Identify a list of fraud schemes that may be occurring at Cindys store. Then consider what your next step would be to approach the investigation and why this is your next step. For example, what procedures or analyses would you perform next, and why?
Fraud Examination Case: Crafty Cash Theft? INTRODUCTION C indy Nyglens owns a small craft shop in downtown Sun Prairie. Last week, Cindy received an anonymous typed note in an unstamped envelope, left on her desk. The note read: Cindy: One of your employees is stealing cash and robbing you blind. A concerned friend None of her employees knew where the envelope came from when she questioned them about its appearance. Cindy is obviously concerned, but unsure how to go about investigating the tip herself. She contacted you for assistance. You arrange to observe store operations, under the premise of providing feedback as a consultant for improving and streamlining business operations. Cindy has been trying to grow her business in the past seven months by increasing advertising and promotions (including a new coupon discount program, effective June 2012) and expanding product offerings, so this is a feasible explanation to her employees. You make the following observations: Cindy has five employees-four clerks (Angela, Becky, Susie, Wanda), who assist customers and conduct sales transactions, and a store manager (Lisa), who oversees the clerks, handles minor customer issues, summarizes and records daily sales, and prepares bank deposits. Cindy monitors perpetual inventory records and orders inventory, pays bills, handles payroll, takes deposits to the bank, and reconciles bank statements. The store is open Tuesday through Saturday. Lisa, Angela, Susie, and Wanda each work Tuesday through Saturday. Becky is a high school student who only works Saturday. There are two electronic registers. Each employee must enter a unique code in order to access the registers. Clerks have full authority for entering all types of transactions in the registers. The registers read inventory barcodes, so transactions automatically update Cindy's perpetual inventory records. The registers issue two copies of receipts-one copy for customers and one copy for the store-in addition to recording all register actions on a register tape. Cindy accepts only cash or credit card payments from customers. There is one credit card machine that sits on a counter behind the two cash registers. Cindy uses small business accounting software for all accounting purposes. Lisa has access to the system to record sales data and to prepare bank deposits. Cindy handles all other accounting functions in the system. Cindy and Lisa each have their own locked office in the back of the store. In addition, you obtain from Cindy select monthly income statement data for the past two years (see Table 1). Required Identify a list of fraud schemes that may be occurring at Cindy's store. Then consider what your next step would be to approach the investigation and why this is your next step. For example, what procedures or analyses would you perform next, and why? Month Jan 2011 Feb 2011 Mar 2011 Apr 2011 May 2011 Jun 2011 