Fraud Accounting Questions
1. Jane works at a small business in the area. Recently, Jane experienced a bitter divorce that left her with little money and three children. Desperate to provide for her family, she took some money from her company to get by. Jane’s intentions to repay the company never materialized. In fact, Jane began to borrow more and more money. Realizing that she had pilfered more money than she could pay back, Jane soon became overwhelmed with feelings of fear and guilt. These unusual emotions evoked stress as a physical response to the guilt. What are some coping mechanisms that may be identified in Jane’s behavior?
2. You just started your own roofing business, and you have hired 10 new employees. Two of the new employees are responsible for taking care of all of the administrative functions of the company. Because this is a very competitive business, these persons will also be responsible for bidding on new business. The other eight employees are divided into two different work groups of four that will go to different job sites and replace old roofing material with new material. You are aware that fraud prevention is necessary because fraud is likely to occur in any company. Because you have never operated your own business before, you are unsure of
where to begin in order to protect your assets from being stolen. You decide to search the Internet in order to discover the types of opportunities that exist for employees to steal assets.
Identify and discuss the different types of opportunities that exist for employees to steal assets from your company. What can you do to eliminate these fraud risks?
3. List and discuss four or more methods that an interviewer would use in dealing with difficult people.
4. Mike Peel, 55, supported himself by conning innocent people with various get-rich-quick schemes. But now, his luck has run out. He went to the neighborhood church known for its generosity to those in need. He told Father Joseph Mehan, the pastor, that his life was in danger because he owed $30,000 to loan sharks. Mike assured Father Mehan that he was turning his life around and was looking for a fresh start. Father Mehan paid off Mike’s debt. Mike told Father Mehan that he could not pay him back right away but that he would get the church a great investment through a friend. Father Mehan kept sending money to Mike for investment purposes, totalling tens of thousands of dollars, until last December, when the priest tried to withdraw $25,000 in cash from a parish account. Mike had taken one of the checks that the priest had given to him and had altered the amount from $5,000 to $50,000, leaving no money in the parish account. Mike got caught, and he admitted to taking thousands of dollars in church money by falsely promising he would invest it—but then lost it all gambling.
5. Answer the following questions regarding the Sarbanes-Oxley Act of 2002 (“Act”).
1. Do you feel that the Act was too little, too late, is adequate to accomplish its intended goals, or otherwise?
2. Why or why not should the Act be expanded to include all companies, whether large or small, publicly or privately held? Be sure to adequately defend your positions.
6. Kristynn Graham, a woman from Smithville, Alabama, was a shopping addict and had run up considerable debt on excessive purchases of jewelry and clothes. She would also go to the grocery store and slap down plastic, take her kids to miniature golf, and go bowling with her husband. Christmases were a “little bigger,” with gifts like $100 remote-control cars for her sons. Now, she was finding the best way to not tell her husband about the addiction. She made $11 an hour at Durban, and her husband earned a little bit more as a machinist at an aircraft company. Family finances were a constant balancing act. Kristynn turned to her employer, Durban Consulting. She raised money to pay down her obligations by repeatedly padding the company’s expense accounts. She took reimbursements for trips and conferences she did not attend. In her 3 years of work, she had collected a total of $240,000 from her employer. It got to the point where she didn’t feel like she was doing anything wrong.
When Durban found out, Graham admitted the fraud and pled guilty to one count of fraud and said that she was planning to pay it back.
Required:
1. What type of fraud did Kristynn Graham commit?
2. List and discuss any four factors or weaknesses that could have resulted in this type of fraud. 3. What could be done to avoid or reduce this kind of fraud in a company? What specific segregation of duties could have been in place to prevent Kristynn from committing this fraud?
7. Jonas Fritz, owner of Careful Construction Inc., had a perplexing problem. Although his company always had enough work to keep the employees busy, company profits were falling. In fact, Careful Construction Inc. will have difficulty meeting its payroll this year. Mr. Fritz compared Careful Construction Inc.’s materials costs with the company’s overall revenues for the past 3 years, and he noticed that materials costs were rising at a significantly greater pace than were revenues. Mr. Fritz could not understand why materials costs were rising so rapidly, especially since his other costs were remaining relatively constant. Mr. Fritz showed these results to his friend, Larry “Calculator” Mason, who had conveniently just taken a continuing education course in fraud recognition and prosecution.
Mr. Mason peered out from under his green eyeshade and said, “Well, Jonas, you might have a fraud here! Maybe one of your employees is stealing from you!”
Mr. Fritz interrupted, “But how would employees get their hands on that much cash? I’m not a bank; I don’t have much cash in the office—and my three office employees have worked here for years. We’re like family!”
Mr. Mason replied, “I’ll explain—the employee, if it is an employee, probably is not walking out of here with $20 bills. Let’s look at your purchasing invoices and employee records and see what we can find. But first, read this paragraph on employee cash theft. I got this booklet at the last seminar I attended, and this paragraph will help you understand what we will be looking for.”
1. Using what you know about how employees steal company cash, respond to the following.
A. Who is likely committing fraud at Careful Construction?
B. Name two possible ways that this individual could commit fraud.
2. Name three steps Mr. Fritz should take in order to verify his suspicions about who is committing fraud.
3. What are at least two controls Mr. Fritz could institute to prevent this type of fraud from happening again?
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