Question

Chapter 12 After graduating from college with your MBA, you decide to take your grandma's secret cinnamon roll recipe and open up a bakery. You grew up devouring your grandma's rolls, and you have convinced her to give you the secret. You are confident that your bakery will be the next big hit in the fast-food business. You take out a business loan for the maximum amount your bank will give you, hire several employees, and open a beautiful store that is designed to look like your grandma's home. After eight months of hard work and diligence, you are crushed when you realize that your store manager has been stealing from you. One of your recent hires tells you that during her last shift, the manager, Stephanie, voided a sale of two-dozen cinnamon rolls, stamped the receipt as a return, and pocketed the money. Stephanie warned the new hire not to say anything and told her she deserved the money because she didn't get paid enough. Encouraged by your open-door policy, the employee confides in you. 1. Identify whạt symptoms this fraud will generate. In addition, identify how this fraud will directly affect your revenue and inventory accounts. 2. Explain the steps you should take to search for each symptom you identified in part (1). In particular, describe the computer queries and transactions that should be searched to find this fraud. 3. After you have identified several symptoms, do you have enough evidence to prove that she is guilty? What other evidence is required or useful in this case? 4. Besides searching for symptoms of the fraud, what other investigative steps can be taken to elicit a confession or otherwise prove the fraud? 5. What steps could have been taken to prevent this fraud from occurring in the first place?

Answer 1

Chapter 12)

1) The symptoms of such a frauds are : Lower revenues, higher cost of inventories, shortage of cash, now and then requirements for working capital, dropping of profits or rising losses in the organization.

The frauds where the employee make their personal monies using the organizations’ assets always have main symptoms of lowering/decreasing of revenues and rising inventory and expenses accounts.

2) The steps to be taken to answer the computer queries on various transactions are:

a) The cash entry of a sales transaction is pending.

b) The quantities sold and stock released does not tally.

c) The stock returned of sales are not stocked in inventory.

d) The inventory purchased quantity does not match with the physical count entered.

e) The dues from the debtors is long pending and rising.

3) Yes, we can get the evidence to prove the culprit guilty through one symptom only because every entry always have its counter-entry and the difference between the both will bring out evidence. Like, the sale of units will on one hand reduce stock and on the other hand increases the cash or debtors.

The other evidence could be a) the employees on the job, b) periodical reports from on job managers towards the sales, purchase and stock position would be a good evidence to used in fraud cases, c) surprise visit report of the audit manager.

4) At personal level, the cash at bank position of the manager and at the Official level, the reducing sales and rising expenses in the operation of the manager will bring out the culprit out of the manager and who confesses his/her wrong doing and frauds. The each day reports from the manager would bring out the short-coming of the manager. The unusual movement of transactions would bring out frauds of the business operations. The off-time movement of authorized person in the office could raise doubts of commission of some fraud. These are few fraud confession points in investigation stages.

5) The internal control department establishment in the organization would help the management to bring down the fraudulent activities in the organization. The constant report seeking procedures always keeps the employee on their toes to maintain their job. The reconciliation of the reports with the accounting transactions and Bank or cash position will not provide any chance to an employee to commit fraud.

======================================