Jul 2011 Aug 2011 Sep 2011 Oct 2011 Nov 2011 Dec 2011 Total 2011 Jan 2012 Feb 2012 Mar 2012 Apr 2012 May 2012 Jun 2012 Jul 2012 Aug 2012 Sep 2012 Oct 2012 Nov 2012 Dec 2012 Total 2012 Sales-Gross 15,655.64 15,550.61 18,048.12 17,163.03 16,196.78 17,173.27 17,130.03 17,342.65 17,294.96 16,206.33 16,275.63 16,176.27 200,213.32 16,433.40 16,712.39 18,066.56 15,661.91 17,867.93 17,737.33 15,676.54 18,313.71 16,585.78 17,404.83 16,526.38 15,853.20 202,839.96 TABLE 1 Monthly Income Statement Data Refunds Discounts Sales-Net Cost of Sales 41.63 15,614.01 4,780.50 90.52 15,460.09 4,642.44 145.86 17,902.26 5,436.80 81.81 17,081.22 5,159.22 186.67 16,010.11 4,816.29 77.25 17,096.02 5,213.40 104.96 17,025.07 5,151.28 149.51 17,193.14 5,168.69 84.80 17,210.16 5,115.20 92.47 16,113.86 4,886.35 87.53 16,188.10 4,874.49 204.88 15,971.39 4,822.16 1,347.89 198,865.43 60,066.82 143.09 16,290.31 4,877,49 135.65 16,576.74 5,015.28 173.27 17,893.29 5,395.72 137.44 15,524.47 4,690.77 81.56 17,786.37 5,401.22 139.19 711.73 16,886.41 5,370.09 55.94 869.85 14,750.75 4,762.23 96.09 959.61 17,258.01 5,526.36 28.07 980.82 15,576.89 4,989.24 78.14 924.22 16,402.47 5,114.16 61.03 937.93 15,527.42 4,867.49 78.74 964.17 14,810.29 4,782.77 1,208.21 6,348.33 195,283.42 60,792.82 Gross Profit 10,833.51 10,817.65 12,465.46 11,922,00 11,193.82 11,882.62 11,873.79 12,024.45 12,094.96 11,227.51 11,313.61 11,149.23 138,798.61 11,412.82 11,561.46 12,497.57 10,833.70 12,385.15 11,516.32 9,988.52 11,731.65 10,587.65 11,288.31 10,659.93 10,027.52 134,490.60 APPENDIX B Student Handout Cash Sales and Credit Card Sales Table 2 Cash Sales and Credit Card Sales Sales-Net Credit Card Sales 4,600.13 11,013.88 4,638.85 10,821.24 5,235.97 12,666.29 5,122.59 11,958.63 4,799.04 11,211.07 5,205.18 11,890.84 5,102.48 11,922.59 5,097.12 12,096.02 5,218.93 11,991.23 4,803.69 11,310.17 4,812.62 11,375.48 4,745.14 11,226.25 59,381.74 139,483.69 4,928.93 11,361.38 5,061.93 11,514.81 5,366.35 12,526.94 4,652.63 10,871.84 5,352.97 12,433.40 5,008.95 11,877.46 4,543.60 10,207.15 5,426.47 11,831.54 4,748.15 10,828.74 5,093.55 11,308.92 4,746.33 10,781.09 4,636.48 10,173.81 59,566.34 135,717.08 Month Jan-2011 15,614.01 Feb-2011 15,460.09 Mar-2011 17,902.26 Apr-2011 17,081.22 May-2011 16,010.11 Jun-2011 17,096.02 Jul-2011 17,025.07 Aug-2011 17,193.14 Sep-2011 17,210.16 Oct-2011 16,113.86 Nov-2011 16,188.10 Dec-2011 15,971.39 Total 2011 198,865.43 Jan-2012 16,290.31 Feb-2012 16,576.74 Mar-2012 17,893.29 Apr-2012 15,524.47 May-2012 17,786.37 Jun-2012 16,886.41 Jul-2012 14,750.75 Aug-2012 17,258.01 Sep-2012 15,576.89 Oct-2012 16,402.47 Nov-2012 15,527.42 Dec-2012 14,810.29 Total 2012 195,283.42 Cash Sales APPENDIX C Student Handout Net Sales by Employee Table 3 Net Sales by Employee Month Angela Susie Wanda Jan-2011 5,219.01 4,406.32 5,562.26 Feb-2011 5,312.25 4,335.45 5,400.19 Mar-2011 6,109.04 5,064.64 6,351.36 Apr-2011 5,841.83 4,856.70 5,863.04 5,544.49 May-2011 5,591.73 4,530.96 Jun-2011 Jul-2011 5,733.93 4,936.56 6,025.02 5,951.85 4,853.62 5,745.94 Aug-2011 5,841.16 4,928.47 6,024.87 Sep-2011 5,845.47 4,979.06 5,972.82 5,499.54 4,473.73 5,589.84 Oct-2011 Nov-2011 