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Forensic Accounting Case Study Series – sponsored by Deloitte FAS LLP and the Deloitte Foundation

Asset Misappropriation Fraud - Darpa Company Case No. 2-6

Company Overview: Darpa Company (“Darpa” or “the Company”), based in San Francisco, California, helps other corporations sell and market their pharmaceutical products. Scenario: The General Counsel of Darpa has been given an anonymous tip that one of the employees in the finance department has been committing fraud. The General Counsel has hired your team to investigate who has been committing the alleged fraud, how it is being committed, and the impact it is having on the company. Background:

Using the information below and in the appendix, you must quickly prepare and decide who to interview. The information in the appendix is as follows:

1) Various e-mails from employees of interest. 2) Excerpts from Darpa’s Quickbooks accounting entries. 3) Darpa Income Statements for the month ending July 2006

Provided below is background information on some of the employees who could be involved with the fraud:

Joe Smith – Chief Financial Officer

Background Joe is the CFO and has been with Darpa for the last 5 years. He is a highly respected executive who started working at Darpa after working at Gamorr Inc. for 29 years. Joe is an approved signor for checks equal to or greater than $50,000.00 Employees at the company like Joe’s laissez-faire management style and his friendly demeanor.

Personal History

Joe has been married for 30 years and has 5 children with 3 currently in college.

Forensic Accounting Case Study Series – sponsored by Deloitte FAS LLP and the Deloitte Foundation

Asset Misappropriation Fraud - Darpa Company Case No. 2-6

Anne Smith – Controller

Background Anne is the Controller and she has been working at the Darpa Company for 17 years since joining right of college.

Personal History

Anne has been married to her high school sweetheart for almost 15 years and they will celebrating their anniversary in about a month. She has no children.

Bill Warner – Accounting Manager

Background Bill Warner is the Accounting Manager and has been working at the Darpa Company for 10 years. He is known for his good work ethic and love of math. Bill rarely makes a mistakes and people have learned not to mess with his financial statements without his permission for fear of his wrath.

Personal History

Bill is single with few friends at the company. Furthermore, Bill recently has not been talking with colleagues and seeks solitude. Many attribute this to him having some medical issues.

Assignment: Please complete the tasks and provide answers to the following questions below as you prepare for a formal in-person meeting with one of the three employees. Tasks/Questions

1. Who would you like to interview and why? 2. What red flags did you discover while reviewing financial statements and e-mails that led

you to your conclusion? 3. What investigative skills/fund of knowledge/other technical expertise would be needed to

resolve a case like this? 4. Using all of the information you just gathered, come up with some questions (and a follow up

question if necessary) to ask either Joe Scott, Anne Smith, or Bill Warner in order to help you determine who committed the fraud and how he/she did it.