ACCG878 Fraud Examination Techniques: Carpet Circuit Décor

Background

Jack Walker had received some anonymous allegations, and following discrete inquiries made by him within the company, he had major concerns about their major selling line and loyalty of staff. He suspected that something was wrong with the company operations due to the incidents that had taken place and sought to find out to retain the firm’s good reputation and relations with its customers. Since Jack had no provable evidence for any wrongdoings or fraud related actions by his employees, he hired a rest-assured security firm to investigate on those allegations regarding his staff and recent poor quality of their prime sales product. The allegations and his doubts were somehow proven when; On a mid-morning, a day which daisy took a day off, jack received q mail delivered by Carol who had collected the incoming emails from the post office. One of the letters had the marks “final notice” and was from bardigo first bank where the carpet circuit accounts were held. The letter was about over withdrawal of fifty thousand dollars which jack did not know about. As Jack went through the other emails, he found a letter addressed to him with a torn page of newspapers cautioning him to be careful and to watch out his staff. The warning made him more concerned about his staff, whom he had relied heavily on to run the day to day company operations.

Mr. Walker received complaints from his best tillers that the tiles were uneven, difficult to lay, cracked very easy and were of a different color, quality, and texture. He also received another complaint from his most trusted customer who complained that the new marble tiles looked cheap and were not the same as the one displayed in the showroom. When Andy was informed about the complaints, he claimed the difference was brought about by mining of different sections of caverra quarry in Italy. The customers termed the new marble tiles as fake and of low quality compared to the ones which the company used to the supplier before the change of warehouse management. Daniel, long term employees who worked for the company for twelve years, took an early retirement citing that Andy had taken over all the activities of the warehouse of handling and delivering marble tiles and that Andy was too bossy.

Citing the above-laid allegations, Mr. Walker decided to commission a fraud examination program to scrutinize the company operations and the suspected staff. The fraud examination was conducted which included interviews, setting up surveillance cameras and inspecting workplace and inventory records. The examination involved both the rest-assured security and four other workers from the company.

Scope

The main objective of the fraud examination team was to determine to analyze the fraud allegations presented forward by Mr. Walker and the doubts that he had on Daisy and Andy. The team determines the existence of the fraud in the carpet circuit décor staff .the fraud examination was predicted on warnings sent to Mr. Walker via email and unexpected happenings which happens chronologically and arises the top manager's suspicion concerning embezzlements of funds by employees who handle the crucial departments in the company.

Approach

The fraud examination team included the Rest-Assurance security staff, Jack Walker, Jasper Binchy, Angus, the locksmith and four other employees of carpet circuit décor.

In the examination process, the team included several procedures and actions which included;

• Interviewing carpet circuit employees
• Obtaining, reviewing and analyzing financial and staff documents
• Establishing surveillance action on major suspects
• Reviewing and scrutinizing inventory records from the warehouse
• Forensic accounting on financial documentation including invoices, deliveries, and receipts

At the start of the fraud examination, the team requested the following documents for reviewing

• Balance sheet-3yrs
• General ledger
• Profit and loss statement- 5yrs
• Income tax returns -5years
• Cheque registers-2years
• Company credit card statement
• Year-to-date financial statements
• Bank statements/ canceled cheques and deposits slips-2years.

Findings

As part of the fraud examination, several procedures and techniques were employed to ensure the success and full impact of the examination. Based upon the techniques outlined below, the team made major findings on each specified procedure. These techniques were employed in a manner that they did not affect the overall operations of the company or raise objections from the employees. These procedures and findings were as follows:

Interviews were the core technique used to gather information. They were carried out to acquire more insights and information about the fraud allegations. The main goal of interviews was to gather and synthesize enough supportive evidence which would provide a strong basis for questioning the key suspects. (Eder and Ferris, 1989)The interview produced data which reduce the broadness of the examination plan it increases the possibility of overall success of finding out and proving fraud. The examination team developed and agreed on a flexible interviewing strategy to incorporate continuous changes detected by each stage of interaction. The team interviewed several people who had relevant information pertaining the subject matter. Interviews provided the team with the basis of where and to whom to base their supportive arguments on (Hakel, 1989). Daisy Sefton was interviewed to confirm on her charges. She was interviewed on the additional charges on every Caverra marble invoice, and she gave in, adding that someone had come after her and forced her to give him money every week through the additional 10% in the invoices. She also explained how she and Andy had come up with the fake supplier to suck money unnoticed. Non-key to key personnel interview was used by Jack to interview the retired accountant of the company to help him develop an understanding of the accounting and finance transactions of the firm, who advised Jack to go and retrieve the financial documents from the bank to obtain a statement of all the transactions carried out.

