Alex Harbinger, a certified public accountant, has worked for the past eight years as a payroll clerk for Southeast Industries, a small furniture-manufacturing firm in the Northeast. Alex recently experienced unfortunate circumstances. His wife required major heart surgery and the medical bills not covered by Alex's insurance have financially strained his family.

Alex is a hard worker and a model employee. Although he received regular performance raises during his first few years at the company, his wages have not increased in the past three years. Alex recently asked his supervisor, Janna Johnson, for a raise. While Janna agreed that Alex deserved a raise, she told Alex that he could not currently approve of one because of sluggish sales.

Alex returned to his accounting duties while the financial pressures in his life continued. Two weeks later, when a salesperson, Taylor Green, quit over a dispute with management, Alex came up with a plan. Since he processed employee terminations, time card approval, and paycheck distribution, Alex decided to delay Ms. Green's termination, forge the time cards with her signature and then cash her checks for himself. (Since he distributes the paychecks every two weeks no one would find out anyway.) In fact, no one ever discovered his scheme and Alex continued the practice for a full year, earning Alex an extra $95,000.

1. How does Alex's scheme affect Southeast's balance sheet (specifically Cash and Retained Earnings) for the year? Ignore income taxes.
2. How does Alex's scheme to continue to pay Taylor affect the income statement (specifically Revenues, Expenses and Net Income)?

3. Use the fraud triangle from (Chapter 4 Exhibit 4.5) to identify the three elements of the fraud triangle and to explain how Alex violated each of these elements. Write two to three sentences to explain each fraud element.

4.What internal controls could have been put in place to prevent Alex's paycheck scheme in the first place?