Case 1-3 of Fraud Case Studies

Case 1: “A one-cent error”

A one cent error can lead to many significant error especially in accounting or auditing. In this case of a reconciliation, an audit was performed which brought problems to the surface that even the owner didn't know about. The owner was “blind-sided” because he trusted his auditors who approved his books as “Passed-immaterial”. His auditors concept of immaterial was to let the simple mistake of a cent go through without even consulting his client, the owner. This affected his business negatively and earned him his first fine in 34 YEARS, a very long time to own a small business. A one cent error for a big company (> $100m in earnings/revenue) is immaterial but should always be disclosed to the owners/shareholders for mistakes or misrepresentations. In this case, it was for a small business which the owner trusted his staff accountant who betrayed his trust.

C2: “That Trusted employee”

The fraud occurred because he trusted his employee, Stacy. With every business, the importance of skepticism shouldn’t be understated. However long an employee has been with you, the concept of the fraud triangle follows because when opportunity arises, you or the company might not be as relevant in the moment. Rationalizing the act could be stronger than the value of the effort he/she has proven or provided to the company. Opportunity in the fraud triangle is the most important element because without it, fraud cannot occur. In the case, there were several opportunities afforded to her by her boss which she took advantage of.

Additionally, cases like this, segregation of duties is very important because it eliminates fraud and error. It is a very important internal control because unless two or more are collaborating, fraud cannot occur. Another important fact noted was that she worked long hours and rarely took breaks which would have helped in accruing the debt amounts. Certain indicators should have informed Jim, the owner, that something suspicious was going on. His failed trust in his employee led to the mistake and he is also at fault for the occurrence of the fraud because he had poor internal controls. For further prevention in the future, he can introduce mandatory vacation policies and segregation of duties which either require two signatures or different people handling the books weekly.

Case 3: “Employee Fraud at Miami Rehabilitation Center”

Q1: In order to fraud to occur, the three elements of fraud have to be present: Opportunity, Rationalization & Pressure. Opportunity is the most important because without it, the likelihood for fraud to occur is significantly low. In Helen’s case, she wasn't supervised closely by the office manager, Maria Vega. She was left to handle all monetary aspects of the job such as picking up all mails and receipts involving cash, checks and credit card payments. The office manager didn’t review this carefully because there wasn’t proper segregation of