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Chapter 5 Homework

Decent Essays
Jazzlynn Ben
Chapter 5 Problems
Dr. Ennis

5.1. You were asked to investigate extremely high, unexplained merchandise shortages at a department store chain. You found the following:
a. The receiving department supervisor owns and operates a boutique carrying many of the same labels as the chain store. The general manager is unaware of the ownership interest. -- It is a red flag warning so it is a fraud because there is a conflict of interest situation which should have alerted the auditor to the possibility of fraud.

b. The receiving supervisor signs receiving reports showing that the total quantity shipped by a supplier was received and then diverts 5% to 10% of each shipment to the boutique. --There is a false
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List two procedures you could follow to uncover John’s fraudulent behavior.

1) Trace all of the payments back to the supporting documentation. No record of the receipt of the goods would be listed in the receiving department, as well as the purchasing department. 2) Inspect the documentation supporting
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