ACC423 Module5-4

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ACC 201
Oct 22, 2023
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ACC-423-Q1985 Detect/Prevent Fraud Fin Stmts 5-4 Case Study - Drying Out Fraud Rio O. Ustick Professor Debra Touhey October 2, 2023 What kind of inventory misappropriation was discussed? In the article " Drying Out Fraud," the perpetrator was the HBC's assistant manager; over six months, 72 sales contracts totaling US$ 35,000 had been submitted to the warehouse without any corresponding customer billing address. The assistant manager confessed the scheme to the manager and offered to resign instead of preventing the scheme; the manager was asking for a commission of 20% for every fraudulent contract; therefore, both committed a scheme. The red flags in this case are that the delivered appliances have no corresponding billing address, and all contracts are coded as "customer pick up," and the company service did not deliver the appliances. The contract noted that half of the contracts were electric dryers instead of natural gas dryers. Aside from that, most of the sales were made to the employees under the employee discount arrangement allowed by the appliance suppliers. Fraudulent activity cannot be eliminated, but it can be prevented. When the manager suspected the perpetrator, he took appropriate action and investigated the scheme. A fraud-reporting policy should be implemented, and a fraud hotline. The company should have a written conflict of interest policy disclosure which is required annually. The company must implement controls to established the
procedures to reconcile the contracts with the inventory, aside from that the management has both regulated and unregulated segments which are required to certify adherence to the conflict-of-interest policy and also the code of conduct and ethics. Reference: Morgan, B. (2005). Drying Out Fraud. The Internal Auditor, 62(4), 111-111,113,115. out-fraud%2Fdocview%2F202749917%2Fse-2%3Faccountid%3D3783
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