Inspection of both financial records and the inventory records was carried out by the team to determine any cases of fraud. Jasper conducted an inventory count to match it upon with the records brought forward by daisy and found that did not match at all. The inspection was also carried out in the warehouse boxes where they found 500 boxes marked Caverrra marbles set aside in the rear section. The also found out that only twenty-five boxes were packed the others were empty. Through ground inspection, they found out that Andy had taken control of all the activities in the warehouse and the legit supplier had stopped supplying them (Diamond, 2005). Thorough inspection was carried out in daisy’s cabinet where word processed, and stamped invoices were found as well as blank illegitimate caverra marble letterheads

Investigation technique was employed to collect, examine and analyze evidence in response to the suspected wrongful acts and results from inspection procedure. In evidence collection, the team searched for clues to associate with the allegations and to determine if there are additional materials that qualify as supportive information (Chenhall and Langfield-Smith, 1998.). We took photographs as hard evidence of the fraud from daisy’s desk. The collected evidence was examined, and the information that needed expertise knowledge to explain was issued to the technical team. For example, the hard drive obtained from daisy’s computer was given to the IT personnel to dig out more data. In analyzing the obtained information, we assessed the important documents and used them to supportive data to prove the actual occurrence of fraud. A thorough investigation was carried on the boxes to determine whether they were legit and all the information gathered was recorded.

Surveillance cameras were put in place to monitor the activities of the suspects without their knowledge. The main cameras aim was to prove and tie the suspect with the allegations by catching them in the act. Secret surveillance cameras were installed in the warehouse to track Andy’s moves without his awareness which later showed how he brought new marble tiles in a van with the carver ran marbles (Mao, 2009.). This proved that he had partnered with some other company under a fake name and business number. The cameras were used to gather evidence that supported the allegations through pictures and videos the camera showed that Andy had arrived in Sydney earlier than the situated time proving that he was never in Italy for the business trip.

Questionnaires were used in the formulation of questions in relevance to the subject matter. Questionnaires were used to get information from employees who were involved or affected by the acts of fraud. For example, the technical team provides information on the nature of the newly delivered floor tiles. The team formulated questions to gain overall insights of the company structure and systems (Sivasubramaniam et al. 2003). The questions formulated enable the team to develop their main focus on the matter subject of the investigation. In the context, Jack has issued a questionnaire aiming at the provision of information about the suspects. He provided background information about the prime suspects based on their job positions, responsibilities, Code of conduct and overall performance. The questionnaires provided the team with base information about the company and its operations. It also helped the team to develop a critical understanding of the company and the responsibilities of each employee (Charlton, 2002).

In document review phase of the examination, documents were reviewed and analyzed through digital means and manually [Lizt et al. 2005] The team reviewed previous documents and reconciled them with bank statements and other financial documents provided by the company. The major difference was noticed in financial documents which were cross-checked with the company’s prescribed model of payment. Bank statements provided differed with what the management expected and thus proved the allegations. When Jasper reviewed and compared the inventory documents and records from the warehouse, he noted that the records had different values from the ones that jack was provided with by Andy.

Forensic accounting is the use of professional accounting skills in solving matters of fraud litigation. It was conducted to look deeply into accounting audits and documents mostly to identify fraud incidents in the accounts operations (Lindquist, 1995). Through forensic accounting, the team assumed that litigation would follow to solve the fraud allegations, and hence the team conducted the examination of proper laws of evidence and remain within legal guidelines provided by the legal systems (Wang, 2010,). In Jack's case, the team was convinced that a fraud has occurred or is occurring and this served as the basis upon which the examination began. Through this procedure, we sought to prove that fraud has occurred or not and aimed at providing detailed accounting information. The team started the examination with general information provided by Jack and other employees and then moved to more specific details of course of the examination.