5,542.60 4,673.88 5,538.43 Dec-2011 5,316.83 4,652.61 5,676.96 Total 2011 67,805.24 56,692.00 69,295.22 Jan-2012 5,575.72 4,667.55 5,650.89 Feb-2012 5,737.10 4,677.46 5,742.97 Mar-2012 6,284.56 5,116.32 6,021.92 Apr-2012 5,259.30 4,363.82 5,477.51 May-2012 6,063.18 4,970.49 6,344.71 Jun-2012 5,923.48 4,426.80 5,977.61 Jul-2012 5,309.19 3,817.72 5,302.03 Aug-2012 6,083.85 4,524.16 6,251.63 5,466.11 Sep-2012 5,654.69 3,972.43 Oct-2012 5,896.68 4,264.23 5,794.90 Nov-2012 5,405.67 4,070.80 5,625.90 5,295.35 3,826.60 5,184.74 Dec-2012 Total 2012 68,488.77 52,698.38 68,840.92 Becky 426.42 412.20 377.22 $19.65 342.93 400.51 473.66 398.64 412.81 550.75 433.19 324.99 5,072.97 396.15 419.21 470.49 423.84 407.99 558.52 321.81 398.37 483.66 446.66 425.05 503.60 5,255.35 Lisa APPENDIX D Student Handout Refunds, Discounts, Voids, and "No Sale" Transactions by Employee Table 4 Refunds by Employee Month Angela Susie Wanda Becky Lisa 12.41 1.18 33.95 42.33 22.33 77.51 28,64 41.45 76.20 44.56 32.69 0.71 55.65 51.70 65.88 47.50 6.54 25.90 13.06 14.51 30.98 68.28 63.35 391.94 465.37 29.30 56.41 52.72 33.77 55.02 18.36 73.83 51.77 58.60 22.96 31.81 33.11 31.00 22.51 14.79 21.90 33.59 6.00 1.47 34.52 24.71 48.01 406.84 349.32 Jan-2011 Feb-2011 Mar-2011 Apr-2011 May-2011 Jun-2011 Jul-2011 Ang-2011 Sep-2011 Oct-2011 Nov-2011 Dec-2011 Total 2011 Jan-2012 Feb-2012 Mar-2012 Apr-2012 May-2012 Jun-2012 Jul-2012 Ang-2012 Sep-2012 Oct-2012 Nov-2012 Dec-2012 Total 2012 14.24 46.02 53.17 69.02 35.42 31.93 30.76 53.51 11.45 73.25 418.77 57.38 49.16 68.35 11.84 74.27 2.43 59.40 28.07 38.55 25.04 6.02 420.51 28.04 13.18 30.59 71.81 31.54 31.54 efnd Amount 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 1102udy Jan-2011 May-2011 Feb-2011 Mar-2011 Month Jun-2012 Jul-2012 Ang-2012 Sep-2012 Oct-2012 Nov-2012 Dec-2012 Total 2012 Jun-2011 Jul-2011 Angela Figure 2 Refunds by Employee Aug-2011 209.92 125.34 112.42 108.51 147.66 127.40 147.98 979.23 Sep-2011 Dec-2011 Oct-2011 Nov-2011 Jan-2012 405.62 599.41 663.61 683.81 652.37 684.21 673.54 4,362.57 Feb-2012 Mar-2012 Table 5 Discounts by Employee Susic Wanda 87.28 145.10 183.58 188.50 124.19 126.32 142.65 997.62 Angela Apr-2012 Bdry May-2012 Wanda Jun-2012 Becky Aug-2012 8.91 8.91 Jul-2012 Sep-2012 Lisa Susie Oct-2012 Dec-2012 Nov-2012 Month Jan-2011 Feb-2011 Mar-2011 Apr-2011 May-2011 Jun-2011 Jul-2011 Aug-2011 Sep-2011 Oct-2011 Nov-2011 Dec-2011 Total 2011 Jan-2012 Feb-2012 Mar-2012 Apr-2012 May-2012 Jun-2012 Jul-2012 Aug-2012 Sep-2012 Oct-2012 Nov-2012 Dec-2012 Total 2012 Angela 66.32 57.67 57.91 117.21 39.69 56.76 395.56 43.13 37.19 14.91 31.83 43.31 170.37 Table 6 Voids by Employee Susie Wanda 10.58 41.96 14.03 45.55 36.21 55.13 43.19 246.65 111.14 59.77 67.16 238.07 51.73 84.55 65.50 39.61 6.51 247.90 56.76 54.30 57.11 101.79 54.12 324.08 Becky 40.70 40.70 Lisa 228.37 928.93 1,121.68 1,012.16 1,083.52 1,054.01 962.40 1,102.35 1,024.58 1,079.63 992.89 942.86 11,533.38 Table 7 "No Sale" Transactions by Employee Month Angela Susie Wanda Becky Jan-2011 Feb-2011 Mar-2011 Apr-2011 1 May-2011 Jun-2011 Jul-2011 Aug-2011 Sep-2011 Oct-2011 Nov-2011 Dec-2011 Total 2011 Jan-2012 Feb-2012 Mar-2012 