Acctg 483 Exam 3

A sales employee created a "dummy" customer record. The sales employee then recorded phony refunds and then pocketed the cash. What procedure would likely catch this fraud?

Extract customers with no telephone numbers or tax ID number

Injured party must prove liability and damages

in order to pursue a claim for legal damages successfully.

Register disbursement fraud

in the form of falsified returns can be detected by physical inventories.

Pass through scheme

is a subcategory under shell company schemes. Perpetrating a pass through scheme requires the ability to add vendors to vendor master file. Actual goods or services are purchased by the shell company and resold, at an inflated price to the victim organization.

Bribery

is as offering, giving, receiving, or soliciting anything of value to influence an official act.

Final concealment strategy with stolen deposits

is to carry the missing money as deposits in transit

Segregation of duties

the internal control procedure that is most effective in preventing skimming

The discounted cash flows method (DCF) requires

an estimate of future earnings or cash flows, an understanding of the duration of those cash flows, and the determination of an appropriate risk adjusted discount rate in determining Present Value(PV)

Subsequent events

are events occurring or becoming known after the close of the period that may have a significant effect on the financial statements should be disclosed

Economic extortion schemes are

committed when one person demands payment from another, typically with the implication that harm will come if the payment isn't made

Red flags associated with improper asset valuation:

-Recurring negative cash flows from operations, or an inability to generate cash flows from operations, while reporting earnings and earnings growth -Significant declines in customer demand and increasing business failures in either the industry or the overall economy while company reports earnings and earnings growth -Unusual increase in gross margin or margin in excess of industry peers.

Fixed assets are subject to manipulation through several different schemes, including

1. Booking fictitious assets 2. Misrepresenting asset valuation 3. Improperly capitalizing items that should be expensed

Ways to detect altered expense schemes is to

1. Compare the expenses claimed to the credit card statement 2. Require a company issued credit card for all expense purchases 3. Require a full printed receipt, as opposed to a "summary receipt"

the venues where the fraud examiner or forensic accountant can expect to be evaluated, scrutinized and challenged includes

1. Deposition testimony 2. Trial testimony 3. Meetings with counsel where they determine how to proceed with the case

Valuations can be developed to address a number of issues relating to:

1. Liquidations 2. Mergers and acquisitions 3. Bankruptcy 4. Divorce

Public records include

1. Real and personal property records 2. Criminal and civil litigation records 3. Stock trading activities for public companies by executives

Reasons senior managers issue fraudulent financial statements

1. To conceal true business performance 2. To preserve personal status/control 3. To maintain personal income/wealth flowing from salary, bonus, stock and stock options.

Force balancing

A fraudster has a hand in both ends of the receipting process, he or she can falsify records to conceal the theft of receivables payments.

Determining incremental costs

Allocated costs, accounting estimates, and the time value of money are all areas of concern

Forensic accounting investigation

Documents are not only subjected to confirmation with external parties, but may also be subjected to fingerprint analysis.

2 of the most common fraud schemes involving accounts receivables are

Fictitious receivables and failure to write-off accounts receivable as bad debts

Fraudulent expense reporting

Receipt numbers from the same establishment that are consecutive even though they occur over a period of time, expense amounts ending in "0", and expense amounts consistently under the threshold for requiring a receipt are all red flags for this occuring

Fictitious maker

a check on which the signature is forged is an example of

Related-party transactions occur when

a company does business with another entity whose management or operating policies can be controlled or significantly influenced by the company or by some other common party

Lapping

a method of concealing the theft of cash which involves the crediting of one account through the abstraction of money from another account