Reference no: EM133474157

Case scenario: Bob and his brother, Bill, owners and operators of Acme Tractor for 30 years, were close to retirement. A local bank had continually financed Acme, which had an inventory of farm tractors worth a million dollars. While this company does not have a lot of employees, the equipment being sold is expensive. The owner's wives, Jane and Julie, shared accounting duties in the company. Jane would approve invoices. Julie would prepare the cheques and either Bill or Bob would sign them. The receipt and payment cycle included a series of checks and balances with no one employee responsible for the entire cycle.

Jane and Julie retired from the business, and James, Bob's son, assumed the bookkeeping responsibilities. James, 30, had been working in various jobs at the business since high school. Now, the brothers entrusted him with all aspects of bookkeeping for the business: accounts payable, accounts receivable, payroll, and all account and bank reconciliations. They gave him cheque-signing authority and a business credit card.

Soon after becoming the bookkeeper, James married and began a family. As his personal monthly bills increased, he found it difficult to maintain the lifestyle he had known when he was single and living with his parents.
At first, James began using his business credit card (or p-card) for small personal expenses, such as gas for his personal vehicle and fast food meals. After several months, his charges for personal expenses increased in number and dollar amount, including charges for taking out his wife and children to fine restaurants, clothing for himself and his family, and even high-end electronic products. No one at Acme noticed the continual increase in charges for personal items because James controlled all payments to the credit card company.

James' fraudulent activities expanded. He began embezzling from the payroll system. Because he was a manager, he didn't have to use the time clock and began to pay himself for excessive overtime hours. He would give himself cheques in lieu of not taking vacation time, even though he took all his vacation days. Acme management was still oblivious.

He then began writing cheques payable to himself, but he would write regular recurring vendor's name on each cheque stub and record this payment in the accounting system to a valid vendor. When the bank statements came each month, James would alter the images of the cheques on the statements to match the vendors on the cheque stubs and in the accounting system. Then he would hide evidence of the cheques he had cashed by photocopying the altered pages of the bank statements and shredding the original statements.

James also opened a new personal credit card at the business' bank. Now it was easy for him to electronically make bank drafts for paying the business' monthly credit card statements and then write company cheques to pay his personal card. If anyone reviewed the cheque stubs, it would only appear that one credit card invoice had been paid each month. James could charge the company's credit card for his personal expenses and charge additional purchases to this new credit card. He used company funds to pay off both cards.

One of the owners was looking for a cancelled cheque when James was out of the office on vacation and discovered that several cheques in one month had been payable to and signed by James. The owners were not aware of these payments. The owners have contacted you to launch an investigation.

Assignment Tasks:

For the above scenario:

Question: Develop an investigation plan for the frauds indicated in the scenario. There should be a separate investigation plan for each of the three (3) frauds. How would you go about the investigation with respect to the credit-card, overtime/vacation payments and cheques written to James? Be specific and present your steps in a logical order. This includes interviews (when and in what order), documents when, where and from whom, what analysis would you do to prove that James did it and how would you determine how much?

It is important to remember that this is a small business that does not have a lot of spare cash to pay for long drawn out investigations, so your plan has to be quick and you need to obtain enough evidence to prove the alleged frauds so that it would stand up in a court of law. Do not just list steps. For each step you need to indicate the purpose of the step and what information are you hoping that the step would provide.

You are required to submit your work in a written report.
Please take note of how the marks are distributed on this assignment as that will assist you in determining how much content you should devote to each section of the assignment.