Problem 1. A small but growing firm has recently hired you to investigate a potential fraud the firm suspects its purchases journal clerk of periodically entering fictitious acquisitions. The nonexistent supplier's address is given as a post office mailbox, which the clerk has rented. The clerk forwards notifications of fictitious purchases for recording in the accounts payable ledger. Payment is ultimately mailed to the mailbox. The clerk then deposits the checks in an account in the name of the nonexistent supplier.
Respond to the following:
Describe the terms "fraud," "fraud deterrence," "fraud detection," and "fraud investigation."
From the given scenario, list four red-flag indicators that might point to the existence of fraud. (Provide personal factors only.)
From the given scenario, list two procedures you could follow to uncover the clerk's fraudulent behavior.
Justify your answer using examples and reasoning.
Problem 2. Fraudulent financial reporting usually occurs as a result of environmental, institutional, or individual pressures and opportune situations. These pressures and opportunities, present to some degree in all companies, motivate individuals and companies to engage in fraudulent reporting. The prevention and detection of fraudulent financial reporting require that these pressures and opportunities be identified and evaluated in terms of the risks they pose to a company. These risk factors include internal ethical and control factors, as well as external environmental conditions.
Respond to the following:
Identify two company situational pressures that would increase the likelihood of fraud.
Identify three corporate opportunities that make fraud easier to commit and detection less likely.
For each of the following, identify the external environmental factors that should be considered in assessing the risk of fraudulent financial reporting:
A company's industry
A company's business environment
A company's legal and regulatory environment
Justify your answer using examples and reasoning.