2021

VERONICA FREDA-700028311
BACHELOR OF ACCOUNTING YEAR 4
FORENSIC AND FRAUD
INVESTIGATIONS

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TUTORIAL SOLUTIONS FOR ACC710 FORENSIC ACCOUNTING INVESTIGATION

a. If you are brought in as Sandra’s outside forensic accountant, what advice

would you give her?
The caller stated that that the problem was pervasive through many of the
company stores. Hopwood, Young, and Leiner, (2012) explain that per research
statics, around ten to fifteen percent of employees are likely to steal from the
company if given the opportunity. About sixty-six percent of employees would
probably steal under the right circumstances which includes when other
employees are stealing, pressure and when the opportunity exist. Good internal
controls can only prevent some employee fraudulent actions and if collusion is
involved, the best of internal controls cannot prevent fraud. “The general rule is
that the more liquid the asset, the more likely it is to be a target of employee
fraud. This tends to make cash and inventories the top targets for employee fraud”
(p. 390). With that being said, I would advise Sandra that the call should be taken
seriously and that an investigation was warranted.

b.Which employees could be stealing inventory? Describe one or two possible

schemes applicable to this case.
Hopwood, Young, and Leiner, (2012) state that assets are most vulnerable to fraud
before they are entered into the accounting system. Once an asset is purchased in
the company, it can be stolen or converted to personal use by employees. Inventory
can be stolen by an employee by simply walking out the back door with it.
Prevention methods include having a record of custody, proper employee
supervision, asset disposal management, internal auditing and good physical
security. Employees working in the production cycle have a good opportunity to
commit inventory fraud per waste, scrap and spoiled goods. Employees discard
valuable raw materials or finished goods, then later retrieve them from the garbage
and convert to their own use. These types of theft may be prevented by having good
physical security and authorization controls. There should be specific defined
policies and procedures in place for disposal (Hopwood, Young, and Leiner, 2012).

You are required to do some research on any of the major financial statement
fraud cases such as .

Enron, World Com, Tyco, Sun Beam and so forth and answer the following
questions.
1. Define financial statement Fraud
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Financial statement fraud is defined as misinterpretation of financial statement
which is intentional purposely to deceive its users by omission of amounts in the
financial statement or misrepresentation of financial statement numbers.

2. Explain types of financial statement Fraud.

 Misappropriation.
Is the series common fraud of financial statement in an organisation.
Financial statements are altered to mark a theft or embezzlement in a
company which can be done through bookkeeping for personal gain
purposes.

 Overstating of revenue
Company state that it more revenue in a certain period to deceive its
investors.
 False asset valuation
It is a form of financial statement fraud which company makes assets appear
or look valuable than they actually are.

3. Provide a brief summary of the your chosen case as to what the type of fraud
and its concealment activities, perpetrators, victims and its financial
consequence
WorldCom case study.
WorldCom case study involves financial statement fraud which involves
manipulating of its financial data by its upper management. The CFOs of the
company took billions of dollars in operating expense and spread them in smaller
amounts over a number of years and not reporting it to investors.it reported an
inflated revenue and a profit instead of loss. Many people lost their jobs and
including retirement monies.it is one of the biggest fraud in history during that time.
People lost their trust in the company and accounting firms can be eroded. Damages
of the WorldCom fraud are.
$750 million dollar SEC settlement to compensate investors
Nearly 30,000 jobs lost
25-year prison sentence for CEO Bernie Ebbers
5-year prison sentence for CFO Scott Sullivan
Sarbanes-Oxley Act passes just months later

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References.
Hopwood, William, Young, George, Leiner, Jay (2012). Forensic Accounting and Fraud
Examination
Retrieved from https://capella.vitalsource.com/#/books/1260492990/

Michael Wolfe, (2017).types of financial statement fraud. Retrieved from

https://pocketsense.com/types-financial-statement-fraud-7396545.html

The balance retrieved March, 27, 2021 from.

https://www.thebalance.com/worldcom-s-magic-trick-
356121#:~:text=In%202001%2C%20WorldCom%2C%20one%20of,statement%20by%20nearl
y%20%244%20billion.

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