<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">This paper differentiates between a fraud audit and a financial statement audit and suggests that small businesses usually need a fraud audit although they engage a financial statement audit.<span style="mso-spacerun: yes;"> </span>A CPA trained in fraud examination and forensic accounting should conduct the fraud audit.</span></span></p>
This case is based on an actual fraud that occurred and provides you with an opportunity to develop fraud examination skills, which include document examination, searching public records, financial statement analysis, and communicating the results of your work. Such skills benefit all accounting students regardless of the career path they may choose (e.g., a fraud investigator, an auditor, a consultant, a tax accountant). This case also: (1) exemplifies the complexity often found in fraud cases, and (2) illustrates how fraud examinations differ from financial statement audits. While some of the names of the parties involved have been changed, no facts in the case have been altered. Interstate Business College (IBC), founded in 1912, collapsed in the wake of allegations of top management fraud. The allegations became public when 23 former students filed a lawsuit against the director and owner of IBC, alleging misappropriation of student funds. You will assume the role of the fraud investigator hired by their attorney to determine if there is evidence to support their claim. Upon completion of the case, you will have a sense of the amount of documents, detail, and work involved when resolving fraud allegations.
Defines on‐book and off‐book fraud: the former occurs when theft takes place after the recording of money on the victim company’s books, the latter when it occurs after recording, and types of such fraud can involve billing, payroll, expenses, cheque tampering, and register disbursement. Describes methods of investigating off‐book fraud: financial statement analysis, undercover surveillance, invigilation, and admission‐seeking interviews. Gives a case study concerning the Northern Exposure club, where so much skimming occurred that only 10% profits were being made after tax instead of the 30% expected; details how the fraud investigators proceeded by generating fraud theories based on the controls, or lack of, for monitoring cash flows, then collecting and evaluating evidence, estimating the losses incurred, and so on.
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