Apr-2012 May-2012 Jun-2012 Jul-2012 Aug-2012 Sep-2012 Oct-2012 Nov-2012 Dec-2012 Total 2012 3 6 17 24 24 22 20 21 24 162 M 2 Lisa Fraud Examination Case: Crafty Cash Theft? INTRODUCTION C indy Nyglens owns a small craft shop in downtown Sun Prairie. Last week, Cindy received an anonymous typed note in an unstamped envelope, left on her desk. The note read: Cindy: One of your employees is stealing cash and robbing you blind. A concerned friend None of her employees knew where the envelope came from when she questioned them about its appearance. Cindy is obviously concerned, but unsure how to go about investigating the tip herself. She contacted you for assistance. You arrange to observe store operations, under the premise of providing feedback as a consultant for improving and streamlining business operations. Cindy has been trying to grow her business in the past seven months by increasing advertising and promotions (including a new coupon discount program, effective June 2012) and expanding product offerings, so this is a feasible explanation to her employees. You make the following observations: Cindy has five employees-four clerks (Angela, Becky, Susie, Wanda), who assist customers and conduct sales transactions, and a store manager (Lisa), who oversees the clerks, handles minor customer issues, summarizes and records daily sales, and prepares bank deposits. Cindy monitors perpetual inventory records and orders inventory, pays bills, handles payroll, takes deposits to the bank, and reconciles bank statements. The store is open Tuesday through Saturday. Lisa, Angela, Susie, and Wanda each work Tuesday through Saturday. Becky is a high school student who only works Saturday. There are two electronic registers. Each employee must enter a unique code in order to access the registers. Clerks have full authority for entering all types of transactions in the registers. The registers read inventory barcodes, so transactions automatically update Cindy's perpetual inventory records. The registers issue two copies of receipts-one copy for customers and one copy for the store-in addition to recording all register actions on a register tape. Cindy accepts only cash or credit card payments from customers. There is one credit card machine that sits on a counter behind the two cash registers. Cindy uses small business accounting software for all accounting purposes. Lisa has access to the system to record sales data and to prepare bank deposits. Cindy handles all other accounting functions in the system. Cindy and Lisa each have their own locked office in the back of the store. In addition, you obtain from Cindy select monthly income statement data for the past two years (see Table 1). Required Identify a list of fraud schemes that may be occurring at Cindy's store. Then consider what your next step would be to approach the investigation and why this is your next step. For example, what procedures or analyses would you perform next, and why? Month Jan 2011 Feb 2011 Mar 2011 Apr 2011 May 2011 Jun 2011 Jul 2011 Aug 2011 Sep 2011 Oct 2011 Nov 2011 Dec 2011 Total 2011 Jan 2012 Feb 2012 Mar 2012 Apr 2012 May 2012 Jun 2012 Jul 