collusion and anomaly. Short Case 7: 1) Yes, there is possibility of fraud given that the difference between the two percentages is huge while it is not reflected in earnings. This might mean that a huge chunk of inventories is misrepresented and maybe stolen before it can be translated to sales; accounts receivables. 2) Assuming that fraud is being conducted, I will go ahead and review accounts receivables of the firm to ascertain the exact amount of revenues received at any given moment and compares it with inventories within the year. Also, I will make sure to review documentation of credit term policies with the different customers in order to ascertain the length of time it takes to collect accounts receivables. Chapter 7: Short Cases 2, 3 and 13 Short Case 2: With invigilation investigative procedure, I will make sure to set up a working environment that is free from normal frauds so that there will adequate number of staff manning the inventories and other sales related activities. Thus, sine employees will not be tempted to engage in fraud related activities, invigilation will serve as a benchmark of determining the exact amount of earnings enjoyed by the company as revenues from inventories. Thus, it will be used for verifying existing amount of revenues at any moment in time. Short Case 3: 1) Yes, surveillance was the best method used for the case because it recorded physical evidence that could not be gotten from any other source. Obviously, it portrayed the man conducting physical activities for which he was barred due his enjoyment of worker’s compensation plan. 2) In conducting surveillance, there should a timely and accurate production of the investigative trails. Also, the investigative trails should be able to undergo automation processes in order to maximize efficiency. Subsequently, such elements of surveillance as time of execution and participants should be determined effectively to reduce possible elements of doubt. Short Case 13: 1) In investigating McKnight’s work computer, I will check for its position that is, whether it is placed in an awkward position where fellow workmates cannot see his activities. I will be worried for whether he has been able to add different passwords apart from work-based ones. In accessing his computer, I will ensure that the legality of their accounts is personalized. 2) The most formidable software for this case is Intrusion Detection Systems (IDS). The software will be used to identify possible loggings to unacceptable sites like e-bay and others. It will also be used to identify possible adverts placed in regards to the holsters using the work station computer. 3) No, it cannot be possible to approach e-bay for such information due to the numerous privacy policies held by the company in respect to its users. Also, the company will not conform to the disclosure requests because it is not required by law do so. Chapter 7: Case Study 2 1) The activities of this surveillance depict a rather unusual behavior. For instance, within a short span of 3 minutes John Doe is able to deposit money and exit the ATM. It is also unusual for him to check around on whether anyone might be looking at him or not. He also takes and places a white envelope in his coat pocket is suspicious. It is unusual for him to order and ask for the bill before he has consumed the drink. 2) It is important to take notes during surveillance in order to record each and every element of the log like the time of the executing activities, the behaviors of the participant during and after an activity and so on. Notes will also come in handy when connecting the trail of the surveillance in a bid to portray possible elements of collusion. Chapter 8: Short Cases 2 and 3 Short Case 2: 1) The first statement indicates a true position. This is because out of the 15 checks randomly selected at least 1/15*100%= 6.7% indicates a fraudulent activity. Given that a random sample of 15 checks gives a 6.7% chance of fraud, then it means the entire check sample is compromised and thus, a need to conduct extensive and further auditing for that matter. 2) The second statement postulates a false position. This is because the random sample selected does not represent a reliable representation of the entire check population. It only represents (15/800*100%) 1.9%. Thus, it will be inefficient to use such a small sample to make a conclusive decision for that matter. Short Case 3 The audit firm personnel should have kept the documents for purposes of assisting the US attorneys in matters regarding issuing subpoenas. These documents, which were likely presented in a report, would have also been kept in order to provide necessary testimonies at the court of law. It should be understood that the fraud examiners are tasked with the responsibility of conducting both civil and criminal investigations that are pertinent to such case Enron’s. Chapter 8: Case Study 1 John and other fraud examiners prefer documents over witnesses due to the following reasons; Documents provide comprehensive information that might trailed for a given period of time backwards. Unlike witnesses, it is unlikely to tamper the evidence within it and thus, examiners perceive them as being reliable and efficient in determining the facts of a given case scenario. Pursuing witnesses might be time consuming and expensive for that matter and thus, it is only used as need arises. However, documents are cheap and time resourceful for that matter. A good document care should be characterized by such features as being able to be kept in a secured place with little or no tampering possibilities. It should be characterized by a good referencing system in order to save on time used when searching for files. They should be dated fairly to avoid confusion. Subsequently, each and every department is required to store documents in places where they cannot be tampered by the surrounding environment changes. Chapter 9: Short Cases 2 and 6 Short Case 2 1) The employee is experiencing emotional changes due to possible guilt and pressure to engage in more embezzlement of the bank’s fund. He is not sure whether to stop or not given that he might now have reached an addiction point. The fact that he is always crying at the bathroom is an indication that he is remorseful and fears for the worst in case he is captured in the act. The increase in revenue from unknown sources might translate to mean that the employee has been engaging in intensive theft of bank cash resources while accumulating them. This might be the cause of the economic down slow being experienced by the firm in recent times. 2) Yes, it is evident that the employee has been committing fraud due to the unusual behaviors; crying at the bathroom, him buying a new Lexus while the bank is experiencing growth issues and also, by the mere fact that he is able to accumulate such an enormous amount of income from unknown sources within a short period of time; a year alone. Short Case 6 1) The fact that Janet does not miss work for sickness or vacation purposes is an element to be worried. The fact that she turns to be unpleasant whenever asked on any possible cash flow problems is also alarming given that it depicts unusual behavior on her part. 2) The resources that will be used to conduct further research are accessing the different documents reported by Janet. Also, the witnesses’ resource will come in handy so that her fellow employees should be interviewed in order to provide any possible information regarding Janet’s behaviors. ACL Audit Analytics can also be used a resource element in regards to automating procedures and processes used by Janet in reporting information. For this case, the automation will determine the discrepancies that arise between her reporting and the financial results of the company as a whole. Chapter 9: Case Study 2 Comparative Net-Worth Assessment A; 30,000- (22,000+10,000) = ($ 2,000) B: 35,000+1,000-(26,000+8,000) = $ 2,000 C: $ 40,000+ $1,000-($23,000) = $ 18,000 References Albrecht, W, Albrecht, C, Albrecht, C & Zimbelman, M. (2011). Fraud examination, Cengage Learning. Read More