Reference no: EM132459437

Question 1: Jason works at a new software development company. The company has been in existence for only two years. Since the company is new, everybody is working extra hours and spending all of their time developing new products that can be sold to customers. Everybody is busy, and there is very little time for manager-employee interviews. The culture of the company is trusting and fun. When Jason started with the company, the only agreement he had to sign was an agreement to not transfer company software secrets to other organizations. Earlier in the year, Jason learned of an instance where another employee in accounting was fired. The reason was rumored to be fraudulent behavior, but nobody really knew the reason. Do the company's operating procedures encourage fraudulent behavior? In what ways?

Question 2: While performing an audit of T Corporation, the audit team noticed something that didn't look right. The company's receivables aging report showed that bank loan eligible receivables were approximately $91 million. The audit team calculated the bank loan eligible receivables to be approximately $50 million. The client didn't identify specific accounts in writing off bad debts, there was extremely slow credit memo processing, and items that management had not focused on remained uncollected and ineligible for financing. In addition, over the last two years, the company's credit department has had unusually high turnover-four different people had held the credit manager position under an intimidating CFO. The cur-rent credit manager was a friend of the CFO and had worked with him at a previous company. After looking at some invoices and asking about customer information to confirm, the credit manager admitted to creating false documents and arranging fictitious sales with clients-all with the knowledge of the CFO.

Problem 1. What are some of the red flags that point to the possibility of fraud?

Problem 2. What would you say was the main problem in this case that allowed the fraud to occur?