Reference no: EM132685501

Question - HOW MANY LUNCHES CAN YOU BUY?

Not every fraud is theft for personal benefit. Some fall into a gray zone of clearly unethical conduct but no greed or malice. An internal audit team was conducting a routine review of petty cash accounts. The average balance was $800, as expected, but the volume of money going through these accounts was $8,000 to $10,000 a month. Why? The team looked more closely. The company had imposed a strict limit on capital spending that year: "Times are tough." "Cut your capital budget." "Don't spend." But this particular unit of the company had a towering need for new computer equipment. With the capital appropriation request process basically at a standstill, the unit's information technology people had decided to buy computers and related items such as office furniture by using petty cash. They did not report the acquisitions, and they kept the petty cash accounts at about the right level at any point in time.

It was not a dramatic fraud, but it was certainly a circumvention. The managers further up, who understood why capital spending had to be curtailed, were not pleased to learn about this concealed activity at the unit. From the internal auditors' perspective, the key thing was to notice the potential red flag. How many lunches can you buy?

Forensic accounting investigators were called in to review the work of the internal auditors, who had uncovered the fraud rather quickly via only one procedure. The forensic accounting investigators knew how to search for other indications of fraud by way of ensuring that the fraud was confined to this small group and only this scheme.

Required -

1- Give a brief description about the selected case.

2- Name red flags found in each case.

3- Classify found red flags according to the fraud triangle.

4- Give your recommendations to avoid such fraud in the future.