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    Fraud detection

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    1. You just received a tip that a substantial amount of inventory is being stolen from the dock area of the company for which you work as an internal auditor. What techniques might be useful in determining whether this allegation is true?

    2. A manager is suspected of making top-side journal entries to increase the income of the company because his bonus depends on the company's achieving at least a certain level of income. What would you, a trained forensic accountant, look for when investigating this type of fraud?

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    Solution Preview

    See the attached file.

    Forensic Accounting
    1. Internal auditing techniques can be used to determine if there has been theft of inventory. There could be warning signs which indicate the theft, like (Basu, n.d):
    • Missing packing slips and sales receipt,
    • Complaints from customers about lost goods
    • Increase in the number of damaged goods
    • Sharp drop in sales, even in the busy periods
    • Errors or misstatements in inventory balances. If there is inventory fraud there would be ...

    Solution Summary

    Various fraud detection techniques for inventory related fraud and inflated income fraud have been presented in a concise manner.