2012 Aug 2012 Sep 2012 Oct 2012 Nov 2012 Dec 2012 Total 2012 Sales-Gross 15,655.64 15,550.61 18,048.12 17,163.03 16,196.78 17,173.27 17,130.03 17,342.65 17,294.96 16,206.33 16,275.63 16,176.27 200,213.32 16,433.40 16,712.39 18,066.56 15,661.91 17,867.93 17,737.33 15,676.54 18,313.71 16,585.78 17,404.83 16,526.38 15,853.20 202,839.96 TABLE 1 Monthly Income Statement Data Refunds Discounts Sales-Net Cost of Sales 41.63 15,614.01 4,780.50 90.52 15,460.09 4,642.44 145.86 17,902.26 5,436.80 81.81 17,081.22 5,159.22 186.67 16,010.11 4,816.29 77.25 17,096.02 5,213.40 104.96 17,025.07 5,151.28 149.51 17,193.14 5,168.69 84.80 17,210.16 5,115.20 92.47 16,113.86 4,886.35 87.53 16,188.10 4,874.49 204.88 15,971.39 4,822.16 1,347.89 198,865.43 60,066.82 143.09 16,290.31 4,877,49 135.65 16,576.74 5,015.28 173.27 17,893.29 5,395.72 137.44 15,524.47 4,690.77 81.56 17,786.37 5,401.22 139.19 711.73 16,886.41 5,370.09 55.94 869.85 14,750.75 4,762.23 96.09 959.61 17,258.01 5,526.36 28.07 980.82 15,576.89 4,989.24 78.14 924.22 16,402.47 5,114.16 61.03 937.93 15,527.42 4,867.49 78.74 964.17 14,810.29 4,782.77 1,208.21 6,348.33 195,283.42 60,792.82 Gross Profit 10,833.51 10,817.65 12,465.46 11,922,00 11,193.82 11,882.62 11,873.79 12,024.45 12,094.96 11,227.51 11,313.61 11,149.23 138,798.61 11,412.82 11,561.46 12,497.57 10,833.70 12,385.15 11,516.32 9,988.52 11,731.65 10,587.65 11,288.31 10,659.93 10,027.52 134,490.60 APPENDIX B Student Handout Cash Sales and Credit Card Sales Table 2 Cash Sales and Credit Card Sales Sales-Net Credit Card Sales 4,600.13 11,013.88 4,638.85 10,821.24 5,235.97 12,666.29 5,122.59 11,958.63 4,799.04 11,211.07 5,205.18 11,890.84 5,102.48 11,922.59 5,097.12 12,096.02 5,218.93 11,991.23 4,803.69 11,310.17 4,812.62 11,375.48 4,745.14 11,226.25 59,381.74 139,483.69 4,928.93 11,361.38 5,061.93 11,514.81 5,366.35 12,526.94 4,652.63 10,871.84 5,352.97 12,433.40 5,008.95 11,877.46 4,543.60 10,207.15 5,426.47 11,831.54 4,748.15 10,828.74 5,093.55 11,308.92 4,746.33 10,781.09 4,636.48 10,173.81 59,566.34 135,717.08 Month Jan-2011 15,614.01 Feb-2011 15,460.09 Mar-2011 17,902.26 Apr-2011 17,081.22 May-2011 16,010.11 Jun-2011 17,096.02 Jul-2011 17,025.07 Aug-2011 17,193.14 Sep-2011 17,210.16 Oct-2011 16,113.86 Nov-2011 16,188.10 Dec-2011 15,971.39 Total 2011 198,865.43 Jan-2012 16,290.31 Feb-2012 16,576.74 Mar-2012 17,893.29 Apr-2012 15,524.47 May-2012 17,786.37 Jun-2012 16,886.41 Jul-2012 14,750.75 Aug-2012 17,258.01 Sep-2012 15,576.89 Oct-2012 16,402.47 Nov-2012 15,527.42 Dec-2012 14,810.29 Total 2012 195,283.42 Cash Sales APPENDIX C Student Handout Net Sales by Employee Table 3 Net Sales by Employee Month Angela Susie Wanda Jan-2011 5,219.01 4,406.32 5,562.26 Feb-2011 5,312.25 4,335.45 5,400.19 Mar-2011 6,109.04 5,064.64 6,351.36 Apr-2011 5,841.83 4,856.70 5,863.04 5,544.49 May-2011 5,591.73 4,530.96 Jun-2011 Jul-2011 5,733.93 4,936.56 6,025.02 5,951.85 4,853.62 5,745.94 Aug-2011 5,841.16 4,928.47 6,024.87 Sep-2011 5,845.47 4,979.06 5,972.82 5,499.54 4,473.73 5,589.84 Oct-2011 Nov-2011 5,542.60 4,673.88 5,538.43 Dec-2011 5,316.83 4,652.61 5,676.96 Total 2011 67,805.24 56,692.00 69,295.22 Jan-2012 5,575.72 4,667.55 