Forensic Accounting Case Study Series sponsored by Deloitte FAS LLP and the Deloitte

Foundation

Check Fraud Fun & Games Corporation

Assignment Overview:

This case study is designed to test the students understanding of the materials covered in their accounting classes, as well as to test for fraud awareness. Given that first year associates are required to exhibit a certain level of analytical skills, the case has been developed to test the students ability to use Microsoft Excel to analyze data/patterns and draw conclusions.

The case requires the students to analyze both the information that was provided by Knox LLP during the meeting and the information that was provided by Fun & Games Corporation by way of a document request from Knox LLP. The documents received through the document request were:

1. AP data for all payments/vendors from January 1, 2015 through December 31, 2019 for the Games department. (Download the file from Schoology)

2. Games department budget numbers versus actual spend :

a. The Company implemented a new budget process in FY 2018 and, therefore, they only provide budget data for FY 2018 and FY 2019.

Company Overview

Fun & Games Corporation (Fun & Games or the Company) is a local toy store that sells all types of childrens toys and is based in Alexandria, Virginia. The Company has been in business since 1950 with multiple locations in the DC area. The Company has continued to grow and has beat 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. On 30/1/2020 you received a call from your long-time friend Howard Green, the chief legal officer at the Company, requesting a meeting with you during the month of February 2020, regarding an alleged fraud scheme committed by Carla Cosgrove, an employee at Fun & Games. During the meeting, you learned the following facts:

Overview of the Allegation:

1. Two weeks ago, Harold Lewis, CFO of the Company, received a phone call from the Companys bank explaining a check drawn on its operating account had been flagged as potentially fraudulent and an employee of the Company had presented the check for deposit.

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 and uncovered the following facts:

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

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

3. Carla had requested that the check for Buddy the Elf Toy Store should be returned to her 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 Store confirmed that all other invoices paid to Buddy the Elf Toy Store were legitimate and the funds had been received.

5. The investigation involved discussions with Buddy the Elf Toy Store and the Companys Accounts Payable department. During the internal discussions it was discovered that Carla often didnt follow procedures.

6. After finding out that Carla didnt adhere to procedures, the Company sent her home to complete their investigation without her present.

7. The Company suspect that Carla Cosgrove was acting fraudulently and terminated her from the Company. At the time of her termination her annual salary was $50,000.

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

9. Carlas regular duties included overseeing the budget process for each of the cost centers within the department and working with the Companys Chief Budget Director to integrate the Games department budget within the overall budget for the Company, attending quarterly budget meetings and attending the yearly budget presentations to Company management for approval.

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

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

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

a. Carla was an avid traveler and had taken numerous trips in the past few years to the 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 2018 called Flower Patch Incorporated. Preliminary internet searches listed the address of the business at 732 Independence Way, Kensington, MD.

Engagement:

After the preliminary meetings are concluded, you meet again with Howard and he tells you the Company is concerned that Carla had submitted other fictitious invoices. Therefore, you are being asked to perform a forensic investigation and prepare a report that present your findings to the CFO

Required:

1- Use the information provided in the case above and the Excel file Fun and Game AP Data to perform forensic investigation. Find the excel file in Schoology.

2- Conduct an interview with the Account Payable Manager , Ms. Suzan Harry, to obtain an understanding and to get more information or evidence related to the case (5 marks)

interview went like this;

was conducted interview with Account Payable Manager, Ms. Suzan Harry, to obtain an understanding and to get more information or evidence related to the case and I Face here with these questions

(1) I would like to know what is the documentary cycle of the purchase and payment process?

That is a good question, for the payable process I am attaching the documents that explain the process at the account payable. Please check the file AP Process at Fun and Game Corp

For purchasing process, as Accounting manager I do not know that details about it, but what I know is that each department manager submit the request for purchases and approve it according to their budget

(2) What is the role of the inventory department in the Purchasing process?

Again I do not know that much about what the purchasing department do, and the inventory section, but as far as I know everything OK there and process are running smoothly.

(3) How are commodity suppliers selected?

Since the department are the one who entered the purchases request , usually they will provide the recommended suppliers by the department. This is what the manger do in each departments at Fun and Game Corporation.

(4) What is the regular relationship between the games division official and the store and purchasing officials?

If you mean the relation ship between Carla and the employees at purchasing department, I would tell you that Carla is a very nice lady , every one likes her. Actually, the environment at our company is very convenient, we all help each other, and we all cooperate together while performing our tasks. .

(5) Are periodic matches to the supplier's account statements performed? When was the last time that supplier Buddy the Elf Toy Store was Reconciliation? Are there debit accounts Vendors? (If yes please provide us with a List Of it)

Up to today, all invoices received from suppliers are settled. No supplier called us and claim that they did not receive the payments.

Last time we did reconciliation for Buddy the Elf account statements after we knew from the bank about the check issued to the name of Buddy the Elf. That check which Carla took and presented it at the bank to be deposited on her account.

In Fact after we communicate Buddy the Elf, they confirmed that they received all the payments required from Fund and Game Corp.

One question you should ask at the end, Is : Ms. Suzan is there anything else you would like to share with us related to Carla case? Or anything else we should know?

Then, Ms. Suzan Answer: Would be :

I have something that I feel it is wired and it might help you during the investigation:

a. Carla requested all checks for the Games department be returned to her for

mailing. Please find attached Email Evidence. She also request that verbally

b. Carla many times bring invoices to AP past the deadline for the weekly

processing, explaining there was an urgency for processing and she apologize for

missing the deadline. The late invoices are often for the vendor FPI the flower shop.

3- Write a forensic report that answer the following questions: (A templet of the report is provided in Schoology ) (30 marks)

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

b. If you identified any potentially fraudulent vendor(s), which vendor(s) are they?

c. Calculate the amount identified as potentially fraudulent in the Games Department AP Data provided?

d. What are the types of fraud that have been committed in this case

e. Describe the perceived opportunities that existed (Fraud Triangle) and how the fraud could have been perpetrated and covered up.

f. What controls could be implemented to help prevent other potential fraudulent activity from occurring in the future?

4- Present your report to the CFO (10 marks)

5- Format of the report: Font Aril size12, 1.5 spacing. Use headings and subheadings as needed. Make your report well organized (5marks)