Fraud theory approach was applied, and it involved the use of presently available information to organize and direct fraud examination. This theory provides that when investigating an allegation of fraud the fraud examiner makes a hypothesis of what might have occurred based on known facts (Tucker,1992). This approach involved analysis of available data, creating and testing hypothesis and refining and amending the hypothesis under this approach the team began by analyzing the data provide by jack to develop a thesis and knowledge of what had happened. The team already had formulated an imaginary review of the fraud existence and which department needed focus.( Huang et al. 2004)

Digital data analysis and computer forensic was applied to generate personal data from computers which can be used as evidence. It involves the use of-of extensive computer skills in regenerating unknown passwords and usernames to gain access to hidden information. A detailed plan was developed by the IT personnel to acquire evidence and detailed information recorded and preserved in computer hardware and soft wares (Casey, 2011 ).The team applied extensive measures and guidelines to preserve gathered evidence, for example, the IT specialist removed hard disks from daisy’s computer and used it to retrieve crucial data (Wolcott, 1994). The computer forensic procedure was carried out to retrieve emails and other internet communications from daisy’s computer in the pursuit of identifying the anonymous supplier. It helped to ensure the authenticity of any finding by confirming the legitimacy of digital evidence obtained from the forensic search.

Summary

The report reflects that daisy Sefton gave a report that she has been adding additional 10% to every” Caverra marble” invoice as well as printing fake invoices and was involved in conspiracy cases causing the company a lot of cash. Daisy Sefton as well admitted that she and Andy had partnered with another fake and cheaper supplier to gain some profits from every transaction and suctioning a lot of money from the company unnoticed. 

Impact to CarpetCircuit Décor books.

 For two years, Daisy Sefton and Andy had stolen a lot of cash from Jack's company and used the money to live ravishingly and purchase expensive cars. It’s clear that Andy had a new black Maserati car as well as a swimming pool and possessed a mansion furnished with gold and crystal, which he could not afford with his salary. Andy action of getting a new illegitimate supplier had led to the loss of customers as well as increased complains from their all-time customers and potential employees. Productive employees such as Daniel felt intimidated and left the company leading to loss of effective staff. Unaccounted huge amounts of money were lost due to illicit actions of daisy and Andy in their attempt to gain profits illegally.

Recommendations

• It is the duty of the management to closely and carefully watch out its employees during their operations to void cases of fraud. The manager should develop a fraud response plan which outlines the actions that members of the company should take in cases of fraud suspicion.(Fawcett and Provost, 1997 )This plan will allow top management to respond fast to detected cases of fraud in an effective way and should include reporting protocols, a response team for conducting fraud assessment and factors used to decide the cause of action and lawsuit processes.
• The company should implement internal controls to safeguard company’s assets, ensure the integrity of its accounting systems and deter and detect fraud (Bonchi et al.1999)Segregation of duties serves as an important component of internal control to reduce fraud cases. These measures should be monitored and revised on a regular basis to ensure they are effective and current with modern advances. ( Lation et al. ,2015)Any broken controls should fix, and any initiated transaction should be approved by the top manager as well as the receiver of the transaction. For example, the company theory of entrusting employees and assuming that they are working towards achievement of organization goals gives them chances to commit fraud (Fawcett and Provost, 1997).
• The hiring of experts to help in the provision of wide range of services in setting internal control audit and consultation as well as helping the company in establishing anti-fraud policies and measures should be done.(Chenhall and Langfield,1998)
• The company should establish fraud prevention strategies and methods and make them known to the employees. The knowledge of this controls acts as restraining to fraudulent acts and that all their actions are being traced and disciplinary actions are due to those involved in fraud cases (Pedreschi et al., 1999).
• The company should invest heavily in ensuring security in the warehouse. This involves securing information from unauthorized access, safeguarding its tangible assets from misappropriation (DeHaan, 2015).
• A fraud prevention check-up should be regularly conducted to assess any vulnerability to fraud. (Matsumura and Tucker, 1992). This check is affordable and gives the company an opportunity to establish a good relationship with fraud examiner whom can be called upon when fraud questions arise.
• A security freeze should be designed by the top manager to prevent financial transactions being approved without the manager's consent (Mao, 2009). 
• The company should report cases of fraud to the authorities for a legal action to be taken against the fraudulent individuals and set up a fraud-free culture in the organization.
• Rotation of employees to various job positions within the company to ensure that employees do not stick their positions while hiding the fraud (Eriksson and Ortega,2006)Rotation enables the second employee to look into the activities of the first employee and reveal fraudulent cases. The employees who act more loyal should be secretly assessed because the chances are high that they always have something to hide.
• The rotation of employees can also be achieved by ensuring employees get balanced vacation balances (Huang, 1999)as well asImplanting continuous auditing measures. The measure ensures that all transactions are in line with the set controls (Adams, 1994).

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