ACC505 MIDTERM EXAM -SAINT

Question 1. (12 points)

A Tooele School District employee has been charged with theft and forgery for allegedly stealing approximately $32,000 in district funds.

Mary Blauser, 51, was charged in 3rd District Court Wednesday with one count of second-degree felony theft and five counts of third-degree felony forgery. She is scheduled to make an initial court appearance December 16, before 3rd District Court Judge David Young.

She is the second school district employee to be formally charged with stealing from the district. Both individuals were charged in separate and apparently unrelated cases.

Blauser, who was the district’s payroll clerk, allegedly arranged electronic direct deposits of funds for nonexistent employees; the funds then went to her, according to Tooele Police detective Todd Hewitt. "Over the course of the last 15 months, she was able to allegedly siphon funds out of their [the district’s] account into her account, and she allegedly set up fictitious employees." Hewitt said. "We were able to confirm 31 counts of forgery and second-degree theft."

Hewitt said school district officials became suspicious when they had trouble balancing the district’s account. After an internal audit, school officials came across payroll listings for workers that did not have any matching Social Security numbers.

District officials then turned to police for help. Tooele School Superintendent Larry Schumway said Blauser has been released from her job for malfeasance.

Another school district employee, Cindy Heap, who formerly worked as an elementary school secretary, earlier was charged with one count of second-degree felony theft and 11 counts of forgery in a different case, according to Gary Searle, deputy county attorney. Heap allegedly took just under $80,000 in district funds, Searle said.

Heap, 32, who resigned from her job, is scheduled for a court appearance on December 9, before JudgeYoung.

A. What factors do you think allowed these frauds to occur?

A. What do you think the school district should do to prevent fraud from occurring in the future?

A. What do you think the school district did right in these situations?

Question 2. (12 points)

In recent years, identity theft has been a common fraud against consumers. Identify and explain three methods fraudsters use to convert personal information to financial gain, as part of identity theft schemes.

Question 3. (12 points)

During the past year, Jim Hunt, CEO of KMP Corporation, read about several different frauds occurring in his industry. Jim would like to know if fraud is present in his company. He has asked you, his new assistant, to help him determine whether or not fraud is occurring. In preparation for the investigation, Jim has asked you to create a list of fraud symptoms and discuss how they can help determine where fraud may be taking place.

Question 4. (12 points)

List three opportunities to commit fraud that have arisen from the boom in e-commerce.

Question 5. (12 points)

Jim was just hired at Beehive credit union. Beehive was known for its impeccable controls and friendly employees. Jim was hired on as a teller and assumed his new job would help him receive a mortgage loan to buy a house, even though he had poor credit. Without the loan, Jim would not be able to purchase the house, and he, his wife, and their six children would be forced to stay in the two bedroom apartment that had become the constant argument of his marriage. Besides his marriage being on the line, Jim was sick and tired of hearing the children’s nightly fight about which three had to sleep on the floor and which three got the bed. Jim was determined to keep his marriage and kids together.

Jim had quit his job in construction and accepted a lower-paying job as a teller, expecting to receive the much-needed loan. However, after reviewing the paperwork for Jim’s loan, the impeccable controls were implemented, and Jim’s loan was not approved by all the loan committee. Everything was falling apart, and Jim did not know what to do.

Two weeks into his job, Jim found that two elderly ladies came around to collect and account for the cash every Thursday night. The rest of the week two younger gentlemen made the rounds. He knew the pairs made the collections together; nevertheless, he decided to test a simple plan to "approve his loan." He figured the ladies would not accurately count the money, and if they did, he could easily cover for that day. On the following Thursday, before Jim closed his till, he took out around $200. Although they were gathering and counting together, the elderly ladies did not discover the shortage. He was right: the old grannies were unable to accurately count the funds and he could easily obtain his “loan.” Slowly but surely, Jim started taking more money. At first, he decided he would take just enough to purchase the house, and then he would start saving to repay the bank. Later, he figured if the bank is stupid enough to hire two elderly ladies to do their work, then they deserved to lose the money.

A. Are all of the elements of the fraud triangle present in the case? Which elements of the triangle are present and how are they present?

A. What could the bank have done to prevent the fraud?

Question 6. (21 points)

Justin Richards was just hired as the store manager for Super Electronics, a small chain of electronics stores located in the western United States. Richards recently moved to Fremont, California and was excited to start a new career in the Bay Area. He knew little about the situation that he was hired into, except that he had been told there appeared to be a lot of theft in his store. Richards had been hired through a headhunter friend of his, who mentioned that he had helped hire him due to his experience cleaning up fraud at his last company.