5,650.89 Feb-2012 5,737.10 4,677.46 5,742.97 Mar-2012 6,284.56 5,116.32 6,021.92 Apr-2012 5,259.30 4,363.82 5,477.51 May-2012 6,063.18 4,970.49 6,344.71 Jun-2012 5,923.48 4,426.80 5,977.61 Jul-2012 5,309.19 3,817.72 5,302.03 Aug-2012 6,083.85 4,524.16 6,251.63 5,466.11 Sep-2012 5,654.69 3,972.43 Oct-2012 5,896.68 4,264.23 5,794.90 Nov-2012 5,405.67 4,070.80 5,625.90 5,295.35 3,826.60 5,184.74 Dec-2012 Total 2012 68,488.77 52,698.38 68,840.92 Becky 426.42 412.20 377.22 $19.65 342.93 400.51 473.66 398.64 412.81 550.75 433.19 324.99 5,072.97 396.15 419.21 470.49 423.84 407.99 558.52 321.81 398.37 483.66 446.66 425.05 503.60 5,255.35 Lisa APPENDIX D Student Handout Refunds, Discounts, Voids, and "No Sale" Transactions by Employee Table 4 Refunds by Employee Month Angela Susie Wanda Becky Lisa 12.41 1.18 33.95 42.33 22.33 77.51 28,64 41.45 76.20 44.56 32.69 0.71 55.65 51.70 65.88 47.50 6.54 25.90 13.06 14.51 30.98 68.28 63.35 391.94 465.37 29.30 56.41 52.72 33.77 55.02 18.36 73.83 51.77 58.60 22.96 31.81 33.11 31.00 22.51 14.79 21.90 33.59 6.00 1.47 34.52 24.71 48.01 406.84 349.32 Jan-2011 Feb-2011 Mar-2011 Apr-2011 May-2011 Jun-2011 Jul-2011 Ang-2011 Sep-2011 Oct-2011 Nov-2011 Dec-2011 Total 2011 Jan-2012 Feb-2012 Mar-2012 Apr-2012 May-2012 Jun-2012 Jul-2012 Ang-2012 Sep-2012 Oct-2012 Nov-2012 Dec-2012 Total 2012 14.24 46.02 53.17 69.02 35.42 31.93 30.76 53.51 11.45 73.25 418.77 57.38 49.16 68.35 11.84 74.27 2.43 59.40 28.07 38.55 25.04 6.02 420.51 28.04 13.18 30.59 71.81 31.54 31.54 efnd Amount 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 1102udy Jan-2011 May-2011 Feb-2011 Mar-2011 Month Jun-2012 Jul-2012 Ang-2012 Sep-2012 Oct-2012 Nov-2012 Dec-2012 Total 2012 Jun-2011 Jul-2011 Angela Figure 2 Refunds by Employee Aug-2011 209.92 125.34 112.42 108.51 147.66 127.40 147.98 979.23 Sep-2011 Dec-2011 Oct-2011 Nov-2011 Jan-2012 405.62 599.41 663.61 683.81 652.37 684.21 673.54 4,362.57 Feb-2012 Mar-2012 Table 5 Discounts by Employee Susic Wanda 87.28 145.10 183.58 188.50 124.19 126.32 142.65 997.62 Angela Apr-2012 Bdry May-2012 Wanda Jun-2012 Becky Aug-2012 8.91 8.91 Jul-2012 Sep-2012 Lisa Susie Oct-2012 Dec-2012 Nov-2012 Month Jan-2011 Feb-2011 Mar-2011 Apr-2011 May-2011 Jun-2011 Jul-2011 Aug-2011 Sep-2011 Oct-2011 Nov-2011 Dec-2011 Total 2011 Jan-2012 Feb-2012 Mar-2012 Apr-2012 May-2012 Jun-2012 Jul-2012 Aug-2012 Sep-2012 Oct-2012 Nov-2012 Dec-2012 Total 2012 Angela 66.32 57.67 57.91 117.21 39.69 56.76 395.56 43.13 37.19 14.91 31.83 43.31 170.37 Table 6 Voids by Employee Susie Wanda 10.58 41.96 14.03 45.55 36.21 55.13 43.19 246.65 111.14 59.77 67.16 238.07 51.73 84.55 65.50 39.61 6.51 247.90 56.76 54.30 57.11 101.79 54.12 324.08 Becky 40.70 40.70 Lisa 228.37 928.93 1,121.68 1,012.16 1,083.52 1,054.01 962.40 1,102.35 1,024.58 1,079.63 992.89 942.86 11,533.38 Table 7 "No Sale" Transactions by Employee Month Angela Susie Wanda Becky Jan-2011 Feb-2011 Mar-2011 Apr-2011 1 May-2011 Jun-2011 Jul-2011 Aug-2011 Sep-2011 Oct-2011 Nov-2011 Dec-2011 Total 2011 Jan-2012 Feb-2012 Mar-2012 Apr-2012 May-2012 Jun-2012 Jul-2012 Aug-2012 Sep-2012 Oct-2012 Nov-2012 Dec-2012 Total 2012 3 6 17 24 24 22 20 21 24 162 M 2 Lisa
