Question

Please answer the following case

Spike’s Transport is in the business of moving whatever needs to be moved-wherever it needs to be moved. Spike has a fleet of trucks and drives who are all insured and licensed.

Spike has noticed that during the last year three of his employees all take off at the same time-the three employees were never very friendly prior to this year. All three work in different areas of the business.

While contracts are up Spike has noticed an increase in the costs of insurance and payroll costs and a decrease in accounts receivable payments. Accidents have increased slightly since last year and health insurance claims have also increased. Revenues are down.

Your Suspects are:

Sam:

28 years of age/single/makes $72,000/year

              Worked for the company for 5 years

              Sales Representative works with various vendors and contracts

              Drives a five year old Corvette

              Likes to travel and go out

              Recently purchased a new home

              Dresses in style

Cindy:

33 years of age/single/makes $62,000

              Worked for the company for 10 years

               CPA in charge of approving and processing vendor contracts/payments

               Accounts Receivable/Payable Supervisor

               Likes to travel and go out

               Drives a four year old BMW

               Lived in her home for 6 years

               Dresses conservatively

Anita:

30 years of age/single/makes $58,000

               Worked for the company for 7 years

               CPA in charge of payroll/insurance department

               Drives a five year old Corvette

               Likes to travel and go out

               Lived in her home for 6 years

               Dresses in style

Where would you start to investigate the fraud, what would you look for and who would you look at and why??

Answer 1

As the account receivables has decreased in this year it will result in decreasing cash flow and the debtors turnover ratio will be low. As a result of such, it will be effect the working capital of the company.

So we have to verify the the contacts of such customers/debtors and the credit period available for them. Verify whether they are paying in time or not, if not paying in time check whether there is any policy of collecting any interest for late payment. If there is no such policy then investigate what are the steps that have been taken by Cindy to collect the receivables in time and what are the things that will be considered while entering a contract as she is the one responsible for those.

Sam, as the sale representative of the person who got the direct contact with the vendors. Verify whether sam is clearly intimating the policies and other policies regarding the ancillary costs like insurance freight etc., If any that the vendor company had to bear before entering the contract.

Check the reasons for increase in payroll is appropriate or not, check whether there are any new recruitments done in this year. Are these recruitments are needed for the company and check whether there is any increment for the present employees to retain them. Enquire the reasons for such with Anita as she is incharge of payroll