Richards went somewhat hesitantly into his first day of work. He was told by his new boss that he needed to clean up the theft that was going on. This made Richards very suspicious of everyone that he met and as he toured the store and was introduced to his employees, he felt like he was trying to read everyone’s soul to determine if they were part of the problem.

Richards’ boss gave him little information as to what was going on, so Richards began his own investigation. He had to balance that effort with his normal job functions, and he felt that he could not always spend the time he would like to, trying to catch the perpetrators. However, after months of investigation and study of business practices, he felt he had a pretty good grasp of the situation.

It surprised Richards to find out that the items that were being stolen were not small items, such as portable CD and cassette players, as he initially suspected. Rather, it was large items, such as televisions and stereos. As far as he could determine, the store was losing over $5,000 a week from the theft of these large items.

As Richards was researching the situation, a few things jumped out at him and pointed him in the right direction. He noticed that his warehouse employees tended to be high school students and that they had complained a lot in the past about how little they made. Their personnel files indicated that they had regularly asked for raises and advances. During the time that Richards had been there, he had heard nothing about needing more money from any of them. He also noticed that these employees seemed to dress very well and had nice cars, for high school students. He got the feeling that they were living beyond their means.

As he began watching these warehouse employees more closely, he noticed that they tended to hang out with the employees that worked in the television and stereo department. This made him even more curious.

After a few months of investigation, Richards felt he had determined what was going on. As customers made decisions to purchase items from the television and stereo departments, an employee would fill out a requisition form for the item. The employee would take the form and have it approved by his superior. The employee would then walk the form over to the warehouse, which was located in a separate building on the other side of the parking lot. As the employee walked over to the warehouse, he would alter the form. The employee would typically erase the portion that indicated the quantity. For example, he would erase the quantity of one television, and change it two televisions on the requisition. On his way to the warehouse, he would also call up one of his friends and tell them to come and get the other television.

After he picked up the items from the warehouse, he would load the customer’s item in their car. Before returning to work, the employee would then take the stolen television out to his friend’s car. The warehouse employees would help arrange this fraud, making it harder to detect through their own paper work.

As Richards looked deeper into the matter, he was able to determine that the fraud was only perpetrated when a particular group of high school students was working at the same time. He was not sure how long the fraud had been going on, but he did notice that about six months before he began working at Super Electronics, these individuals stopped complaining about their pay or asking for advances. As far as Richards could tell, they had stolen approximately $120,000 worth of merchandise. When Richards looked into the background of these individuals, he found that the salespeople he suspected had been hired on the recommendation of the warehouse employees. He also learned that all of the suspects had been caught shoplifting together a few times in the past.

1. How could this fraud have been detected?

1. What internal controls are missing at Super Electronics?

Question 7. (12 points)

A friend you have not seen for years has just contacted you concerning a possible fraud in his company. Your friend remembers you taking a fraud examination course during college and he would like your help. Your friend suspects that the controller is skimming some of the cash that is coming in from customer payments. Since your friend’s company is quite small, there are few controls requiring segregation of duties. Although your friend has a very positive relationship with this controller, your friend would like to know the best possible pattern of techniques to help see if this controller is in fact stealing the cash. Prepare a "target" diagram showing the list of steps your friend should follow.

Question 8. (21 points)

Kristynn Graham, a woman from Trashcan City, Alabama, was a shopping addict and had run up considerable debt on excessive purchases of jewelry and clothes. She would also slap down plastic at the grocery store, to take her kids to miniature golf, and go bowling with her husband. Christmas purchases were a little bigger, with gifts like $100 remote-control cars for her sons. 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. Now she needed a way to avoid telling her husband about the addiction.

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 three years of work, she had collected a total of $240,000 from her employer. It got to the point where she did not 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.

Requirements

a. What type of fraud did Kristynn Graham commit?

a. What is the other name for this type of fraud?

c. List any four factors/weaknesses that could have resulted in this type of fraud.

c. What could be done to avoid or reduce this kind of fraud in a company? What segregation of duties could have been in place to prevent Kristynn from committing this fraud? (List four effective ways.)

c. It is said that this kind of fraud does not result in as much loss as fraud committed by management or top executives. Why do you think this is so?

c. Name the three components of the fraud triangle and describe how each one existed in the scenario.