ACCT 2212 Forensic Business Investigation

Semester 2, 2018

Group Assignment: 30%

Objective:

The purpose of this assignment is to assist students understand how forensic accounting contributes to fraud investigations and appreciate the difficulties of working with limited information.

Background

Phosphagenics Limited (POH) is a publicly listed biotechnology company on the Australian Stock Exchange (ASX). Briefly, POH was the victim of a $6M fraud orchestrated by the CEO, Dr Esra Ogru (Ogru) from 2004 until 2013. Ogru perpetrated this fraud initially with Dr Robert Gianello (Gianello) and later included Dr Woei-Jia Jiang (Jiang). It is interesting to note that a red flag was detected in 2008 by Alister Hodges, the ex-CFO of POH but was diffused by Ogru. The fraud was eventually discovered during 2013 by the newly appointed CFO Anna Legg. It appears that the auditors of POH did not detect the fraud at any stage between 2004 and 2013. The following chronology provides a summary of events leading to the incarceration of Ogru, Gianello and Jiang.

On 1 July 2013 POH informed the ASX of invoicing and accounting irregularities and that Ogru was suspended from performing her duties as CEO. On 22 July 2013 POH informed the ASX that Ogru resigned as CEO. Two days later on 24 July 2013 POH updated the ASX about the extent of the invoicing and accounting irregularities previously advised on 1 July 2013. Between 30 October 2013 and 8 November 2013 POH informed the ASX that Deeds of Settlement were entered into by various parties to pay POH the misappropriated funds plus a fixed amount in respect of interest and costs.

Ogru, Gianello and Jiang pleaded guilty to the fraud and on 7 November 2014 were sent to prison. Gianello appealed his sentence however the appeal was dismissed.

Instructions

The following documents have been provided to assist you with your assignment:

Judgements:

DPP v Gianello, [2014] VCC 2015

Robert Gianello v The Queen, [2015] VSCA 205

Article:

Gardner, Jessica 'The tale of Esra Ogru - high-flyer, fraudster and heroic mother, Financial Review, 17/11/2014.

1You must read these documents and conduct your own research to answer the assignment questions below. Failure to conduct your own research limits the quality of responses to assignment questions.

2.Financial data can be obtained from the Morningstar DatAnalysis database via the RMIT Library link. Refer to the DatAnalysis Guide on Canvas to obtain access to this database.

3.There is no need for an executive summary or conclusion as you are not writing a 'report'. Simply answer the assignment questions.

4.The maximum length of the assignment is 3,500 words, excluding appendices, and attachments.

5.Format is Arial 11 point, 1.5 spacing, paginated. Use a separate page to answer each question. Answers to questions must be clearly identified.

6.The assignment will be marked out of 60 marks, scaled to 30% of the final mark in this course. Please refer to the Assignment Rubric on Canvas.

Required:

1.Analyse and explain the fraud committed by Ogru, Gianello and Jiang.

(15 marks).

2. It is not clear from available public records if the fraudsters Ogru, Gianello or Jiang were prosecuted for false accounting. Discuss whether the fraudsters could be prosecuted for the fraud offence 'false accounting' under S81(1) of the Crimes Act 1958.

(8marks).

3.Do you think the fraud committed by Ogru, Gianello and Jiang risked the collapse of POH? Justify your opinion, stating any assumptions and/or limitations to your opinion.

(12 marks).

4.Analyse the financial statements from FY2004 and FY2013 using the analytical methods below and critically discuss red flags which may be revealed by each analytical method. Please show all calculations.:

Analytical methods:

(d) Beneish ratios.

(e) M-scores using both the five variable and eight variable models.

(15 marks)

5. Marks will be awarded for quality. This means the assignment must be formatted appropriately, written in plain English, there are no spelling and/or grammar errors and your work is appropriately referenced. Please note that RMIT University Academic Integrity policy applies to all written work, including this assignment. The policy can be viewed here http://www1.rmit.edu.au/students/academic-integrity.

(10 marks).

(Total 15+ 8 + 12+ 15+ 10 = 60 marks)