Chapter 6: Cash and Highly-Liquid Investments

Here is an actual fraud case I witnessed as a CPA. Let's see how you can do as a forensic accountant!

There was a medium size hotel owned by three local men on the Washington Coast. The three men had their own businesses and did not have time to run the hotel's day-to-day operations themselves. So, they hired a fulltime manager to handle all the reservations, bookkeeping, bank deposits, mail, and management. What is wrong with this situation based on your chapter eight reading on internal controls.

One day, one of the owners was talking to another hotel owner in town and the other man suggested that he make sure that cash deposits were being made into the bank accounts. What potential problem he was discussing? How could this be tested?

The three owners found that no cash deposits had been made by the manager in several months! How could they determine how much income was missing? Hint: think about the one record of room rentals that would not have been maintained by the manager.

The CPA investigating this case found that the manager had stolen around $40,000 from the hotel. The manager confessed and agreed to move to another town and pay restitution in return for not going to jail. Do you think this was a fair punishment?