As a trainer for a forensic accounting firm, you have been asked to establish a matrix to provide the firm’s investigation teams with a “symptom” list to aid them in their assessment of potentially fraudulent actions. As part of this matrix, you should include a list of possible red-flag search results, which could be indicators of specific fraudulent activity that is occurring. For example:
•Red Flag: Your research has uncovered vendor invoices that have alterations on the purchase order documents (e.g., back dating, white-out) that are supposed to support these invoices.
•Potential Activity: Goods are being purchased for personal use.
•Type of Fraud: Employee is committing purchasing fraud. Red flags noted during the investigation and which you will include in the matrix include:
•Duplicate payments to the same vendor with no backup documentation.
• Excessive number of adjusting entries, and repetitive use of adjusting entries for no apparent purpose. •Price increases by one vendor of 30% year-over-year.
•No original contractor documents available — only photocopied documents.
•An employee who shares the same address, telephone number, or bank account number with an accounts payable vendor.
•Missing inventory and equipment.
•Unexplained items on bank reconciliations and other account reconciliations.
Part 2: Discuss other types of red flags that you would look for during an investigation and discuss their importance. Keep in mind that different types of investigations would likely lead to the analysis of different source documents and metrics.