Fraud By Employees And Vendors Accounting Audit Case Studies complete the following problems, which will help you apply your knowledge of fraud perpetrated

Fraud By Employees And Vendors Accounting Audit Case Studies complete the following problems, which will help you apply your knowledge of fraud perpetrated by employees and vendors: Case 51 Case 52 Cases attached Cases
51. Tenkey Book Company operates a chain of retail bookstores throughout the United States. Sandra
Hawthorn, Tenkey’s controller, runs a fairly tight internal control system with rigorous requirements for
the segregation of duties throughout the company. Even the best systems can have problems, and
recently someone called in a tip to the company’s anonymous hotline saying that Tenkey was losing a
significant amount of inventory to employee theft and that the problem was pervasive through many of
the company stores. The caller left no details as to who was committing the thefts or how they were
being committed.
Sandra was alarmed because inventories constituted a large percentage of Tenkey’s assets, and if losses
could occur in even one store, they could probably occur in others too. She called a staff meeting that
included the IT director and the general accounting manager. “We need a plan to investigate this,” she
told them. “Any suggestions?”
Tom Clockspeed, the IT director, jumped right in. “Let’s do a complete inventory of all of our stores,” he
Anna Aburida, the general accounting manager, began shaking her head. “We’re not due to take
inventory for another six months. It would cost us a whole lot of overtime if we do it now.”
Sandra glared at Anna and said, “You’re just going to have to do better than that.”
“Okay,” said Anna. “We need a plan. Let’s start by considering likely suspects. Then we can evaluate the
internal controls surrounding everyone who might be in a position to steal. There has to be a weak point
“This is a little crazy,” said Tom. “You’re making all of these plans when we’re not even sure if the phone
caller was telling the truth. Let’s at least do an inventory of one store before we do anything else.”
Anna frowned. “That’s great Tom. So what happens if we inventory one store and don’t find any
inventory shortage? Then what do we do?”
Tom slid back in his seat and laughed. “Right,” he said. “But what happens next if you don’t find any
control problems? Then we’ve just wasted time. And even if you do find control problems, there’s no
guarantee that fixing them will fix them. And remember, we don’t even know for sure if we do have a
Sandra pounded her fist on the table. “This is going nowhere. I’m going to bring in a forensic accountant
to find out what to do.”
a. If you are brought in as Sandra’s outside forensic accountant, what advice would you give
b. Which employees could be stealing inventory? Describe one or two possible schemes
applicable to this case.
52. John Markov runs a family-owned department store in St. Louis. The store consists of nine different
departments, each with its own department manager. Store hours are Monday through Saturday from
10:00 A.M. to 7:00 P.M., and from noon until 5:00 P.M. on Sunday.
Each department has its own cash register, and two salespersons are assigned to each register. To
prevent any confusion, each salesperson must enter his or her own secret code with each transaction.
At the end of each day, the sales manager in each department tallies the department’s register, collects
the money (cash and checks) from the register, and prepares a transmittal slip for the general manager
to review and sign. The general manager then double-checks the Cash count before signing the
transmittal slips.
After collecting all cash receipts from all departments, the general manager prepares a daily cash sales
report and sends it to the store’s finance manager. The finance manager again counts the money and
signs three copies of the daily cash sales report. She keeps one copy for herself, a second copy goes to
the store accountant, and the last copy goes to the store manager. The finance manager then puts all of
the cash into the company safe, where it stays until the next morning when it is picked up by an
armored car service.
The store accountant reconciles copies of cash sales reports with bank deposit slips and with credits on
the monthly bank statement.
John has a close relationship with the bank, so he is always called first when there is any kind of issue or
problem. He just received a call from one of the bank’s customer service representatives who suggested
that he look into some customer checks that had recently bounced. The bank representative said that
some of the payer names on the checks had come up in bad checks written to a number of other local
“You have an insider working against you,” said the bank employee. “This is happening all over town,
and I heard a police investigator say that there’s always an insider involved.”
a. What possible check fraud schemes might the company be a victim of?
b. Given the store’s procedures for processing cash receipts, which persons in the store are in a
position to participate in a check fraud scheme?

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