A local hank reported that it lost $150,000 as the result of employee fraud. Ray Fairburn is not clear on what is meant by “employee fraud.” Explain the meaning of fraud to Ray and give an example of fraud that might occur at a bank.
Fraud: Fraud is a deliberate and deceptive action of an employee to obtain unlawful gain from the employer.
To define: Fraud with an example
Explanation of Solution
Definition: Fraud can be defined as a deliberate and deceptive action of an employee to obtain unlawful gain from the employer.
Example: A bank employee could transfer the money from any customer deposit account to his personal accounts through computer. This kind of internal embezzlement committed by bank employee, against his employer is referred to as employee fraud.
Want to see more full solutions like this?
Chapter 7 Solutions
Financial Accounting: Tools For Business Decision Making, 7e Loose-leaf Print Companion
- On February 15, 2022, Kate Collins, owner of Kate’s Cards, asks you to investigate the cash han- dling activities in her business. She believes that a new employee might be stealing funds. “I have no proof,” she says, “but I’m fairly certain that the January 31, 2022, undeposited receipts amounted to more than $12,000, although the January 31 bank reconciliation prepared by the cashier (who works in the treasurer’s department) shows only $7,238.40. Also, the January bank reconciliation doesn’t show several checks that have been outstanding for a long time. The cashier told me that these checks needn’t appear on the reconciliation because he had notified the bank to stop payment on them and he had made the necessary adjustment on the books. Does that sound reasonable to you?” At your request, Kate shows you the following (unaudited) January 31, 2022, bank reconciliation prepared by the cashier: KATE’S CARDS Bank Reconciliation January 31, 2022 Ending balance from bank statement . . . $…arrow_forwardWhich of the following is NOT a method UCI's former executive VP and CFO used to embezzle 2.97 million? options: 1) Charging personal purchases on UCI's corporate credit card, followed by arranging for UCI to pay the credit card statement by check 2) Preparing false expense reports and submitting them for reimbursement, resulting in payment to himself since nobody other than the accounts payable supervisor reviewed these reports 3) Adding family members to UCI's payroll and placing large checks into their bank accounts 4) Submitting unsupported check requests for personal credit card accounts and nonbusiness expenditures, such as construction work on his personal residencearrow_forwardOn February 15, 2019, Kate Collins, owner of Kate’s Cards, asks you to investigate the cash han-dling activities in her business. She believes that a new employee might be stealing funds. “I have no proof,” she says, “but I’m fairly certain that the January 31, 2019, undeposited receipts amounted to more than $12,000, although the January 31 bank reconciliation prepared by the cashier (who works in the treasurer’s department) shows only $7,238.40. Also, the January bank reconciliation doesn’t show several checks that have been outstanding for a long time. The cashier told me that these checks needn’t appear on the reconciliation because he had notified the bank to stop payment on them and he had made the necessary adjustment on the books. Does that sound reasonable to you?”At your request, Kate shows you the following (unaudited) January 31, 2019, bank reconciliation prepared by the cashierYou discover that the $1,200 unrecorded bank credit represents a note collected by the bank on…arrow_forward
- An employee of JHT Holdings, Inc., a trucking company, was responsible for resolving roadway accident claims under $25,000. the employee created fake accident claims and wrote settlement checks of between $5,000 and $25,000 to friends or acquaintances acting as phony victims. One friend recruited subordinates at his place of work to cash some of the checks. Beyond this, the JHT employee also recruited lawyers, whom he paid to represent both the trucking company and the fake victims in the bogus accidents. When the lawyers cash the checks they allegedly split the money with the corporate JHT employee. This fraud went undetected for two years Answer the following true or false questions concerning the fraud. Frauds that are perpetrated with multiple parties in different positions of control make detecting fraud more difficult. Claims should be authorized and verified before payment is made. The employee made sure each claim had a phony victim. Corrupt lawyers were bought into the fraud…arrow_forwardDuring the preparation of the bank reconciliation for Apache Grading Co., Sarah Ferrari, the assistant controller, discovered that Rocky Spring Bank incorrectly recorded a $610 