James Johnson is the broker and owner of Johnson Real Estate, a real estate sales organization in Morgantown, West Virginia. Normally, Johnson hires a local accounting firm on an annual basis to audit the organizations financial records. With the business in a state of rapid growth, Johnson has been preoccupied and has forgone the audit for the last three years. Instead, his wife, Ashley Johnson, has exercised her somewhat rusty college accounting skills to pull the data needed for tax professionals to prepare the tax returns. In prior year, Ms. Johnson observed no issues with the records.

During the current years annual reconciliation of accounts, Ashley discovered discrepancies between the commission receipts from real estate closing records and the actual bank deposits. Ashley also noted that despite assurances from her husband that business has been good, the checking account balance has continued to decline and the companys bank account fell into the red (a negative number) in December, and the company bounced a few checks during the month. Ashley also noted some unusual expenditures (seemingly non-business related expenses) in the company accounts that she was not aware of; such expenditures were not observed in prior years.

Ashley Johnson promptly but quietly filed a report with the local prosecutor, a long-time family friend and requested a thorough investigation. As a result, the prosecutors office has contracted a regional accounting firm to perform the financial examination.

The assignment includes working with prosecutors, special agents, law enforcement, and the complainant (Ashley Johnson). The accounting firms managing partner has stressed the following points:

• The prosecutors office has assigned special agents (SA) from the Task Force on White Collar Crime to conduct an investigation. Ashley Johnson will pay all fees for this investigation. If criminal charges are found to be supported, the prosecutors office will take the case forward.
• It is extremely difficult to schedule time with the Johnsons:
  • James Johnson is politically well connected in the community and difficult to contact due to the nature of his business. Also, given his wifes concerns, he will not be contacted directly.
  • Ashley Johnson is a practicing surgeon at a local hospital.
  • The couple has four children.
• Johnson Real Estate is a small business and does not employ staff accountants.
• Last month a fire at the real estate office destroyed the financial records, both paper and electronic.

In addition to compiling questions and information requests for the Johnson meeting, documentation of the teams working processes and discussions is to be prepared and maintained throughout the course of the case as working papers.

Questions that we will go through in tomorrow's class:

Develop a preliminary examination plan to investigate the issues described in the fact scenario:

1. Consider the various issues outlined above and think critically about how you might approach the examination.
2. Brainstorm the case issues identified and start to generate a series of questions that you, as the investigator, must answer to proceed with the investigation and solve the case.
3. Rank order the issues and related questions.
4. Develop a data request that describes the evidentiary material required to proceed with the investigation. The data request lists physical and/or electronic evidence that might be helpful. Recall that as a forensic accountant and fraud examiner that numbers are your bailiwick. As such, evidence (data) could be physical or virtual, and examples might include financial numbers, financial documents, statements, invoices, canceled checks, dates, times, contracts, databases, non-financial metrics, etc. Because of the fire at Johnsons Real Estate, where would you find these records? (Note: The prosecutor has subpoena power to solicit evidence from 3^rd party sources.)
5. What evidence is required to examine the issue or answer the question?
6. Submission to instructor: On 1-page, prioritize your list of issues/questions and associated data request. The submission should be in table format: column 1 issue/question, column 2 data request, column 3 time period, column 4 purpose of data request. Each row of the table should be a separate issue/question.