Reference no: EM131618185

Question: Forensic Accounting: Assurance Engagement 1. Expenditure Analysis. Expenditure analysis is used when fraud has been discovered or strongly suspected and the information to calculate a suspect's income and expenditures can be obtained (e.g., asset and liability records, bank accounts). Expenditure analysis consists of establishing the suspect's known expenditures for all purposes for the relevant period, subtracting all known sources of funds (e.g., wages, gifts, inheritances, bank balances), and identifying the difference as "expenditures financed by unknown sources of income." The law firm of Gleckel and Morris has hired you. The lawyers have been retained by Blade Manufacturing Company in a case involving a suspected kickback by a purchasing employee, E. J. Cunningham. Cunningham is suspected of taking kickbacks from Mason Varner, a salesman for Tanco Metals. Cunningham has denied the charges, but Lanier Gleckel, the lawyer in charge of the case, is convinced the kickbacks have occurred. Gleckel filed a civil action and subpoenaed Cunningham's financial records, including last year's bank statements. The beginning bank balance January 1 was $3,463 and the ending bank balance December 31 was $2,050. Over the intervening 12 months, Cunningham's per month gross salary was $3,600 with a net of $2,950. His house payments were $1,377 per month. In addition, he paid $2,361 per month on a new Mercedes 500 SEL and a total of $9,444 last year toward a new Nissan Maxima (including $5,000 down payment). He also purchased new state-of-the-art audio and video equipment for $18,763 with no down payment and made total payments of $5,532 on the equipment last year. A reasonable estimate of his household expenses during the period is $900 per month ($400 for food, $200 for utilities, and $300 for other items).

Required: Using expenditure analysis, calculate the amount of income, if any, from "unknown sources."