Jonas Fritz, owner of Careful Construction Inc., had a perplexing problem. Although his company always had enough work to keep the employees busy, company profits were falling. In fact, Careful Construction Inc. will have difficulty meeting its payroll this year. Mr. Fritz compared Careful Construction Inc.'s materials costs with the company's overall revenues for the past 3 years, and he noticed that materials costs were rising at a significantly greater pace than were revenues. Mr. Fritz could not understand why materials costs were rising so rapidly, especially since his other costs were remaining relatively constant. Mr. Fritz showed these results to his friend, Larry "Calculator" Mason, who had conveniently just taken a continuing education course in fraud recognition and prosecution.

Mr. Mason peered out from under his green eyeshade and said, "Well, Jonas, you might have a fraud here! Maybe one of your employees is stealing from you!"

Mr. Fritz interrupted, "But how would employees get their hands on that much cash? I'm not a bank; I don't have much cash in the officeand my three office employees have worked here for years. We're like family!"

Mr. Mason replied, "I'll explainthe employee, if it is an employee, probably is not walking out of here with $20 bills. Let's look at your purchasing invoices and employee records and see what we can find. But first, read this paragraph on employee cash theft. I got this booklet at the last seminar I attended, and this paragraph will help you understand what we will be looking for."

1.Using what you know about how employees steal company cash, respond to the following.

A. Who is likely committing fraud at Careful Construction? (5 points)

B.Name two possible ways that this individual could commit fraud. (6 points)

2.Name three steps Mr. Fritz should take in order to verify his suspicions about who is committing fraud. (9 points)

3.What are at least two controls Mr. Fritz could institute to prevent this type of fraud from happening again?