check written by Apache Grading Co. as $160. Sarah has decided not to notify the bank but wait for the bank to detect the error. Sarah plans to record the $450 error as Other Income if the bank fails to detect the error within the next three months. Discuss whether Sarah is behaving in a professional manner.arrow_forwardDuring the preparation of the bank reconciliation for Building Concepts Co., Joel Knolls, the assistant controller, discovered that Lone Peak National Bank incorrectly recorded a $3,290 check written by Building Concepts Co. as $329. Joel has decided not to notify the bank but wait for the bank to detect the error. Joel plans to record the $2,961 error as Other Income if the bank fails to detect the error within the next three months.Discuss whether Joel is behaving in a professional manner.arrow_forward
- During the preparation of the bank reconciliation for Building Concepts Co., Joel Kimmel, the assistant controller, discovered that Lone Peak National Bank incorrectly recorded a $3,290 check written by Building Concepts Co. as $329. Joel has decided not to notify the bank but wait for the bank to detect the error. Joel plans to record the $2,961 error as Other Income if the bank fails to detect the error within the next three months. Discuss whether Joel is behaving in a professional manner.arrow_forwardAn employee of JHT Holdings, Inc., a trucking company, was responsible for resolving roadway accident claims under $25,000. The employee created fake accident claims and wrote settlement checks of between $5,000 and $25,000 to friends or acquaintances acting as phony “victims.” One friend recruited subordinates at his place of work to cash some of the checks. Beyond this, the JHT employee also recruited lawyers, whom hepaid to represent both the trucking company and the fake victims in the bogus accident settlements. When the lawyers cashed the checks, they allegedly split the money with the corrupt JHT employee. This fraud went undetected for two years.Why would it take so long to discover such a fraud?arrow_forwardD.J. Fletcher, a trusted employee of Bluestem Products, found himself in personal financial difficulties and decide to “borrow” $3,000 from the company and to conceal his theft. As a first step, Fletcher removed $3,000 in currency from the cash register. This amount represents the bulk of the cash received over the counter during the three business days since the last bank deposit. Fletcher then removed a $3,000 check from the day’s incoming mail; this check had been mailed in by a customer, Michael Adams in full payment in his account. Fletcher made no journal entry to the record the $3,000 collection from Adams but deposited the check in Bluestem Product’s bank account in place of the $3,000 over-the-counter cash receipts he had stolen. In order to keep Adams from protecting when his month-end statement reached him. Fletcher made a journal entry debiting Sales Returns and Allowances and crediting account receivables Michael Adams. Fletcher posted this entry to the two general ledger…arrow_forward
- During the preparation of the bank reconciliation for The Image Co., Chris Renees, the assistant controller,discovered that Empire National Bank incorrectly recorded a $936 check written by The Image Co. as $396. Chris has decided not to notify the bank but wait for the bank to detect the error. Chris plans to record the $540 error as Other Income if the bank fails to detect the error within the next three months. Determine whether Chris is behaving in a professional manner.arrow_forwardSuppose that someone stole your ATM card and withdrew $1,000 from your checking account. How much money could you lose (according to federal legislation) if you reported the stolen card to the bank:arrow_forwardIn a huge fraud scandal, CEO and CFO stole $150 million and inflated the company income by$500 million. A general ledger clerk was also implicated in the scheme. It was reported that they siphoned money through unapproved loans and fraudulent stock sales. Money was smuggled out of company disguised as executive bonuses or benefits. The reason cited by the perpetrators was that they needed money to pay off some gambling debts.In addition, they also stated that they worked long and hard hours at the company without being properly compensated or recognized. Upon investigating, the auditors found that the fraud had taken place on two levels. The auditors documented in their report that all the three factors of fraud were present. In addition, the auditors found that the company’s control systems deviated from the COSO framework. You are required to: a. IDENTIFY and EXPLAIN the TWO (2) levels of fraud that the auditors found. b. Making reference to the case, IDENTIFY and EXPLAIN…arrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning