Forensic Accounting: Assurance Engagement 2: Net Worth Analysis. You can use the computer-based Electronic Workpapers on the textbook website to prepare the net worth analysis required in this problem. Net worth analysis is performed when fraud has been discovered or is strongly suspected and the information to calculate a suspect's net worth can be obtained (e.g., asset and liability records, bank accounts). The procedure used is to calculate the person's change in net worth (excluding changes in market values of assets) and to identify the known sources of funds to finance the changes. Any difference between the change in net worth and the known sources of funds is called funds from unknown sources, which might include ill-gotten gains. Nero has worked for Bonne Consulting Group (BCG) as the executive secretary for administration for nearly 10 years. Her dedication has earned her a reputation as an outstanding employee and has resulted in increasing responsibilities. Nero is also a suspect in a fraud. During Nero's first five years of employment, BCG subcontracted all of its feasibility and marketing studies through Jackson & Company. This relationship was terminated because Jackson & Company merged with a larger, more expensive consulting group. At the time of termination, Nero and her supervisor were forced to select a new firm to conduct BCG's market research. However, Nero never informed the accounting department that the Jackson & Company account had been closed. Because her supervisor allowed Nero to sign the payment voucher for services rendered, she was able to continue to process checks made payable to Jackson's account. Nero was trusted to be the only signature required to authorize payments less than $10,000. The accounting department continued to write the checks and Nero took responsibility for delivering the checks. She opened a bank account in a nearby city under the name of Jackson & Company, where she made the deposits. Nero's financial records have been obtained by subpoena. Exhibit 6.61.1 provides a summary of the data obtained from her records.

EXHIBIT 6.61.1

Nero's Subpoenaed Records

Required:

You have been hired to estimate the amount of loss by estimating Nero's funds from unknown sources that financed her comfortable life style. (Hint: Set up a working paper like the following:)

Assets Residence Stocks and bonds Automobiles Certificate of deposit Cash Liabilities Mortgage balance Auto loan Income: Salary Other Expenses: Scheduled mortgage payments Auto loan payments other living expenses Year 1 $100,000 30,000 20,000 50,000 6,000 90,000 10,000 Year 2 $100,000 30,000 20,000 50,000 12,000 50,000 34,000 6,000 6,000 4,800 20,000 Year 3 $100,000 42,000 40,000 50,000 14,000 36,000 6,000 6,000 22,000