Final Project
Cardinal Wholesalers Inc
Introduction
The fraud was planned and executed by Smith and Bill
They came up with non-existent company to supply Cardinal Wholesalers with non-existent goods
All went well until Bill spilled the beans while drug
That is how the organization got tipped and began investigations
Motivating Factors: Presence of fraud Triangle
Pressure
Bill had been fired
Had bills to pay and a family to provide for
He had debts and mortgage to pay every month end
This pressure got him thinking about this scheme
He had been in Cardinal Wholesalers and he knew his way around it
Mike had debts and lavish lifestyle he needed to sustain
http://www.internalauditor.me/article/the-fraud-triangle/ financial constraints put Bill and Mike in a situation where they felt the need to commit fraud to meet their financial needs
3
Opportunity
Opportunity was abundant for them given that mike was working in the company and could approve the shell company and male the payments. Bill also understood how things worked in the company. The organization also did not verify receipts of service before making payments
4
Bill understood the workings of Cardinal Wholesalers
He could weave his way in through a shell company
Smith, his friend worked in the company
He could help approve the shell company
He could approve receipts for payment
The company did not verify receipts of service before payment
Rationalization
The two convinced themselves and justified the fraud that it was necessary for it to get them out of their financial situation and then they could stop.
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Bill thought he could run the scheme temporarily and close it when his situation improved
Mike thought he could use the proceeds from the scheme to settle his debts and once he is done he stops
The scheme never stopped when it started
How I Detected Fraud
After the tip off, investigations began to fish out any shell companies within the organization database. Data base was queried for common red flags such as vendor phone numbers and vendor address
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I did investigations about this fraud
It was first detected through a stranger who called the company about Bill spilling beans in a bar
Analysis of financial statements was carried out
Database was queried for some common red flags
Vendor phone number
Vendor address
Tax identification number
Cancelled checks
Common Red Flags
All of the above indicate the common red flag in organization fraud
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Invalid or complete lack taxpayer identification number
Having a post office address and no physical address or contradictory addresses such as having vendor address that looks like that of an employee
When vendors have no phone numbers
Excel or word document invoices can also raise a red flag
Invoices that have fold mark anomalies such as creases; showing they have been send through email also indicate existence or possibility of fraud
Invoices with irregularities such as even dollar amounts, no tax amounts indicate
Consecutive serially numbered invoices indicating that the vendor has no other customers. Ordinarily a vendor will have more than one customer
Illustrations
Missing taxpayer ID
Missing Addresses
Pictures in the slide above show missing addresses and taxpayer ID which were part of queries to the database
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Fictitious v. pass through schemes
| Fictitious Vendor Scheme | Pass-through vendor scheme |
| Victim company receives nothing from the fictitious company apart from the bogus invoices | Presence of a shell company |
| Invoices from the shell company instead of from the real vendor delivering merchandize | |
| Payment made to the fictitious company | Payment made to the shell company |
Loss estimated
Tri-state trucking the most suspicious vendor
Evidence of fraud
All payments in round figures
Invoice numbers follow each other consecutively
Amounts paid increasing over times at some steady pattern
Loss estimate $1,758,500.
From Tri-states Trucking $1, 758, 500 was incurred
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Recommendations
To prevent fraud the organization needs to implement the recommendations made in the slide above. They could introduce internal controls, vet and train their employees well
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Vet employees properly while hiring them
Do background checks
Ask for certification
Internal controls
Separate duties
Real time transaction monitoring
Employee training
Train employees on ethical code of conduct
Let them love the organization
References
BUCCIGROSS, S. T. (2016). 10 Tips to Help Businesses Avoid Accounts Payable and
Purchasing-Related Fraud. Professional Contractor, 5–7. Retrieved from
http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=117822961&site=ehot-live
Huber, W. D. (2017). Forensic Accounting, Fraud Theory, and the End of the Fraud
Triangle. Journal of Theoretical Accounting Research, 12(2), 28–49. Retrieved from
http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=125119419&site=ehost-live
Mirinaviciene, S. (2014). Internal Control and Fraud Prevention: Prior Research
Analysis. Science & Studies of Accounting & Finance: Problems & Perspectives /
Apskaitos Ir Finansu Mokslas Ir Studijos: Problemos Ir Perspectyvos, 1(9), 173–179.
Retrieved from
http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=99858089&site=ehost-live