Company Overview

Fun & Games Corporation ("Fun & Games" or the "Company") is a local toy store that sells alltypes of children's toys and is based in Alexandria, Virginia. The Company has been in businesssince 1950 with multiple locations in the DC area. The Company has continued to grow and hasbeat its revenue projections for the past few years.

Scenario

You are a Partner at Knox LLP ("Knox"), a boutique forensic accounting firm located in

Washington, D.C. On30/1/2020you received a call from your long-time friend Howard Green,the chief legal officer at the Company, requesting a meeting with youduring the month ofFebruary2020,regarding analleged fraud scheme committed by Carla Cosgrove, an employee at Fun & Games. During themeeting, you learned the following facts:

Overview of the Allegation:

1. Two weeks ago, Harold Lewis, CFO of the Company, received a phone call from theCompany's bank explaining a check drawn on its operating account had been flagged aspotentially fraudulent and an employee of the Company had presented the check fordeposit.

2. The check in question was for $50,000.25 and had been issued to one of Fun & Games'largest vendors, Buddy the Elf Toy Store.

Company Structure:

1. Fun & Games has multiple departments based on toy type. The departments are as

follows:

a. Games

b. Building Sets & Blocks

c. Action Figures

d. Dolls

e. Stuffed Animals

f. Pretend Play & Dress-Up

g. Outdoor Play

2. Each department furthers breaks down costs based on a cost center or a specific

category within the department.

3. The specific cost center codes and titles for the Games department are as follows:

a. G101 - Card games

b. G102 - Board games

c. G103 - Puzzles

d. G104 - Electronic & interactive games

e. G105 - Magic

f. G106 - Travel games & novelties

g. G107 - Game Rooms

h. G108 - Marketing

i. G109 - Taxes

j. G110 - Telephone

k. G111 - Internet

l. G112 - Electric

m. G113 - Office Supplies

Initial Investigation/Background Facts:

After receiving a phone call from its bank, the Company performed an initial investigation anduncovered the following facts:

1.Buddy the Elf Toy Store is a legitimate vendor of Fun & Games and the check inquestion was a quarterly payment due on Invoice Number 78320 as part of theCompany's recently updated contract with Buddy the Elf Toy Store.

2.The invoice in question was retrieved from the Accounts Payable ("AP") department andhad been approved and submitted for payment by Carla Cosgrove of the Gamesdepartment.

3.Carla had requested that the check for Buddy the Elf Toy Store should be returned toher by the AP department once it was issued and she would mail it to the vendor.

4.The Company contacted Buddy the Elf Toy Store and Buddy the Elf Toy Storeconfirmedthat all other invoices paid to Buddy the Elf Toy Store were legitimate and the funds hadbeen received.

5.The investigation involved discussions with Buddy the Elf Toy Store and theCompany'sAccounts Payable department. During the internal discussions it wasdiscovered thatCarla often didn't follow procedures.

6.After finding out that Carla didn't adhere to procedures, the Company sent her hometocomplete their investigation without her present.

7.The Companysuspectthat Carla Cosgrove was acting fraudulently andterminatedher from the Company. At the time of her termination her annual salary was $50,000.

8.Carla Cosgrove joined the Company in 2015and has always been a budget directorinthe Games department of the Company.

9.Carla's regular duties included overseeing the budget process for each of the costcenters within the department and working with the Company's Chief Budget Director tointegrate the Games department budget within the overall budget for the Company,attending quarterly budget meetings and attending the yearly budget presentations toCompany management for approval.

10.In approximately 2016, Carla had been delegated additional responsibilities from thehead of the Games department, Harvey Peacock, to include approving and processingvendor payments and employee expense reimbursements.

11.Carla was a well-liked employee and had made friends with a number of the staff intheAP department.

12.The Company learned a number of items about Carla from the initial interviewsconducted with employees, including the following:

a. Carla was an avid traveler and had taken numerous trips in the past few years tothe Caribbean.

b. Carla and her husband had recently built a large home in Kensington, MD.

c. Carla drove a Lexus SUV with a license plate that read "Flowers."

d. Carla had lots of expensive looking jewelry and designer hand bags, which

employees had assumed were fake.

13.The Company learned Carla had purchased a floral business in approximately 2018called Flower Patch Incorporated. Preliminary internet searches listed the address of thebusiness at 732 Independence Way, Kensington, MD.

Engagement:

After the preliminary meetings are concluded, you meet again with Howard and he tells you theCompany is concerned that Carla had submitted other fictitious invoices.Therefore, youare beingaskedto perform a forensic investigation andprepare a reportthat present your findings to the CFO

a.Identify and explain any red flags that you uncovered during your investigation?