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Fraud Accounting: Name the Five Reactions to Crises

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Jim has been a faithful employee of Daddy's Denture, Inc. (DD) for four years. He has held various positions where he handles receipts, credit memos, and other accounting records. Along with recently added responsibilities, Jim has discovered more opportunity to commit fraud. Over the past three months, Jim figured out that he can create fictitious vendors and write checks from DD to these fictitious vendors and deposit the checks in a new bank account he opened under a false name. Jim put this plan into action and has so far stolen $7,000 from DD. One day, Jim had to call in sick. A coworker, Judd, assumed Jim's responsibilities for the day. As Judd reconciled cashed checks, he noticed that Jim endorsed many of them himself. Judd doesn't believe what he sees. In fact, he leaves the reconciling for Jim to finish when he returns to work.

When Jim returns to work, everything seems normal at first. However, it eventually dawns on Judd that he caught Jim in the act of stealing. Judd becomes angry and confronts Jim. When Judd mentions the endorsements, Jim is dumbfounded and denies being dishonest. After Judd leaves, Jim gets angry, thinking, "What right did he have to take over my duties?" and "I'll be fired for sure!" Back in his office, Judd continues to think about Jim's dishonesty. He decides that Jim is just human, and that he let himself slip this once. Judd decides he should let the issue pass and just hope that Jim realizes his gig is up. Judd believes that Jim is a basically good guy and will probably reconcile his misdoings and return to honest ways. Later that night, Judd feels sad knowing that his good friend, Jim, has done such a bad thing. Meanwhile, Jim decides he shouldn't be angry with Judd. Judd is, after all, only doing what he's been told to do by his superiors. Jim feels horrible about what he has done, not to mention the fact that he got caught.

He decides to fess up and let his boss know what he has been doing before he gets into any more trouble. Name the five reactions to crises and briefly describe how both Jim and Judd proceeded through each phase.

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Solution Summary

The solution lists the five reactions by judd and Jim using quotes from the case.

Solution Preview

Following are quotes from the reading material which demonstrate each phase of the reactions.

Judd:
1. Judd doesn't believe
2. He caught Jim in the act of stealing
3. Judd becomes angry
4. Decides that Jim is just human
5. Judd feels sad

Jim:
1. More opportunity
2. Jim is dumbfounded and denies
3. Jim gets angry
4. Doing what he's been told to do by his superiors
5. To fess up

Explanations for reactions.

Judd

1. Disbelief - Judd cannot believe what he sees because Jim is a friend and Judd wants to think the best of his ...

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